10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM              TO             

Commission file number 1-16671

AMERISOURCEBERGEN CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	23-3079390
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1300 Morris Drive, Chesterbrook, PA	19087-5594
(Address of principal executive offices)	(Zip Code)

(610) 727-7000

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

The number of shares of common stock of AmerisourceBergen Corporation outstanding as of April 30, 2005 was 104,208,351.

AMERISOURCEBERGEN CORPORATION

INDEX

			Page No.
Part I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited).
		Consolidated Balance Sheets, March 31, 2005 and September 30, 2004	3
		Consolidated Statements of Operations for the three and six months ended March 31, 2005 and 2004	5
		Consolidated Statements of Cash Flows for the six months ended March 31, 2005 and 2004	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	25
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	40
	Item 4.	Controls and Procedures.	40
Part II.	OTHER INFORMATION
	Item 1.	Legal Proceedings.	41
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	41
	Item 4.	Submission of Matters to a Vote of Security Holders.	42
	Item 6.	Exhibits.	42
SIGNATURES			43

2

PART I. FINANCIAL INFORMATION

ITEM 1.    Financial Statements (Unaudited).

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)	March 31, 2005		September 30, 2004
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,153,432	$	871,343
Accounts receivable, less allowances for returns and doubtful accounts: $417,657 at March 31, 2005 and $464,354 at September 30, 2004		2,450,124		2,260,973
Merchandise inventories		4,623,581		5,135,830
Prepaid expenses and other		18,764		27,243
Total current assets		8,245,901		8,295,389
Property and equipment, at cost:
Land		42,959		42,959
Buildings and improvements		255,069		233,397
Machinery, equipment and other		466,027		433,555
Total property and equipment		764,055		709,911
Less accumulated depreciation		270,040		244,647
Property and equipment, net		494,015		465,264
Other assets:
Goodwill		2,449,006		2,448,275
Intangibles, deferred charges and other		443,890		445,075
Total other assets		2,892,896		2,893,350
TOTAL ASSETS	$	11,632,812	$	11,654,003

See notes to consolidated financial statements.

3

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - (Continued)

(in thousands, except share and per share data)	March 31, 2005			September 30, 2004
	(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,655,556		$	4,947,037
Accrued expenses and other		338,946			419,381
Current portion of long-term debt		101,433			281,360
Accrued income taxes		87,735			94,349
Deferred income taxes		369,057			361,781
Total current liabilities		6,552,727			6,103,908
Long-term debt, net of current portion		856,371			1,157,111
Other liabilities		61,721			53,939
Stockholders’ equity:
Common stock, $.01 par value - authorized: 300,000,000 shares; issued and outstanding: 113,511,040 shares and 104,181,834 shares at March 31, 2005, respectively, and 112,454,005 shares and 109,692,505 shares at September 30, 2004, respectively		1,135			1,125
Additional paid-in capital		3,200,483			3,146,207
Retained earnings		1,495,031			1,350,046
Accumulated other comprehensive loss		(13,577	)		(13,577	)
Treasury stock, at cost: 9,329,206 shares at March 31, 2005 and 2,761,500 shares at September 30, 2004		(521,079	)		(144,756	)
Total stockholders’ equity		4,161,993			4,339,045
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	11,632,812		$	11,654,003

See notes to consolidated financial statements.

4

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share data)	Three months ended March 31,						Six months ended March 31,
	2005			2004			2005			2004
Operating revenue	$	12,243,148		$	12,332,842		$	24,447,463		$	24,585,579
Bulk deliveries to customer warehouses		948,428			1,018,919			2,383,155			2,108,353
Total revenue		13,191,576			13,351,761			26,830,618			26,693,932
Cost of goods sold		12,689,461			12,771,318			25,873,012			25,588,439
Gross profit		502,115			580,443			957,606			1,105,493
Operating expenses:
Distribution, selling and administrative		297,835			300,463			595,386			595,846
Depreciation		17,636			15,693			35,686			29,743
Amortization		3,125			2,823			6,229			5,489
Facility consolidations and employee severance		1,837			2,216			6,970			3,769
Impairment charge		5,259			—			5,259			—
Operating income		176,423			259,248			308,076			470,646
Other income		(383	)		(3,663	)		(1,441	)		(1,076	)
Interest expense		14,513			30,871			36,589			62,378
Loss on early retirement of debt		—			—			1,015			—
Income from continuing operations before taxes and cumulative effect of change in accounting		162,293			232,040			271,913			409,344
Income taxes		62,321			89,334			104,415			157,597
Income from continuing operations before cumulative effect of change in accounting		99,972			142,706			167,498			251,747
Discontinued operations (Note 2):
Loss from discontinued operations, net of tax		550			554			6,958			1,121
Cumulative effect of change in accounting, net of tax of $6,341 (Note 1)		—			—			10,172			—
Net income	$	99,422		$	142,152		$	150,368		$	250,626
Earnings per share:
Basic earnings per share:
Continuing operations		0.91			1.28			1.56			2.25
Discontinued operations		—			(0.01	)		(0.06	)		(0.01	)
Cumulative effect of change in accounting		—			—			(0.10	)		—
Net income	$	0.91		$	1.27		$	1.40		$	2.24
Diluted earnings per share:
Continuing operations		0.91			1.23			1.53			2.18
Discontinued operations		(0.01	)		—			(0.06	)		(0.01	)
Cumulative effect of change in accounting		—			—			(0.09	)		—
Net income	$	0.90		$	1.23		$	1.38		$	2.17
Weighted average common shares outstanding:
Basic		109,645			111,847			107,584			111,738
Diluted		110,234			117,946			110,932			117,948
Cash dividends declared per share of common stock	$	0.025		$	0.025		$	0.050		$	0.050

See notes to consolidated financial statements.

5

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)
	Six months ended March 31,
	2005			2004
OPERATING ACTIVITIES
Net income	$	150,368		$	250,626
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, including amounts charged to cost of goods sold		38,165			31,614
Amortization, including amounts charged to interest expense		8,628			9,358
Provision (benefit) on accounts receivable		1,955			(10,756	)
Other loss (income)		3,818			(1,076	)
Provision for deferred income taxes		16,663			41,565
Employee stock compensation		452			1,236
Loss on disposal of property and equipment		495			855
Loss on early retirement of debt		1,015			—
Loss on sale of discontinued operations		10,549			—
Cumulative effect of change in accounting, net of tax		10,172			—
Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions:
Accounts receivable		(183,994	)		(536,075	)
Merchandise inventories		461,962			128,902
Prepaid expenses and other assets		9,462			(4,403	)
Accounts payable, accrued expenses and income taxes		664,777			101,362
Other		(1,481	)		8,810
NET CASH PROVIDED BY OPERATING ACTIVITIES		1,193,006			22,018
INVESTING ACTIVITIES
Capital expenditures		(123,246	)		(85,335	)
Cost of acquired companies, net of cash acquired, and other		(588	)		(45,710	)
Proceeds from sale-leaseback transactions		20,732			—
Proceeds from sale of discontinued operations		3,560			—
NET CASH USED IN INVESTING ACTIVITIES		(99,542	)		(131,045	)
FINANCING ACTIVITIES
Long-term debt repayments		(180,000	)		(30,000	)
Purchases of common stock		(675,348	)		—
Exercise of stock options		53,503			8,542
Cash dividends on common stock		(5,381	)		(5,607	)
Deferred financing costs and other		(3,515	)		139
Common stock purchases for employee stock purchase plan		(634	)		(319	)
NET CASH USED IN FINANCING ACTIVITIES		(811,375	)		(27,245	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		282,089			(136,272	)
Cash and cash equivalents at beginning of period		871,343			800,036
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,153,432		$	663,764

See notes to consolidated financial statements.

6

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements present the consolidated financial position, results of operations and cash flows of AmerisourceBergen Corporation and its wholly-owned subsidiaries (the “Company”) as of the dates and for the periods indicated. All material intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring accruals except as otherwise disclosed herein) considered necessary to present fairly the financial position as of March 31, 2005 and the results of operations and cash flows for the interim periods ended March 31, 2005 and 2004 have been included. Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles, but which are not required for interim reporting purposes, have been omitted. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2004. Interim results may not be indicative of full year results.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual amounts could differ from these estimated amounts.

Certain reclassifications have been made to prior-year amounts in order to conform to the current-year presentation.

Change in Accounting Method

Effective October 1, 2004, the Company changed its method of recognizing cash discounts and other related manufacturer incentives. The Company previously recognized cash discounts as a reduction of cost of goods sold when earned, which was primarily upon payment of vendor invoices. The Company now records cash discounts as a component of inventory cost and recognizes such discounts as a reduction to cost of goods sold upon the sale of the inventory. In connection with the Company’s transition to a fee-for-service model, the Company believes the change in accounting method provides a more objectively determinable method of recognizing cash discounts and a better matching of inventory cost to revenue, as inventory turnover rates are expected to continue to improve.

The Company recorded a $10.2 million cumulative effect of change in accounting (net of tax of $6.3 million) in the consolidated statement of operations for the six months ended March 31, 2005. This $10.2 million cumulative effect adjustment reduced diluted earnings per share by $0.09 for the six months ended March 31, 2005. The Company also adjusted its previously reported consolidated statement of operations for the three months ended December 31, 2004 for this accounting change. The change decreased earnings from continuing operations for the December quarter by approximately $3.3 million, net of tax, or $0.03 per diluted share from continuing operations. The accounting change is incorporated in the Company’s results of operations for the three months ended March 31, 2005. The change improved earnings from continuing operations in the March quarter by approximately $12.2 million, net of tax, or $0.11 per diluted share from continuing operations.

7

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

The pro forma effect of this accounting change on prior periods is as follows:

(in thousands, except per share data)	Three Months Ended March 31, 2004		Six Months Ended March 31, 2004
Income from continuing operations before cumulative effect of change in accounting:
As Reported	$	142,706	$	251,747
Pro Forma	$	142,381	$	247,270
Net income:
As Reported	$	142,152	$	250,626
Pro Forma	$	141,827	$	246,149
Basic earnings per share from continuing operations:
As Reported	$	1.28	$	2.25
Pro Forma	$	1.27	$	2.21
Diluted earnings per share from continuing operations:
As Reported	$	1.23	$	2.18
Pro Forma	$	1.23	$	2.14

Recently Issued Financial Accounting Standard

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment,” which requires companies to measure compensation cost for all share-based payments (including employee stock options) at fair value for interim or annual periods beginning after June 15, 2005. In April 2005, the United States Securities and Exchange Commission issued a new rule allowing public companies to delay the adoption of SFAS No. 123R starting with annual periods beginning after June 15, 2005. As a result, the Company will adopt SFAS No. 123R beginning on October 1, 2005 and, therefore, will begin to expense the fair value of all outstanding options over their remaining vesting periods to the extent the options are not fully vested as of the adoption date and will expense the fair value of all future options granted subsequent to September 30, 2005 over their vesting periods. The Company believes that the expensing of options may be material to the consolidated financial statements. Currently, the Company cannot determine the impact of SFAS No. 123R as it will depend, among other things, on the number of share-based awards granted in the future.

Stock-Related Compensation

The Company has a number of stock-related compensation plans, including stock option, stock purchase and restricted stock plans, which are described in Note 8 to the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2004. The Company continues to use the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”) and related interpretations for these plans until its adoption of SFAS No. 123R. Under APB No. 25, generally, when the exercise price of the Company’s stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to all stock-related compensation.

8

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

For purposes of pro forma disclosures, the estimated fair value of the options and shares under the employee stock purchase plan are amortized to expense over their assumed vesting periods.

	Three months ended March 31,						Six months ended March 31,
(in thousands, except per share data)	2005			2004			2005			2004
Net income, as reported	$	99,422		$	142,152		$	150,368		$	250,626
Add: Stock-related compensation expense included in reported net income, net of income taxes		165			110			276			443
Deduct: Stock-related compensation expense determined under the fair value method, net of income taxes		(686	)		(6,468	)		(1,060	)		(12,405	)
Pro forma net income	$	98,901		$	135,794		$	149,584		$	238,664
Earnings per share:
Basic, as reported	$	0.91		$	1.27		$	1.40		$	2.24
Basic, pro forma	$	0.90		$	1.21		$	1.39		$	2.14
Diluted, as reported	$	0.90		$	1.23		$	1.38		$	2.17
Diluted, pro forma	$	0.90		$	1.17		$	1.37		$	2.07

The SFAS No. 123 stock-related compensation expense in the above table decreased in the three and six months ended March 31, 2005 compared to the prior-year periods. This decline was primarily due to the Company, effective September 1, 2004, vesting all employee options then outstanding with an exercise price in excess of $54.10 (the closing stock price on August 31, 2004). The accelerated vesting was approved by the Compensation and Succession Planning Committee of the Company’s board of directors for employee retention purposes and in anticipation of the requirements of SFAS No. 123(R). The SFAS No. 123 stock-related compensation expense is typically amortized over the related vesting period; therefore, the options that were vested did not impact the expense during the three and six months ended March 31, 2005.

Note 2.    Discontinued Operations

In December 2004, the Company sold Rita Ann Distributors (“Rita Ann”), its cosmetics distribution business, which was a component of its Pharmaceutical Distribution reportable segment, for $3.6 million, subject to a working capital adjustment. The operations of Rita Ann, including the Company’s loss on sale of the business of $6.5 million, have been reported as discontinued operations for the three and six months ended March 31, 2005 and 2004 in the consolidated statements of operations.

Note 3.    Stockholders’ Equity and Earnings Per Share

In February 2005, the Company’s board of directors authorized the repurchase of the Company’s common stock up to an aggregate amount of 5.7 million shares, subject to market conditions. During the quarter ended March 31, 2005, the Company acquired 0.4 million shares in the open market for a total of $25.9 million. In addition, on March 30, 2005, the Company entered into an Accelerated Share Repurchase (“ASR”) transaction with a financial institution to purchase the remaining 5.3 million shares immediately from the financial institution at a cost of $293.8 million, with the financial institution subsequently purchasing an equivalent number of shares in the open market through April 21, 2005. As of March 31, 2005, the company had acquired all the shares authorized under this program for a total of $319.7 million. The ASR transaction was completed on April 21, 2005, as a result, the Company paid the financial institution a cash settlement of $16.6 million.

In August 2004, the Company’s board of directors authorized the repurchase of the Company’s common stock up to an aggregate amount of $500 million, subject to market conditions. During the six months ended March 31, 2005, the Company acquired 6.5 million shares of its common stock under this program for $355.3 million. As of March 31, 2005, the Company had acquired a total of 9.3 million shares to complete this repurchase program.

9

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Basic earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the periods plus the dilutive effect of stock options. Additionally, the diluted calculations consider the 5% convertible subordinated notes as if converted and, therefore, the after-tax effect of interest expense related to these notes is added back to income from continuing operations in determining income from continuing operations available to common stockholders. On January 3, 2005, the Company completed the redemption of its 5% convertible subordinated notes (see Note 5 for further details). As a result, the amount added back to income from continuing operations for the after-tax effect of interest expense for the quarter ended March 31, 2005 was significantly reduced as the notes were not outstanding for a majority of the period. Substantially all of the common stock issued in connection with the 5% note redemption was repurchased by the Company.

	Three months ended March 31,				Six months ended March 31,
(in thousands)	2005		2004		2005		2004
Income from continuing operations, before cumulative effect of change in accounting	$	99,972	$	142,706	$	167,498	$	251,747
Interest expense - convertible subordinated notes, net of income taxes		28		2,530		2,539		5,060
Income from continuing operations available to common stockholders	$	100,000	$	145,236	$	170,037	$	256,807
Weighted average common shares outstanding - basic		109,645		111,847		107,584		111,738
Effect of dilutive securities:
Options to purchase common stock		477		435		450		546
Convertible subordinated notes		112		5,664		2,898		5,664
Weighted average common shares outstanding - diluted		110,234		117,946		110,932		117,948

Note 4.    Goodwill and Other Intangible Assets

Following is a summary of the changes in the carrying value of goodwill, by reportable segment, for the six months ended March 31, 2005 (in thousands):

	Pharmaceutical Distribution		PharMerica		Total
Goodwill at September 30, 2004	$	2,179,319	$	268,956	$	2,448,275
Adjustment to goodwill due to purchase price adjustments relating to prior period acquisitions of businesses		731		—		731
Goodwill at March 31, 2005	$	2,180,050	$	268,956	$	2,449,006

10

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Following is a summary of other intangible assets (in thousands):

	March 31, 2005							September 30, 2004
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unamortized intangibles:
Tradenames	$	254,952	$	—		$	254,952	$	257,652	$	—		$	257,652
Amortized intangibles:
Customer lists and other		84,639		(28,428	)		56,211		89,852		(26,701	)		63,151
Total other intangible assets	$	339,591	$	(28,428	)	$	311,163	$	347,504	$	(26,701	)	$	320,803

During the quarter ended March 31, 2005, the Company completed an impairment test of certain intangible assets due to the existence of impairment indicators within its Technology Group. As a result of this review, the Company determined that certain intangible assets were impaired as of March 31, 2005 and recorded an impairment charge of $5.3 million in the Company’s results of operations for the quarter and six months ended March 31, 2005.

Amortization expense for other intangible assets was $6.2 million and $5.5 million in the six months ended March 31, 2005 and 2004, respectively. Amortization expense for other intangible assets is estimated to be $12.6 million in fiscal 2005, $12.2 million in fiscal 2006, $9.9 million in fiscal 2007, $5.5 million in fiscal 2008, $3.2 million in fiscal 2009, and $19.0 million thereafter.

Note 5. Debt

Debt consisted of the following (in thousands):

	March 31, 2005		September 30, 2004
Term loan facility at 3.02%	$	—	$	180,000
Revolving credit facility due 2009		—		—
Blanco revolving credit facility at 4.31% and 3.34%, respectively, due 2006		55,000		55,000
AmerisourceBergen securitization financing due 2007		—		—
Bergen 7 1/4% senior notes due 2005		99,985		99,939
8 1/8 % senior notes due 2008		500,000		500,000
7¼% senior notes due 2012		300,000		300,000
AmeriSource 5% convertible subordinated notes due 2007		—		300,000
Other		2,819		3,532
Total debt		957,804		1,438,471
Less current portion		101,433		281,360
Total, net of current portion	$	856,371	$	1,157,111

A description of the principal terms of the aforementioned debt is set forth in Note 5 of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2004.

In December 2004, the Company entered into a new $700 million five-year senior unsecured revolving credit facility (the “Senior Revolving Credit Facility”) with a syndicate of lenders. The Senior Revolving Credit Facility replaced the Senior Credit Agreement, as defined below. There were no borrowings outstanding under the Senior Revolving Credit Facility at March 31, 2005. Interest on borrowings under the Senior Revolving Credit Facility accrues at specific rates based on the Company’s debt rating (1.0% over LIBOR or the prime rate at March 31, 2005). Availability under the Senior Revolving Credit Facility is

11

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

reduced by the amount of outstanding letters of credit ($63.6 million at March 31, 2005). The Company will pay quarterly facility fees to maintain the availability under the Senior Revolving Credit Facility at specific rates based on the Company’s debt rating (0.25% at March 31, 2005). In connection with entering into the Senior Revolving Credit Facility, the Company incurred approximately $2.5 million of costs, which were deferred and are being amortized over the life of the facility. The Company may choose to repay or reduce its commitments under the Senior Revolving Credit Facility at any time. The Senior Revolving Credit Facility contains covenants that impose limitations on, among other things, additional indebtedness, distributions and dividends to stockholders, and investments. Additional covenants require compliance with financial tests, including leverage and minimum earnings to fixed charges ratios.

In August 2001, the Company had entered into a senior secured credit agreement (the “Senior Credit Agreement”) with a syndicate of lenders. The Senior Credit Agreement consisted of a $1.0 billion revolving credit facility (the “Revolving Facility”) and a $300 million term loan facility (the “Term Facility”), both of which had been scheduled to mature in August 2006. The Term Facility had scheduled quarterly maturities, which began in December 2002, totaling $60 million in each of fiscal 2003 and 2004, $80 million in fiscal 2005 and $100 million in fiscal 2006. The Company previously paid the scheduled quarterly maturities of $60 million in fiscal 2004 and 2003. In December 2004, in connection with entering into the new Senior Revolving Credit Facility, as defined above, the Company repaid the remaining $180 million outstanding under the Term Facility and there were no borrowings outstanding under the Revolving Facility. In connection with the early repayment of the Term Facility, the Company incurred a loss of $1.0 million relating to the write-off of deferred financing costs.

In April 2005, the Company entered into a new $55 million Blanco revolving credit facility, which replaced the existing facility at March 31, 2005. Borrowings under the new Blanco revolving credit facility are guaranteed by the Company, whereas borrowings on the existing facility at March 31, 2005 were secured by the Senior Revolving Credit Facility (defined above). The new facility expires in April 2006 and borrowings under the new facility will bear interest at LIBOR plus 90 basis points.

In fiscal 2003, the Company entered into a $1.05 billion receivables securitization facility (“Securitization Facility”). In connection with the Securitization Facility, AmerisourceBergen Drug Corporation (“ABDC”) sells on a revolving basis certain accounts receivable to AmeriSource Receivables Financial Corporation, a wholly-owned special purpose entity, which in turn sells a percentage ownership interest in the receivables to commercial paper conduits sponsored by financial institutions. ABDC is the servicer of the accounts receivable under the Securitization Facility. After the maximum limit of receivables sold has been reached and as sold receivables are collected, additional receivables may be sold up to the maximum amount available under the facility. In December 2004, the Company amended the Securitization Facility and under the terms of the amendment the $550 million (three-year tranche) originally scheduled to expire in July 2006 was increased to $700 million and the expiration date was extended to December 2007. Additionally, the $500 million (364-day tranche) scheduled to expire in July 2005 was reduced to $350 million and the expiration date was extended to December 2005. The Company intends to renew the 364-day tranche on an annual basis. Interest rates are based on prevailing market rates for short-term commercial paper plus a program fee. The program fee is 75 basis points for the three-year tranche and was reduced from 45 basis points to 35 basis points for the 364-day tranche at March 31, 2005. Additionally, the commitment fee on any unused credit has been reduced from 30 basis points to 25 basis points for the three-year tranche and from 25 basis points to 17.5 basis points for the 364-day tranche at March 31, 2005. The program and commitment fee rates will vary based on the Company’s debt ratings. Borrowings and payments under the Securitization Facility are applied on a pro-rata basis to the $700 million and $350 million tranches. At March 31, 2005, there were no borrowings outstanding under the Securitization Facility. In connection with entering into the Securitization Facility and the amendments thereto, the Company incurred approximately $2.8 million of costs, which were deferred and are being amortized over the life of the facility. This facility is a financing vehicle utilized by the Company because it offers an attractive interest rate relative to other financing sources. The Company securitizes its trade accounts, which are generally non-interest bearing, in transactions that are accounted for as borrowings under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

In December 2004, the Company announced that it would redeem its 5% convertible subordinated notes at a redemption price of 102.143% of the principal amount of the notes plus accrued interest through the redemption date of January 3, 2005. The noteholders were given the option to accept cash or convert the notes to common stock of the Company. The notes were convertible into 5,663,730 shares of common stock, which translated to a conversion ratio of 18.8791 shares of common stock for each $1,000 principal amount of notes. As of March 31, 2005, the Company had issued 5,663,144 shares of common stock from treasury to noteholders to redeem substantially all of the notes and paid $31,000 to redeem the remaining notes.

