##### Table of Contents



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 December 31, 2001

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 0-21447

AdvancePCS
(Exact name of registrant as specified in its charter)

|                                  |  |                                                
|--------------------------------- |  | -----------------------------------------------
|Delaware
(State of Incorporation) |  | 75-2493381
(IRS Employer Identification Number)

5215 North OConnor
Suite 1600
Irving, Texas 75039
(Address of principal executive offices)

(469) 420-6000
(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[   ]

As of February 11, 2002, the registrant had (1) 79,481,985 shares of Class
A common stock, $.01 par value outstanding, (2) 12,913,334 shares of Class B-1
common stock, $.01 par value, outstanding and (3) 200 shares of Class B-2
common stock, $.01 par value, outstanding.





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TABLE OF CONTENTS



|                                                  |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|Part I. Financial Information                    
|                                                  | Item 1. Financial Statements                                                                 
|                                                  |                                                                                               | Condensed Consolidated Balance Sheets               
|                                                  |                                                                                               | Condensed Consolidated Statements of Operations     
|                                                  |                                                                                               | Condensed Consolidated Statements of Cash Flows     
|                                                  |                                                                                               | Notes to Condensed Consolidated Financial Statements
|                                                  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II. OTHER INFORMATION                       
|Signatures                                       
|EX-10.4-Receivables Purchase/Contribution Agmt.  
|EX-10.5-Receivables Sale/Contribution Agreement  
|EX-10.6-Receivables Purchase/Servicing Agreement 
|EX-10.7-Annex X to Receivables Purchase Agreement
|EX-10.9-Parent Guaranty dated December 10, 2001  



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AdvancePCS and Subsidiaries

Condensed Consolidated Balance Sheets
(in thousands, except share data)

(Unaudited)

|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |                |  |           |                   |           |  | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------ | --------- | -------------- |  | --------- | ----------------- | --------- |  | 
|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           | March 31, 2001 |  |           | December 31, 2001 |          
|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |                |  |           |                   |          
|                              |                                                                                                               |                                                                                                 |                                                                                                                  | ASSETS                               |           |                |  |           |                   |           |  | 
|Current assets:               |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |                |  |          
|                              |                                                                                                               | Cash and cash equivalents                                                                       |                                                                                                                  | $                                    | 110,048   |                |  | $         | 129,247           |          
|                              |                                                                                                               | Accounts receivable, net of allowance for doubtful accounts
of $18,840 and $25,540 respectively |                                                                                                                  |                                      | 1,055,927 |                |  |           | 1,146,925         |          
|                              |                                                                                                               | Inventories, net                                                                                |                                                                                                                  |                                      | 34,814    |                |  |           | 51,977            |          
|                              |                                                                                                               | Prepaid expenses and other                                                                      |                                                                                                                  |                                      | 11,920    |                |  |           | 11,426            |          
|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |               
|                              |                                                                                                               |                                                                                                 | Total current assets                                                                                             |                                      |           | 1,212,709      |  |           |                   | 1,339,575 | 
|Noncurrent assets:            |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |                |  |          
|                              | Property and equipment, net of accumulated depreciation and
amortization of $37,720 and $57,865, respectively |                                                                                                 |                                                                                                                  | 96,640                               |           |                |  | 112,383   |                  
|                              | Goodwill, net                                                                                                 |                                                                                                 |                                                                                                                  | 1,282,192                            |           |                |  | 1,246,056 |                  
|                              | Intangible assets, net                                                                                        |                                                                                                 |                                                                                                                  | 382,937                              |           |                |  | 376,594   |                  
|                              | Other assets                                                                                                  |                                                                                                 |                                                                                                                  | 27,372                               |           |                |  | 85,102    |                  
|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |               
|                              |                                                                                                               |                                                                                                 | Total assets                                                                                                     |                                      | $         | 3,001,850      |  |           | $                 | 3,159,710 | 
|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |               
|                              |                                                                                                               |                                                                                                 |                                                                                                                  | LIABILITIES AND STOCKHOLDERS EQUITY |           |                |  |           |                   |           |  | 
|Current liabilities:          |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |                |  |          
|                              |                                                                                                               | Current portion of long-term debt                                                               |                                                                                                                  | $                                    | 15,250    |                |  | $         | 1,523             |          
|                              |                                                                                                               | Claims and accounts payable                                                                     |                                                                                                                  |                                      | 1,382,458 |                |  |           | 1,502,880         |          
|                              |                                                                                                               | Accrued salaries and benefits                                                                   |                                                                                                                  |                                      | 23,870    |                |  |           | 27,632            |          
|                              |                                                                                                               | Other accrued expenses                                                                          |                                                                                                                  |                                      | 90,524    |                |  |           | 105,050           |          
|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |               
|                              |                                                                                                               |                                                                                                 | Total current liabilities                                                                                        |                                      |           | 1,512,102      |  |           |                   | 1,637,085 | 
|Noncurrent liabilities:       |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |                |  |          
|                              |                                                                                                               | Long-term debt, net of current portion                                                          |                                                                                                                  |                                      | 829,750   |                |  |           | 499,644           |          
|                              |                                                                                                               | Deferred income taxes                                                                           |                                                                                                                  |                                      | 237,673   |                |  |           | 160,541           |          
|                              |                                                                                                               | Other noncurrent liabilities                                                                    |                                                                                                                  |                                      | 17,788    |                |  |           | 38,112            |          
|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |               
|                              |                                                                                                               |                                                                                                 | Total liabilities                                                                                                |                                      |           | 2,597,313      |  |           |                   | 2,335,382 | 
|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |               
|Commitments and contingencies |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |                |  |          
|Stockholders equity:         |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |                |  |          
|                              |                                                                                                               | Preferred stock, $.01 par value; 5,000,000 shares authorized:                                   |                                                                                                                  |                                      |           |                |  |           |                   |          
|                              |                                                                                                               |                                                                                                 | Series A-1 convertible preferred stock, $.01 par value;
65,854 and no shares issued and outstanding respectively |                                      |           | 1              |  |           |                   |          | 
|                              |                                                                                                               |                                                                                                 | Series A-2 convertible preferred stock, $.01 par value;
no shares issued and outstanding                         |                                      |           |               |  |           |                   |          | 
|                              |                                                                                                               | Common stock, $.01 par value; 200,000,000 shares authorized:                                    |                                                                                                                  |                                      |           |                |  |           |                   |          
|                              |                                                                                                               |                                                                                                 | Class A common stock, $.01 par value; 64,564,614 and
78,998,285 shares issued and outstanding respectively       |                                      |           | 646            |  |           |                   | 790       | 
|                              |                                                                                                               |                                                                                                 | Class B-1 common stock, $.01 par value; 8,414,600 and
12,913,334 shares issued and outstanding respectively      |                                      |           | 84             |  |           |                   | 129       | 
|                              |                                                                                                               |                                                                                                 | Class B-2 common stock, $.01 par value; 200 shares
issued and outstanding                                        |                                      |           |               |  |           |                   |          | 
|                              |                                                                                                               | Additional paid-in capital                                                                      |                                                                                                                  |                                      | 351,256   |                |  |           | 708,340           |          
|                              |                                                                                                               | Accumulated other comprehensive loss                                                            |                                                                                                                  |                                      | (3,849    | )              |  |           | (22,086           | )        
|                              |                                                                                                               | Retained earnings                                                                               |                                                                                                                  |                                      | 56,399    |                |  |           | 137,155           |          
|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |               
|                              |                                                                                                               |                                                                                                 | Total stockholders equity                                                                                       |                                      |           | 404,537        |  |           |                   | 824,328   | 
|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |               
|                              |                                                                                                               |                                                                                                 | Total liabilities and stockholders equity                                                                       |                                      | $         | 3,001,850      |  |           | $                 | 3,159,710 | 
|                              |                                                                                                               |                                                                                                 |                                                                                                                  |                                      |           |               

The accompanying notes are an integral part of these consolidated financial statements

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##### Table of Contents






AdvancePCS and Subsidiaries

Condensed Consolidated Statements of Operations
(in thousands, except share data)

