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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2003

OR

o  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           000-25769

ACCREDO HEALTH, INCORPORATED

(Exact name of registrant as specified in its charter)

1640 CENTURY CENTER PKWY, SUITE 101, MEMPHIS, TN 38134

(Address of principal executive offices)
(Zip Code)

(901) 385-3688

(Registrant’s telephone number, including area code)

NO CHANGE

(Former name, former address and former fiscal year,
if changed since last report)

          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 o

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

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APPLICABLE ONLY TO CORPORATE ISSUERS:

          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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ACCREDO HEALTH, INCORPORATED
INDEX

Note: Items 1, 2, 3 and 5 of Part II are omitted because they are not applicable.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ACCREDO HEALTH, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(000’S OMITTED, EXCEPT SHARE DATA)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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ACCREDO HEALTH, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(000’S OMITTED, EXCEPT SHARE DATA)

See accompanying notes to condensed consolidated financial statements.

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ACCREDO HEALTH, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000’S OMITTED)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 2003

1.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the condensed consolidated financial position, results of operations and cash flows of Accredo Health, Incorporated ( the “Company” or “Accredo” ) have been included. Operating results for the three and six-month periods ended December 31, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2004.

Certain amounts for the three and six-month periods ended December 31, 2002 have been reclassified to conform to the presentation for the three and six-month periods ended December 31, 2003.

The balance sheet at June 30, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003.

2.

RESTATEMENT

Subsequent to the issuance of the Company’s fiscal year 2003 quarterly financial statements, the Company’s management determined that previously issued financial statements should be restated due to a change in the timing and recognition of revenue. For revenue recognition purposes, prior to April 1, 2003, the Company considered the delivery criteria to have been met when product was shipped to its patients, and the Company had no further obligation related to such product. The Company has now determined that the delivery criteria are met when the product has been delivered to the patient (which typically occurs one day after shipment), and the Company has no further obligation related to such product. The restatement (in thousands, except per share data) resulted in an increase in net patient revenue of $5,104 for the three months ended December 31, 2002 and increased previously reported net income from $17,049 to $17,556. Previously reported basic and diluted earnings per common share increased $.01 for the quarter ended December 31, 2002.

This restatement is consistent with the restatement for the three months ended September 30, 2002 that we reported in our Quarterly Report on Form 10-Q for the three months ended September 30, 2003. The restatement for the three months ended September 30, 2002 resulted in a decrease in net patient revenue of $5,104 and a decrease in previously reported net income of $507 for the period. Accordingly, there is no change in the previously reported total revenues or net income for the six-month period ended December 31, 2002.

A summary of the significant effects of the restatement is as follows (in thousands, except per share data):

Condensed Consolidated Statement of Operations Data:

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3.

STOCKHOLDERS’ EQUITY

          During the six months ended December 31, 2003, employees exercised stock options to acquire 289,536 shares of Accredo common stock for a weighted average exercise price of $4.15 per share.

          Employees of the Company also acquired 40,036 shares of Accredo common stock during the period pursuant to the provisions of the Company’s Employee Stock Purchase Plan at a price of approximately $18.69 per share. Shares acquired under the plan were purchased on December 31, 2003 from employee funds accumulated via payroll deductions from July through December 2003.

4.

PRO FORMA NET INCOME EFFECT OF COMPANY STOCK OPTION PLANS

The Company accounts for its stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Pro forma information regarding net income is required by Statement of Financial Accounting Standards No. 123 (“Statement 123”) and has been determined as if the Company had accounted for its employee stock options under the fair value method of Statement 123. Significant assumptions used by the Company in the Black-Scholes option-pricing model computations are as follows for the three-month and six-month periods ended December 31:

The Black-Scholes option model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

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For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information for the three-month and six-month periods ended December 31 is as follows (in thousands, except share data):

5.

COMPREHENSIVE INCOME

Comprehensive income includes changes in the fair value of certain derivative financial instruments that qualify for hedge accounting. Comprehensive income for all periods presented is as follows (in thousands):