12

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 6.    Facility Consolidations and Employee Severance

In 2001, the Company developed integration plans to consolidate its distribution network and eliminate duplicative administrative functions. The Company’s plan, as revised, is to have a distribution facility network consisting of less than 30 facilities within the next two years. The plan includes building six new facilities (three of which are operational as of March 31, 2005) and closing facilities (20 of which have been closed through March 31, 2005). Construction activities on the remaining three new facilities are ongoing (two of which will be operational by the end of calendar 2005). The Company anticipates closing a total of six facilities in fiscal 2005.

The Company closed four distribution facilities in fiscal 2004 and eliminated certain administrative and operational functions (“the fiscal 2004 initiatives”). The Company closed three facilities during the six months ended March 31, 2005 and announced plans to continue to consolidate and eliminate certain administrative functions (the “fiscal 2005 initiatives”). During the six months ended March 31, 2005, the Company recorded $7.0 million of employee severance and lease cancellation costs primarily relating to the 2005 and 2004 initiatives. As of March 31, 2005, approximately 602 employees had received termination notices as a result of these initiatives, of which 542 have been terminated. Most employees receive their severance benefits over a period of time, generally not to exceed 12 months, while others may receive a lump-sum payment. Additional amounts for integration initiatives will be recognized in subsequent periods as facilities to be consolidated are identified and specific plans are approved and announced.

The following table displays the activity in accrued expenses and other from October 1, 2004 to March 31, 2005 related to the integration plans discussed above (in thousands):

	Employee Severance			Lease Cancellation Costs and Other			Total
Balance as of September 30, 2004	$	2,984		$	68		$	3,052
Expense recorded during the period		6,008			962			6,970
Payments made during the period		(5,705	)		(912	)		(6,617	)
Balance as of March 31, 2005	$	3,287		$	118		$	3,405

Note 7.    Defined Benefit Plans

The Company provides a benefit for the majority of its former AmeriSource employees under three different noncontributory defined benefit pension plans consisting of a salaried plan, a union plan and a supplemental executive retirement plan. The Company also has an unfunded supplemental executive retirement plan for its former Bergen officers and key employees. During fiscal 2002, the salaried plan and the supplemental executive retirement plans were closed to new participants and benefits that can be earned by active participants in the plans were limited.

The Company provides medical benefits to certain retirees, principally former employees of Bergen. During fiscal 2002, the plans were closed to new participants and benefits that can be earned by active participants were limited. As a result of special termination benefit packages previously offered, the Company also provides dental and life insurance benefits to a limited number of retirees and their dependents. These benefit plans are unfunded.

13

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

The following table provides components of net periodic benefit cost for the Company-sponsored defined benefit pension plans together with contributions charged to expense for multi-employer union-administered defined benefit pension plans in which the Company participates (in thousands):

	Three months ended March 31,						Six months ended March 31,
	2005			2004			2005			2004
Service cost	$	804		$	1,084		$	1,606		$	2,168
Interest cost on projected benefit obligation		1,504			1,451			3,014			2,902
Expected return on plan assets		(1,418	)		(1,279	)		(2,836	)		(2,558	)
Amortization of prior service cost		31			36			62			72
Recognized net actuarial loss		376			403			752			806
Settlement loss		4			368			43			368
Net periodic pension cost of defined benefit pension plans		1,301			2,063			2,641			3,758
Net pension cost of multi-employer plans		447			404			993			816
Total pension expense	$	1,748		$	2,467		$	3,634		$	4,574

The following table provides components of net periodic benefit cost for the Company-sponsored postretirement benefit plans (in thousands):

	Three months ended March 31,					Six months ended March 31,
	2005			2004		2005			2004
Interest cost on projected benefit obligation	$	281		$	299	$	562		$	598
Recognized net actuarial (gain) loss		(33	)		41		(66	)		82
Total postretirement benefit expense	$	248		$	340	$	496		$	680

The Company contributed $4.7 million and $2.9 million to its funded plans during the six months ended March 31, 2005 and 2004, respectively.

Note 8.    Legal Matters and Contingencies

In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings and governmental investigations, including antitrust, environmental, product liability, regulatory and other matters. Significant damages or penalties may be sought from the Company in some matters, and some matters may require years for the Company to resolve. The Company establishes reserves from time to time based on its periodic assessment of the potential outcomes of pending matters. There can be no assurance that an adverse resolution of one or more matters during any subsequent reporting period will not have a material adverse effect on the Company’s results of operations for that period. However, on the basis of information furnished by counsel and others and taking into consideration the reserves established for pending matters, the Company does not believe that the resolution of currently pending matters (including those matters specifically described below), individually or in the aggregate, will have a material adverse effect on the Company’s financial condition.

Environmental Remediation

The Company is subject to contingencies pursuant to environmental laws and regulations at a former distribution center. As of March 31, 2005, the Company has an accrued liability of $0.9 million that represents the current estimate of costs to remediate the site. However, changes in regulation or technology or new information concerning the site could affect the actual liability.

14

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Stockholder Derivative Lawsuit

The Company was named as a nominal defendant in a stockholder derivative action on behalf of the Company under Delaware law that was filed in March 2004 in the U.S. District Court for the Eastern District of Pennsylvania. Also named as defendants in the action were all of the individuals who were serving as directors of the Company immediately prior to the date of filing of the action and certain current and former officers of the Company and its predecessors. The derivative action alleged, among other things, breach of fiduciary duty, abuse of control and gross mismanagement against all the individual defendants. It further alleged, among other things, waste of corporate assets, unjust enrichment and usurpation of corporate opportunity against certain of the individual defendants. The derivative action sought compensatory and punitive damages in favor of the Company, attorneys’ fees and costs, and further relief as may be determined by the court. The defendants believe that this derivative action is wholly without merit. In May 2004, the defendants filed a motion to dismiss the action on both procedural and substantive grounds. In February 2005, the District Court granted the defendants’ motion to dismiss the entire action. Following the dismissal of the action, the derivative plaintiff made demand upon the Company to inspect the Company’s books and records. The Company believes that the demand is improper under Delaware law and has refused to allow the inspection. The derivative plaintiff obtained the right from the District Court to file an amended complaint within 30 days after resolution of the inspection demand and, thereafter, filed a complaint in the Delaware Chancery Court seeking to compel inspection of certain of the Company’s books and records. The Company intends to contest the latest action initiated by the derivative plaintiff.

Government Investigation

In June 2000, the Company learned that the U.S. Department of Justice had commenced an investigation focusing on the activities of a customer that illegally resold merchandise purchased from the Company and on the Company’s business relationship with that customer. The Company was contacted initially by the government at that time and cooperated fully. The Company had discontinued doing business with the customer in question in February 2000, after concluding this customer had demonstrated suspicious purchasing behavior. From 2001 through September 2003, the Company had no further contact with the government on this investigation. In September 2003, the Company learned that a former employee of the Company pled guilty to charges arising from his involvement with this customer. In November 2003, the Company was contacted by the U.S. Attorney’s Office in Sacramento, California, for some additional information relating to the investigation. In late December 2004, the government contacted the Company to request that the Company agree to extend the statute of limitations applicable to this matter. In January 2005, the Company indicated to the government its willingness to enter into an agreement for such purpose, but the government has not subsequently pursued its initial request to extend the statute of limitations. The Company believes that it has not engaged in any wrongdoing, but cannot predict the outcome of this investigation at this time.

New York Attorney General Subpoena

In April 2005, the Company received a subpoena from the Office of the Attorney General of the State of New York (the “NYAG”) requesting documents and responses to interrogatories concerning the manner and degree to which the Company purchases pharmaceuticals from other wholesalers, often referred to as the alternate source market, rather than directly from manufacturers. Similar subpoenas have been issued by the NYAG to other pharmaceutical distributors. The Company has not been advised of any allegations of misconduct by the Company. The Company has engaged in discussions with the NYAG to clarify the scope of the subpoena and expects to respond to the subpoena, as clarified, during the fiscal quarter ending June 30, 2005. The Company believes that it has not engaged in any wrongdoing, but cannot predict the outcome of this request.

Pharmaceutical Distribution Matters

In January 2002, Bergen Brunswig Drug Company (a predecessor of AmerisourceBergen Drug Corporation) was served with a complaint filed in the United States District Court for the District of New Jersey by Bracco Diagnostics Inc., one of its suppliers. The complaint, which included claims for fraud, breach of New Jersey’s Consumer Fraud Act, breach of contract and unjust enrichment, involved disputes relating to chargebacks and credits. The District Court subsequently granted the Company’s motion to dismiss the fraud and New Jersey Consumer Fraud Act counts. Discovery in this case was completed and the Company had filed a partial motion for summary judgment. On December 30, 2004, the Company settled this matter with Bracco Diagnostics, Inc. Taking into consideration the reserve the Company had previously established for this matter, the resolution of the case did not adversely affect the Company’s operating results for the six months ended March 31, 2005.

15

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

In April 2003, Petters Company, Inc. (“Petters”) commenced an action against the Company (and certain subsidiaries of the Company, including ABDC), and another company, Stayhealthy, Inc. (“Stayhealthy”), that is now pending in the United States District Court for the District of Minnesota. Petters claimed that the Company’s refusal to accept and pay for body fat monitors that the Company allegedly was obligated to purchase from Stayhealthy caused Stayhealthy to default on the repayment of loans made by Petters to finance Stayhealthy’s business. In January 2004, Petters was granted the right to file an amended complaint, which included claims for breach of contract, fraud, federal racketeering, conspiracy and punitive damages. In March 2004, Stayhealthy filed a crossclaim against the Company asserting claims for breach of contract, fraud, promissory estoppel, unjust enrichment, defamation, conversion, interference with economic advantage and federal trade libel. The crossclaim also named as defendants two former employees of the Company, as well as numerous pharmacies that are customers of the Company. In June 2004, the District Court denied the Company’s appeal of the decision allowing Petters to assert federal racketeering claims. In July 2004, the District Court denied the Company’s motion to transfer the case to the United States District Court for the Central District of California. The Company has answered the amended complaint and the crossclaim. Stayhealthy has dismissed its claims against the former employees and the pharmacies. Discovery in the case has been completed. In March 2005, the District Court granted the Company’s motion for summary judgment on Petters’ federal racketeering claims and on the majority of StayHealthy’s crossclaim. Trial on all remaining claims is currently scheduled to commence in June 2005.

PharMerica Matters

In November 2002, a class action was filed in Hawaii state court on behalf of consumers who allegedly received recycled medications prior to February 2000 from a PharMerica institutional pharmacy in Honolulu, Hawaii. The plaintiffs alleged that it was a deceptive trade practice under Hawaii law to sell recycled medications (i.e., medications that had previously been dispensed and then returned to the pharmacy) without disclosing that the medications were recycled. There were no allegations of physical harm to any patient and the law in Hawaii has subsequently changed to permit the use of recycled medications under certain conditions. In December 2004, PharMerica reached a tentative settlement of this matter. The settlement will not become final until the Hawaii Circuit Court approves the agreed-upon terms. Taking into consideration the reserve the Company had previously established for this matter, PharMerica’s tentative settlement of this matter did not adversely affect the Company’s operating results for the six months ended March 31, 2005.

In June 2004, the Office of Inspector General (“OIG”) of the U.S. Department of Health and Human Services (“HHS”) commenced an administrative action against PharMerica, Inc. (“PharMerica”) and its subsidiary, PharMerica Drug Systems, Inc. (“PDSI”) alleging that PDSI’s December 1997 acquisition of Hollins Manor I, LLC (“HMI”) from HCMF Corporation (“HCMF”) violated the anti-kickback provisions of the Social Security Act, 42 U.S.C. §1320a-7(a)(7). PDSI’s acquisition of HMI in 1997 predated both Bergen Brunswig Corporation’s acquisition of PharMerica in 1999 and the subsequent merger of AmeriSource Health Corporation and Bergen Brunswig Corporation to form the Company in August 2001. HMI was an institutional pharmacy that had been established to serve the nursing homes then operated by HCMF. OIG sought civil monetary penalties of $200,000, statutory damages of $21,600,000 (representing treble the purchase price that PDSI paid for HMI) and PDSI’s exclusion from Medicare, Medicaid and all federal healthcare programs for a period of 10 years. On March 29, 2005, PharMerica and PDSI entered into a settlement agreement (the “Settlement”) with the OIG. Under the Settlement, PharMerica paid $5,975,000 to HHS and PharMerica and PDSI entered into a five-year corporate integrity agreement (“CIA”) with the OIG. The CIA requires PharMerica and PDSI to satisfy a number of compliance and related reporting obligations, including adherence to certain procedural and recordkeeping requirements in connection with any purchase or sale of a pharmacy or other business unit that furnishes pharmaceuticals and related services that are reimbursable under Medicare, Medicaid or other federal healthcare programs. In turn, the OIG provided PharMerica and PDSI with a full release for the conduct covered by the administrative action, including an agreement not to pursue the exclusion of PharMerica or PDSI from participation in Medicare, Medicaid or other federal healthcare programs. Also as part of the Settlement, PharMerica and PDSI expressly denied any wrongdoing.

Note 9.    Antitrust Litigation Settlements

During the quarter ended December 31, 2004, the Company received two cash settlements from suppliers relating to antitrust litigation matters and recognized a gain of $18.8 million, net of attorney fees and payments due to other parties. This

16

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

gain was recorded as a reduction of cost of goods sold in the Company’s consolidated statements of operations for the six months ended March 31, 2005.

Note 10.    Business Segment Information

The Company is organized based upon the products and services it provides to its customers, and substantially all of its operations are located in the United States. The Company’s operations are comprised of two reportable segments: Pharmaceutical Distribution and PharMerica.

The Pharmaceutical Distribution segment includes the operations of ABDC and the AmerisourceBergen Specialty, Packaging and Technology groups. Servicing both pharmaceutical manufacturers and healthcare providers in the pharmaceutical supply channel, the Pharmaceutical Distribution segment’s operations provide drug distribution and related services designed to reduce costs and improve patient outcomes throughout the United States and Puerto Rico. The drug distribution operations of ABDC and AmerisourceBergen Specialty Group (“ABSG”) comprised over 90% of the segment’s operating revenue and operating income in the quarters and six month periods ended March 31, 2005 and 2004.

ABDC’s wholesale drug distribution business is currently organized into five regions across the United States. Unlike its more centralized competitors, ABDC is structured as an organization of locally managed profit centers. ABDC’s facilities utilize the Company’s corporate staff for national and regional account management, marketing, information technology, finance, procurement, human resources, legal, executive management resources, and corporate coordination of asset and working capital management.

ABSG, through a number of individual operating businesses, provides distribution and other services, including group purchasing services, to physicians and alternate care providers who specialize in a variety of disease states, including oncology, nephrology, and rheumatology. ABSG also distributes vaccines, other injectables and plasma and other blood products. In addition, through its manufacturer services and physician and patient services businesses, ABSG provides a number of commercialization and other services for biotech and other pharmaceutical manufacturers, third party logistics, reimbursement consulting, practice management, and physician education.

The AmerisourceBergen Packaging Group consists of American Health Packaging and Anderson Packaging (“Anderson”). American Health Packaging delivers unit dose, punch card, unit-of-use and other packaging solutions to institutional and retail healthcare providers. Anderson is a leading provider of contracted packaging services for pharmaceutical manufacturers.

The AmerisourceBergen Technology Group (“ABTG”) provides scalable automated pharmacy dispensing equipment and medication and supply dispensing cabinets to a variety of retail and institutional healthcare providers. ABTG also provides barcode-enabled point-of-care software designed to reduce medication errors and supply management software for institutional and retail healthcare providers designed to improve efficiency.

The PharMerica segment includes the operations of the PharMerica long-term care business (“Long-Term Care”) and a workers’ compensation-related business (“Workers’ Compensation”).

Long-Term Care is a leading national provider of pharmacy products and services to patients in long-term care and alternate site settings, including skilled nursing facilities, assisted living facilities and residential living communities. Long-Term Care’s institutional pharmacy business involves the purchase of bulk quantities of prescription and nonprescription pharmaceuticals, principally from our Pharmaceutical Distribution segment, and the distribution of those products to residents in long-term care and alternate site facilities. Unlike hospitals, most long-term and alternate care facilities do not have onsite pharmacies to dispense prescription drugs, but depend instead on institutional pharmacies, such as Long-Term Care, to provide the necessary pharmacy products and services and to play an integral role in monitoring patient medication. Long-Term Care pharmacies dispense pharmaceuticals in patient-specific packaging in accordance with physician orders. In addition, Long-Term Care provides infusion therapy services and Medicare Part B products, as well as formulary management and other pharmacy consulting services.

17

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Workers’ Compensation provides mail order and on-line pharmacy services to chronically and catastrophically ill patients under workers’ compensation programs, and provides pharmaceutical claims administration services for payors. Workers’ Compensation services include home delivery of prescription drugs, medical supplies and equipment and an array of computer software solutions to reduce the payor’s administrative costs.

The following tables present segment information for the three and six months ended March 31 (in thousands):

	Revenue
	Three months ended March 31,						Six months ended March 31,
	2005			2004			2005			2004
Pharmaceutical Distribution	$	12,070,185		$	12,151,538		$	24,114,159		$	24,229,120
PharMerica		391,090			392,078			776,711			794,518
Intersegment eliminations		(218,127	)		(210,774	)		(443,407	)		(438,059	)
Operating revenue		12,243,148			12,332,842			24,447,463			24,585,579
Bulk deliveries to customer warehouses		948,428			1,018,919			2,383,155			2,108,353
Total revenue	$	13,191,576		$	13,351,761		$	26,830,618		$	26,693,932

Management evaluates segment performance based on revenues excluding bulk deliveries to customer warehouses. Intersegment eliminations represent the elimination of the Pharmaceutical Distribution segment’s sales to PharMerica. ABDC is the principal supplier of pharmaceuticals to PharMerica.

	Operating Income
	Three months ended March 31,						Six months ended March 31,
	2005			2004			2005			2004
Pharmaceutical Distribution	$	151,548		$	233,283		$	245,987		$	417,741
PharMerica		31,971			28,181			55,493			56,674
Facility consolidations and employee severance		(1,837	)		(2,216	)		(6,970	)		(3,769	)
Impairment charge		(5,259	)		—			(5,259	)		—
Gain on litigation settlements		—			—			18,825			—
Total operating income		176,423			259,248			308,076			470,646
Other income		(383	)		(3,663	)		(1,441	)		(1,076	)
Interest expense		14,513			30,871			36,589			62,378
Loss on early retirement of debt		—			—			1,015			—
Income from continuing operations before taxes and cumulative effect of change in accounting	$	162,293		$	232,040		$	271,913		$	409,344

Management evaluates segment operating income before other income, interest expense, loss on early retirement of debt, facility consolidations and employee severance, impairment charge, and gain on litigation settlements. All corporate office expenses are allocated to the two reportable segments.

18

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 11.    Selected Consolidating Financial Statements of Parent, Guarantors and Non-Guarantors

The Company’s 8 ¹/8% and 7¼% Notes each are fully and unconditionally guaranteed on a joint and several basis by certain of the Company’s subsidiaries (the subsidiaries of the Company that are guarantors of either the 8 ¹/8% Notes and/or the 7¼% Notes being referred to collectively as the “Guarantor Subsidiaries”). The total assets, stockholders’ equity, revenues, earnings and cash flows from operating activities of the Guarantor Subsidiaries of the 8 ¹/8% Notes and the 7¼% Notes, respectively, each exceeded a majority of the consolidated total of such items as of or for the periods reported. The only consolidated subsidiaries of the Company that are not guarantors of either the 8 ¹/8% Notes and/or the 7¼% Notes (the “Non-Guarantor Subsidiaries”) are: (a) the receivables securitization special purpose entity described in Note 5 to the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2004 and (b) certain operating subsidiaries, all of which, collectively, are minor. The following tables present condensed consolidating financial statements for AmerisourceBergen Corporation (the “Parent”), the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries. Such financial statements include balance sheets as of March 31, 2005 and September 30, 2004, statements of operations for the three and six months ended March 31, 2005 and 2004, and statements of cash flows for the six months ended March 31, 2005 and 2004.