(Unaudited)

|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |            |           |   |           |            |           | 
|------------------------------------------------------------ | ----------------------------------------------------------------------- | ------------------------ | --------- | ------------------ | --------- | - | ----------------- | ----------- | --------- | ---- | --------- | ---------- | --------- | - | --------- | ---------- | --------- | 
|                                                             |                                                                         |                          |           | Three Months Ended |           |   | Nine Months Ended |            
|                                                             |                                                                         |                          |           | December 31,       |           |   | December 31,      |            
|                                                             |                                                                         |                          |           |                    |           |   |                   |            
|                                                             |                                                                         |                          |           | 2000               |           |   | 2001              |             |           | 2000 |           |            | 2001      |  
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |            |           |  
|Revenues                                                     |                                                                         | $                        | 2,916,471 |                    |           | $ | 3,365,895         |             |           | $    | 4,032,904 |            |           | $ | 9,668,418 |           
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|Cost of operations:                                          |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |            |           |   |           |           
|                                                             | Cost of revenues                                                        |                          |           | 2,825,051          |           |   |                   | 3,251,818   |           |      |           | 3,898,252  |           |   |           | 9,339,690  |          
|                                                             | Selling, general and administrative expenses                            |                          |           | 55,072             |           |   |                   | 48,252      |           |      |           | 76,369     |           |   |           | 137,341    |          
|                                                             | Non-recurring                                                           |                          |           | 680                |           |   |                   |            |           |      |           | 680        |           |   |           | 1,760      |          
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|                                                             |                                                                         | Total cost of operations |           |                    | 2,880,803 |   |                   |             | 3,300,070 |      |           |            | 3,975,301 |   |           |            | 9,478,791 | 
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|                                                             | Operating income                                                        |                          |           | 35,668             |           |   |                   | 65,825      |           |      |           | 57,603     |           |   |           | 189,627    |          
|Interest income                                              |                                                                         |                          | 1,587     |                    |           |   | 1,561             |             |           |      | 2,297     |            |           |   | 4,963     |           
|Interest expense                                             |                                                                         |                          | (22,114   | )                  |           |   | (13,396           | )           |           |      | (24,250   | )          |           |   | (52,337   | )         
|Merger costs                                                 |                                                                         |                          |          |                    |           |   |                  |             |           |      | (1,200    | )          |           |   |          |           
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|                                                             | Income before income taxes                                              |                          |           | 15,141             |           |   |                   | 53,990      |           |      |           | 34,450     |           |   |           | 142,253    |          
|Provision for income taxes                                   |                                                                         |                          | (8,420    | )                  |           |   | (21,326           | )           |           |      | (15,932   | )          |           |   | (56,181   | )         
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|                                                             | Net income before extraordinary loss                                    |                          |           | 6,721              |           |   |                   | 32,664      |           |      |           | 18,518     |           |   |           | 86,072     |          
|Extraordinary loss on early retirement of debt,
net of taxes |                                                                         |                          |          |                    |           |   | (5,314            | )           |           |      |          |            |           |   | (5,314    | )         
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|                                                             | Net income                                                              |                          | $         | 6,721              |           |   | $                 | 27,350      |           |      | $         | 18,518     |           |   | $         | 80,758     |          
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|Basic                                                        |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |            |           |   |           |           
|                                                             | Net income before extraordinary loss per share                          |                          | $         | 0.11               |           |   | $                 | 0.36        |           |      | $         | 0.35       |           |   | $         | 1.05       |          
|                                                             | Extraordinary loss on early retirement of debt,
net of taxes, per share |                          |           |                   |           |   |                   | (0.06       | )         |      |           |           |           |   |           | (0.06      | )        
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|                                                             | Net income per share                                                    |                          | $         | 0.11               |           |   | $                 | 0.30        |           |      | $         | 0.35       |           |   | $         | 0.99       |          
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|                                                             | Weighted average shares outstanding                                     |                          |           | 59,826,000         |           |   |                   | 91,912,000  |           |      |           | 53,394,000 |           |   |           | 81,630,000 |          
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|Diluted                                                      |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |            |           |   |           |           
|                                                             | Net income before extraordinary
loss per share                          |                          | $         | 0.08               |           |   | $                 | 0.32        |           |      | $         | 0.28       |           |   | $         | 0.89       |          
|                                                             | Extraordinary loss on early
retirement of debt,
net of taxes, per share |                          |           |                   |           |   |                   | (0.05       | )         |      |           |           |           |   |           | ( 0.06     | )        
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|                                                             | Net income per share                                                    |                          | $         | 0.08               |           |   | $                 | 0.27        |           |      | $         | 0.28       |           |   | $         | 0.83       |          
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           
|                                                             | Weighted average shares outstanding                                     |                          |           | 89,014,000         |           |   |                   | 102,321,000 |           |      |           | 66,610,000 |           |   |           | 96,964,000 |          
|                                                             |                                                                         |                          |           |                    |           |   |                   |             |           |      |           |           

The accompanying notes are an integral part of these consolidated financial statements

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AdvancePCS and Subsidiaries

Condensed Consolidated Statements of Cash Flows
(in thousands)

(Unaudited)

|                                               |                                                                                    |                                                              |                                                   |                                           |          |                                |            |          |        |          |         |  
|---------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------- | ----------------------------------------- | -------- | ------------------------------ | ---------- | -------- | ------ | -------- | ------- | -
|                                               |                                                                                    |                                                              |                                                   |                                           |          | Nine Months Ended December 31, |           
|                                               |                                                                                    |                                                              |                                                   |                                           |          |                                |           
|                                               |                                                                                    |                                                              |                                                   |                                           |          | 2000                           |            |          | 2001   |         
|                                               |                                                                                    |                                                              |                                                   |                                           |          |                                |            |          |        |         
|Cash flows from operating activities:          |                                                                                    |                                                              |                                                   |                                           |          |                                |            |         
|                                               | Net income                                                                         |                                                              | $                                                 | 18,518                                    |          |                                | $          | 80,758   |       
|                                               | Adjustments to reconcile net income to net cash provided by
operating activities - |                                                              |                                                   |                                           |          |                                |            |          |       
|                                               |                                                                                    | Depreciation and amortization                                |                                                   |                                           | 28,358   |                                |            |          | 28,174 |         
|                                               |                                                                                    | Non-recurring and impairment expense                         |                                                   |                                           |         |                                |            |          | 412    |         
|                                               |                                                                                    | Provision for doubtful accounts and reserves                 |                                                   |                                           | 2,912    |                                |            |          | 9,624  |         
|                                               |                                                                                    | Deferred income taxes                                        |                                                   |                                           | (376,291 | )                              |            |          | 19,024 |         
|                                               |                                                                                    | Extraordinary loss on early retirement of debt, net of taxes |                                                   |                                           |         |                                |            |          | 5,314  |         
|                                               |                                                                                    | Change in certain assets and liabilities -                   |                                                   |                                           |          |                                |            |          |        |         
|                                               |                                                                                    |                                                              | Receivables                                       |                                           |          | (240,301                       | )          |          |        | (134,319 | )      
|                                               |                                                                                    |                                                              | Inventories                                       |                                           |          | 2,765                          |            |          |        | (10,879  | )      
|                                               |                                                                                    |                                                              | Prepaid expenses and other assets                 |                                           |          | (27,656                        | )          |          |        | (12,893  | )      
|                                               |                                                                                    |                                                              | Claims and accounts payable                       |                                           |          | 267,778                        |            |          |        | 116,602  |        
|                                               |                                                                                    |                                                              | Accrued expenses and other noncurrent liabilities |                                           |          | 443,704                        |            |          |        | 15,644   |        
|                                               |                                                                                    |                                                              |                                                   |                                           |          |                               
|                                               |                                                                                    |                                                              |                                                   | Net cash provided by operating activities |          |                                | 119,787    |          |        |          | 117,461 |  
|                                               |                                                                                    |                                                              |                                                   |                                           |          |                               
|Cash flows from investing activities:          |                                                                                    |                                                              |                                                   |                                           |          |                                |            |         
|                                               | Purchase of property and equipment                                                 |                                                              |                                                   | (23,232                                   | )        |                                |            | (35,101  | )     
|                                               | Investment in subsidiaries  net of cash acquired                                  |                                                              |                                                   | (1,047,045                                | )        |                                |            | (9,549   | )     
|                                               |                                                                                    |                                                              |                                                   |                                           |          |                               
|                                               |                                                                                    |                                                              |                                                   | Net cash used in investing activities     |          |                                | (1,070,277 | )        |        |          | (44,650 | )
|                                               |                                                                                    |                                                              |                                                   |                                           |          |                               
|Cash flows from financing activities:          |                                                                                    |                                                              |                                                   |                                           |          |                                |            |         
|                                               | Distributions to former FFI owners                                                 |                                                              |                                                   | (3,970                                    | )        |                                |            |         |       
|                                               | Net proceeds from issuance of Common Stock                                         |                                                              |                                                   | 5,567                                     |          |                                |            | 303,285  |       
|                                               | Deferred financing costs                                                           |                                                              |                                                   |                                          |          |                                |            | (2,444   | )     
|                                               | Stock issued to fund acquisition                                                   |                                                              |                                                   | 275,000                                   |          |                                |            |         |       
|                                               | Debt issued to fund acquisition                                                    |                                                              |                                                   | 820,000                                   |          |                                |            |         |       
|                                               | Proceeds from long-term obligations                                                |                                                              |                                                   | 87,000                                    |          |                                |            | 111,000  |       
|                                               | Borrowings on securitized debt                                                     |                                                              |                                                   |                                          |          |                                |            | 150,000  |       
|                                               | Payments on long-term obligations                                                  |                                                              |                                                   | (147,000                                  | )        |                                |            | (615,453 | )     
|                                               |                                                                                    |                                                              |                                                   |                                           |          |                               
|                                               |                                                                                    |                                                              |                                                   | Net cash used in financing activities     |          |                                | 1,036,597  |          |        |          | (53,612 | )
|                                               |                                                                                    |                                                              |                                                   |                                           |          |                               
|Increase in cash                               |                                                                                    |                                                              | 86,107                                            |                                           |          |                                | 19,199     |         
|Cash and cash equivalents, beginning of period |                                                                                    |                                                              | 55,243                                            |                                           |          |                                | 110,048    |         
|                                               |                                                                                    |                                                              |                                                   |                                           |          |                               
|Cash and cash equivalents, end of period       |                                                                                    | $                                                            | 141,350                                           |                                           |          | $                              | 129,247    |         
|                                               |                                                                                    |                                                              |                                                   |                                           |          |                               
|Supplemental noncash disclosure:               |                                                                                    |                                                              |                                                   |                                           |          |                                |            |         
|TheraCom
Acquisition                           |                                                                                    |                                                              |                                                   |                                           |          |                                |            |         
|Assets
acquired                                |                                                                                    | $                                                            |                                                  |                                           |          | $                              | 25,883     |         
|Liabilities assumed                            |                                                                                    | $                                                            |                                                  |                                           |          | $                              | 28,634     |         

The accompanying notes are an integral part of these consolidated financial statements

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AdvancePCS and Subsidiaries

Notes to Condensed Consolidated Financial Statements

1.     Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements
have been prepared by AdvancePCS in accordance with accounting principles
generally accepted in the United States for interim financial information in
the form prescribed by the Securities and Exchange Commission in 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 for complete financial statements. In
the opinion of AdvancePCSs management, the December 31, 2000 and 2001
unaudited interim financial statements include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of results for
this interim period. In the opinion of AdvancePCSs management, the disclosures
contained in this Form 10-Q are adequate to make the information presented not
misleading when read in conjunction with the Notes to the Consolidated
Financial Statements included in the Form 10-K of AdvancePCS for the year ended
March 31, 2001. The results of operations for the three month and nine month
periods ended December 31, 2001 are not necessarily indicative of the results
to be expected for the full year or for any future period.

The accompanying condensed consolidated financial statements have been
restated, in accordance with APB Opinion No. 16, to give retroactive effect,
for all periods presented, to the combination of AdvancePCS and First Florida
International Holdings, Inc. and its affiliated companies (FFI) on July 5,
2000, which has been accounted for as a pooling of interests. See Note 3.

In July 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards (SFAS) No. 141 Business Combinations and
SFAS No. 142 Goodwill and Other Intangible Assets. SFAS No. 142, among other
things, eliminates the amortization of goodwill and certain identified
intangible assets. Intangible assets, including goodwill, that are not subject
to amortization will be tested for impairment annually, or more frequently if
events or changes in circumstances indicate that the asset might be impaired,
using a two step impairment assessment. The first step of the impairment test
identifies potential impairment and compares the fair value of the reporting
unit with its carrying amount, including goodwill. AdvancePCS has one
reporting unit because the Company manages the segment based on its
consolidated financial performance. If the fair value of the reporting unit
exceeds its carrying amount, goodwill of the reporting unit is not considered
impaired, and the second step of the impairment test is not necessary. If the
carrying amount of the reporting unit exceeds its fair value, the second step
of the impairment test shall be performed to measure the amount of impairment
loss, if any. The Company (AdvancePCS, or Advance prior to October 2,
2000) has a six-month period to complete the first step of the transitional
goodwill impairment test. The amounts used in the transitional impairment test
have been measured as of April 1, 2001. If the carrying amount of the net
assets of the reporting unit (including goodwill) exceeds the fair value of
that reporting unit, the second step of the transitional impairment test must
be completed no later than March 31, 2002. Early application of SFAS No. 141
and 142 is permitted for non-calendar year end companies with fiscal years
beginning after March 15, 2001, but before December 15, 2001. The Company has
elected early adoption of these statements as of the beginning of its first
quarter of fiscal year 2002. See Note 2. In accordance with the transition
provisions of SFAS No. 142 we have conducted the first step of the impairment
tests as described above. The Company assessed the fair value of the reporting
unit by considering its current cash flows, recent purchase price paid for
entities within our industry, the recent appraised net assets acquired from PCS
and the Companys market capitalization. Given consideration of these factors
the Company concluded that the fair value of the reporting unit exceeded the
carrying amount of its net assets.

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Derivative Instruments and Hedging Activities

Effective April 1, 2001 the Company adopted SFAS No. 133 Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and
SFAS No. 138. In order to hedge variable rate interest payments made in
conjunction with our debt we entered into interest rate protection agreements
that have fixed the LIBOR rate as of November 7, 2000 at 6.60% for $400
million. The notional amount dropped to $300 million in October 2001 and drops
to $200 million in October 2002. We have declared these agreements fair value
hedges in accordance with SFAS No. 133, as amended, and have recognized the
fair value of these financial instruments in the condensed consolidated balance
sheet effective April 1, 2001 upon adoption of SFAS No. 133. As a portion of
the debt interest rates and underlying index of the interest rate protection
agreements do not coincide, the Company tests for hedge effectiveness using the
hypothetical derivative method. The results of this test at December 31, 2001
indicate that the hedge is highly effective and any ineffectiveness is not
significant to the results of operations. These instruments have been marked
to market at December 31, 2001 with the adjustment recognized as a component of
other comprehensive loss in stockholders equity. The fair value of our
interest rate swaps, a liability of $18,238,000 at December 31, 2001, was based
upon quoted market prices. Under SFAS No. 133, we have recorded a benefit of
$1,466,000 to other comprehensive loss in the three months ended December 31,
2001.

Use of Estimates

Preparation of the condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods. As of
December 31, 2001 and 2000 and for the three and nine month periods then ended,
the Company has made estimates of, among others: the fair market value of the
assets acquired and liabilities assumed in the PCS acquisition; clinical
service revenues and costs; and reserves for uncollectable accounts and
contract losses. The Company continually evaluates the appropriateness of the
amounts recorded and revises these estimates regularly. Actual results could
differ from those estimates.