CONDENSED CONSOLIDATING BALANCE SHEETS:

	March 31, 2005
(in thousands)	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Current assets:
Cash and cash equivalents	$	1,022,638		$	102,958	$	27,836		$	—		$	1,153,432
Accounts receivable, net		1,523			499,798		1,948,803			—			2,450,124
Merchandise inventories		—			4,588,922		34,659			—			4,623,581
Prepaid expenses and other		130			18,424		210			—			18,764
Total current assets		1,024,291			5,210,102		2,011,508			—			8,245,901
Property and equipment, net		—			493,299		716			—			494,015
Goodwill		—			2,445,869		3,137			—			2,449,006
Intangibles, deferred charges and other		14,817			426,304		2,769			—			443,890
Intercompany investments and advances		3,408,152			2,492,810		(1,722,939	)		(4,178,023	)		—
Total assets	$	4,447,260		$	11,068,384	$	295,191		$	(4,178,023	)	$	11,632,812
Current liabilities:
Accounts payable	$	—		$	5,622,815	$	32,741		$	—		$	5,655,556
Accrued expenses and other		(165,021	)		585,580		6,122			—			426,681
Current portion of long-term debt		—			101,433		—			—			101,433
Deferred income taxes		—			370,333		(1,276	)		—			369,057
Total current liabilities		(165,021	)		6,680,161		37,587			—			6,552,727
Long-term debt, net of current portion		800,000			1,371		55,000			—			856,371
Other liabilities		—			61,721		—			—			61,721
Stockholders’ equity		3,812,281			4,325,131		202,604			(4,178,023	)		4,161,993
Total liabilities and stockholders’ equity	$	4,447,260		$	11,068,384	$	295,191		$	(4,178,023	)	$	11,632,812

19

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

SUMMARY CONSOLIDATING BALANCE SHEETS:

	September 30, 2004
(in thousands)	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Current assets:
Cash and cash equivalents	$	754,745		$	82,174	$	34,424		$	—		$	871,343
Accounts receivable, net		672			347,159		1,913,142			—			2,260,973
Merchandise inventories		—			5,095,322		40,508			—			5,135,830
Prepaid expenses and other		223			26,177		843			—			27,243
Total current assets		755,640			5,550,832		1,988,917			—			8,295,389
Property and equipment, net		—			464,608		656			—			465,264
Goodwill		—			2,445,138		3,137			—			2,448,275
Intangibles, deferred charges and other		19,334			422,933		2,808			—			445,075
Intercompany investments and advance		4,327,150			1,443,187		(1,742,577	)		(4,027,760	)		—
Total assets	$	5,102,124		$	10,326,698	$	252,941		$	(4,027,760	)	$	11,654,003
Current liabilities:
Accounts payable	$	—		$	4,922,021	$	25,016		$	—		$	4,947,037
Accrued expenses and other		(168,609	)		677,066		5,273			—			513,730
Current portion of long-term debt		180,000			101,360		—			—			281,360
Deferred income taxes		—			363,057		(1,276	)		—			361,781
Total current liabilities		11,391			6,063,504		29,013			—			6,103,908
Long-term debt, net of current portion		1,100,000			2,111		55,000			—			1,157,111
Other liabilities		—			53,939		—			—			53,939
Stockholders’ equity		3,990,733			4,207,144		168,928			(4,027,760	)		4,339,045
Total liabilities and stockholders’ equity	$	5,102,124		$	10,326,698	$	252,941		$	(4,027,760	)	$	11,654,003

20

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:

	Three months ended March 31, 2005
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Operating revenue	$	—		$	12,152,564		$	90,584		$	—		$	12,243,148
Bulk deliveries to customer warehouses		—			948,416			12			—			948,428
Total revenue		—			13,100,980			90,596			—			13,191,576
Cost of goods sold		—			12,604,377			85,084			—			12,689,461
Gross profit		—			496,603			5,512			—			502,115
Operating expenses:											—
Distribution, selling and administrative		—			321,070			(23,235	)		—			297,835
Depreciation		—			17,584			52			—			17,636
Amortization		—			3,107			18			—			3,125
Facility consolidations and employee severance		—			1,837			—			—			1,837
Impairment charge		—			5,259			—			—			5,259
Operating income		—			147,746			28,677			—			176,423
Other income		—			(383	)		—			—			(383	)
Interest (income) expense		(8,086	)		8,930			13,669			—			14,513
Income from continuing operations before taxes and equity in earnings of subsidiaries		8,086			139,199			15,008			-—			162,293
Income taxes		3,105			53,452			5,764			—			62,321
Equity in earnings of subsidiaries		94,441			—			—			(94,441	)		—
Income from continuing operations		99,422			85,747			9,244			(94,441	)		99,972
Loss from discontinued operations		—			550			—			—			550
Net income	$	99,422		$	85,197		$	9,244		$	(94,441	)	$	99,422

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:

	Three months ended March 31, 2004
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Operating revenue	$	—		$	12,247,556		$	85,286		$	—		$	12,332,842
Bulk deliveries to customer warehouses		—			1,018,910			9			—			1,018,919
Total revenue		—			13,266,466			85,295			—			13,351,761
Cost of goods sold		—			12,692,634			78,684			—			12,771,318
Gross profit		—			573,832			6,611			—			580,443
Operating expenses:
Distribution, selling and administrative		—			325,183			(24,720	)		—			300,463
Depreciation		—			15,611			82			—			15,693
Amortization		—			2,805			18			—			2,823
Facility consolidations and employee severance		—			2,216			—			—			2,216
Operating income		—			228,017			31,231			—			259,248
Other income		—			(1,115	)		(2,548	)		—			(3,663	)
Interest (income) expense		(4,538	)		23,634			11,775			—			30,871
Income from continuing operations before taxes and equity in earnings of subsidiaries		4,538			205,498			22,004			—			232,040
Income taxes		1,745			79,162			8,427			—			89,334
Equity in earnings of subsidiaries		139,359			—			—			(139,359	)		—
Income from continuing operations		142,152			126,336			13,577			(139,359	)		142,706
Loss from discontinued operations		—			554			—			—			554
Net income	$	142,152		$	125,782		$	13,577		$	(139,359	)	$	142,152

21

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:

	Six months ended March 31, 2005
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Operating revenue	$	—		$	24,262,942		$	184,521		$	—		$	24,447,463
Bulk deliveries to customer warehouses		—			2,383,134			21			—			2,383,155
Total revenue		—			26,646,076			184,542			—			26,830,618
Cost of goods sold		—			25,699,472			173,540			—			25,873,012
Gross profit		—			946,604			11,002			—			957,606
Operating expenses:
Distribution, selling and administrative		—			634,797			(39,411	)		—			595,386
Depreciation		—			35,585			101			—			35,686
Amortization		—			6,193			36			—			6,229
Facility consolidations and employee severance		—			6,970			—			—			6,970
Impairment charge		—			5,259			—			—			5,259
Operating income		—			257,800			50,276			—			308,076
Other income		—			(1,441	)		—			—			(1,441	)
Interest (income) expense		(13,038	)		23,742			25,885			—			36,589
Loss on early retirement of debt		1,015			—			—			—			1,015
Income from continuing operations before taxes, equity in earnings of subsidiaries, and cumulative effect of change in accounting		12,023			235,499			24,391			—			271,913
Income taxes		4,617			90,431			9,367			—			104,415
Equity in earnings of subsidiaries		142,962			—			—			(142,962	)		—
Income from continuing operations before cumulative effect of change in accounting		150,368			145,068			15,024			(142,962	)		167,498
Loss from discontinued operations					6,958			—			—			6,958
Cumulative effect of change in accounting		—			10,094			78			—			10,172
Net income	$	150,368		$	128,016		$	14,946		$	(142,962	)	$	150,368

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:

	Six months ended March 31, 2004
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Operating revenue	$	—		$	24,404,191		$	181,388		$	—		$	24,585,579
Bulk deliveries to customer warehouses		—			2,108,337			16			—			2,108,353
Total revenue		—			26,512,528			181,404			—			26,693,932
Cost of goods sold		—			25,427,483			160,956			—			25,588,439
Gross profit		—			1,085,045			20,448			—			1,105,493
Operating expenses:
Distribution, selling and administrative		—			655,076			(59,230	)		—			595,846
Depreciation		—			29,568			175			—			29,743
Amortization		—			4,988			501			—			5,489
Facility consolidations and employee severance		—			3,769			—			—			3,769
Operating income		—			391,644			79,002			—			470,646
Other income		—			(1,076	)		—			—			(1,076	)
Interest (income) expense		(12,480	)		59,243			15,615			—			62,378
Income from continuing operations before taxes and equity in earnings of subsidiaries		12,480			333,477			63,387			—			409,344
Income taxes		4,805			128,388			24,404			—			157,597
Equity in earnings of subsidiaries		242,951			—			—			(242,951	)		—
Income from continuing operations		250,626			205,089			38,983			(242,951	)		251,747
Loss from discontinued operations		—			1,121			—			—			1,121
Net income	$	250,626		$	203,968		$	38,983		$	(242,951	)	$	250,626

22

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:

	Six months ended March 31, 2005
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net income	$	150,368		$	128,016		$	14,946		$	(142,962	)	$	150,368
Adjustments to reconcile net income to net cash provided by (used in) operating activities		(133,857	)		1,053,685			(20,152	)		142,962			1,042,638
Net cash provided by (used in) operating activities		16,511			1,181,701			(5,206	)		—			1,193,006
Capital expenditures		—			(123,246	)		—			—			(123,246	)
Proceeds from sale-leaseback transactions		—			20,732			—			—			20,732
Proceeds from sale of discontinued operations		—			3,560			—			—			3,560
Other		—			(588	)		—			—			(588	)
Net cash used in investing activities		—			(99,542	)		—			—			(99,542	)
Long-term debt repayments		(180,000	)		—			—			—			(180,000	)
Purchases of common stock		(675,348	)		—			—			—			(675,348	)
Deferred financing costs and other		(1,758	)		(937	)		(820	)		—			(3,515	)
Exercise of stock options		53,503			—			—			—			53,503
Cash dividends on common stock		(5,381	)		—			—			—			(5,381	)
Common stock purchases for employee stock purchase plan		(634	)		—			—			—			(634	)
Intercompany investments and advances		1,061,000			(1,060,438	)		(562	)		—			—
Net cash provided by (used in) financing activities		251,382			(1,061,375	)		(1,382	)		—			(811,375	)
Increase (decrease) in cash and cash equivalents		267,893			20,784			(6,588	)		—			282,089
Cash and cash equivalents at beginning of period		754,745			82,174			34,424			—			871,343
Cash and cash equivalents at end of period	$	1,022,638		$	102,958		$	27,836		$	—		$	1,153,432

23

AMERISOURCEBERGEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:

	Six months ended March 31, 2004
(in thousands)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net income	$	250,626		$	203,968		$	38,983		$	(242,951	)	$	250,626
Adjustments to reconcile net income to net cash provided by (used in) operating activities		(240,493	)		(72,709	)		(158,357	)		242,951			(228,608	)
Net cash provided by (used in) operating activities		10,133			131,259			(119,374	)		—			22,018
Capital expenditures		—			(85,335	)		—			—			(85,335	)
Other		—			(45,710	)		—			—			(45,710	)
Net cash used in investing activities		—			(131,045	)		—			—			(131,045	)
Long-term debt repayments		(30,000	)		—			—			—			(30,000	)
Deferred financing costs and other		—			153			(14	)		—			139
Exercise of stock options		8,542			—			—			—			8,542
Cash dividends on common stock		(5,607	)		—			—			—			(5,607	)
Common stock purchases for employee stock purchase plan		—			(319	)		—			—			(319	)
Intercompany investments and advances		(5,001	)		(89,024	)		94,025			—			—
Net cash (used in) provided by financing activities		(32,066	)		(89,190	)		94,011			—			(27,245	)
Decrease in cash and cash equivalents		(21,933	)		(88,976	)		(25,363	)		—			(136,272	)
Cash and cash equivalents at beginning of period		572,908			169,323			57,805			—			800,036
Cash and cash equivalents at end of period	$	550,975		$	80,347		$	32,442		$	—		$	663,764

24

ITEM  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto contained herein and in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2004.

AmerisourceBergen Corporation (the “Company”) is a national pharmaceutical services company providing drug distribution and related healthcare services and solutions to its customers. The Company also provides pharmaceuticals to long-term care and workers’ compensation patients.

The Company is organized based upon the products and services it provides to its customers, and substantially all of its operations are located in the United States. The Company’s operations are comprised of two reportable segments: Pharmaceutical Distribution and PharMerica.

Pharmaceutical Distribution

The Pharmaceutical Distribution segment includes the operations of AmerisourceBergen Drug Corporation (“ABDC”) and the AmerisourceBergen Specialty, Packaging and Technology groups. Servicing both pharmaceutical manufacturers and healthcare providers in the pharmaceutical supply channel, the Pharmaceutical Distribution segment’s operations provide drug distribution and related services designed to reduce costs and improve patient outcomes throughout the United States and Puerto Rico. The drug distribution operations of ABDC and AmerisourceBergen Specialty Group comprised over 90% of the segment’s operating revenue and operating income in the quarters and six-month periods ended March 31, 2005 and 2004.

ABDC’s wholesale drug distribution business is currently organized into five regions across the United States. Unlike its more centralized competitors, ABDC is structured as an organization of locally managed profit centers. ABDC’s facilities utilize the Company’s corporate staff for national and regional account management, marketing, information technology, finance, procurement, human resources, legal, executive management resources, and corporate coordination of asset and working capital management.

As more fully described in the Company’s Form 10-K for the fiscal year ended September 30, 2004, ABDC is in a business model transition with respect to how manufacturers compensate us for our services. Historically, suppliers helped us generate gross profit in several ways, including cash discounts for prompt payments, inventory buying opportunities, rebates, inventory management and other agreements, vendor program arrangements, negotiated deals and other promotional opportunities. A significant portion of ABDC’s gross margin has been derived from our ability to purchase merchandise inventories in advance of pharmaceutical price increases and then hold these inventories until pharmaceutical prices increase, thereby generating a larger gross margin upon sale of the inventories. Over the last two years, pharmaceutical manufacturers have been increasing their control over the pharmaceutical supply channel by using product allocation methods, including the imposition of inventory management agreements (“IMAs”). Under most IMAs, we are paid for not speculating with respect to pharmaceutical price increases. However, in most cases our compensation under IMAs continues to be predicated upon pharmaceutical price increases. As of March 31, 2005, approximately two-thirds of our pharmaceutical distribution revenue is covered by IMAs and other vendor agreements. Additionally, pharmaceutical manufacturers increasingly have been restricting our ability to purchase their products from alternate sources and have been requesting more product and distribution sales data from us. We believe the changes that have been made provide pharmaceutical manufacturers with greater visibility over product demand and movement in the market and increased product safety and integrity by reducing the risks associated with product being available to the secondary market.

25

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

All of the above has led to significant volatility in ABDC’s gross margin, and, therefore we are continuing our efforts to shift our pharmaceutical distribution business to a fee-for-service model where we are compensated for the services we provide manufacturers versus one that is dependent upon manufacturer price increases (as is the case with the IMA model). We continue to work with our pharmaceutical manufacturer partners to define fee-for-service terms that will adequately compensate us for our services. As of March 31, 2005, we have signed agreements with a number of the larger branded pharmaceutical manufacturers that we consider fee-for-service arrangements as well as some that we consider hybrid agreements with some attributes of IMAs and some attributes of fee-for-service arrangements. We believe the transition to a fee-for-service model is a collaborative approach that will improve the efficiency of the supply channel and establish a more predictable earnings pattern for ABDC, while expanding our service relationship with pharmaceutical manufacturers. We expect to continue discussion of fee-for-service arrangements with the majority of pharmaceutical manufacturers and expect to have agreements in place with the majority of the large branded manufacturers by the end of calendar 2005. However, there can be no assurance that this business model transition will be successful.

The AmerisourceBergen Specialty Group (“ABSG”), through a number of individual operating businesses, provides distribution and other services, including group purchasing services, to physicians and alternate care providers who specialize in a variety of disease states, including oncology, nephrology, and rheumatology. ABSG also distributes vaccines, other injectables and plasma and other blood products. In addition, through its manufacturer services and physician and patient services businesses, ABSG provides a number of commercialization and other services for biotech and other pharmaceutical manufacturers, third party logistics, reimbursement consulting, practice management, and physician education.

The Specialty Group’s business may be adversely impacted in the future by changes in the Medicare reimbursement rates for certain pharmaceuticals, including oncology drugs. The reimbursement changes that have been implemented by the U.S. Department of Health and Human Services (“HHS”) starting in January 2005 pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“ Medicare Modernization Act”), or that may be proposed in the future, may have the effect of reducing the amount of medications purchased by physicians for administration in their offices and may force patients to other healthcare providers. Since the Specialty Group provides a number of services to or through physicians, patient shifts from physicians to other healthcare providers may result in slower or reduced growth in revenues for the Specialty Group. Although the Specialty Group has contingency plans to enable it to retain and grow the business it conducts with and through physicians, there can be no assurance that it will retain or replace all of the revenue currently going through the physician channel or that such revenue will be as profitable.

The AmerisourceBergen Packaging Group consists of American Health Packaging and Anderson Packaging (“Anderson”). American Health Packaging delivers unit dose, punch card, unit-of-use and other packaging solutions to institutional and retail healthcare providers. Anderson is a leading provider of contracted packaging services for pharmaceutical manufacturers.

The AmerisourceBergen Technology Group (“ABTG”) provides scalable automated pharmacy dispensing equipment and medication and supply dispensing cabinets to a variety of retail and institutional healthcare providers. ABTG also provides barcode-enabled point-of-care software designed to reduce medication errors and supply management software for institutional and retail healthcare providers designed to improve efficiency.

26

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

PharMerica

The PharMerica segment includes the operations of the PharMerica long-term care business (“Long-Term Care”) and a workers’ compensation-related business (“Workers’ Compensation”).

Long-Term Care is a leading national provider of pharmacy products and services to patients in long-term care and alternate site settings, including skilled nursing facilities, assisted living facilities and residential living communities. Long-Term Care’s institutional pharmacy business involves the purchase of bulk quantities of prescription and nonprescription pharmaceuticals, principally from our Pharmaceutical Distribution segment, and the distribution of those products to residents in long-term care and alternate site facilities. Unlike hospitals, most long-term and alternate care facilities do not have onsite pharmacies to dispense prescription drugs, but depend instead on institutional pharmacies, such as Long-Term Care, to provide the necessary pharmacy products and services and to play an integral role in monitoring patient medication. Long-Term Care pharmacies dispense pharmaceuticals in patient-specific packaging in accordance with physician orders. In addition, Long-Term Care provides infusion therapy services and Medicare Part B products, as well as formulary management and other pharmacy consulting services.

The Company is currently evaluating the effect that the Medicare Modernization Act may have on the Long-Term Care business. As more fully described in the Company’s Form 10-K for the fiscal year ended September 30, 2004, the implementation of Medicare Part D could have an adverse effect on the Long-Term Care business. In January 2005, the Centers for Medicare and Medicaid Services (“CMS”) of HHS published final rules for the new voluntary prescription drug benefit program under the Medicare Modernization Act. The rules became effective in March 2005. While these rules established a framework, further information and guidance is expected to be provided by CMS. At this time, the future impact of the final rules on the Long-Term Care business cannot be determined.

Workers’ Compensation provides mail order and on-line pharmacy services to chronically and catastrophically ill patients under workers’ compensation programs, and provides pharmaceutical claims administration services for payors. Workers’ Compensation services include home delivery of prescription drugs, medical supplies and equipment and an array of computer software solutions to reduce the payor’s administrative costs.

27

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Results of Operations

AmerisourceBergen Corporation

Summary Segment Information

	Operating Revenue Three Months Ended March 31,
(dollars in thousands)	2005			2004			Change
Pharmaceutical Distribution	$	12,070,185		$	12,151,538		(1	)%
PharMerica		391,090			392,078		—
Intersegment eliminations		(218,127	)		(210,774	)	3
Total	$	12,243,148		$	12,332,842		(1	)%

	Operating Income Three Months Ended March 31,
(dollars in thousands)	2005			2004			Change
Pharmaceutical Distribution	$	151,548		$	233,283		(35	)%
PharMerica		31,971			28,181		13
Facility consolidations and employee severance		(1,837	)		(2,216	)	(17	)
Impairment charge		(5,259	)		—		—
Total	$	176,423		$	259,248		(32	)%
Percentages of operating revenue:
Pharmaceutical Distribution
Gross profit		3.21	%		3.79	%
Operating expenses		1.96	%		1.87	%
Operating income		1.26	%		1.92	%
PharMerica
Gross profit		29.25	%		30.58	%
Operating expenses		21.07	%		23.40	%
Operating income		8.17	%		7.19	%
AmerisourceBergen Corporation
Gross profit		4.10	%		4.71	%
Operating expenses		2.66	%		2.60	%
Operating income		1.44	%		2.10	%

28

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

AmerisourceBergen Corporation

Summary Segment Information

	Operating Revenue Six Months Ended March 31,
(dollars in thousands)	2005			2004			Change
Pharmaceutical Distribution	$	24,114,159			24,229,120		—	%
PharMerica		776,711			794,518		(2	)
Intersegment eliminations		(443,407	)		(438,059	)	1
Total	$	24,447,463			24,585,579		(1	)%
	Operating Income Six Months Ended March 31,
(dollars in thousands)	2005			2004			Change
Pharmaceutical Distribution	$	245,987		$	417,741		(41	)%
PharMerica		55,493			56,674		(2	)
Facility consolidations and employee severance		(6,970	)		(3,769	)	85
Impairment charge		(5,259	)		—		—
Gain on litigation settlements		18,825			—		—
Total	$	308,076		$	470,646		(35	)%
Percentages of operating revenue:
Pharmaceutical Distribution
Gross profit		2.98	%		3.55	%
Operating expenses		1.96	%		1.83	%
Operating income		1.02	%		1.72	%
PharMerica
Gross profit		28.47	%		30.77	%
Operating expenses		21.33	%		23.64	%
Operating income		7.14	%		7.13	%
AmerisourceBergen Corporation
Gross profit		3.92	%		4.50	%
Operating expenses		2.66	%		2.58	%
Operating income		1.26	%		1.91	%

29

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Consolidated Results

Operating revenue, which excludes bulk deliveries, for the quarter ended March 31, 2005 decreased 1% to $12.2 billion from $12.3 billion in the prior-year quarter. For the six months ended March 31, 2005, operating revenue decreased 1% to $24.4 billion from $24.6 billion in the prior-year period. These decreases were due to declines in operating revenue in the Pharmaceutical Distribution and PharMerica segments.

The Company reports as revenue bulk deliveries to customer warehouses, whereby the Company acts as an intermediary in the ordering and delivery of pharmaceutical products. Bulk delivery transactions are arranged by the Company at the express direction of the customer, and involve either shipments from the supplier directly to customers’ warehouse sites or shipments from the supplier to the Company for immediate shipment to the customers’ warehouse sites. Bulk deliveries for the quarter ended March 31, 2005 decreased 7% to $0.9 billion from $1.0 billion in the prior-year quarter. For the six months ended March 31, 2005, bulk deliveries increased 13% to $2.4 billion from $2.1 billion in the prior-year period. Changes in revenue relating to bulk deliveries fluctuate primarily due to changes in demand from the Company’s largest bulk customer. Due to the insignificant service fees generated from bulk deliveries, fluctuations in volume have no significant impact on operating margins. However, revenue from bulk deliveries has a positive impact on the Company’s cash flows due to favorable timing between the customer payments to the Company and payments by the Company to its suppliers.

In connection with the transition to a fee-for-service model, we changed our method of recognizing cash discounts and other related manufacturer incentives, effective October 1, 2004. ABDC previously recognized cash discounts as a reduction of cost of goods sold when earned, which was primarily upon payment of vendor invoices. ABDC now records cash discounts as a component of inventory cost and recognizes such discounts as a reduction of cost of goods sold upon the sale of the inventory. We believe the change in accounting method provides a more objectively determinable method of recognizing cash discounts and a better matching of inventory cost to revenue, as inventory turnover rates are expected to continue to improve.