2.     Amortization of Goodwill

The Company has adopted SFAS No. 142 effective April 1, 2001. Under SFAS
No. 142 goodwill is no longer amortized. In addition, certain identified
intangibles with indefinite lives are also not amortized. Amortization expense
for the three months and nine months ended December 31, 2001 was $2,800,000 and
$8,101,000 respectively which represented the amortization relating to the
identified intangible assets still required to be amortized under SFAS No. 142.
For each of the next five years intangible amortization expense relating to
these identified intangibles will be $11,201,000. Under SFAS No. 142 assembled
workforce is not considered to be an intangible asset. We have reclassified
this asset to goodwill. The intangible asset established for trade name is
deemed to have an indefinite life and is no longer amortized in accordance with
SFAS No. 142 because the trade name is expected to generate cashflows
indefinitely. The effect of the adoption of SFAS No. 142 as of April 1, 2001
and December 31, 2001 is summarized in the following table:

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|                                                             |               |       |           |                |         |   |                   |        |        |                |           |         |              |   |         |         |         |  
|------------------------------------------------------------ | ------------- | ----- | --------- | -------------- | ------- | - | ----------------- | ------ | ------ | -------------- | --------- | ------- | ------------ | - | ------- | ------- | ------- | -
|                                                             |               |       |           | April 1, 2001  |         |   | December 31, 2001 |       
|                                                             |               |       |           |                |         |   |                   |       
|                                                             |               |       |           | Gross Carrying |         |   | Accumulated       |        |        | Gross Carrying |           |         | Accumulated  |  
|                                                             |               |       |           | Amount         |         |   | Amortization      |        |        | Amount         |           |         | Amortization |  
|                                                             |               |       |           |                |         |   |                   |        |        |                |           |         |              |  
|                                                             |               |       |           | (in thousands) |         |   | (in thousands)    |       
|                                                             |               |       |           |                |         |   |                   |       
|Goodwill                                                     |               | $     | 1,221,491 |                |         | $ | (29,455           | )      |        | $              | 1,275,511 |         |              | $ | (29,455 | )      
|                                                             |               |       |           |                |         |   |                   |        |        |                |           |        
|Intangible assets with indefinite
lives as of April 1, 2001: |               |       |           |                |         |   |                   |        |        |                |           |         |              |   |         |        
|                                                             | Trade name    |       | $         | 106,600        |         |   | $                 | (1,333 | )      |                | $         | 106,600 |              |   | $       | (1,333  | )      
|                                                             |               |       |           |                |         |   |                   |        |        |                |           |        
|Intangible assets with finite lives:                         |               |       |           |                |         |   |                   |        |        |                |           |         |              |   |         |        
|                                                             | Customer Base |       | $         | 265,600        |         |   | $                 | (4,427 | )      |                | $         | 265,600 |              |   | $       | (11,067 | )      
|                                                             | Contracts     |       |           | 7,000          |         |   |                   | (933   | )      |                |           | 12,400  |              |   |         | (1,658  | )      
|                                                             | Other         |       |           | 7,400          |         |   |                   | (612   | )      |                |           | 7,400   |              |   |         | (1,348  | )      
|                                                             |               |       |           |                |         |   |                   |        |        |                |           |        
|                                                             |               | Total |           | $              | 280,000 |   |                   | $      | (5,972 | )              |           | $       | 285,400      |   |         | $       | (14,073 | )
|                                                             |               |       |           |                |         |   |                   |        |        |                |           |        
|Deferred taxes                                               |               | $     | 147,654   |                |         | $ | (2,424            | )      |        | $              | 149,760   |         |              | $ | (5,428  | )      
|                                                             |               |       |           |                |         |   |                   |        |        |                |           |        

As required by SFAS No. 142 the results for the prior years quarter and
nine months ended have not been restated. A reconciliation of net income as if
SFAS No. 142 had been adopted is presented below for the three months and nine
months ended December 31, 2000.

|                                             |                     |   |                    |      |  |                   |        |      | 
|-------------------------------------------- | ------------------- | - | ------------------ | ---- |  | ----------------- | ------ | ---- | 
|                                             |                     |   | Three Months Ended |      |  | Nine Months Ended |       
|                                             |                     |   | December 31,       |      |  | December 31,      |       
|                                             |                     |   | 2000               |      |  | 2000              |       
|                                             |                     |   |                    |      |  |                   |       
|                                             |                     |   | (in thousands)     |      |  | (in thousands)    |       
|                                             |                     |   |                    |      |  |                   |       
|Reported net income                          |                     | $ | 6,721              |      |  | $                 | 18,518 |     
|Add back: Goodwill amortization (net of tax) |                     |   | 10,169             |      |  |                   | 11,393 |     
|                                             |                     |   |                    |      |  |                  
|Adjusted net income                          |                     | $ | 16,890             |      |  | $                 | 29,911 |     
|                                             |                     |   |                    |      |  |                  
|Basic net income per share:                  |                     |   |                    |      |  |                   |        |     
|                                             | Reported net income |   | $                  | 0.11 |  |                   | $      | 0.35 | 
|                                             | Adjusted net income |   | $                  | 0.28 |  |                   | $      | 0.56 | 
|Diluted net income per share:                |                     |   |                    |      |  |                   |        |     
|                                             | Reported net income |   | $                  | 0.08 |  |                   | $      | 0.28 | 
|                                             | Adjusted net income |   | $                  | 0.19 |  |                   | $      | 0.45 | 

3.     Acquisitions

Effective October 1, 2000 Advance acquired all of the equity of PCS. The
aggregate purchase price paid by Advance was approximately $1.0 billion, of
which Advance paid Rite Aid Corporation (Rite Aid), the seller, $675 million
in cash, and issued to Rite Aid $200 million in senior subordinated notes and
$125 million in Advance convertible preferred stock. The senior subordinated
notes were paid in full in March 2001 through proceeds obtained from the
issuance of $200 million in 81/2 % Senior Notes due 2008. The cash portion
of the purchase price was financed with the proceeds of an $825 million senior
secured credit facility and $150 million in equity financing committed by
Joseph Littlejohn & Levy, Inc. (JLL). The acquisition of PCS has been
accounted for using the purchase method of accounting. The Company incurred
approximately $50 million in acquisition costs. The excess of the purchase
price paid over the net identifiable assets and liabilities of PCS has been
recorded as goodwill.

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The following unaudited pro forma information presents the results of
operations of the Company as if the PCS acquisition had taken place at the
beginning of the period presented and excludes the effect of the changes in
goodwill and intangibles in accordance with SFAS No. 141 and No. 142 (in
thousands, except per share amounts):

|                             |       |   |                   |       |  
|---------------------------- | ----- | - | ----------------- | ----- | -
|                             |       |   | Nine Months Ended |      
|                             |       |   | December 31,      |      
|                             |       |   | 2000              |      
|                             |       |   |                   |      
|Revenues                     |       | $ | 8,320,548         |      
|Net income (loss)            |       |   | (3,166            | )    
|Net income (loss) per share: |       |   |                   |      
|                             | Basic |   | $                 | (0.06 | )

On July 5, 2000 Advance completed a merger with FFI. The Company issued
seven million shares of its common stock in exchange for all the outstanding
shares of FFI. The merger constituted a tax-free reorganization and has been
accounted for as a pooling of interests under APB 16. Accordingly, all prior
period consolidated financial statements presented have been restated to
include the combined results of operations, financial position and cash flows
as though FFI had always been a part of the Company. Total combination related
costs and provisions were approximately $1,200,000 and reflected as an expense
in the second fiscal quarter of 2001.

The table below presents a reconciliation of revenues and net income (in
thousands) as reported in the consolidated statements of operations with those
previously reported by the Company. The references to Advance in this table are
to the Companys historical operating results prior to the merger with FFI and
excludes the effect of the changes in goodwill and intangibles in accordance
with SFAS No. 141 and No. 142.

|                              |         |   |                    |           | 
|----------------------------- | ------- | - | ------------------ | --------- | 
|                              |         |   | Nine Months        |          
|                              |         |   | Ended December 31, |          
|                              |         |   | 2000               |          
|                              |         |   |                    |          
|Revenues:                     |         |   |                    |          
|                              | Advance |   | $                  | 4,009,791 | 
|                              | FFI     |   |                    | 23,113    | 
|                              |         |   |                   
|Total consolidated revenues   |         | $ | 4,032,904          |          
|                              |         |   |                   
|Net income:                   |         |   |                    |          
|                              | Advance |   | $                  | 18,483    | 
|                              | FFI     |   |                    | 35        | 
|                              |         |   |                   
|Total consolidated net income |         | $ | 18,518             |          
|                              |         |   |                   

On June 18, 2001 the Company announced the launch of AdvancePCS
SpecialtyRx to provide products and services to patients using injectable and
other expensive, high-technology drugs, while controlling the costs incurred by
medical plan sponsors to provide these therapies. Also, the Company established
a joint venture, AdvancePriority SpecialtyRx, with Priority Healthcare Corp., a
national specialty pharmacy and distribution company located in Lake Mary,
Florida. AdvancePCS owns 51% of the venture and Priority Healthcare Corp. owns
49%.

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Effective August 1, 2001 the Company completed the acquisition of 100% of
the equity of Dresing-Lierman, Inc. and its wholly owned subsidiary, TheraCom
Inc. (collectively, TheraCom), a specialty pharmacy and distribution company
located in Bethesda, Maryland. The aggregate purchase price paid by the Company
was 1,258,192 shares of Class A common stock. An additional 384,006 shares of
Class A common stock were placed in escrow, subject to certain contingencies.
In addition, the Company paid $10.6 million to eliminate TheraComs outstanding
indebtedness. The acquisition was accounted for using the purchase method of
accounting. The excess of the purchase price paid over the net identifiable
assets and liabilities of TheraCom, $39.6 million, was recorded as goodwill and
not amortized. The Company also recognized $5.4 million in intangible customer
contracts. The portion of the purchase price allocated to the net identifiable
assets and goodwill is preliminary and subject to revision following the
results of an appraisal and further identification of intangible assets.
Unaudited pro forma financial information is not presented since TheraCom is
not a material business combination for the Company.

Effective September 30, 2001 the Company acquired the remaining equity
interests of Consumer Health Interactive, Inc. (CHI), an internet health portal
development company, which the Company did not previously own. The acquisition
of the remaining interest was accounted for using the purchase method of
accounting. In January 2000, AdvancePCS acquired a 19 percent equity interest
in CHI with an option to acquire the additional interest. The acquisition of
the remaining 81 percent equity interest was completed with cash of $9.2
million, making CHI a wholly owned subsidiary. Under the terms of the
acquisition the Company may pay additional cash upon the achievement by CHI of
certain contingencies. The Company had previously accounted for its interest
in CHI on the cost basis. In accordance with APB Opinion No. 18 all prior
period financial statements have been restated to account for CHI as though we
had accounted for our investment on the equity method.

4.     Net Income Per Share

Basic net income per share is computed using the weighted average number
of common shares (including both Class A common stock and Class B common stock)
outstanding during the periods presented. Diluted net income per share is
computed in the same manner as basic net income per share but includes the
number of additional common shares that would have been outstanding for the
period if the other dilutive securities had been issued. The difference between
the number of weighted average shares used in the basic and diluted calculation
are convertible preferred stock outstanding, stock options and stock warrants,
all calculated under the treasury stock method in accordance with SFAS No.
128 Earnings Per Share.

5.     Income Taxes

In the three months and nine months ended December 31, 2000, our income
tax expense approximated an effective tax rate of 55.6% and 46.2% respectively.
In the three months and nine months ended December 31, 2001, our effective tax
rate was approximately 39.5% for both periods.

6.     Stock and Debt Transactions  Extraordinary Loss

On August 23, 2001 the Company completed the sale of nine million shares
of Class A common stock. The proceeds, net of offering costs, of approximately
$291 million were used to reduce debt. The Term A debt of approximately $147
million was fully repaid and the remaining $144 million was used to repay a
portion of the outstanding Term B debt. In addition, during the three-month
period ended September 30, 2001 the Companys preferred stockholders converted
their preferred shares totaling 65,854 shares, into 6,585,400 shares of Class
B-1 common stock.

In December 2001, the Company has securitized certain of its accounts
receivable pursuant to a $150 million facility (the Asset Securitization
Facility). The $150 million commitment under the facility is

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due December 10, 2006. The Asset Securitization Facility incurs interest
at the funding agents A-1+/P-1 commercial paper rate plus .65%. As of
December 31, 2001, the Company had drawn $150 million under this facility. The
Asset Securitization Facility is included in the Companys debt balance as of
December 31, 2001 and will continue to be reflected on-balance sheet. The
Company used the proceeds to repay $150 million of its Term B debt. In
addition, the Companys $100 million interim revolver was eliminated. As of
December 31, 2001 the Companys debt consists of the following:

|                              |  |   |             | 
|----------------------------- |  | - | ----------- | 
|Term B bank debt              |  | $ | 151,167,000 | 
|Asset Securitization Facility |  |   | 150,000,000 | 
|8 1/2 % Senior Notes          |  |   | 200,000,000 | 
|                              |  |   |            
|                              |  | $ | 501,167,000 | 
|                              |  |   |            

In addition, the Company has a $175 million revolving credit facility that
expires in 2005. No amounts are currently drawn on this revolver. In
connection with the bank debt repayments made in the second and third quarters
of fiscal year 2002 and the securitization, the Company recorded an
extraordinary loss, associated with the early retirement of debt. The loss was
attributable to a non-cash charge to write-off a portion of the deferred
financing fees related to the secured bank agreement in the amount of
$5,314,000, net of tax.

7.     Stock Split

On October 1, 2001 the Company announced a two-for-one stock split,
effected in the form of a stock dividend, of its common stock. The record date
was October 23, 2001 and the date of payment was November 2, 2001. Financial
and share information contained throughout this Form 10-Q has been
retroactively adjusted to reflect the impact of the stock split.

8.     Legal Proceedings

AdvancePCS was served with a purported private class action lawsuit filed
in the United States District Court in Arizona on or about December 17, 2001.
The lawsuit alleges that AdvancePCS acts as a fiduciary, as that term is
defined in the Employee Retirement Income Security Act (ERISA), and that
AdvancePCS has breached certain fiduciary obligations under ERISA. AdvancePCS
believes that it does not act as an ERISA fiduciary or assume the ERISA
fiduciary responsibilities as alleged in the complaint. AdvancePCS believes
that its business practices are in compliance with ERISA. The lawsuit seeks
unspecified monetary damages and injunctive relief. AdvancePCS believes that
it does not assume any of the plan fiduciary responsibilities that would
subject it to regulations under ERISA. Although the ultimate outcome is
uncertain, an adverse determination could potentially cause us to change our
business practices with respect to formularies, preferred drug listings and
intervention programs, potentially reducing our profitability and growth
prospects. A class of plaintiffs has not yet been certified, and we intend to
oppose such certification. AdvancePCS has denied all allegations of wrongdoing
and is vigorously defending this suit.

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Results Of Operations  AdvancePCS

The following table sets forth certain consolidated, unaudited historical
financial data of AdvancePCS. Historical revenues for AdvancePCS have been
classified to reflect adoption of consistent revenue presentation policies as
described in Note 1 to Condensed Consolidated Financial Statements  Changes
in Revenue Recognition.