We recorded a $10.2 million cumulative effect of change in accounting (net of tax of $6.3 million) in the consolidated statement of operations for the six months ended March 31, 2005. This $10.2 million cumulative effect adjustment reduced diluted earnings per share by $0.09 for the six months ended March 31, 2005. We also adjusted the previously reported consolidated statement of operations for the three months ended December 31, 2004 for this accounting change. The change decreased earnings from continuing operations for the December quarter by approximately $3.3 million, net of tax, or $0.03 per diluted share from continuing operations. The accounting change is incorporated in our results of operations for the three months ended March 31, 2005. The change improved earnings from continuing operations in the March quarter by approximately $12.2 million, net of tax, or $0.11 per diluted share from continuing operations. The accounting change had the effect of increasing gross profit and operating income by $19.7 million and $14.3 million for the quarter and six months ended March 31, 2005, respectively.

Gross profit of $502.1 million in the quarter ended March 31, 2005 decreased 13% from $580.4 million in the prior-year quarter. Gross profit of $957.6 million in the six months ended March 31, 2005 decreased 13% from $1,105.5 million in the prior-year period. During the quarter ended December 31, 2004, the Company recognized an $18.8 million gain from two antitrust litigation settlements with pharmaceutical manufacturers. This gain was recorded as a reduction of cost of goods sold and contributed 2% of gross profit for the six months ended March 31, 2005. As a percentage of operating revenue, gross profit in the quarter ended March 31, 2005 was 4.10%, as compared to the prior-year percentage of 4.71%. As a percentage of operating revenue, gross profit in the six months ended March 31, 2005 was 3.92%, as compared to 4.50% in the prior-year period. The decreases in gross profit and gross profit percentage in comparison with the prior-year percentages reflect declines in both the Pharmaceutical Distribution and PharMerica segments due to a decline in profits related to pharmaceutical price increases and other buy-side profits, changes in customer mix and competitive selling price pressures.

Distribution, selling and administrative expenses, depreciation and amortization (“DSAD&A”) of $318.6 million in the quarter ended March 31, 2005 decreased slightly from $319.0 million in the prior-year quarter. DSAD&A of $637.3 million in the six months ended March 31, 2005 reflects an increase of 1% compared to $631.1 million in the prior-year period. As a percentage of operating revenue, DSAD&A in the quarter and six months ended March 31, 2005 was 2.60% and 2.61%, respectively. As a percentage of operating revenue, DSAD&A in the quarter and six months ended March 31, 2004 was 2.59% and 2.57%, respectively. The increases in the DSAD&A percentages from the prior-year periods were due to increases in the Pharmaceutical Distribution segment offset partially by improvements in the PharMerica segment. The Pharmaceutical Distribution segment DSAD&A increased by $8.9 million and $28.4 million from the prior-year quarter and six-month period,

30

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

respectively. The prior-year six-month period benefited from a $17.5 million reduction of a previously recorded allowance for doubtful account as a result of a settlement with a former customer. Additionally, the prior-year periods benefited from an $11.0 million net reduction in expense accruals primarily relating to employee benefit costs. The PharMerica segment DSAD&A decreased by $9.3 million and $22.2 million for the three and six months ended March 31, 2005, respectively, due to aggressive cost reductions in response to the declining operating revenue.

In 2001, the Company developed integration plans to consolidate its distribution network and eliminate duplicative administrative functions. The Company’s plan, as revised, is to have a distribution facility network consisting of less than 30 facilities within the next two years. The plan includes building six new facilities (three of which are operational as of March 31, 2005) and closing facilities (20 of which have been closed as of March 31, 2005). Construction activities on the remaining three new facilities are ongoing (two of which will be operational by the end of calendar 2005). The Company anticipates closing a total of six facilities in fiscal 2005.

The Company closed four distribution facilities in fiscal 2004 and eliminated certain administrative functions (“the fiscal 2004 initiatives”). The Company closed three facilities during the six months ended March 31, 2005 and announced plans to continue to consolidate and eliminate certain administrative functions (the “fiscal 2005 initiatives”). During the six months ended March 31, 2005, the Company recorded $7.0 million of employee severance and lease cancellation costs primarily relating to the 2005 and 2004 initiatives. As of March 31, 2005, approximately 602 employees had received termination notices as a result of these initiatives, of which 542 have been terminated. Additional amounts for integration initiatives will be recognized in subsequent periods as facilities to be consolidated are identified and specific plans are approved and announced.

The Company paid a total of $6.6 million for employee severance and lease cancellation costs in the six months ended March 31, 2005 related primarily to the above initiatives. Remaining unpaid amounts of $3.4 million for employee severance and lease cancellation costs are included in accrued expenses and other in the accompanying consolidated balance sheet at March 31, 2005. Most employees receive their severance benefits over a period of time, generally not to exceed 12 months, while others may receive a lump-sum payment.

During the quarter and six months ended March 31, 2005, the Company recorded an impairment charge of $5.3 million relating to certain intangible assets held by the Technology Group.

Operating income of $176.4 million for the quarter ended March 31, 2005 reflects a decrease of 32% from $259.2 million in the prior-year quarter. The Company’s operating income as a percentage of operating revenue was 1.44% in the quarter ended March 31, 2005 in comparison to 2.10% in the prior-year quarter. Operating income of $308.1 million for the six months ended March 31, 2005 reflects a decrease of 35% from $470.6 million in the prior-year period. The Company’s operating income as a percentage of operating revenue was 1.26% for the six months ended March 31, 2005, in comparison to 1.91% in the prior-year period. The declines in operating income were primarily due to decreases in gross profit. The gain on litigation settlements contributed approximately 8 basis points to the Company’s operating income as a percentage of operating revenue for the six months ended March 31, 2005.

During the quarter and six months ended March 31, 2004, the Company recorded other income of $3.5 million relating to its share of a gain resulting from the sale of substantially all of the assets of one of its technology equity investments.

Interest expense decreased 53% in the quarter ended March 31, 2005 to $14.5 million from $30.9 million in the prior-year quarter due to a reduction in average borrowings. Average borrowings, net of cash, during the quarter ended March 31, 2005 were $322 million as compared to average borrowings, net of cash, of $1.4 billion in the prior-year quarter. Interest expense decreased 41% in the six months ended March 31, 2005 to $36.6 million compared to $62.4 million in the prior-year period. Average borrowings, net of cash, during the six months ended March 31, 2005 were $548 million, as compared to average borrowings, net of cash, of $1.5 billion in the prior-year period. The reductions in average borrowings, net of cash, were achieved due to the Company’s strong cash flows generated from operations, including reduced merchandise inventories resulting from the aforementioned business model transition.

During the six months ended March 31, 2005, the Company recorded a $1.0 million loss resulting from the early retirement of debt (see Liquidity and Capital Resources).

31

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Income tax expense of $62.3 million and $104.4 million in the quarter and six months ended March 31, 2005 reflects an effective tax rate of 38.4% and is equal to the annual tax rate applicable for fiscal 2004. The tax provision for the quarter and six months ended March 31, 2005 was computed based on an estimate of the annual effective rate.

Income from continuing operations of $100.0 million for the quarter ended March 31, 2005 reflects a decrease of 30% from $142.7 million in the prior-year quarter primarily due to the decline in gross profit. Diluted earnings per share from continuing operations of $0.91 in the quarter ended March 31, 2005 reflects a 26% decrease from $1.23 per share in the prior-year quarter. Facility consolidations and employee severance decreased income from continuing operations by $1.1 million and decreased diluted earnings per share from continuing operations by $0.01 for the quarter ended March 31, 2005. Facility consolidations and employee severance decreased income from continuing operations by $1.4 million and reduced diluted earnings per share from continuing operations by $0.01 for the quarter ended March 31, 2004. Income from continuing operations of $167.5 million for the six months ended March 31, 2005 reflects a decrease of 33% from $251.7 million in the prior-year period primarily due to the decline in gross profit. Diluted earnings per share from continuing operations of $1.53 in the six months ended March 31, 2005 reflects a 30% decrease from $2.18 per share in the prior-year period. The gain on litigation settlements less facility consolidations and employee severance and the loss on early retirement of debt increased income from continuing operations by $6.7 million and increased diluted earnings per share from continuing operations by $0.06 for the six months ended March 31, 2005. Facility consolidations and employee severance decreased income from continuing operations by $2.3 million and reduced diluted earnings per share from continuing operations by $0.02 for the six months ended March 31, 2004.

Loss from discontinued operations, net of tax, for the quarters and six month-periods ended March 31, 2005 and 2004, respectively, relates to the Company’s Rita Ann cosmetics distribution business, which was sold in December 2004 for $3.6 million. The Company incurred a $6.5 million loss, net of tax, on the sale of this business and such loss is reflected in the $0.6 million and $7.0 million losses from discontinued operations, net of tax, for the quarter and six months ended March 31, 2005.

Net income of $99.4 million for the quarter ended March 31, 2005 reflects a decrease of 30% from $142.2 million in the prior-year quarter primarily due to the decline in gross profit. Diluted earnings per share of $0.90 for the quarter ended March 31, 2005 reflects a decrease of 27% from $1.23 per share in the prior-year quarter. Net income of $150.4 million for the six months ended March 31, 2005 reflects a decrease of 40% from $250.6 million in the prior-year period primarily due to the decline in gross profit. Diluted earnings per share of $1.38 for the six months ended March 31, 2005 reflects a decrease of 36% from $2.17 per share in the prior-year period. The declines in diluted earnings per share from net income were less than the declines in net income due to the reduced number of weighted average common shares outstanding resulting from the Company’s purchases of its common stock in connection with its stock buyback programs (see Liquidity and Capital Resources).

Segment Information

Pharmaceutical Distribution Segment Results

Pharmaceutical Distribution operating revenue of $12.1 billion for the quarter ended March 31, 2005 decreased 1% from $12.2 billion in the prior-year quarter. Operating revenue of $24.1 billion for the six months ended March 31, 2005 was relatively flat compared to $24.2 billion in the prior-year period. In fiscal 2004, the Company discontinued servicing the United States Department of Veterans Affairs (“VA”) and the AdvancePCS business. These former customers contributed 12% and 13% of the Company’s operating revenue in the quarter and six months ended March 31, 2004. The lost business was offset by the above market growth of the specialty pharmaceutical business and the market growth of ABDC. During the quarter ended March 31, 2005, 56% of operating revenue was from sales to institutional customers and 44% was from retail customers; this compares to a customer mix in the prior-year quarter of 60% institutional and 40% retail. In comparison with the prior-year results, sales to institutional customers decreased 7% in the quarter primarily due to the loss of the VA and AdvancePCS business, offset in part by the above market growth of the specialty pharmaceutical business. Sales to retail customers increased 9% over the prior-year quarter primarily due to market growth and an increase in sales to one of the Company’s larger retail customers.

This segment’s growth largely reflects U.S. pharmaceutical industry conditions, including increases in prescription drug utilization and higher pharmaceutical prices offset, in part, by the increased use of lower-priced generics. The segment’s growth has also been impacted by industry competition and changes in customer mix. Industry growth rates, as estimated by industry data firm IMS Healthcare, Inc., are expected to be from 7% to 10% annually over the next four years. Future operating revenue growth will continue to be driven by industry growth trends, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, and changes in Federal government rules and

32

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

regulations. The Company’s Specialty Group has been growing at rates in excess of overall pharmaceutical market growth. The majority of this Group’s revenue is generated from the distribution of pharmaceuticals to physicians who specialize in a variety of disease states, such as oncology, nephrology, and rheumatology. Additionally, the Specialty Group distributes vaccines and blood plasma. The Specialty Group’s oncology business has continued to outperform the market and continues to be the Specialty Group’s most significant contributor to revenue growth. The Specialty Group’s business may be adversely impacted in the future by changes in the Medicare reimbursement rates for certain pharmaceuticals, including oncology drugs. The reimbursement changes that have been implemented by HHS starting in January 2005 pursuant to the Medicare Modernization Act, or that may be proposed in the future, may have the effect of reducing the amount of medications purchased by physicians for administration in their offices and may force patients to other healthcare providers. Since the Specialty Group provides a number of services to or through physicians, patient shifts from physicians to other healthcare providers may result in slower or reduced growth in revenues for the Specialty Group. Although the Specialty Group has contingency plans to enable it to retain and grow the business it conducts with and through physicians, there can be no assurance that it will retain or replace all of the revenue currently going through the physician channel or that such revenue will be as profitable.

Pharmaceutical Distribution gross profit of $387.7 million in the quarter ended March 31, 2005 reflects a decrease of 16% from $460.5 million in the prior-year quarter. Pharmaceutical Distribution gross profit of $717.6 million in the six months ended March 31, 2005 reflects a decrease of 17% from $861.0 million in the prior-year period. As a percentage of operating revenue, gross profit in the quarter ended March 31, 2005 was 3.21%, as compared to 3.79% in the prior-year quarter. As a percentage of operating revenue, gross profit in the six months ended March 31, 2005 was 2.98% as compared to 3.55% in the prior-year period. The decline in gross profit was due to a decrease in the buy-side component of the gross margin, including a decline in inventory appreciation profits, less alternate source and deal opportunities and the loss of the VA business in fiscal 2004. Contributing to the decline in inventory appreciation profits were lower levels of inventory on-hand during the current fiscal quarter and six month period, fewer than expected manufacturer price increases prior to the national election in November 2004, and less than expected manufacturer price increases on the Company’s top selling products. The Company expects that buy-side purchasing opportunities will continue to decrease in the future as pharmaceutical manufacturers increasingly seek to control the supply channel through product allocations that limit the inventory the Company can purchase and through the imposition of inventory management and other agreements that prohibit or restrict the Company’s right to purchase inventory from alternate source suppliers. Although the Company seeks in any such agreements to obtain appropriate compensation from pharmaceutical manufacturers for foregoing buy-side purchasing opportunities, there can be no assurance that the agreements will function as intended and replace any or all lost profit opportunities. In addition, a significant amount of the Company’s payments under current pharmaceutical manufacturer agreements are triggered by pharmaceutical manufacturer price increases. Although the Company is negotiating with pharmaceutical manufacturers to change the payment trigger and lessen its dependence on pharmaceutical manufacturer price increases, there can be no assurance that the Company will be successful in transforming its relationships to a fee-for-service structure from their current structure.

The Company’s cost of goods sold for interim periods includes a last-in, first-out (“LIFO”) provision that is based on the Company’s estimated annual LIFO provision. The annual LIFO provision is affected by changes in inventory quantities, product mix, and manufacturer pricing practices, which may be impacted by market and other external influences.

Pharmaceutical Distribution operating expenses of $236.2 million in the quarter ended March 31, 2005 reflected an increase of 4% from $227.3 million in the prior-year quarter. As a percentage of operating revenue, operating expenses in the quarter ended March 31, 2005 were 1.96%, as compared to 1.87% in the prior-year quarter, an increase of 9 basis points. Pharmaceutical Distribution operating expenses of $471.6 million in the six months ended March 31, 2005 reflected an increase of 6% from $443.3 million in the prior-year period. As a percentage of operating revenue, operating expenses in the six months ended March 31, 2005 were 1.96%, as compared to 1.83% in the prior-year period, an increase of 13 basis points. A significant reduction of a previously recorded allowance for doubtful account in the six months ended March 31, 2004 had the effect of improving the prior-year operating expense as a percentage of operating revenue by 7 basis points. Additionally, the prior-year periods benefited from a reduction in expense accruals primarily related to employee benefit costs. Other operating expense increases in the quarter and six months ended March 31, 2005 related to start-up costs in connection with the new distribution facilities, which costs were substantially offset by continued productivity gains achieved throughout the Company’s distribution network.

Pharmaceutical Distribution operating income of $151.5 million in the quarter ended March 31, 2005 reflected a decrease of 35% from $233.3 million in the prior-year quarter. As a percentage of operating revenue, operating income in the quarter ended March 31, 2005 was 1.26%, as compared to 1.92% in the prior-year quarter. Pharmaceutical Distribution operating income of $246.0 million in the six months ended March 31, 2005 reflected a decrease of 41% from $417.7 million in the prior-year period. As a percentage of operating revenue, operating income in the six months ended March 31, 2005 was 1.02% as

33

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

compared to 1.72% in the prior-year period. The declines over the prior-year percentages were due primarily to the reductions in gross margin. While management historically has been able to lower expense ratios, this did not occur in the six months ending March 31, 2005 and there can be no assurance that reductions will occur in the future, or that expense ratio reductions, if they should occur, will offset possible declines in gross margins.

PharMerica Segment Results

PharMerica operating revenue of $391.1 million for the quarter ended March 31, 2005 is relatively flat compared to $392.1 million in the prior-year quarter. Operating revenue for the six months ended March 31, 2005 declined 2% to $776.7 million from $794.5 million in the prior-year period. PharMerica’s decline in operating revenue was primarily due to competitive pressures that affected both the Long-Term Care and Workers’ Compensation businesses and increasing reductions in Medicaid reimbursement rates. The operating revenue growth rate in fiscal 2005 is expected to be flat. The future operating revenue growth rate will likely continue to be impacted by competitive pressures, changes in the regulatory environment (including the reimbursement changes that have been implemented starting January 2005 pursuant to the Medicare Modernization Act as well as the implementation of the March 2005 voluntary prescription drug benefit program thereunder) and the pharmaceutical inflation rate.

PharMerica gross profit of $114.4 million for the quarter ended March 31, 2005 reflects a decrease of 5% from $119.9 million in the prior-year quarter. PharMerica gross profit of $221.2 million for the six months ended March 31, 2005 reflects a decrease of 10% from $244.5 million in the prior-year period. As a percentage of operating revenue, gross profit in the quarter ended March 31, 2005 was 29.25%, as compared to 30.58% in the prior-year quarter. As a percentage of operating revenue, gross profit in the six months ended March 31, 2005 was 28.47%, as compared to 30.77% in the prior-year period. The declines in gross profit were primarily due to industry competitive pressures, and a reduction in the rates of reimbursement for the services provided by PharMerica, which continue to adversely affect gross profit margins in both the Workers’ Compensation business and the Long-Term Care business.

PharMerica operating expenses of $82.4 million for the quarter ended March 31, 2005 decreased 10% from $91.7 million in the prior-year quarter. PharMerica operating expenses of $165.7 million for the six months ended March 31, 2005 decreased 12% from $187.8 million in the prior-year period. As a percentage of operating revenue, operating expenses were reduced to 21.07% in the quarter ended March 31, 2005 from 23.40% in the prior-year quarter. As a percentage of operating revenue, operating expenses were reduced to 21.33% in the six months ended March 31, 2005 from 23.64% in the prior-year period. The percentage reductions were primarily due to aggressive cost reductions in response to the decline in operating revenue, including the consolidation of local pharmacy administrative functions to regional centers for the Long-Term Care business, a reduction in bad debt expense due to continued improvements made in credit and collection practices, a $4.0 million reduction in sales and use tax liability in the March 2005 quarter due to favorable audit experience and other settlements, and continued improvements in operating practices of both the Workers’ Compensation business and the Long-Term Care business.

PharMerica operating income of $32.0 million for the quarter ended March 31, 2005 increased 13% from $28.2 million in the prior-year quarter. As a percentage of operating revenue, operating income in the quarter ended March 31, 2005 was 8.17%, as compared to 7.19% in the prior-year quarter. The improvement was due to the aforementioned decline in the operating expense ratio in excess of the decline in the gross profit margin. PharMerica operating income of $55.5 million for the six months ended March 31, 2005 decreased 2% from $56.7 million in the prior-year period. As a percentage of operating revenue, operating income in the six months ended March 31, 2005 was 7.14% as compared to 7.13% in the prior-year period. While management historically has been able to lower expense ratios there can be no assurance that reductions will occur in the future, or that expense ratio reductions will exceed possible further declines in gross margins.

Intersegment Eliminations

These amounts represent the elimination of the Pharmaceutical Distribution segment’s sales to PharMerica. ABDC is the principal supplier of pharmaceuticals to PharMerica.

34

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Liquidity and Capital Resources

The following table illustrates the Company’s debt structure at March 31, 2005, including availability under revolving credit facilities and the receivables securitization facility (in thousands):

	Outstanding Balance		Additional Availability
Fixed-Rate Debt:
Bergen 7 1/4% senior notes due 2005	$	99,985	$	—
8 1/8% senior notes due 2008		500,000		—
7 1/4% senior notes due 2012		300,000		—
Other		2,819		—
Total fixed-rate debt		902,804		—
Variable-Rate Debt:
Blanco revolving credit facility due 2006		55,000		—
Revolving credit facility due 2009		—		636,365
Receivables securitization facility due 2007		—		1,050,000
Total variable-rate debt		55,000		1,686,365
Total debt, including current portion	$	957,804	$	1,686,365

The Company’s $1.7 billion of aggregate availability under its revolving credit facilities and its receivables securitization facility provide sufficient sources of capital to fund the Company’s working capital requirements.

In July 2003, the Company entered into a $1.05 billion receivables securitization facility (“Receivables Securitization Facility”). In connection with the Receivables Securitization Facility, ABDC sells on a revolving basis certain accounts receivable to AmeriSource Receivables Financial Corporation, a wholly owned special purpose entity, which in turn sells a percentage ownership interest in the receivables to commercial paper conduits sponsored by financial institutions. ABDC is the servicer of the accounts receivable under the Receivables Securitization Facility. After the maximum limit of receivables sold has been reached and as sold receivables are collected, additional receivables may be sold up to the maximum amount available under the facility. In December 2004, the Company amended its Receivables Securitization Facility and under the terms of the amendment the $550 million (three-year tranche) originally scheduled to expire in July 2006 was increased to $700 million and the expiration date was extended to December 2007. Additionally, the $500 million (364-day tranche) scheduled to expire in July 2005 was reduced to $350 million and the expiration date was extended to December 2005. The Company intends to renew the 364-day tranche on an annual basis. Interest rates are based on prevailing market rates for short-term commercial paper plus a program fee. The program fee was 75 basis points for the three-year tranche and was reduced from 45 basis points to 35 basis points for the 364-day tranche as of March 31, 2005. In April 2005, the Company’s debt rating was raised by one of the rating agencies and in accordance with the terms of the Receivables Securitization Facility, the future program fee associated with the three-year tranche will be 60 basis points. Additionally, the commitment fee on any unused credit was reduced from 30 basis points to 25 basis points for the three-year tranche and from 25 basis points to 17.5 basis points for the 364-day tranche. In April 2005, the commitment fee on unused credit for the three-year tranche was reduced to 20 basis points resulting from the Company’s improved credit rating. The program and commitment fee rates will vary based on the Company’s debt ratings. Borrowings and payments under the Securitization Facility are applied on a pro-rata basis to the $700 million and $350 million tranches. At March 31, 2005, there were no borrowings under the Receivables Securitization Facility. In connection with entering into the Receivables Securitization Facility and the amendments thereto, the Company incurred approximately $2.8 million of costs, which were deferred and are being amortized over the life of the facility. The facility is a financing vehicle utilized by the Company because it offers an attractive interest rate relative to other financing sources. The Company securitizes its trade accounts, which are generally non-interest bearing, in transactions that are accounted for as borrowings under Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

In December 2004, the Company entered into a new $700 million five-year senior unsecured revolving credit facility (the “Senior Revolving Credit Facility”) with a syndicate of lenders. The Senior Revolving Credit Facility replaced the Senior

35

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Credit Agreement (defined below). There were no borrowings outstanding under the Senior Revolving Credit Facility at March 31, 2005. Interest on borrowings under the Senior Revolving Credit Facility accrues at specific rates based on the Company’s debt rating (1.0% over LIBOR or the prime rate at March 31, 2005). In April 2005, the Company’s debt rating was raised by one of the rating agencies and in accordance with the terms of the Senior Revolving Credit Facility, future interest on borrowings will accrue at lower rates, either 0.80% over LIBOR or the prime rate. The Company will pay quarterly facility fees to maintain the availability under the Senior Revolving Credit Facility at specific rates based on the Company’s debt rating (0.25% at March 31, 2005). In April 2005, the rate was revised to 0.20% resulting from the Company’s improved debt rating. In connection with entering into the Senior Revolving Credit Facility, the Company incurred approximately $2.5 million of costs, which were deferred and are being amortized over the life of the facility. The Company may choose to repay or reduce its commitments under the Senior Revolving Credit Facility at any time. The Senior Revolving Credit Facility contains covenants that impose limitations on, among other things, additional indebtedness, distributions and dividends to stockholders, and investments. These covenants are less restrictive than those under the Senior Credit Agreement, thereby providing the Company with greater financial flexibility. Additional covenants require compliance with financial tests, including leverage and minimum earnings to fixed charges ratios.