Effective September 30, 2001 the Company acquired the remaining equity
interests of Consumer Health Interactive, Inc. (CHI), an internet health portal
development company, which the Company did not previously own. In January 2000,
AdvancePCS acquired a 19 percent equity interest in CHI with an option to
acquire the additional interest. The acquisition of the remaining 81 percent
equity interest was completed with cash, making CHI a wholly owned subsidiary.
Under the terms of the acquisition the Company may pay additional cash upon the
achievement by CHI of certain contingencies. The Company had previously
accounted for its interest in CHI on the cost basis. In accordance with APB
Opinion No. 18 all prior period financial statements have been restated to
account for CHI as though we had accounted for our investment on the equity
method.

|                                              |                             |                |        |                    |           |   |                   |           |           |      |         |           |           |   |         |           |           | 
|--------------------------------------------- | --------------------------- | -------------- | ------ | ------------------ | --------- | - | ----------------- | --------- | --------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                              |                             |                |        | Three Months Ended |           |   | Nine Months Ended |          
|                                              |                             |                |        | December 31,       |           |   | December 31,      |          
|                                              |                             |                |        |                    |           |   |                   |          
|                                              |                             |                |        | 2000               |           |   | 2001              |           |           | 2000 |         |           | 2001      |  
|                                              |                             |                |        |                    |           |   |                   |           |           |      |         |           |           |  
|                                              |                             |                |        | (in thousands)     |           |   | (in thousands)    |          
|                                              |                             |                |        |                    |           |   |                   |          
|Revenues:                                     |                             |                |        |                    |           |   |                   |           |           |      |         |           |           |   |         |          
|                                              | Data services               |                | $      | 2,520,223          |           |   | $                 | 2,837,013 |           |      | $       | 3,462,483 |           |   | $       | 8,179,600 |          
|                                              | Mail services               |                |        | 285,240            |           |   |                   | 392,891   |           |      |         | 397,007   |           |   |         | 1,083,323 |          
|                                              | Clinical and other services |                |        | 111,008            |           |   |                   | 135,991   |           |      |         | 173,414   |           |   |         | 405,495   |          
|                                              |                             | Total revenues |        |                    | 2,916,471 |   |                   |           | 3,365,895 |      |         |           | 4,032,904 |   |         |           | 9,668,418 | 
|Gross profit                                  |                             |                | 91,420 |                    |           |   | 114,077           |           |           |      | 134,652 |           |           |   | 328,728 |          
|Selling, general, and
administrative expenses |                             |                | 55,072 |                    |           |   | 48,252            |           |           |      | 76,369  |           |           |   | 137,341 |          
|Operating income                              |                             |                | 35,668 |                    |           |   | 65,825            |           |           |      | 57,603  |           |           |   | 189,627 |          
|Net income                                    |                             | $              | 6,721  |                    |           | $ | 27,350            |           |           | $    | 18,518  |           |           | $ | 80,758  |          

Historical AdvancePCS:

Three Months Ended December 31, 2001 Compared to Three Months Ended December 31, 2000

Revenues. Our revenues for the three months ended December 31, 2001
increased by $449 million, or 15%, compared to revenues for the three months
ended December 31, 2000. The increase in revenues was primarily the result of
an increase in pharmacy claims and a corresponding increase in claims
processing revenue. Approximately $317 million, or 70%, of the increase in
revenues was attributable to data services and a 6% increase in the number of
pharmacy claims processed during the period. Claims processed increased from
108 million in the three months ended December 31, 2000 to 114 million for the
three months ended December 31, 2001. Approximately 24% of the increase was
attributable to additional sales of our mail pharmacy services, resulting from
a 20% increase in the number of mail prescriptions dispensed. Mail pharmacy
prescriptions dispensed increased from 2.2 million in the three months ended
December 31, 2000 to 2.7 million for the three months ended December 31, 2001.
Approximately 6% of the increase in revenues resulted from an increase in
clinical and other services revenues derived from formulary and disease
management services, as well as clinical trials.

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Gross profit. Our gross profit for the three months ended December 31,
2001 increased by $22.7 million, or 25%, compared to the same period in 2000.
As a percentage of revenues, gross profit was approximately 3.4% in the three
months ended December 31, 2001 and 3.1% in the same period in 2000. The
increase was due to a decrease in data services revenues as a percentage of
total revenues. Data services revenues generally have a lower percentage
margin than other services. This increase was partially offset by increased
costs associated with the ramp-up of staffing in anticipation of new contracts
expected to begin on January 1, 2002.

Selling, general and administrative expenses. Our selling, general and
administrative expenses for the three months ended December 31, 2001 decreased
by $6.8 million, or 12% compared to the same period in 2000. This decrease
resulted primarily from the amortization of goodwill, which was created by the
PCS acquisition in fiscal year 2001. Under SFAS 142 goodwill is not amortized
in fiscal year 2002. Selling, general and administrative expenses as a
percentage of revenues decreased from 1.9% for the three months ended December
31, 2000 to 1.4% in the same period in 2001 also due to greater economies of
scale from the integration of PCS and due to the increase in revenue associated
with our data services. Additional revenues generated by customers using our
network pharmacy providers typically do not result in a proportional increase
in selling, general and administrative expenses.

Interest income and interest expense. Interest expense, net of interest
income, for the three months ended December 31, 2001 decreased $8.7 million
compared to the same period in 2000. The decrease was due to the reduction in
outstanding debt as discussed in Note 6  Stock and Debt Transactions 
Extraordinary Loss.

Income taxes. For the three months ended December 31, 2001 our effective
tax rate was approximately 39.5%. For the three months ended December 31, 2000
our recorded income tax expense approximated an effective tax rate of 55.6%.
The difference in rates is primarily due to the amortization of non-deductible
goodwill.

Extraordinary loss on early retirement of debt, net of taxes.In
connection with the refinancings and the bank debt repayments, the Company
recorded an extraordinary loss, associated with the early retirement of debt.
The loss was attributable to a non-cash charge to write-off a portion of the
deferred financing fees related to the secured bank agreement in the amount of
$5,314,000, net of tax.

Diluted net income per share. We reported diluted net income per share of
$0.27 per share for the three months ended December 31, 2001 compared to $0.08
per share for the same period in 2000. The weighted average shares outstanding
were 89.0 million and 102.3 million for the three months ended December 31,
2000 and 2001, respectively. We issued securities convertible into common
stock in connection with the PCS acquisition, resulting in an increase in
weighted average shares outstanding. In addition, on August 23, 2001 the
Company completed the sale of nine million shares of Class A common stock.

On October 1, 2001 the Company announced a two-for-one stock split,
effected in the form of a stock dividend, of its common stock. The record date
was October 23, 2001 and the date of payment was November 2, 2001. Financial
and share information contained throughout this Form 10-Q has been
retroactively adjusted to reflect the impact of the stock split.

Nine Months Ended December 31, 2001 Compared to Nine Months Ended December 31, 2000

Revenues. Our revenues for the nine months ended December 31, 2001
increased by $5.6 billion, or 140%, compared to revenues for the nine months
ended December 31, 2000. The increase in revenues was primarily the result of
our acquisition of PCS on October 2, 2000. Approximately $4.7 billion, or 84%,
of the increase in revenues was attributable to data services and a 116%
increase in the number of pharmacy claims processed during the period. Claims
processed increased from 156 million in the nine
11Table of Contents

months ended December 31, 2000 to 336 million for the nine months ended
December 31, 2001. Approximately 12% of the increase was attributable to
additional sales of our mail pharmacy services, resulting from a 145% increase
in the number of mail prescriptions dispensed. Mail pharmacy prescriptions
dispensed increased from 3.2 million in the nine months ended December 31, 2000
to 7.8 million for the nine months ended December 31, 2001. Approximately 4%
of the increase in revenues resulted from an increase in clinical and other
services revenues derived from formulary and disease management services, as
well as clinical trials.

Gross profit. Our gross profit for the nine months ended December 31,
2001 increased by $194.1 million, or 144%, compared to the same period in 2000.
This increase was attributable primarily to the additional revenue and gross
profit associated with the PCS acquisition. As a percentage of revenues, gross
profit was approximately 3.4% in the nine months ended December 31, 2001 and
3.3% in the same period in 2000.

Selling, general and administrative expenses. Our selling, general and
administrative expenses for the nine months ended December 31, 2001 increased
by $61.0 million, or 80% compared to the same period in 2000. This increase is
due largely to the acquisition of PCS. Selling, general and administrative
expenses as a percentage of revenues decreased from 1.9% for the nine months
ended December 31, 2000 to 1.4% in the same period in 2001 as the result of
greater economies of scale and due to the increase in revenue associated with
our data services. Additional revenues generated by customers using our
network pharmacy providers typically do not result in a proportional increase
in selling, general and administrative expenses. This decrease also resulted
from the amortization of goodwill, which was created by the PCS acquisition in
fiscal year 2001. Under SFAS 142 goodwill is not amortized in fiscal year
2002.