The Senior Credit Agreement consisted of a $1.0 billion revolving credit facility (the “Revolving Facility”) and a $300 million term loan facility (the “Term Facility”), both of which had been scheduled to mature in August 2006. The Term Facility had scheduled quarterly maturities, which began in December 2002, totaling $60 million in each of fiscal 2003 and 2004, and $80 million and $100 million in fiscal 2005 and 2006, respectively. The scheduled term loan payments were made in fiscal 2004 and 2003. In December 2004, in connection with entering into the new Senior Revolving Credit Facility, as defined above, the Company repaid the remaining $180 million outstanding under the Term Facility and there were no borrowings outstanding under the Revolving Facility. In connection with the early repayment of the Term Facility, the Company incurred a loss of $1.0 million relating to the write-off of deferred financing costs.

In December 2000, the Company issued $300.0 million of 5% convertible subordinated notes due December 1, 2007. The notes had an annual interest rate of 5%, payable semiannually, and were convertible into common stock of the Company at $52.97 per share at any time before their maturity or their prior redemption or repurchase by the Company. In December 2004, the Company announced that it would redeem its 5% convertible subordinated notes at a redemption price of 102.143% of the principal amount of the notes plus accrued interest through the redemption date of January 3, 2005. The noteholders were given the option to accept cash or convert the notes to common stock of the Company. The notes were convertible into 5,663,730 shares of common stock, which translated to a conversion ratio of 18.8791 shares of common stock for each $1,000 principal amount of notes. Through January 3, 2005, the Company had issued 5,663,144 shares of common stock from treasury to noteholders to redeem substantially all of the notes and paid $31,000 to redeem the remaining notes. The Company subsequently repurchased 5.7 million shares of common stock in the quarter ended March 31, 2005, substantially equivalent to the number of common stock shares issued in connection with the conversion of the 5% notes.

The Company’s most significant market risk is the effect of changing interest rates. The Company manages this risk by using a combination of fixed-rate and variable-rate debt. At March 31, 2005, the Company had approximately $903 million of fixed-rate debt with a weighted average interest rate of 7.7% and $55 million of variable-rate debt with a weighted average interest rate of 4.3%. The amount of variable-rate debt fluctuates during the year based on the Company’s working capital requirements. The Company periodically evaluates various financial instruments that could mitigate a portion of its exposure to variable interest rates. However, there are no assurances that such instruments will be available on terms acceptable to the Company. There were no such financial instruments in effect at March 31, 2005. For every $100 million of unhedged variable-rate debt outstanding, a 43 basis-point increase in interest rates (one-tenth of the average variable-rate at March 31, 2005) would increase the Company’s annual interest expense by $0.4 million.

The Company’s operating results have generated cash flow, which, together with availability under its debt agreements and credit terms from suppliers, has provided sufficient capital resources to finance working capital and cash operating requirements, and to fund capital expenditures, acquisitions, repayment of debt, the payment of interest on outstanding debt and repurchases of shares of the Company’s common stock. We previously estimated that cash to be provided by operations for fiscal 2005 would be between $375 million and $475 million. Cash flow from operations for the six months ended March 31, 2005 was $1.2 billion primarily due to the significant decline in merchandise inventories during the six months ended March 31, 2005, coupled with an increase in accounts payable toward the end of March 2005. The increase in accounts payable was due to larger than normal merchandise inventory purchases near the end of March 2005. The significant decline in merchandise inventories during the six months ended March 31, 2005 reflected the impact of the business model transition, including increasing compliance under current inventory management and fee-for-service agreements. We expect inventories to be in the low-to-mid

36

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

$4 billion range for the remainder of the fiscal year and we expect accounts payable to decline by the end of the fiscal year. As a result, we estimate that cash provided by operations for fiscal 2005 will be between $900 million and $1 billion. We do not anticipate the Company will experience similar amounts of working capital reduction in future years and thus the Company expects to return to a more normalized level of cash flow from operations after fiscal 2005.

The Company’s primary ongoing cash requirements will be to finance working capital, fund the scheduled repayment of debt and the payment of interest on debt, finance merger integration initiatives and fund capital expenditures and routine growth and expansion through new business opportunities. The higher than expected cash flow from operations primarily resulting from the business model transition, as discussed above, has resulted in a record low debt-to-capital ratio of 18.7% and a net debt to total capital ratio of less than zero. The Company is actively evaluating its alternatives to deploy its excess capital and, as a result, is considering the repurchase of additional shares of common stock, the repayment or retirement of debt (including redemptions, market purchases or tenders), and strategic acquisitions. Future cash flows from operations and borrowings are expected to be sufficient to fund the Company’s ongoing cash requirements.

During the six months ended March 31, 2005, the Company received two cash settlements from suppliers relating to antitrust litigation matters and recognized a gain of $18.8 million, net of attorney fees and payments due to other parties.

Following is a summary of the Company’s contractual obligations for future principal payments on its debt, minimum rental payments on its noncancelable operating leases and minimum payments on its other commitments at March 31, 2005 (in thousands):

	Payments Due by Period
	Total		Within 1 year		1-3 years		4-5 years		After 5 years
Debt	$	957,819	$	101,448	$	56,371	$	500,000	$	300,000
Operating Leases		209,726		61,198		81,088		42,396		25,044
Other Commitments		1,033,313		36,820		1,819		213,567		781,107
Total	$	2,200,858	$	199,466	$	139,278	$	755,963	$	1,106,151

The debt amounts in the above table differ from the related carrying amounts on the consolidated balance sheet due to the purchase accounting adjustments recorded in order to reflect obligations at fair value on the effective date of the acquisition. These differences are being amortized over the terms of the respective obligations.

The $55 million Blanco revolving credit facility, which was scheduled to expire in May 2005, was replaced by a new $55 million facility. The new facility, which is due in April 2006, is guaranteed by the Company, whereas borrowings on the existing facility at March 31, 2005 were secured by the Senior Revolving Credit Facility.

In December 2004, the Company entered into a distribution agreement with a Canadian influenza vaccine manufacturer to distribute product through March 31, 2015. The agreement includes a commitment to purchase at least 12 million doses per year of the influenza vaccine provided the vaccine is approved and available for distribution in the United States by the Food and Drug Administration (“FDA”). The Company will be required to purchase the annual doses at market prices, as adjusted for inflation and other factors. We expect the Canadian manufacturer will receive FDA approval by the 2007/2008 influenza season; however, FDA approval may be received earlier. If the initial year of the purchase commitment begins in fiscal 2008, then the Company anticipates its purchase commitment for that year will approximate $104 million. Based on an assumed 5% annual increase in the cost of purchasing the influenza vaccine from the current estimated market price of $7.50, the Company anticipates its total purchase commitment (assuming the commitment commences in fiscal 2008) will be approximately $1.0 billion. The influenza vaccine commitment is included in Other Commitments in the above table.

37

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

In connection with its integration plans, the Company will have six new distribution facilities (three of which were operational as of March 31, 2005). Five of the new distribution facilities will be owned by the Company. In December 2002, the Company entered into a 15-year lease obligation totaling $17.4 million for the other new facility; this obligation is reflected in Operating Leases in the above table. The Company has been entering into commitments relating to site selection, purchase of land, design and construction of four of the five new facilities to be owned on a turnkey basis with a construction development company. As of March 31, 2005, the Company has taken ownership of and made payment on four of the five new facilities to be owned as the developer has substantially completed construction of each facility. The Company has paid the construction development company $84.5 million for the four substantially completed facilities. The Company has taken ownership of the land and construction-in-progress relating to the fifth facility to be owned prior to its substantial completion. As of March 31, 2005, the Company has $13.4 million of remaining commitments relating to the construction of the fifth facility to be owned. This facility commitment is included in Other Commitments in the above table.

During the six months ended March 31, 2005, the Company’s operating activities provided $1.2 billion of cash as compared to cash provided of $22.0 million in the prior-year period. Cash provided by operations during the six months ended March 31, 2005 was principally the result of net income of $150.4 million; an increase in accounts payable, accrued expenses and income taxes of $664.8 million; a decrease in merchandise inventories of $462.0 million; and non-cash items of $91.9 million, offset partially by an increase in accounts receivable of $184.0 million. The increase in accounts payable, accrued expenses and income taxes is primarily due to the timing of purchases of merchandise inventories and cash payments to our vendors. Accounts payable increased toward the end of March 2005 due to larger than normal merchandise inventory purchases. The inventory turnover rate for the Pharmaceutical Distribution segment improved to 9.5 times in the six months ended March 31, 2005 from 7.9 times in the prior-year period. The improvement was derived from lower average inventory levels due to an increase in the number of inventory management and other vendor agreements, a reduction in buy-side profit opportunities, and a reduction in the number of distribution facilities. Additionally, the Company’s change in accounting for customer returns in fiscal 2004 had the impact of reducing the inventory turnover rate by 0.7 times in the six months ended March 31, 2005. Average days sales outstanding for the Pharmaceutical Distribution segment decreased to 15.5 days in the six months ended March 31, 2005 from 17.4 days in the prior-year period. The Company’s change in accounting for customer sales returns had the effect of decreasing average days sales outstanding for the six months ended March 31, 2005 by 2.1 days. Average days sales outstanding for the PharMerica segment were 39.1 days in the six months ended March 31, 2005 compared to 38.4 days in the prior-year period. Operating cash uses during the six months ended March 31, 2005 included $47.6 million in interest payments and $80.0 million of income tax payments, net of refunds. As previously discussed, it is anticipated that cash to be provided by operations for fiscal 2005 will be between $900 million and $1.0 billion.

During the six months ended March 31, 2004, the Company’s operating activities provided $22.0 million of cash as compared to cash used of $615.3 million in the prior-year period. Cash provided by operations during the six months ended March 31, 2004 was principally the result of net income of $250.6 million, a $128.9 million decrease in merchandise inventories, a $101.4 million increase in accounts payable, accrued expenses and income taxes, and non-cash items of $72.8 million, largely offset by an increase in accounts receivable of $536.1 million. The increase in accounts receivable exceeded the increase in revenues due to timing as the number of business days in March 2004 (23 business days) exceeded the number in September 2003 (21 business days) and an increase in average days sales outstanding. Average days sales outstanding for the Pharmaceutical Distribution segment increased to 17.4 days in the six months ended March 31, 2004 from 16.7 days in the prior-year period. This increase was primarily due to the strong revenue growth of AmerisourceBergen Specialty Group, which generally has a higher receivable investment than the core distribution business. Average days sales outstanding for the PharMerica segment improved to 38.4 days in the six months ended March 31, 2004 from 40.2 days in the prior-year period due to the continued emphasis on receivables management. Merchandise inventories have continued to decline due to an increase in the number of inventory management agreements with manufacturers. The turnover of merchandise inventories for the Pharmaceutical Distribution segment has improved to 7.9 times in the six months ended March 31, 2004 from 6.5 times in the prior-year period. The $101.4 million increase in accounts payable was primarily due to the timing of purchases of merchandise inventories and cash payments to our vendors. Operating cash uses during the six months ended March 31, 2004 included $57.9 million in interest payments and $74.7 million of income tax payments, net of refunds.

Capital expenditures for the six months ended March 31, 2005 were $123.2 million and related principally to the construction of the new distribution facilities, investments in warehouse expansions and improvements, information technology and warehouse automation. The Company estimates that it will spend approximately $175 million to $200 million for capital expenditures during fiscal 2005.

38

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Cash provided by investing activities for the six months ended March 31, 2005 included $20.7 million from two sale-leaseback transactions entered into by the Company with a financial institution and $3.6 million from the sale of the Company’s Rita Ann cosmetics business.

Capital expenditures for the six months ended March 31, 2004 were $85.3 million and related principally to the transfer of ownership to the Company and payment for one of the Company’s new distribution facilities upon completion of construction, investments in warehouse improvements, information technology and warehouse automation.

During the six months ended March 31, 2004, the Company advanced $32 million toward the remaining 40% equity interest in International Physician Networks. Additionally, the Company paid approximately $13.7 million in cash for MedSelect, Inc., a provider of automated medication and supply dispensing cabinets.

During the six months ended March 31, 2005, as described above, the Company repaid the remaining $180.0 million outstanding under the Term Loan Facility. Additionally, during the six months ended March 31, 2005, the Company acquired $675.3 million of its common stock outstanding. During the six months ended March 31, 2004, the Company repaid $30.0 million of the Term Facility, as described above.

In February 2005, the Company’s board of directors authorized the Company to purchase up to 5.7 million shares (substantially equivalent to the number of common stock shares issued in connection with the conversion of the 5% notes) of its outstanding common stock, subject to market conditions. During the quarter ended March 31, 2005, the Company acquired 0.4 million shares in the open market for a total of $25.9 million. In addition, on March 30, 2005, the Company entered into an Accelerated Share Repurchase (“ASR”) transaction with a financial institution to purchase the remaining 5.3 million shares immediately from the financial institution at a cost of $293.8 million, with the financial institution subsequently purchasing an equivalent number of shares in the open market through April 21, 2005. As of March 31, 2005, the company had acquired all the shares authorized under this program for a total of $319.7 million. The ASR transaction was completed on April 21, 2005, as a result, the Company paid the financial institution a cash settlement of $16.6 million.

In August 2004, the Company’s board of directors authorized the Company to purchase up to $500 million of its outstanding shares of common stock, subject to market conditions. During the six months ended March 31, 2005, the Company acquired 6.5 million shares of its common stock under this program for $355.3 million. As of March 31, 2005, the Company had acquired 9.3 million shares of its common stock to complete the $500 million repurchase program.

The Company has paid quarterly cash dividends of $0.025 per share on its common stock since the first quarter of fiscal 2002. Most recently, a dividend of $0.025 per share was declared by the Company’s board of directors on February 7, 2005, and was paid on March 7, 2005 to stockholders of record as of the close of business on February 18, 2005. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Company’s board of directors and will depend upon the Company’s future earnings, financial condition, capital requirements and other factors.

Recently Issued Financial Accounting Standard

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, “Share-Based Payment,” which requires companies to measure compensation cost for all share-based payments (including employee stock options) at fair value for interim or annual periods beginning after June 15, 2005. In April 2005, the United States Securities and Exchange Commission issued a new rule allowing public companies to delay the adoption of SFAS No. 123R starting with annual periods beginning after June 15, 2005. As a result, the Company will adopt SFAS No. 123R beginning on October 1, 2005, and therefore, will begin to expense the fair value of all outstanding options over their remaining vesting periods to the extent the options are not fully vested as of the adoption date and will expense the fair value of all future options granted subsequent to September 30, 2005 over their vesting periods. The Company believes that the expensing of options may be material to the consolidated financial statements. Currently, the Company cannot determine the impact of SFAS No. 123R as it will depend, among other things, on the number of share-based awards granted in the future.

39

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Forward-Looking Statements

Certain of the statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and elsewhere in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained in the forward-looking statements. The forward-looking statements herein include statements addressing management’s views with respect to future financial and operating results and the benefits, efficiencies and savings to be derived from the Company’s integration plans to consolidate its distribution network. Various factors, including competitive pressures, success of the Pharmaceutical Distribution segment’s ability to transition its business model to fee-for-service, success of integration, restructuring or systems initiatives, market interest rates, changes in customer mix, changes in pharmaceutical manufacturers’ pricing and distribution policies or practices, regulatory changes, changes in U.S. Government policies (including reimbursement changes arising from the Medicare Modernization Act), customer defaults or insolvencies, acquisition of businesses that do not perform as we expect or that are difficult for us to integrate or control, adverse resolution of any contract or other disputes with customers (including departments and agencies of the U.S. Government) and suppliers, or the loss of one or more key customer or supplier relationships, could cause actual outcomes and results to differ materially from those described in forward-looking statements. Certain additional factors that management believes could cause actual outcomes and results to differ materially from those described in forward-looking statements are set forth in Item 1 (Business) under the heading “Certain Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2004 and elsewhere in that report and in this report.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company’s most significant market risk is the effect of changing interest rates. See discussion under “Liquidity and Capital Resources” in Item 2 above on page 36.

ITEM 4. Controls and Procedures.

The Company maintains disclosure controls and procedures that are intended to ensure that information required to be disclosed in the Company’s reports submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. These controls and procedures also are intended to provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to management to allow timely decisions regarding required disclosures.

The Company’s Chief Executive Officer and Chief Financial Officer, with the participation of other members of the Company’s management, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a – 14(c) and 15d – 14(c) under the Exchange Act) and have concluded that the Company’s disclosure controls and procedures were effective for their intended purposes as of the end of the period covered by this report. There were no changes during the fiscal quarter ended March 31, 2005 in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, those controls.

40

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

See Note 8 (Legal Matters and Contingencies) of the Notes to the Consolidated Financial Statements set forth under Item 1 of Part I of this report for the Company’s current description of legal proceedings.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(c) Issuer Purchases of Equity Securities

In February 2005, the Company’s board of directors authorized the Company to purchase up to 5.7 million of its outstanding shares of common stock, subject to market conditions. As of March 31, 2005, the Company had acquired all the shares authorized under this program for a total of $319.7 million. In April 2005, the Company paid $16.6 million to settle the purchase of the 5.7 million shares. See Note 3 (Stockholders’ Equity and Earnings Per Share) of the Notes to the Consolidated Financial Statements set forth under Item 1 of Part I of this report.

In August 2004, the Company’s board of directors authorized the Company to purchase up to $500 million of its outstanding shares of common stock, subject to market conditions. As of March 31, 2005, the Company had completed the purchase of $500 million of its common stock under this program for a weighted-average price of $53.81.

The following tables set forth the number of shares purchased and the average price paid per share during the quarter ended March 31, 2005, and the dollar value / number of shares that may yet be purchased under the aforementioned repurchase programs as of March 31, 2005.

$500 Million Repurchase Program:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of the $500 Million Repurchase Program	Maximum Dollar Value of Shares that May Yet Be Purchased Under the $500 Million Repurchase Program
January 1 to January 31	100,000	$	55.99	7,679,500	$	96,681,403
February 1 to February 28	1,612,850	$	55.80	9,292,350		—
Total	1,712,850	$	56.08	9,292,350
5.7 Million Share Repurchase Program:
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of the 5.7 Million Share Repurchase Program	Maximum Number of Shares that May Yet Be Purchased Under the 5.7 Million Share Repurchase Program
February 1 to February 28	435,600	$	59.46	435,600		5,264,400 shares
March 1 to March 31	5,264,400	$	55.80	5,700,000		—
Total	5,700,000	$	56.08	5,700,000

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ITEM 4. Submission of Matters to a Vote of Security Holders.

The Annual Meeting of Stockholders of the Company was held on March 4, 2005 in Philadelphia, Pennsylvania. At the meeting, the stockholders of the Company were asked to vote upon the following matters and cast their votes as set forth below.

Election of Directors. The four nominees each were elected to a three-year term expiring in 2008 by the following vote:

Nominee	For	Withheld
Rodney H. Brady	98,722,602	1,120,886
Charles H. Cotros	98,779,601	1,063,887
Jane E. Henney, M.D.	98,760,441	1,083,047
R. David Yost	98,747,604	1,095,884

Directors whose term of office continued after the Annual Meeting were: Richard C. Gozon, James R. Mellor and J. Lawrence Wilson, each of whose terms expire in 2006, and Edward E. Hagenlocker, Kurt J. Hilzinger and Henry W. McGee, each of whose terms expire in 2007.

Independent Auditors. The appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2005 was ratified by the following vote:

Nominee	For	Withheld
Ernst & Young LLP	98,704,114	1,139,374

ITEM 6. Exhibits.

(a)    Exhibits:
10.1	Credit Agreement dated as of April 21, 2005 between J.M. Blanco, Inc. and The Bank of Nova Scotia
18.1	Letter regarding Change in Accounting Method
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer

42

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERISOURCEBERGEN CORPORATION

/s/ R. David Yost

     R. David Yost

     Chief Executive Officer

/s/ Michael D. DiCandilo

     Michael D. DiCandilo

     Senior Vice President and

     Chief Financial Officer

May 9, 2005

43

EX-10.1

Exhibit 10.1

CREDIT AGREEMENT

This Agreement dated as of April 21, 2005, between:

J.M. BLANCO, INC., a Delaware corporation doing business in Puerto Rico (the “Borrower”), and

THE BANK OF NOVA SCOTIA, a Canadian banking institution with a branch in San Juan, Puerto Rico (the “Bank”).

WITNESSETH:

WHEREAS, Borrower has requested from the Bank a revolving credit facility for working capital purposes in a principal amount which shall at no time exceed $55,000,000; and

WHEREAS, the Bank has agreed to make available to the Borrower the aforesaid credit facility for the above stated purposes, upon the terms and subject to the conditions set forth in this Credit Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the parties hereto agree as follows:

ARTICLE 1. DEFINITIONS AND OTHER TERMS

Section 1.1 Certain Defined Terms. As used in this Agreement, the following terms have the following meanings when capitalized (such meanings being equally applicable to both the singular and plural forms of the terms defined):

1.1.1 “ABC Credit Agreement.” That certain Credit Agreement dated as of December 2, 2004 between the Guarantor, the Lenders party thereto, and JPMorgan Chase Bank, N.A. as Administrative Agent, as the same may be amended, restated or replaced from time to time.

1.1.2 “Advance.” A disbursement of Operating Loan funds by the Bank pursuant to Article 2 hereof, and the renewal thereof upon commencement of each additional Interest Period.

1.1.3 “Affiliate.” Any Person Controlling or Controlled by or under common Control with the referenced Person. An Affiliate of the Borrower shall include, without limitation, any officer or director of the Borrower or any general partner, or any officer or director thereof.

1.1.4 “Agreement.” This Credit Agreement with all its exhibits and schedules, as amended and/or supplemented from time to time. References to this Agreement shall be construed to include any modifications in effect at the time such reference becomes effective.

1.1.5 “Alternate Base Rate.” A variable per annum reference rate of interest (as announced and adjusted by The Bank of Nova Scotia from time to time) for United States dollar loans made by said bank in the United States and Puerto Rico, with no representation by the Bank that said rate is the lowest or most favorable rate offered by the Bank.

1.1.6 “Bank.” The Bank of Nova Scotia.

1.1.7 “Base Rate Advance.” An Advance bearing interest at the fluctuating rate stated in Section 3.1 below under the caption “ABR Spread”, expressed as a number of basis points over the Alternate Base Rate.

1.1.8 “Borrower.” The party identified as such in the preamble to this Agreement.

1.1.9 “Business Day.” (i) When used in reference to LIBOR Advances, a day of the year on which dealings in Eurodollar Deposits are carried on in the London interbank market, and the Bank’s Lending Office is open for business, and (ii) when used in any other context, a day on which the Bank’s Lending Office is open for business.

1.1.10 “Closing Date.” The date of execution of this Agreement.

1.1.11 “Commitment Termination Date”. The earlier of (i) April 21, 2006 (as such date may be extended as set forth in Section 2.7 of this Agreement) and (ii) the date all Obligations become payable pursuant to Section 11.2 of this Agreement.

1.1.12 “Control” (including with correlative meanings the terms “Controlling”, “Controlled by” and “under common Control with”). The power, direct or indirect, (A) to vote 50% or more of the securities having voting power for the election of directors of a Person or (B) to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.

1.1.13 “Debt” means, without duplication, (i) indebtedness for borrowed money or for the deferred purchase price of property or services (including reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers’ acceptances, whether or not matured) or obligations evidenced by notes, bonds, debentures or similar instruments, except accounts payable and accrued liabilities arising in the ordinary course of business that are not overdue by more than 30 days or that are being contested in good faith, (ii) the present value determined in accordance with GAAP of all obligations as lessee under leases which have been or should be recorded as capitalized leases in accordance with GAAP, (iii) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clause (i) or (ii) above.

1.1.14 “Default.” Any event which with the giving of notice and, if applicable, the passage of time, would become an Event of Default.

1.1.15 “Eurodollar Deposits.” Deposits in United States dollars in the principal office of The Bank of Nova Scotia in London, England.

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1.1.16 “Event of Default” has the meaning specified in Section 11.1 hereof.

1.1.17 “Financial Statements.” Borrower’s audited balance sheet and related audited statement of income, retained earnings and changes in cash flows (including auditor’s notes and comments), audited and certified by a certified public accountant reasonably acceptable to the Bank.

1.1.18 “GAAP.” The generally accepted accounting principles set forth from time to time in the opinions, statements and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), consistently applied.

1.1.19 “Governmental Authority.” Any nation or government, including the Commonwealth of Puerto Rico, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any entity, board or instrumentality owned or controlled by any of the foregoing.

1.1.20 “Guarantor.” AmerisourceBergen Corporation.

1.1.21 “Guaranty.” The unlimited, unconditional and irrevocable guaranty executed by the Guarantor to secure the Obligations, in form and substance acceptable to the Bank.

1.1.22 “Index Debt” means the Guarantor’s senior, unsecured, non-credit-enhanced long-term Debt for borrowed money.

1.1.23 “Interest Period.” One of the successive periods of time commencing on the date each LIBOR Advance is disbursed, or converted into or continued as a LIBOR Advance, and ending on the same day of the month 1, 2 or 3 months thereafter, subject in each case to market availability, and as offered by the Bank and selected by Borrower upon notice received by the Bank not later than 11:00 a.m. (Puerto Rico time) on the first Business Day of such Interest Period, provided that:

(a) any Interest Period that ends on a day not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerical equivalent in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(c) the Borrower may not select an Interest Period that extends beyond the Commitment Termination Date. Each successive Interest Period shall commence on the last day of the preceding Interest Period.

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1.1.24 “Law.” All applicable laws, rules and regulations of any Governmental Authority.

1.1.25 “Lending Office.” The Bank’s branch located at Plaza Scotiabank, 273 Ponce de León Avenue, Hato Rey, Puerto Rico 00917.

1.1.26 “LIBOR.” The rate of interest per annum at which deposits of equal (or like) amounts in United States dollars are offered by the principal office of The Bank of Nova Scotia in London, England, to prime banks in the London interbank market at 11:00 a.m. (London time), two Business Days before the first day of each Interest Period, for a period equal to such Interest Period.

1.1.27 “LIBOR Advance.” An Advance bearing interest at the rate stated in Section 3.1 below under the caption “LIBOR Spread”, expressed as a number of basis points over LIBOR.

1.1.28 “Lien.” A mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of any asset of Borrower. For the purposes of this Agreement, an asset shall be deemed subject to a Lien if it is acquired or held by Borrower subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement.

1.1.29 “Loan Documents.” Each of this Agreement, the Note, the Guaranty and any amendments, substitutions, supplements and replacements thereof.

1.1.30 “Operating Loan.” The working capital credit facility in the maximum principal amount of $55,000,000 granted pursuant to Section 2.1 hereof, by way of direct Advances.

1.1.31 “Moody’s” means Moody’s Investors Service, Inc.

1.1.32 “Note.” A promissory note in the form designated by the Bank, substantially in the form of Exhibit 1.1.32 hereto, executed by the Borrower to the order of the Bank to evidence its obligation to pay the Advances.

1.1.33 “Obligations.” All obligations of Borrower under the Loan Documents, including, without limitation, all amounts payable and/or reimbursable to the Bank thereunder.

1.1.34 “Organization Documents.” (a) For any corporation, the certificate or articles of incorporation, the bylaws, any shareholder agreement(s) determining corporate governance and/or stock transfer conditions, and any certificate of designation or other instrument relating to the rights of shareholders of such corporation, and (b) for any partnership, the partnership agreement and any other instrument relating to the rights of partners of such partnership.

1.1.35 “Permit.” Any permit, consent, approval, franchise, license, authorization or right by contract or otherwise, granted by any Governmental Authority to construct, own, operate, promote or otherwise exploit each business operated or to be operated by Borrower.

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1.1.36 “Permitted Liens.” (i) Normal and customary equipment leases that have been or should be, according to GAAP, recorded as capitalized leases; (ii) statutory liens for taxes not yet subject to penalties or interest are being contested in good faith; (iii) minor survey exceptions; (iv) minor easements or reservation of rights for utility services or other similar purposes; (v) Liens created in favor of, or delivered to, the Bank pursuant to this Agreement; and (vi) other Liens expressly permitted by the Bank in writing; and (vii) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business; (vii) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations; (ix) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and (x) judgment liens in respect of judgments that do not constitute an Event of Default under Section 11.1.10.

1.1.37 “Person.” An individual, corporation, trust, unincorporated organization, partnership (special, limited, or otherwise), limited liability company, joint stock company, joint venture or other entity similar in nature to any of the foregoing, or a Governmental Authority.

1.1.38 “Regulated Substance.” (i) Any “hazardous substance” or “pollutant or contaminant” as said terms are defined in the Comprehensive Environmental Response, Compensation and Liability Act [42 U.S.C. 9601, or 40 C.F.R. Part 302]; (ii) any “hazardous waste” as defined in the Puerto Rico Environmental Quality Board Regulation for the Control of Hazardous and Non-Hazardous Solid Waste, as amended; (iii) any toxic or hazardous substance, material or waste (whether solid, liquid or gaseous); (iv) “petroleum”, as defined in the Resource Conservation and Recovery Act, as amended [42 U.S.C. 6991, or 40 C.F.R. 280.1]; or (v) any other substance whose collection, storage, treatment or disposal requires special handling by Law.

1.1.39 “Rollover.” The continuation of a LIBOR Advance for an additional Interest Period.

1.1.40 “S&P” means Standard & Poor’s.

Section 1.2 Accounting and Banking Terms, Other Terms. Unless otherwise stated, all accounting terms used herein shall be construed according to GAAP, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with GAAP. All banking terms not specifically defined shall be construed in accordance with general practice among commercial banks in Puerto Rico. All monetary amounts are expressed in United States dollars. The terms “day” and “days” refer to calendar day(s).

ARTICLE 2. THE ADVANCES

Section 2.1 Amount and Purpose of the Facility. The Bank agrees, on the terms and conditions set forth in this Agreement, to make Advances on a revolving basis to the Borrower from time to time on any Business Day during the period from the Closing Date up to but not

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including the Commitment Termination Date. The aggregate principal amount of Advances outstanding at any one time shall not exceed $55,000,000. The proceeds of the Advances shall be used to finance Borrower’s working capital requirements, and other corporate business purposes.

Section 2.2 Evidence and Maturity of Advances. The date, amount and interest rate of each Advance, and each payment made on account thereof, shall be recorded by the Bank on its books and, prior to any transfer of the Note, endorsed by the Bank on the schedule attached to the Note or any continuation thereof, provided that the Bank’s failure to make any such recordation or endorsement shall not affect the Borrower’s obligation to make a payment when due of any amount owing in respect of any Advance made by the Bank. LIBOR Advances shall mature in 30, 60 or 90 days from the date such Advance is disbursed, and Base Rate Advances shall mature on demand.

Section 2.3 Borrowing Notice. Each Advance other than an Advance made on the Closing Date shall be made on written notice delivered by the Borrower to the Bank (hereafter termed a “Borrowing Notice”). Each Borrowing Notice shall be considered an irrevocable request for an Advance and shall be binding on the Borrower.

Section 2.4 Disbursement of the Advance. If the Bank receives a Borrowing Notice by 11:00 a.m. of a Business Day, it shall make available the amount of the Advance by 2:30 p.m. (Puerto Rico time) on the next Business Day. If the Bank receives a Borrowing Notice after 11:00 a.m. of a Business Day, it shall make available the amount of the Advance by 2:30 p.m. (Puerto Rico time) on the second Business Day following such receipt. Nevertheless, if the Bank shall receive on any Business Day a Borrowing Notice(s) aggregating $5,000,000 or more, the Bank shall have no obligation to make available the requested Advance(s) prior to two Business Days thereafter. Unless otherwise agreed by the Bank, Advances shall be disbursed by crediting the Borrower’s account at the Lending Office.

Section 2.5 Funding Options and Interest Periods.

2.5.1 Initial Interest Rate and Period for Each Advance. Upon receipt of each Borrowing Notice, the Bank shall promptly inform Borrower of the terms and interest rates available for the initial Interest Period for such Advance. Borrower shall have until 11:00 a.m. (Puerto Rico time) on the date of disbursement to notify the Bank of its selection, which notice shall be irrevocable and binding on Borrower. Advances of less than $1,000,000 (whether at disbursement or at the start of any subsequent Interest Period) shall not be eligible for LIBOR-based interest rate options.

2.5.2 Subsequent Interest Periods. On the last Business Day of each Interest Period for each Advance (or promptly after receipt of notice that Borrower wishes to convert a Base Rate Advance to a LIBOR Advance), the Bank shall inform Borrower of the terms and interest rates available for the next Interest Period. Borrower shall have until 11:00 a.m. (Puerto Rico time) on the last Business Day of each Interest Period to notify the Bank of its selection for the next Interest Period, which notice shall be irrevocable and binding on Borrower.

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2.5.3 Conversion to Base Rate Funding at Maturity. If Borrower fails to deliver to the Bank timely notice selecting the desired funding alternative for the Rollover of a LIBOR Advance, then upon expiration of the current Interest Period the Bank shall convert such Advance to a Base Rate Advance. Borrower may thereafter request that the Advance be again converted to a LIBOR Advance pursuant to § 2.5.2.

2.5.4 Suspension of Right to Select LIBOR Funding. If the Bank notifies Borrower prior to the disbursement or Rollover of an Advance, or prior to converting a Base Rate Advance to LIBOR, that for any reason Eurodollar Deposits are unavailable to the Bank for funding Advances, then Borrower’s right to select LIBOR Advances shall be suspended until the Bank notifies Borrower that the circumstances causing such suspension no longer exist.

2.5.5 Rollovers and Conversions not Repayment. Neither a Rollover nor the conversion of an Advance from LIBOR to Base Rate or vice-versa shall constitute a repayment and readvance thereof, but shall only reflect a change in the rate or method of calculating interest thereon.

Section 2.6 Current Account Overdrafts. To the extent there is availability under the Operating Loan, the Bank, at its option but without any obligation to do so, may cover an overdraft in Borrower’s current account(s) with the Bank with an Advance, payable on demand and subject to the interest rate stated and other conditions applicable to Base Rate Advances. As used herein, the phrase “availability under the Operating Loan” means that the amount of the overdraft, plus the aggregate amount of Advances then outstanding, will not exceed the maximum authorized amount of the Operating Loan. The Bank shall have no obligation to honor any check drawn against Borrower’s current account(s) with the Bank if there is insufficient availability under the Operating Loan. Nevertheless, if the Bank at its option were to honor any such check, the amount of the overdraft shall be considered an Advance under the Operating Loan, payable on demand and subject to the interest rate and other conditions applicable to Base Rate Advances.

Section 2.7 Extension of Commitment Termination Date. Borrower may, by written notice received by the Bank no earlier than 120 days and no later than 60 days prior to the Commitment Termination Date, request that the Commitment Termination Date be extended for additional term(s) not to exceed one year each. The Bank, at its sole discretion, may agree to extend the Commitment Termination Date above for one or more additional terms (which may be of less than one year) under terms and conditions that the Bank may determine, at its sole discretion (which may differ from those contained in this Agreement), and shall notify Borrower of its response within 30 days after receipt of Borrower’s extension request. No such extension shall be effective unless set forth in a written instrument signed by the Bank.

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ARTICLE 3. PAYMENTS & INDEMNITIES

Section 3.1 Interest.

3.1.1 Payment Date. Borrower shall pay interest on the Operating Loan in arrears on the twenty second (22nd) day of each calendar month.

3.1.2 Computation. Interest shall accrue from the time of each Advance and until the principal amount thereof is paid in full. Interest on LIBOR Advances shall be computed on the basis of a year of 360 days and interest on Base Rate Advances shall be computed on the basis of a year of 365 days; in all cases for the actual number of days elapsed including the first day but excluding the last day.

3.1.3 Spreads. Interest will accrue at the applicable rate per annum (the “Applicable Rate”) set forth below under the caption “ABR Spread” or “LIBOR Spread”, as the case may be, based upon the ratings established by S&P and Moody’s for the Index Debt on the most recent determination date:

Category	Ratings (S&P/Moody’s)	LIBOR Spread (basis points per annum)	ABR Spread (basis points per annum)
Category 1	A/A2 or higher	42.0	0.0
Category 2	A-/A3 or higher	45.0	0.0
Category 3	BBB+/Baal or higher	60.0	0.0
Category 4	BBB/Baa2 or higher	70.0	0.0
Category 5	BBB-/Baa3 or higher	80.0	0.0
Category 6	BB+/Bal or higher	90.0	0.0
Category 7	BB/Ba2 or higher	110.0	0.0
Category 8	BB-/Ba3 or lower	130.0	20.0

For purposes of the foregoing, (i) if either Moody’s or S&P shall not have in effect a rating for the Index Debt (other than by reason of the circumstances referred to in the last sentence of this subsection), then such rating agency shall be deemed to have established a rating in Category 8; (ii) if the ratings established or deemed to have been established by Moody’s and S&P for the Index Debt shall fall within different Categories, the Applicable Rate shall be based on the higher of the two ratings unless one of the two ratings is two or more Categories above the other, in which case the Applicable Rate shall be determined by reference to the Category one level above the Category corresponding to the lower rating; and (iii) if the ratings established or deemed to have been established by Moody’s and S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody’s or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody’s or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Bank

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shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating of the other rating agency (or, if the circumstances referred to in this sentence shall affect both rating agencies, the ratings most recently in effect prior to such changes or cessations).

3.1.4 Default Interest. If an event of default under Section 11.1.1 or Section 11.1.3. (due to a breach of Article 9 hereof), occurs and is continuing (after all applicable notice and cure periods), then the interest rate on any outstanding Advances will increase, at the Bank’s option, to a rate two (2) percentage points higher than the rate otherwise applicable, effective from the date of the breach. The interest rate payable will remain at such higher rate until the breach is corrected. No such increase in the interest rate shall be construed as a waiver of any of the Bank’s rights under this Agreement, including the right to demand payment, declare an Event of Default or take any other action it may be entitled to take pursuant to any Loan Document.

Section 3.2 Repayment of Principal. Borrower shall repay each Advance at maturity or on demand, as called for in the Note. Provided the Bank has not demanded payment of any Advances or otherwise terminated this Agreement, Borrower may draw, repay, and redraw up to the amount available under the Operating Loan, subject to the prepayment limitations of Section 3.3.2.

Section 3.3 Prepayments of Principal.

3.3.1 Prepayments Not Requiring Additional Compensation. No compensation or fee shall be required for the prepayment, in whole or in part, of (i) Base Rate Advances at any time, and (ii) LIBOR Advances that are prepaid on the last day of an Interest Period.

3.3.2 Prepayments Requiring Additional Compensation. Borrower understands that in making a LIBOR Advance, the Bank may enter into funding arrangements with third parties on terms and conditions which could result in substantial losses to the Bank if such Advance does not remain outstanding at its agreed interest rate for its entire Interest Period. Therefore, if any LIBOR Advance is totally or partially prepaid prior to the last day of its current Interest Period (whether prepayment is voluntary, is required under § 3.7, is due to acceleration of the Operating Loan, or otherwise), then Borrower shall pay to the Bank within ten (10) days of the prepayment date, as liquidated damages and not as a penalty, an amount equal to the Bank’s Funding Loss. For the purposes hereof, “Funding Loss” means any loss (including loss of interest income), cost or expense which may be incurred by the Bank by reason of the reemployment, for the Prepayment Period, of the funds acquired by the Bank to fund an Advance which has been prepaid. “Prepayment Period” means the number of days from the date on which the prepayment is received by the Bank to the end of the then current Interest Period, including the first day but excluding the last. The Bank shall submit to Borrower a written statement stating the basis for determining such amount, which statement shall be conclusive for all purposes in the absence of demonstrable error.

Section 3.4 Time of Payment. Borrower shall make each payment to the Bank hereunder and under the Notes at the Lending Office not later than 2:30 p.m. (Puerto Rico time) on the day

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when due, in United States dollars and in immediately available funds.. Subject to the provisions set forth in the definition of “Interest Period” herein, whenever a payment becomes due on a day other than a Business Day, the payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest to be paid. The Borrower shall give the Bank two Business Days’ prior notice before making any repayment of $5,000,000 or more.

Section 3.5 Application of Payments. All payments received by the Bank shall be applied to the Obligations in the following order (unless varied by the Bank at its sole discretion): first, to costs, fees, charges and other expenses of the Bank; second, to outstanding interest, and third, to outstanding principal.

Section 3.6 Capital Adequacy; Change in Law

3.6.1 If the Bank determines that the adoption of any legal requirement on capital adequacy, or any change therein or in the interpretation or application thereof, or compliance by the Bank or its parent company with any request, directive or guideline on capital adequacy (whether or not having the force of law) from any Governmental Authority or international body (including, without limitation, the Bank for International Settlements), has or shall have the effect, as a consequence of the Bank’s obligations hereunder, of reducing the rate of return on the Bank’s capital to a level below that which the Bank could have achieved but for such adoption, change or compliance (taking into consideration the Bank’s policies with respect to capital adequacy), then, from time to time, upon the Bank’s written demand, Borrower shall pay to the Bank, within ten days of receipt of the Bank’s demand and statement, such additional amounts as will compensate the Bank for such reduction, to the extent such amounts are not already reflected in the calculation of the interest rate(s) applicable to the Operating Loan. The Bank shall submit to Borrower a written statement setting forth the basis for determining such amounts, which statement shall be conclusive for all purposes in the absence of demonstrable error.

3.6.2 If any change in Law or in its interpretation by any Governmental Authority shall make it unlawful for the Bank to continue to maintain the Operating Loan, or for any party to a Loan Document to comply with its obligations thereunder, Borrower shall forthwith (or within the period allowed for such payment, if any, prior to the date when such unlawfulness becomes effective), upon the Bank’s demand, prepay the Operating Loan in full, together with accrued interest thereon and payment of any amounts required to compensate the Bank for any additional direct cost or expense which it may incur as a result of such prepayment. The Bank shall submit to Borrower a written statement setting forth the basis for determining such amounts, which statement shall be conclusive for all purposes in the absence of demonstrable error.

3.6.3 If any change in any Law or in its interpretation by any Governmental Authority shall:

(a) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, or other credit extended by, or any other acquisition of funds by the Bank;

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(b) subject the Bank to any tax, levy, impost, duty, charge, fee, deduction or withholding on or from any payments due from Borrower hereunder;

(c) change the basis of taxation of any payments due from Borrower to the Bank hereunder (other than by a change in taxation of the Bank’s overall net income); or

(d) impose on the Bank any other condition regarding this Agreement;

and the result of any of the foregoing is to increase the Bank’s cost of making or maintaining any Advances, or to reduce any amount receivable by the Bank under this Agreement, then Borrower shall promptly pay to the Bank from time to time, within ten days of its written demand, any additional amounts necessary to compensate the Bank for such increased cost or reduced amount, to the extent such amounts are not already reflected in the calculation of the interest rate(s) applicable to the Advances. The Bank shall submit to Borrower a written statement setting forth the basis for determining such amounts, which statement shall be conclusive for all purposes in the absence of demonstrable error.