Non-recurring charges.The non-recurring charge of $1,760,000 ($1,074,000
after taxes, or $0.01 per diluted share) primarily represents a write-off of
the human resources software previously utilized by Advance prior to the
acquisition of PCS and severance costs for certain employees that were
terminated or resigned following and as a result of the acquisition with PCS.
All of these severance costs were paid prior to June 30, 2001.

Interest income and interest expense. Interest expense, net of interest
income, for the nine months ended December 31, 2001 increased $25.4 million
compared to the same period in 2000. The increase resulted from the acquisition
of PCS, which was partially funded by approximately $800 million in debt.

Income taxes. For the nine months ended December 31, 2001 our effective
tax rate was approximately 39.5%. For the nine months ended December 31, 2000
our recorded income tax expense approximated an effective tax rate of 46.2%.
The difference in rates is primarily due to the amortization of non-deductible
goodwill.

Extraordinary loss on early retirement of debt, net of taxes.In
connection with the refinancings and the bank debt repayments, the Company
recorded an extraordinary loss, associated with the early retirement of debt.
The loss was attributable to a non-cash charge to write-off a portion of the
deferred financing fees related to the secured bank agreement in the amount of
$5,314,000, net of tax.

Diluted net income per share. We reported diluted net income per share of $0.83
per share for the nine months ended December 31, 2001 compared to $0.28 per
share for the same period in 2000. The weighted average shares outstanding
were 66.6 million and 97.0 million for the nine months ended December 31, 2000
and 2001, respectively. We issued securities convertible into common stock in
connection with the PCS acquisition, resulting in an increase in weighted
average shares outstanding. In addition, on August 23, 2001 the Company
completed the sale of nine million shares of Class A common stock.

12



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##### Table of Contents



On October 1, 2001 the Company announced a two-for-one stock split,
effected in the form of a stock dividend, of its common stock. The record date
was October 23, 2001 and the date of payment was November 2, 2001. Financial
and share information contained throughout this Form 10-Q has been
retroactively adjusted to reflect the impact of the stock split.

Pro Forma Results of Operations for PCS Acquisition

The following table sets forth certain pro forma, unaudited financial data
of the Company as if the PCS acquisition had taken place as of April 1, 2000.
Historical revenues for Advance and PCS have been revised to reflect adoption
of consistent revenue recognition policies as described in Note 1 to Condensed
Consolidated Financial Statements  Changes in Revenue Recognition.

|                                              |                             |                |         |                   |           |   |         |           |           | 
|--------------------------------------------- | --------------------------- | -------------- | ------- | ----------------- | --------- | - | ------- | --------- | --------- | 
|                                              |                             |                |         | Nine Months Ended |          
|                                              |                             |                |         | December 31,      |          
|                                              |                             |                |         |                   |          
|                                              |                             |                |         | 2000(1)           |           |   | 2001(2) |          
|                                              |                             |                |         |                   |           |   |         |          
|                                              |                             |                |         | (in thousands)    |          
|Revenues:                                     |                             |                |         |                   |           |   |         |          
|                                              | Data services               |                | $       | 7,179,371         |           |   | $       | 8,179,600 |          
|                                              | Mail services               |                |         | 825,793           |           |   |         | 1,083,323 |          
|                                              | Clinical and other services |                |         | 315,384           |           |   |         | 405,495   |          
|                                              |                             | Total revenues |         |                   | 8,320,548 |   |         |           | 9,668,418 | 
|Gross profit                                  |                             |                | 244,950 |                   |           |   | 328,728 |          
|Selling, general, and
administrative expenses |                             |                | 166,445 |                   |           |   | 137,341 |          
|Operating income                              |                             | $              | 77,825  |                   |           | $ | 189,627 |          



---

|(1) |  | Operating income would have been $112,159,000 and selling, general and
administrative expenses would have been $132,111,000 if SFAS No. 142 had
been adopted for the nine-month period ended December 31, 2000.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Actual AdvancePCS results for the nine month period ended December 31,
2001.                                                                                                                                   

Pro Forma AdvancePCS:

Actual Nine Months Ended December 31, 2001 Compared to Pro Forma Nine Months Ended December 31, 2000

Revenues. Our revenues for the nine months ended December 31, 2001
increased by $1.3 billion, or 16%, compared to the pro forma revenues for the
nine months ended December 31, 2000. Approximately $1.0 billion, or 74%, of the
increase in revenues was attributable to data services and a 4% increase in the
number of pharmacy claims processed during the period. Claims processed
increased from 323 million in the pro forma nine months ended December 31, 2000
to 336 million for the nine months ended December 31, 2001. Approximately 19%
of the increase was attributable to additional sales of our mail pharmacy
services, resulting from a 17% increase in the number of mail prescriptions
dispensed. Approximately 7% of the increase in revenues resulted from an
increase in clinical and other services revenues derived from formulary and
disease management services.

Gross profit. Our gross profit for the nine months ended December 31,
2001 increased by $83.8 million, or 34%, compared to the same period in 2000 on
a pro forma basis. This increase was attributable primarily to the additional
revenue and gross profit generated by the improvement in operations at the two
PCS mail facilities along with overall synergies resulting from the integration
of PCS and related economies of scale. As a percentage of revenues, gross
profit was approximately 3.4% in the nine months ended December 31, 2001,
compared to 2.9% in the same period in 2000 on a pro forma basis.

13



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##### Table of Contents



Selling, general and administrative expenses. Our selling, general and
administrative expenses for the six months ended December 31, 2001 decreased by
$29.1 million, or 17%, compared to the same period in 2000 on a pro forma
basis. Selling, general and administrative expenses as a percentage of
revenues decreased from 2.0% for the nine months ended December 31, 2000 on a
pro forma basis to 1.4% in the same period in 2001. If SFAS No. 142 had been
adopted for the nine months ended December 31, 2000, selling, general and
administrative expenses would have been $132.1 million or, 1.6% of revenues.

Non-recurring charges.The non-recurring charge of $1,760,000 ($1,074,000
after taxes, or $0.01 per diluted share) primarily represents a write-off of
the human resources software previously utilized by Advance Paradigm prior to
the acquisition of PCS and severance costs for certain employees that were
terminated or resigned following and as a result of the acquisition with PCS.
All of these severance costs were paid prior to June 30, 2001.

Operating income. Our operating income increased by $111.8 million, or
144% for the nine months ended December 31, 2001 compared to the same period in
2000 on a pro forma basis. The increase resulted from the factors mentioned
above as revenues improved and our headcount and costs as a percentage of
revenues declined.

Liquidity and Capital Resources

As of December 31, 2001 we had a working capital deficit of $297.5
million. The majority of our current obligations are not due until cash is
collected from our customers. We use our excess cash balances to reduce debt
under our revolving credit facility, which results in a net deficit in working
capital. Our net cash provided by operating activities was $117.5 million for
the nine months ended December 31, 2001 resulting primarily from net income and
also due to the timing of receivables and payables resulting from our continued
growth. During the nine months ended December 31, 2001, we used cash of $35.1
million for purchases of property, plant and equipment associated with the
growth and expansion of our systems and facilities.

Historically, we have been able to fund our operations through cash flow
from operations. In fiscal years 1999, 2000, 2001, and for the nine months
ended December 31, 2001, our operating cash flow funded our capital
expenditures and our short-term excess cash was used to reduce our debt or
invested in money market funds.

We anticipate that cash flow from operations, combined with our current
cash balances and amounts available under our credit facility, will be
sufficient to meet our internal operating requirements and expansion programs,
including capital expenditures, for at least the next 18 months. However, if we
continue our expansion, acquisition and alliance plans, we may be required to
seek additional debt or equity financing in order to achieve these plans.