Section 3.7 Taxes on Payments. In the event Borrower fails to comply with the covenant described in Section 7.1.4, every payment made by Borrower to the Bank pursuant to this Agreement shall be free and clear of, and without any withholding or deduction on account of, any taxes, levies, imposts, duties or other charges imposed under the U.S. Internal Revenue Code. If Borrower shall be required by Law to make any such deduction or withholding, the sum payable to the Bank shall be increased so that, after making any required deduction or withholding (including any deduction or withholding applicable to the additional sums payable under this Section), such payment shall not be less than the payment otherwise provided for under this Agreement. If the Bank realizes a tax benefit as a consequence of the amounts so withheld and paid to the U.S. Internal Revenue Service by the Borrower, then and at such time, the Bank shall reimburse Borrower an amount equal to the tax benefit realized by the Bank. The Bank shall submit to Borrower a written statement setting forth the basis for determining the amount of such tax benefit, which statement shall be conclusive for all purposes in the absence of demonstrable error. Borrower shall not be required to comply with the requirements stated above (i) to compensate the Bank for a general increase in the income tax rates payable by the Bank, or (ii) when a withholding requirement becomes applicable solely by reason of an action or inaction of the Bank.

Section 3.8 General Indemnity. Borrower will at all times indemnify and hold harmless the Bank against all losses, costs, damages, expenses and liabilities (collectively referred to hereinafter as “Losses”) of whatever nature (including, but not limited to, attorneys’ fees, litigation and court costs, amounts paid in settlement, and amounts paid to discharge judgments) resulting from, arising out of, or related to one or more Claims, except to the extent any such Losses are proximately caused by the Bank’s own gross negligence or willful misconduct. The word “Claims”, as used herein, shall mean all claims, lawsuits, causes of action and other legal actions and proceedings brought against the Bank or to which the Bank is a party, that directly or indirectly result from, arise out of, or relate to: (i) any violation or alleged violation of environmental Law by Borrower or relating to a property owned or operated by Borrower, or (ii) the execution, delivery or performance of the Loan Documents or any related instruments, or (iii)

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any untrue statement, or alleged untrue statement made by or on behalf of Borrower of a material fact contained in the Loan Documents or in any application, amendment or supplement thereto, or the omission or alleged omission by Borrower or on Borrower’s behalf to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. Borrower’s obligations under this Section 3.8 shall apply to all Losses or Claims, or both, which are asserted prior to or after full payment of the Operating Loan. In case any action shall be brought against the Bank with respect to which indemnity may be sought against Borrower, the Bank shall promptly notify Borrower in writing, and Borrower shall have the right to assume the investigation and defense thereof, including the employment of counsel and the payment of all expenses. The Bank shall have the right to employ separate counsel in any such action and participate in the investigation and defense thereof; and the fees and expenses of such counsel shall be paid by Borrower; provided, however, that Borrower, in connection with any indemnified matter, shall only be required to pay the fees and expenses of joint counsel engaged to represent both Borrower and Bank, except to the extent that the use of joint counsel could reasonably be expected to give rise to any conflict of interest for any such counsel or Bank shall have determined, based on a written opinion from its counsel, that it may have legal defenses available to it that are different from, additional to or in conflict with those available to Borrower. Borrower shall not be liable for any settlement of any such action without its consent, but if any such action is settled with the consent of the Borrower or if there be a final unappealable judgment for the claimant in any such action, Borrower agrees to indemnify and hold harmless the Bank from and against any such Losses or Claims. Nothing herein shall be construed as requiring the Bank to acquire or maintain insurance of any form or nature with respect to any property, or with respect to any term, provision, condition or obligation of this Agreement or any other matter in connection herewith. The provisions of this Section 3.8 shall survive the expiration or termination of this Agreement.

ARTICLE 4. COLLATERAL SECURITY

Section 4.1 The Guaranty. All Obligations shall be secured by the unlimited, unconditional and irrevocable Guaranty, in form and substance acceptable to the Bank.

ARTICLE 5. CONDITIONS OF LENDING

Section 5.1 Conditions Precedent to Initial Advance. The Bank’s obligation to make its initial Advance hereunder is subject to the following conditions precedent:

5.1.1 As of the date of the initial Advance there shall exist no Default or Event of Default under this Agreement, nor shall a material adverse change have occurred in the financial condition of the Borrower or the Guarantor.

5.1.2 Borrower shall have paid all costs and expenses of the Bank (including, without limitation, reasonable attorney’s fees) to such date, incurred in connection with the preparation, execution and delivery of the Loan Documents and any other documents to be delivered thereunder, and the consummation of the transactions contemplated thereby.

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5.1.3 Each consent, license and approval required in connection with the execution, delivery, performance, validity and enforceability of each of the Loan Documents shall be in full force and effect and shall be reasonably satisfactory in form and substance to the Bank.

5.1.4 The Bank shall have received the following, in form and substance satisfactory to it:

(a) The Note, properly executed by the Borrower.

(b) Copy of Borrower’s Organization Documents, and originals or certified copies of such resolutions, consents, documents and certificates as may have been requested to evidence authority to negotiate, execute and deliver the Loan Documents and all other related documents to which Borrower is a party, and identifying the officers of the Borrower authorized to sign each document to be delivered by it hereunder. The Bank may conclusively rely in the future on such certificate(s) as continuing in full force and effect until it shall receive a further certificate of Borrower canceling or amending the prior certificate(s).

(c) The Guaranty, with appropriate evidence of each signatory’s authority to execute the same.

(d) Evidence of all insurance policies required by this Agreement, if any, with terms and coverage as set forth in this Agreement, in the form of certificates of insurance or certified copies thereof and a broker’s certificate that said policies are in full force and effect with the premiums prepaid and, where applicable, duly endorsed to the Bank.

(e) The favorable opinion of counsel for the Bank and/or in-house counsel for the Borrower as to such matters as the Bank may reasonably request.

(f) Other approvals, opinions or documents as the Bank may reasonably request.

Section 5.2 Conditions Precedent to All Advances. The Bank’s commitment and obligation to make available each Advance (including the initial Advance and all future Advances and Rollovers) shall be subject to the further requirement that on the date of such Advance the following conditions precedent shall be met; provided that if the Bank, in its discretion, elects to make such Advance despite the fact that one or more such conditions are not met, the Advance shall be deemed to have been made pursuant to this Agreement and shall be secured by the Collateral Security:

5.2.1 The following statements shall be true:

(a) Borrower’s representations and warranties contained in Article 6 hereof and in the Loan Documents are true and correct in all material respects on and as of the date of such Advance as though made on and as of such date;

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(b) no event has occurred and is continuing, or would result from such Advance, which constitutes a Default or an Event of Default; and

(c) no material change has occurred in Borrower’s or Guarantor’s financial condition, which change the Bank reasonably determines will likely have a material adverse effect on the ability of Borrower or Guarantor, as the case may be, to perform its obligations under the Loan Documents.

5.2.2 The Bank shall have received such other approvals, opinions or documents as the Bank may reasonably request.

ARTICLE 6. REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to the Bank as follows:

Section 6.1 Official Standing. Borrower is a corporation organized and validly existing under the laws of Delaware, duly authorized to do business in Puerto Rico, and has the power and authority to own its properties and to carry on its business; and is duly qualified to transact business and is in good standing in each other jurisdiction where it conducts business or owns properties or assets.

Section 6.2 Official Action. The execution, delivery and performance by Borrower of each Loan Document to which it is a party are within its powers, have been duly authorized by all necessary action, and do not contravene any provision of Borrower’s Organization Documents or any law or contractual restriction binding on or affecting Borrower.

Section 6.3 Authenticity of Copies. The copies of: (i) Borrower’s Organization Documents; (ii) Borrower’s most recently submitted Financial Statements; and (iii) all other documents that Borrower has delivered or caused to be delivered to the Bank in connection with the Operating Loan, are originals or complete and correct copies of the originals, together with all amendments thereto up to the Closing Date, and to Borrower’s knowledge, the originals were properly issued, executed, made, authorized and/or signed.

Section 6.4 Governmental Authority. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required for the due execution, delivery and performance by Borrower of each Loan Document to which it is a party, other than authorizations and approvals already obtained and which are now in full force and effect.

Section 6.5 Binding Obligation. Each of the Loan Documents executed by or on behalf of Borrower or Guarantor has been or will be duly executed and delivered and will constitute, under the laws of the jurisdiction governing such document’s execution, the legal, valid and binding obligation of Borrower or Guarantor, as the case may be, enforceable against such party in accordance with its terms, except as such enforceability may be limited by bankruptcy law, insolvency or similar debt-restructuring legal procedures, or other laws affecting creditors’ rights generally and by general principles of equity.

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Section 6.6 No Default. Except as disclosed in writing to the Bank, Borrower is not in default in the payment or performance or observance of any contract, agreement or other instrument to which it is a party, or by which it or any of its properties or assets may be bound, which individually or together with all other such defaults, could have a material adverse effect on its business, results of operations, financial condition or ability to remain as a going concern, or materially impair its ability to pay the Obligations or perform or observe the provisions of any Loan Document.

Section 6.7 No Violation of Law or Adverse Proceedings. Other than as disclosed in writing to the Bank, (i) Borrower is not in violation of any Law, except violations that can have no material adverse consequences on Borrower’s business, results of operations, financial condition or ability to remain as a going concern; and (ii) to Borrower’s knowledge there is no pending or threatened action or proceeding against or affecting Borrower before any Governmental Authority or arbitrator which may materially and adversely affect Borrower’s business, results of operation, financial condition or ability to remain as a going concern.

Section 6.8 No Securities Transactions. No proceeds of the Operating Loan will be used to acquire any security in any transaction which is subject to the Uniform Securities Act of Puerto Rico, the Securities Act of 1933 or the Securities Exchange Act of 1934, all as amended.

Section 6.9 No Investment Company. Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

Section 6.10 No Margin Stock. No proceeds of the Operating Loan will be used to purchase or carry any margin stock (within the meaning of the Federal Reserve System regulations), or to extend credit to others for that purpose.

Section 6.11 Title to Properties. Borrower has good and marketable title to all assets and properties shown or reported in the Financial Statements submitted to the Bank and all such assets and properties are free and clear of material encumbrances, mortgages, pledges, leases, security interests, liens and/or title restrictions, except those reflected in the Financial Statements, those disclosed in writing to the Bank or constituted pursuant to the Loan Documents.

Section 6.12 Tax Returns. All federal, Puerto Rico and foreign tax returns, reports and statements (including, without limitation, those relating to income and property taxes, withholding, Social Security and unemployment taxes, sales and use taxes, municipal license and franchise taxes) required to be filed by Borrower have been properly filed with the appropriate Governmental Authorities, or extensions for filing have been given. All due and payable taxes, and any applicable penalties, interest or other charges due to asserted deficiencies, late filings or payments, have been paid except where contested in good faith and by appropriate proceedings, or where payments are being made under an agreed payment plan currently in effect. Appropriate amounts have been withheld by Borrower from its employees and paid in compliance with the tax, Social Security and unemployment withholding provisions of Law.

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Section 6.13 Permits. All Permits required for Borrower’s operations are in full force and effect. No other approval, application, filing, registration, consent or other action of any Governmental Authority will be required to enable Borrower to use any such Permits. Borrower has not received any notice from any Governmental Authority with respect to any breach of any condition of such Permits that has not been cured or corrected. All material consents and approvals of, filings and registration with, and all other material and applicable actions in respect of, all Governmental Authorities required to maintain any Permits in full force and effect prior to the scheduled date of expiration thereof have been (or prior to the time when required, will have been) obtained, given, filed or taken and are or will be in full force and effect.

Section 6.14 Insurance Policies. All insurance policies owned by or issued to Borrower are in full force and effect, and are of a nature and provide such coverage as is sufficient and as is customarily carried by companies of Borrower’s size and character. Except as disclosed in writing to the Bank, Borrower has not been refused insurance for which it applied, or had any policy terminated (other than at its request).

Section 6.15 No Labor Disputes. Except as disclosed in writing to the Bank:

(a) there are no strikes, other labor disputes, unfair labor practice charges or grievances, or employment discrimination complaints, pending against Borrower, or to its knowledge, threatened, which could materially and adversely affect its business, results of operation, financial condition or ability to remain as a going concern; and

(b) all applicable payments, if any, due from Borrower pursuant to any collective bargaining agreement have been paid or accrued as a liability on its books.

Section 6.16 Financial Statements. The latest Financial Statements submitted to the Bank, as of the dates and for the periods indicated, present fairly Borrower’s financial position, results of operations and cash flow and have been prepared in accordance with GAAP. There has been no material adverse change in Borrower’s business, results of operation, financial condition or ability to remain as a going concern, since the date of such Financial Statements. Borrower has no liabilities (whether absolute or contingent, and whether due or to become due) or loss contingencies (as that term is defined in the Statement of Financial Standards No. 5) which are not disclosed on the Financial Statements, except for non-material liabilities occurring in the ordinary course of business.

Section 6.17 No False Representations. To the best of its knowledge, none of the Loan Documents or certificates furnished to the Bank pursuant to this Agreement by Borrower or on its behalf, contains any untrue representation or statement of a material fact, or omits to state a material fact necessary to make the statements contained therein not misleading. There is no fact known to Borrower which it has not disclosed to the Bank in writing prior to the execution of this Agreement, which materially and adversely affects Borrower’s business, results of operation, financial condition or ability to remain as a going concern.

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Section 6.18 No Material Litigation or Proceedings. Except as disclosed in writing to the Bank, to Borrower’s knowledge there are no pending or threatened proceedings, complaints, disputes, contests and/or charges against or affecting Borrower before any Governmental Authority, nor any arbitration proceedings, except litigation or proceedings fully covered by insurance or which, if adversely determined, could not materially affect Borrower’s business, results of operation or financial condition, or that may affect its ability to remain as a going concern.

Section 6.19 Source of Income. Borrower derives, and during the term of this Agreement will derive, at least 80% of its gross income from the active conduct of a trade or business outside the United States, for purposes of United States federal income taxation.

ARTICLE 7. COVENANTS OF THE BORROWER

Section 7.1 Affirmative and Financial Covenants. Until full payment of the Obligations, Borrower shall, unless the Bank otherwise consents in writing:

7.1.1 Maintenance of Existence, Conduct of Business. Maintain its legal existence and all rights, privileges and Permits necessary or desirable in the normal conduct of its business, and

(a) conduct its business in a regular manner;

(b) preserve, or cause to be preserved, all of its registered trademarks, trade names and service marks;

(c) use its reasonable efforts, in the ordinary course and consistent with prudent business practice, to preserve its goodwill and the business of the customers, suppliers and others having business relations with the Borrower, and to keep available the services and goodwill of its employees; and

(d) pay and discharge all of its indebtedness, trade bills and obligations promptly and in accordance with their terms and/or the normal and customary trade terms unless it is contesting the same by appropriate proceedings.

7.1.2 Contractual Compliance. Comply with the material terms and conditions of any agreements, contracts, indentures or other instruments to which it is party or by which it is bound, unless non-performance is authorized or legally justified, and do all things reasonably necessary to preserve and to keep unimpaired its rights under such instruments.

7.1.3 Compliance with Laws, Etc. Comply with all Laws, orders and material Permits and other authorizations relating or applicable to its operations, except where the failure to comply would not have a material adverse effect on its business, results of operation, financial condition or ability to remain as a going concern, or on the Bank’s rights and remedies hereunder.

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7.1.4 Limitation on U. S. Business. Conduct its businesses in such manner that at least 80% of its gross income shall derive from the active conduct of a trade or business outside the United States, for purposes of United States federal income taxation.

7.1.5 Taxes and Claims. Pay and discharge (and, upon the Bank’s request, provide to the Bank evidence thereof) all taxes, assessments and governmental charges or levies imposed upon it or upon its operations, payroll, income, profits or properties, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien upon Borrower’s property; provided that this requirement shall not apply to the extent the payment obligation is being contested in good faith and by proper proceedings, and adequate reserves are maintained with respect thereto.

7.1.6 Maintenance of Properties. Preserve all of its material assets and properties and keep the same in good repair, working order and condition, and from time to time make or cause to be made all needed and proper repairs, renewals and replacements thereto to preserve and maintain their value, normal wear and tear excepted.

7.1.7 Records and Financial Statements. Keep at all times all necessary and adequate books of record and accounts of the Borrower’s operations, and an accounting system in conformity with GAAP. Reasonably protect such books and accounts against loss or damage. Have its books and accounts and the Financial Statements showing its financial condition and the results of its operations during the preceding fiscal year, together with any supporting schedules, audited by independent certified public accountants of recognized standing selected by Borrower and reasonably acceptable to the Bank.

7.1.8 Inspections. Permit officers, agents and/or representatives of the Bank to visit and inspect at reasonable times and intervals and upon reasonable advance notice Borrower’s premises, assets and properties; examine its books of records and accounts, make extracts therefrom, and discuss the same with Borrower’s chief operating and financial officers provided that Bank’s officers, agents and/or representatives shall at all times observe all Borrower’s security policies during any such inspection.

7.1.9 Use of Loan Proceeds. Use the proceeds of the Operating Loan solely for the purposes stated in this Agreement.

Section 7.2 Negative Covenants. Until full payment of the Obligations, Borrower shall not, without the Bank’s prior written consent (which consent shall not be unreasonably withheld):

7.2.1 Liens. Create, allow or suffer to exist a Lien on any of its properties, whether now owned or hereafter acquired, or assign any right to receive income secure any Debt of any person or entity, other than (i) Permitted Liens, or (ii) purchase money Liens on property acquired by the Borrower in the ordinary course of business. Notwithstanding the foregoing, this section does not prohibit, restrict or impose any condition upon Liens created, if any, to secure obligations arising under the ABC Credit Agreement.

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7.2.2 Mergers, Consolidations. Merge or consolidate with any Person in a transaction in which Borrower is not the surviving entity.

7.2.3 Dispositions. Sell, lease, assign, transfer or otherwise convey or dispose of any material amount of its properties or assets, other than the sale in the ordinary course of its business of its inventory and obsolete or surplus equipment. Notwithstanding the foregoing, the Bank agrees not to unreasonably withhold its consent for Borrower to participate in asset securitizations with Affiliate(s) of the Borrower.

7.2.4 Change in Nature of Business. Engage to any material extent in any business other than businesses of the type conducted by the Borrower on the date of execution of this Agreement and businesses reasonably related thereto.

7.2.5 Change in Control. Permit or suffer any transfer of capital interests so as to effect a change in the Control of the Borrower, other than any such transfer after which Borrower remains a wholly-owned direct or indirect subsidiary of Guarantor.

7.2.6 Investments, Loans, Advances, Guarantees and Acquisitions. Purchase, hold or acquire (including pursuant to any merger with any Person) any equity interests in or evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except as permitted under Section 6.04, subsections (a) through (g), of the ABC Credit Agreement.

7.2.7 Additional Debt. Create or suffer to exist any bank Debt that is senior, either in repayment rights or security, to the Operating Loan.

7.2.8 Accounting Changes. Make any significant change in accounting treatment and reporting practices except as required by GAAP.

ARTICLE 8. INSURANCE REQUIREMENTS

Section 8.1 Required Coverage. Borrower shall maintain insurance with reputable and financially sound companies reasonably acceptable to the Bank, in such amounts and against such risks as is usually carried by owners of similar businesses and properties in Puerto Rico, and is otherwise reasonably satisfactory to the Bank, including hazard (including, without limitation, fire, earthquake, windstorm and hurricane), flood (if applicable), business interruption, workmen’s compensation and commercial general liability insurance. The property insurance shall name the Bank as loss payee and shall contain an endorsement providing that the insurance shall not be cancelable except upon at least 30 days prior written notice to the Bank. All other policies, except for the workers compensation policy, shall name the Bank as an additional insured. From time to time at the Bank’s request, Borrower shall deliver to the Bank: (i) a detailed schedule indicating all insurance policies then in force with respect to its business

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and/or properties; (ii) a certificate of insurance(s) confirming the coverages outlined in this section, and/or (iii) a confirmation from the insurer(s) that premiums then due and payable in respect of such insurance have been paid.

ARTICLE 9. REPORTING REQUIREMENTS

Section 9.1 Documents, Information and Notices. Borrower shall furnish to the Bank:

9.1.1 As soon as available, and in any event within 180 days after the end of each fiscal year of the Borrower, the Financial Statements for such fiscal year.

9.1.2 Within 95 days after the end of each fiscal year of the Guarantor, its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year.

9.1.3 Together with the annual Financial Statements of the Borrower, a certificate signed by its chief financial officer or its chief operating officer to the effect that to the knowledge of such officer no Default or Event of Default under this Agreement has occurred and is then continuing. If any such Default or Event of Default exists, the certificate shall describe its nature, indicate when it occurred, and state the actions taken or to be taken to cure the same.

9.1.4 Within 50 days from the end of each of the first three fiscal quarters of each fiscal year of the Guarantor, its unaudited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year.

9.1.5 Promptly upon knowledge thereof, notice of all litigation and all other proceedings before any arbitrator or Governmental Authority affecting Borrower, except litigation or proceedings fully covered by insurance or which, if adversely determined, could not materially and adversely affect Borrower’s business, properties, prospects, assets, results of operation, financial condition, or ability to remain as a going concern.

9.1.6 Promptly upon knowledge thereof, notice of any material labor dispute resulting in or threatening to result in a strike against Borrower and which might have a material adverse effect on its business, results of operation, financial condition, or ability to remain as a going concern.

9.1.7 Prompt written notice of: (i) any enforcement or remedial action or proceeding relating to environmental protection undertaken by any Governmental Authority against Borrower or against any property owned or occupied by Borrower; (ii) the occurrence of any unpermitted release of a Regulated Substance to the environment that by Law would require an oral, telephonic or written communication to any such Governmental Authority; and (iii) prompt copies of all orders, notices, permits, applications or other communications and reports received, made or given in connection with any such event.

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9.1.8 Promptly upon request, copies of such other reports and notices as the Bank may require and which Borrower files with or delivers to, or receives from, any Governmental Authority.

9.1.9 Within 10 days following any officer of Borrower obtaining knowledge of its occurrence, written notice of any condition, act or event which constitutes a Default or Event of Default under this Agreement or any of the other Loan Documents, which notice shall specify the nature thereof and what action Borrower proposes to take with respect thereto.

9.1.10 Such other information respecting Borrower’s condition or operations (financial or otherwise) as the Bank may from time to time reasonably request.

9.1.11 Information required to be delivered pursuant to this Section shall be deemed to have been delivered on the date on which Borrower provides notice to the Bank that such information has been posted on Borrower’s website on the Internet at http://www.amerisourcebergen.com or at the appropriate Borrower designated website at http://www.sec.gov or http://intralinks.com.

ARTICLE 10. ENVIRONMENTAL COVENANTS

Section 10.1 Use of Regulated Substances. Borrower covenants and agrees that it:

10.1.1 has not used, generated, treated or stored Regulated Substances except in accordance with Law, and has not caused or suffered, nor to its knowledge has any other party caused or suffered, a material discharge, spill, seepage, disposition or other release of Regulated Substances in, on or under a property owned or operated by Borrower, that has not been fully remedied as required by Law.

10.1.2 will not use, generate, treat, store, discharge, spill, dispense, dispose or otherwise release any Regulated Substance or any waste of any kind in, on or under the properties owned or operated by Borrower and will not cause, suffer, allow or permit any other Person to do so, except in compliance with Law; and

10.1.3 will provide the Bank, within five days of receipt, copy of any notice of violation, notice of filing of any administrative, civil or criminal action, or non-routine investigation or request for information by any Governmental Authority relating to Borrower’s compliance with environmental requirements or to the environmental condition of any properties owned or operated by Borrower.

Section 10.2 Inspections. The Bank and its authorized representatives may at reasonable times and intervals enter, inspect and assess the environmental condition of the properties owned or operated by Borrower. The Bank shall maintain confidential all information generated by the Bank with respect to any inspection, audit or test performed by or on behalf of the Bank, except that it shall deliver copy of such information to Borrower and shall reveal such information to any Governmental Authority if so requested or otherwise required by Law.

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Section 10.3 Environmental Indemnity. Without limiting Borrower’s general indemnity under Section 3.8 hereof, Borrower particularly agrees to defend, indemnify and hold the Bank harmless from and against all liability, loss, damage, cost and expense suffered, incurred or threatened as a result of any notice, complaint, claim, demand, suit, controversy, order, judgment, statute, regulation or other legal requirement, including without limitation court costs, reasonable attorneys’ and consultants’ fees, environmental cleanup costs, natural resources damages, fines, penalties and damages to persons, personal property, real property and business enterprises, and including all past, present and future claims and liability, arising out of or relating to the environmental condition of the properties owned or operated by Borrower, the existence of any environmental hazard thereon, any violation of Law concerning public health, safety or the environment, and any release or threat of release of a Regulated Substance on, under or from such properties at any time, whether or not within the Bank’s control. This indemnity and all other covenants, warranties and representations in Article 10 shall survive the payment and satisfaction of the Obligations and/or termination of this Agreement, with respect to occurrences or conditions that arose or existed prior to the payment and satisfaction of the Obligations or the termination of this Agreement, regardless of when such occurrences or conditions became known to Borrower or the Bank; provided; however that such survival shall in no event exceed in duration the length of any applicable statute of limitations.

ARTICLE 11. EVENTS OF DEFAULT

Section 11.1 Events of Default. Each of the following shall constitute an Event of Default:

11.1.1 Borrower fails to pay when due, whether on demand, at a fixed payment date, by acceleration or otherwise, any payment of principal, interest, fees, commissions or any other amounts payable under any Loan Document, and such failure shall continue unremedied for a period of three Business days.

11.1.2 Any representation or warranty contained in a Loan Document shall prove to have been incorrect in any material respect when made.

11.1.3 Borrower fails to perform or observe any other term or covenant contained in a Loan Document, on its part to be performed or observed at any time, and such failure shall remain unremedied for 30 days after Borrower obtains actual knowledge thereof or receives notice thereof; provided however, that if Borrower has commenced and is diligently pursuing the cure of the default, and in the Bank’s judgment a delay will not materially and adversely affect or impair the Bank’s position hereunder or Borrower’s ability to perform its Obligations, said 30-day term may be extended by such additional period deemed reasonable by the Bank in its sole discretion.

11.1.4 Borrower fails to pay any material Debt when due and upon expiration of any applicable grace or cure period; or any material Debt is declared by its creditor to be due prior to its stated maturity or prior to its regularly scheduled dates of payment.

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11.1.5 An event of default shall have occurred and continues beyond any applicable grace or cure period under the ABC Credit Agreement, or in any other obligation of Guarantor to the Bank with a principal amount in excess of $25,000,000.

11.1.6 Any Loan Document ceases to be in full force and effect, or is declared to be null or unenforceable beyond final appeal, and such condition shall continue to exist 30 days after notice thereof shall be given to Borrower; provided, however that if such condition has been caused by the fault or omission of the Bank, no such Event of Default shall be deemed to exist unless: (i) the Bank has taken all action necessary on its part to correct such condition, and (ii) Borrower shall have failed to take an action necessary on its part to correct such condition within the aforesaid 30-day term.

11.1.7 Borrower or Guarantor: (i) becomes insolvent; or (ii) generally fails to pay its debts as they mature; or (iii) admits in writing its inability to pay its debts as they mature; or (iv) makes an assignment for the benefit of creditors; or (v) applies for or consents to the appointment of a receiver, trustee, or similar officer for it or for any substantial part of its property; or (vi) such receiver, trustee or similar officer is appointed without Borrower’s or Guarantor’s application or consent and such appointment continues undischarged for a period of 60 days; or (vii) Borrower or Guarantor institutes (by petition, answer, consent or otherwise) any bankruptcy, insolvency, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding under any Law; or (viii) any such proceeding is instituted (by petition, application or otherwise) against Borrower or Guarantor and remains undismissed for a period of 60 days.

11.1.8 Borrower fails for a term in excess of 30 days after being so requested in writing, to reimburse the Bank any amounts that it has incurred, expended or disbursed because of Borrower’s failure to comply with any of its obligations, covenants or undertakings under a Loan Document.

11.1.9 Borrower’s usual and material businesses or operations are liquidated, sold, wound up or terminated, or are suspended for a period longer than 30 days, except:

(a) a suspension to restore or repair after a casualty loss,

(b) a temporary inability to operate due to Force Majeure, which is defined as any act of God, earthquake, hurricane, flood, riot, war, fire, extraordinary weather conditions, labor strike or dispute (but not a labor strike or dispute limited to Borrower employees), or any other superior or irresistible force or event beyond the control of the Person claiming its occurrence, or

(c) a suspension that has no material adverse impact on Borrower’s financial condition nor on its ability to perform its obligations under the Loan Documents.

11.1.10 Any judgment, injunction or decree is entered or issued preventing Borrower from continuing to operate a material portion of its business affairs in the normal course, and such judgment, injunction or decree becomes final and beyond appeal.

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11.1.11 Any writ to secure the effectiveness of a judgment is issued against Borrower affecting a material portion of its assets or properties, or preventing it from operating its businesses in the normal course, and Borrower fails to have the same stayed, quashed, bonded, canceled or set aside within 30 days after being served with a copy thereof.

11.1.12 Any event of default shall have occurred and be continuing beyond any applicable grace or cure period, in any Loan Document or in any other obligation of Borrower to the Bank.

Section 11.2 Consequences of a Default. If an Event of Default occurs, the Bank at its option (i) may declare its obligations hereunder to be terminated, whereupon the same shall forthwith terminate; and (ii) by notice to Borrower, may declare all Obligations (including the prepayment indemnity stipulated in § 3.3.2) to be forthwith due and payable, whereupon they shall so become forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrower; provided, however, that upon the occurrence of any event specified in § 11.1.7, all Obligations shall automatically become due and payable without any declaration, notice or demand by the Bank.

Section 11.3 Remedies. If an Event of Default occurs, in addition to taking legal action to collect on the Obligations, the Bank shall also be entitled to:

11.3.1 Refuse to disburse any amounts under this Agreement not yet disbursed, and stop the payment of any uncashed checks issued pursuant to the same.

11.3.2 Increase the interest rate as provided in § 3.1.4 hereof.

11.3.3 Without notice to Borrower and to the fullest extent allowed by Law, set off and apply any obligations or liabilities of the Bank to Borrower (including deposits of any kind), against the Obligations, first against any interest or other charges and thereafter against Operating Loan principal. The Bank agrees to promptly notify Borrower after any such set-off and application, but the failure to give notice shall not affect the validity of such set-off and application.

11.3.4 Any other remedies and rights provided in any of the Loan Documents, and any other remedies at law or equity not otherwise expressly waived, modified or limited herein.

ARTICLE 12. NOTICES

Section 12.1 Addresses. All notices and other communications provided for in this Agreement shall be in writing and mailed by first class mail, faxed, delivered personally, or delivered through a delivery service for which a receipt is available to the recipient’s address stated below. Such communications shall be effective (i) if mailed, when received or on the third Business Day after mailing, whichever is earlier; (ii) if faxed, upon confirmation by the sender’s

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telefax machine that the message has been received by the addressee’s machine; or (iii) if given by other means, when delivered at the address stated below.

Borrower:	JM Blanco, Inc.
	c/o AmerisourceBergen Corporation
	1300 Morris Drive, Suite 100
	Chesterbrook, PA 19087-5594
	Attention: Jack F. Quinn, V.P./Treasurer Fax No. (610) 727-3639
Copy to:	General Counsel
	c/o AmerisourceBergen Corporation
	1300 Morris Drive, Suite 100
	Chesterbrook, PA 19087-5594
	Attention: General Counsel Fax No. (610) 727-3612
Guarantor:	AmerisourceBergen Corporation,
	11300 Morris Drive, Suite 100
	Chesterbrook, PA 19087-5594
	Attention: Jack F. Quinn, V.P./Treasurer Fax No. (610) 727-3639
The Bank:	The Bank of Nova Scotia
	Plaza Scotiabank
	273 Ponce de León Avenue
	Hato Rey, Puerto Rico 00917 Fax no. (787) 766-7909
	Attention: Senior Vice President, Commercial Banking

Section 12.2 Change of Address. Any of the parties may change the officer or agent authorized to receive any notices, requests, demands and other communication, and its mailing address, by giving notice to the other parties pursuant to this Article 12.

ARTICLE 13. MISCELLANEOUS

Section 13.1 Charges and Expenses.

13.1.1 Borrower shall pay all fees, costs and expenses related or incidental to the negotiation, documentation, closing, disbursement, administration, amendment and enforcement of the Loan Documents, to the collection of amounts due to the Bank thereunder, including:

(a) fees and disbursements of counsel for the Bank, up to $7,000 upon presentation of an invoice;

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(b) recording fees and taxes, notarial fees, documentary stamps, cancellation fees and any other charges and expenses related to document execution;

(c) license or permit fees, insurance premiums, and similar items relating to the Loan Documents;

(d) litigation costs and all other expenses relating to collection activities, foreclosure of Collateral Security or bankruptcy proceedings, including fees and expenses of receivers or custodians and property preservation and maintenance costs;

(e) fees and expenses relating to the modification, amendment or supplementation of any Loan Document; and

(f) any and all reasonable amounts paid by the Bank in connection with curing of any Default or Event of Default under this Agreement or any other Loan Document.

13.1.2 Borrower authorizes the Bank, to the extent any such fees, costs and expenses are not paid within 30 days after being submitted, to charge the same against any of Borrower’s accounts with the Bank, unless Borrower is contesting such payment in good faith. The above notwithstanding, all expenses relating to the preparation and execution of this Agreement and the other Loan Documents (including but not limited to deed stamps and registry fees) shall be paid at closing, and if not paid may be charged forthwith against Borrower’s accounts with the Bank.

Section 13.2 No Joint Venture. Nothing herein contained shall constitute or be construed to be or to create a joint venture or a partnership between Borrower and the Bank. The Bank does not assume and shall not bear any business risks directly or indirectly related to Borrower.

Section 13.3 The Bank’s Option to Pay or Perform. If Borrower fails to make any payment or perform any act required under any Loan Document, the Bank may, at its option, upon 10 days prior notice to Borrower, make such payment or perform such act, unless Borrower is contesting such payment or act in good faith and has adequately reserved funds therefor. Any amounts so paid and any expenses so incurred by the Bank shall be reimbursed by Borrower with interest at the rate provided in Section 3.1 of this Agreement for Base Rate Advances, and any such payment by the Bank shall not cure Borrower’s default because of its failure to make such payment or to perform such act, until the Bank has been reimbursed the amount paid plus accrued interest.

Section 13.4 Assignment and Participation.

13.4.1 The Bank may negotiate or assign all of its rights, powers, and privileges under this Agreement and the other Loan Documents with the consent of Borrower, which will not be unreasonably withheld. The Bank shall give Borrower prompt written notice of any such negotiation or assignment.

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13.4.2 All references in this Agreement or in any other Loan Document to any party shall be deemed to include such party’s successors and assigns.

13.4.3 The Bank shall have the right to sell participations in this Agreement, the Notes and the other Loan Documents subject to the consent of Borrower, which will not be unreasonably withheld. Notwithstanding any participation, the Bank’s obligations under this Agreement shall remain unchanged, the Bank shall remain the holder of the Note(s) for all purposes of this Agreement, and the Borrower shall continue to deal solely and directly with the Bank in connection with the Bank’s rights and obligations under this Agreement.

13.4.4 The Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to the Bank by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information -relating to the Borrower received by it from the Bank pursuant to the terms of Section 13.5.

Section 13.5 Confidentiality. The Bank agrees to keep confidential all non-public information pertaining to the Borrower which is provided to it by Borrower in accordance with the Bank’s customary procedures for handling confidential information of this nature, and shall not disclose such information to any Person except (i) to the extent such information is public when received by the Bank or becomes public thereafter due to the act or omission of any party other than the Bank, (ii) to the extent such information is independently obtained from a source other than the Borrower and such information from such source is not, to the Bank’s knowledge, subject to any obligation of confidentiality or, if such information is subject to an obligation of confidentiality, that disclosure of such information is permitted, (iii) to any Affiliate of the Bank, counsel, auditor, examiner or any regulatory authority having jurisdiction over the Bank, accountants and other consultants retained by the Bank, (iv) in connection with any litigation or the enforcement of the rights of the Bank under this Agreement or any other Loan Document, (v) to the extent required by any applicable statute, rule or regulation or court order (including, without limitation, by way of subpoena) or pursuant to the request of any Governmental Authority having jurisdiction over the Bank, or (vi) to the extent disclosure to other Persons is appropriate in connection with any proposed or actual assignment or grant of a participation to such other Person (who will in turn be required to maintain confidentiality as if it were a party to this Agreement). In no event shall the Bank be obligated or required to return any such information or other materials furnished by the Borrower pursuant to this Agreement or the other Loan Documents.

Section 13.6 No Waiver, Cumulative Remedies.

13.6.1 No failure or delay by the Bank in exercising, and no partial or single exercise by the Bank of, any right, remedy, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall impair its exercise in any future instance. All rights and remedies provided in the Loan Documents are cumulative and may be exercised contemporaneously or successively, and are in addition to and not exclusive of any other rights and remedies provided by Law.

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13.6.2 No waiver shall be effective or binding unless it is in writing, signed by an authorized officer, and the specific intent of waiving any rights, causes of action and privileges is stated therein. Any waiver by the Bank of the strict observance, performance or compliance with any term, covenant, condition or other matter contained herein and any indulgence granted, either expressly or by course of conduct, by the Bank shall be effective only in the specific instance and for the purpose for which it was given and shall be deemed not to be a waiver of any rights and remedies of the Bank in connection with any other instance or purpose.

Section 13.7 Survival. Unless expressly stated otherwise herein, all representations, warranties, covenants and undertakings made by Borrower in the Loan Documents shall continue in full force and effect until the Operating Loan is paid in full. The covenants made in Section 3.8, Section 10.4 and Section 13.1 shall survive the satisfaction of the Obligations and/or termination of this Agreement.

Section 13.8 Applicable Law; Jurisdiction and Venue. This Agreement and the other Loan Documents shall be construed and enforced in accordance with, and governed by, the laws of Puerto Rico. Borrower irrevocably: (a) agrees that any suit, action or other legal proceeding arising out of or relating to this Agreement or other Loan Documents be brought in a competent court in San Juan, Puerto Rico, including the United States District Court for the District of Puerto Rico; (b) consents to the jurisdiction of each such court in any such suit, action or proceeding; and (c) waives any objection which it may have to the laying of venue in any such court and any claim that such suit, action or proceeding has been brought in an inconvenient forum. Borrower and the Bank hereby waive trial by jury in any action, proceeding, claim or counterclaim arising out of, or related to, this Agreement or other Loan Documents.

Section 13.9 Interpretation.

13.9.1 The titles of the sections and articles of this Agreement have been given for convenience only and shall not be attributed any effect in its interpretation.

13.9.2 This Agreement and each of the other Loan Documents complement each other, but in case of direct conflict or contradiction between the terms of this Agreement and those of any other Loan Document, the terms of this Agreement will prevail.

13.9.3 If any provision of any Loan Document is declared by judicial interpretation to be null, void or unenforceable in any respect, such provision shall be ineffective to the extent of such declaration, without affecting the remaining provisions of the same or any other Loan Document.

Section 13.10 Modification, Amendment. Neither this Agreement nor the other Loan Documents may be modified, altered or amended in any manner, except by another written agreement executed by the same parties.

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Section 13.11 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which shall be deemed to be an original, and all of which, taken together, shall constitute one and the same document.

Section 13.12 No Reliance on Bank. Borrower acknowledges that it had adequate opportunity prior to execution of this Agreement to consult with its own legal counsel and/or other consultants regarding its terms, and waives any claim of having relied upon counsel for the Bank or any Notary Public notarizing the signatures hereof for the interpretation of such terms.

Section 13.13 Entire Understanding. The Loan Documents contain all representations, warranties, undertakings, covenants and agreements between the parties. All prior negotiations, understandings, undertakings, covenants, representations and agreements, whether oral or written, in connection with the credit facilities granted hereunder are merged in this Agreement and/or in the other Loan Documents.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers, as of the date first above written.

J. M. BLANCO, INC.	THE BANK OF NOVA SCOTIA
By:	By:
Name:	Ricardo Fishman
Title:	Vice President, Scotiabank de Puerto Rico

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Credit Agreement

April 21, 2005

Exhibit 1.1.32

MASTER PROMISSORY NOTE

Maximum Principal
Amount: $55,000,000.00	Date: April 21, 2005

FOR VALUE RECEIVED, J.M. BLANCO, INC. (the “Borrower”) promises to pay on demand to the order of THE BANK OF NOVA SCOTIA (the “Bank”) at its Lending Office provided for by the Credit Agreement referred to below, in lawful money of the United States of America, the principal sum of $55,000,000, or such lesser amount as shall equal the aggregate unpaid principal amount of the Operating Loan Advances made by the Bank to the Borrower under the Credit Agreement referenced below, in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Advance, at such office, in like money and funds, for the period commencing on the date of such Advance until such Advance shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement.

The date, amount and interest rate of each Operating Loan Advance made by the Bank to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Bank on its books and, prior to any transfer of this Note, endorsed by the Bank on the schedule attached hereto or any continuation thereof, provided that the Bank’s failure to make any such recordation or endorsement shall not affect the Borrower’s obligation to make a payment when due of any amount owing under the Credit Agreement or hereunder in respect of any Advance made by the Bank.

This Note is the Note referenced in the Credit Agreement between the Borrower and the Bank dated April 21, 2005 (as the same may be amended, modified or supplemented and in effect from time to time, the “Credit Agreement”), and evidences the Operating Loan Advances made by the Bank thereunder. Terms used but not defined in this Note have the respective meanings assigned to them in the Credit Agreement.

The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for optional and mandatory prepayments of Advances upon the terms and conditions specified therein.

- 30 -

$55,000,000 Operating Loan

Master Promissory Note

April 21, 2005

Page -2-

This note shall be interpreted and enforced according to the laws of Puerto Rico, and shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns. In case of judicial claim (including claims in bankruptcy proceedings) for the collection of all or part of this obligation, the Borrower promises to pay all reasonable costs, expenses and attorneys’ fees incurred by the holder hereof.

The Borrower and its successors hereby waive presentment, protest, demand, notice of non-payment and notice of acceleration.

J.M. BLANCO, INC.

By:

Name:

Title:

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$55,000,000 Operating Loan Note

April 21, 2005

SCHEDULE OF LOANS

Page -1-

This schedule evidences Operating Loan Advances made by Scotiabank de Puerto Rico to J.M. Blanco, Inc. on the dates, in the principal amounts, bearing interest at the rates, and maturing on the dates set forth below, with the payments of principal set forth below, all pursuant to the master promissory note in the maximum principal amount of $55,000,000 and the Credit Agreement dated as of April 21, 2005:

Date Amount Advanced Interest Rate and Maturity Interest Payment Amount Principal Payment Amount Outstanding Principal Balance Notation Made By:

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$55,000,000 Operating Loan Note

April 21, 2005

SCHEDULE OF LOANS

(Continuation)

Page - -2-

This schedule evidences Operating Loan Advances made by Scotiabank de Puerto Rico to J.M. Blanco, Inc. on the dates, in the principal amounts, bearing interest at the rates, and maturing on the dates set forth below, with the payments of principal set forth below, all pursuant to the master promissory note in the maximum principal amount of $55,000,000 and the Credit Agreement dated as of April 21, 2005:

Date Amount Advanced Interest Rate and Maturity Interest Payment Amount Principal Payment Amount Outstanding Principal Balance Notation Made By:

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EX-18.1

Exhibit 18.1

May 9, 2005

Michael D. DiCandilo

Chief Financial Officer

AmerisourceBergen Corporation

1300 Morris Drive

Chesterbrook, PA 19807

Dear Mr. DiCandilo:

Note 1 of the Notes to the Consolidated Financial Statements of AmerisourceBergen Corporation and subsidiaries included in its Form 10-Q for the quarter ended March 31, 2005 describes a change in the method of accounting for cash discounts from recognizing cash discounts as a reduction of cost of products sold upon payment of vendor invoices to recording cash discounts as a component of inventory cost. There are no authoritative criteria for determining a 'preferable' cash discount recognition method based on the particular circumstances; however, we conclude that such change in the method of accounting is to an acceptable alternative method which, based on your business judgment to make this change and for the stated reason, is preferable in your circumstances. We have not conducted an audit in accordance with generally accepted auditing standards of any financial statements of the Company as of any date or for any period subsequent to September 30, 2004, and therefore we do not express any opinion on any consolidated financial statements of AmerisourceBergen Corporation and subsidiaries subsequent to that date.

Very truly yours,

/s/ Ernst & Young LLP

EX-31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

I, R. David Yost, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of AmerisourceBergen Corporation (the “Registrant”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

(b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

(c) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 9, 2005

/s/ R. David Yost

R. David Yost

Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

I, Michael D. DiCandilo, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of AmerisourceBergen Corporation (the “Registrant”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

(b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

(c) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 9, 2005

/s/ Michael D. DiCandilo

Michael D. DiCandilo

Senior Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

Section 1350 Certification of Chief Executive Officer

In connection with the Quarterly Report of AmerisourceBergen Corporation (the “Company”) on Form 10-Q for the fiscal quarter ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. David Yost, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ R. David Yost

R. David Yost

Chief Executive Officer

May 9, 2005

EX-32.2

Exhibit 32.2

Section 1350 Certification of Chief Financial Officer

In connection with the Quarterly Report of AmerisourceBergen Corporation (the “Company”) on Form 10-Q for the fiscal quarter ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. DiCandilo, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael D. DiCandilo

Michael D. DiCandilo

Senior Vice President and

Chief Financial Officer

May 9, 2005