On August 23, 2001 the Company completed the sale of nine million shares
of Class A common stock. The proceeds, net of offering costs, of approximately
$291 million were used to reduce debt. The Term A debt of approximately $147
million was fully repaid and the remaining $144 million was used to repay a
portion of the outstanding Term B debt. In addition, during the three-month
period ended September 30, 2001 the Companys preferred stockholders converted
their preferred shares totaling 65,854 shares, into 6,585,400 shares of Class
B-1 common stock.

In December 2001, the Company has securitized certain of its accounts
receivable pursuant to a $150 million facility (the Asset Securitization
Facility). The $150 million commitment under the facility is due December 10,
2006. The Asset Securitization Facility incurs interest at the funding agents
A-1+/P-1 commercial paper rate plus .65%. As of December 31, 2001, the Company
had drawn $150 million under
14Table of Contents

this facility. The Asset Securitization Facility is included in the
Companys debt balance as of December 31, 2001 and will continue to be
reflected on-balance sheet. The Company used the proceeds to repay $150
million of its Term B debt. In addition, the Companys $100 million interim
revolver was eliminated. As of December 31, 2001 the Companys debt consists
of the following:

|                              |  |   |             | 
|----------------------------- |  | - | ----------- | 
|Term B bank debt              |  | $ | 151,167,000 | 
|Asset Securitization Facility |  |   | 150,000,000 | 
|8 1/2 % Senior Notes          |  |   | 200,000,000 | 
|                              |  |   |            
|                              |  | $ | 501,167,000 | 
|                              |  |   |            

In addition, the Company has a $175 million revolving credit facility that
expires in 2005. No amounts are currently drawn on this revolver. In
connection with the bank debt repayments made in the second and third quarters
of fiscal year 2002 and the securitization, the Company recorded an
extraordinary loss, associated with the early retirement of debt. The loss was
attributable to a non-cash charge to write-off a portion of the deferred
financing fees related to the secured bank agreement in the amount of
$5,314,000, net of tax.

Effective April 1, 2001 the Company adopted SFAS No. 133 Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and
SFAS No. 138. In order to hedge variable rate interest payments made in
conjunction with our debt we entered into interest rate protection agreements
that have fixed the LIBOR rate as of November 7, 2000 at 6.60% for $400
million. The notional amount dropped to $300 million in October 2001 and drops
to $200 million in October 2002. We have declared these agreements fair value
hedges in accordance with SFAS No. 133, as amended, and have recognized the
fair value of these financial instruments in the condensed consolidated balance
sheet effective April 1, 2001 upon adoption of SFAS No. 133. As a portion of
the debt interest rates and underlying index of the interest rate protection
agreements do not coincide, the Company tests for hedge effectiveness using the
hypothetical derivative method. The results of this test at December 31, 2001
indicate that the hedge is highly effective and any ineffectiveness is not
significant to the results of operations. These instruments have been marked
to market at December 31, 2001 with the adjustment recognized as a component of
other comprehensive loss in stockholders equity. The fair value of our
interest rate swaps, a liability of $18,238,000 at December 31, 2001, was based
upon quoted market prices. Under SFAS No. 133, we have recorded a benefit of
$1,466,000 to other comprehensive loss in the three months ended December 31,
2001.

HIPAA

Pursuant to the Health Insurance Portability and Accountability Act of
1996 (HIPAA), the Department of Health and Human Services (HHS) issued
final Standards for Electronic Transactions in August 2000. AdvancePCS plans
to meet the original compliance date of October 16, 2002 despite the extension
that may be granted to Covered Entities that apply. Final Privacy Regulations
were issued in December 2000 with a compliance date of April 14, 2003. These
regulations govern the use and disclosure of individually identifiable health
information by certain entities, and establishes new standards for electronic
transmission of certain types of health care data, including on-line pharmacy
claims transactions. Significant system and operational changes will be
required to comply with these regulations. An assessment was completed last
year comparing current practices with what the regulations require and we are
in the process of implementing all required changes. We have also tentatively
assessed compliance requirements under HHSs proposed Security Regulations,
which have not yet been finalized and thus for which a final effective date has
not yet been established. Currently, we do not expect the cost of
implementation to have a material effect to our balance sheet or cash flows in
any fiscal year. We can give no assurances that our current estimate of the
cost of implementation will prove to be accurate.

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Legal Proceedings

AdvancePCS was served with a purported private class action lawsuit filed
in the United States District Court in Arizona on or about December 17, 2001.
The lawsuit alleges that AdvancePCS acts as a fiduciary, as that term is
defined in the Employee Retirement Income Security Act (ERISA), and that
AdvancePCS has breached certain fiduciary obligations under ERISA. AdvancePCS
believes that it does not act as an ERISA fiduciary or assume the ERISA
fiduciary responsibilities as alleged in the complaint. AdvancePCS believes
that its business practices are in compliance with ERISA. The lawsuit seeks
unspecified monetary damages and injunctive relief. AdvancePCS believes that
it does not assume any of the plan fiduciary responsibilities that would
subject it to regulations under ERISA. Although the ultimate outcome is
uncertain, an adverse determination could potentially cause us to change our
business practices with respect to formularies, preferred drug listings and
intervention programs, potentially reducing our profitability and growth
prospects. A class of plaintiffs has not yet been certified, and we intend to
oppose such certification. AdvancePCS has denied all allegations of wrongdoing
and is vigorously defending this suit.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 141 Business
Combinations and SFAS No. 142 Goodwill and Other Intangible Assets. SFAS No.
142, among other things, eliminates the amortization of goodwill and certain
identified intangible assets. Intangible assets, including goodwill, that are
not subject to amortization will be tested for impairment annually, or more
frequently if events or changes in circumstances indicate that the asset might
be impaired, using a two step impairment assessment. The first step of the
impairment test identifies potential impairment and compares the fair value of
the reporting unit with its carrying amount, including goodwill. AdvancePCS
has one reporting unit because the Company manages the segment based on its
consolidated financial performance. If the fair value of the reporting unit
exceeds its carrying amount, goodwill of the reporting unit is not considered
impaired, and the second step of the impairment test is not necessary. If the
carrying amount of the reporting unit exceeds its fair value, the second step
of the impairment test shall be performed to measure the amount of impairment
loss, if any. The Company has a six-month period to complete the first step of
the transitional goodwill impairment test. The amounts used in the
transitional impairment test have been measured as of April 1, 2001. If the
carrying amount of the net assets of the reporting unit (including goodwill)
exceeds the fair value of that reporting unit, the second step of the
transitional impairment test must be completed no later than March 31, 2002.
Early application of SFAS No. 141 and 142 is permitted for non-calendar year
end companies with fiscal years beginning after March 15, 2001, but before
December 15, 2001. The Company has elected early adoption of these statements
as of the beginning of its first quarter of fiscal year 2002. See Note 2. In
accordance with the transition provisions of SFAS No. 142 we have conducted the
first step of the impairment test as described above. The Company assessed the
fair value of the reporting unit by considering its current cash flows, recent
purchase price paid for entities within our industry, the recent appraised net
assets acquired from PCS, and the Companys market capitalization. Given
consideration of these factors the Company concluded that the fair value of the
reporting unit exceeded the carrying amount of its net assets.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS 143). SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. It
applies to all entities and legal obligations associated with the retirement of
long-lived assets that result from the acquisition, constructions, development,
and/or the normal operation of a long-lived asset. SFAS No. 143 requires that
the fair value of a liability for an asset retirement obligation be recognized
in the period in which it is incurred if a reasonable estimate of fair value
can be made. The associated asset retirement costs are capitalized as part of
the carrying amount of the long-lived asset and are subsequently allocated to
expense over the assets useful life. This statement is effective for the
financial statements issued for
16Table of Contentsfiscal years beginning after June 15, 2002. The Company has not yet
determined the impact that SFAS No. 143 will have on its financial position or
results of operations.In August 2001 the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. This statement supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of, however, this statement retains the fundamental provisions
of SFAS No. 121 for (a) recognition and measurement of the impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets
to be disposed of by sale. This statement also supersedes the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions for
segments of a business to be disposed of. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. The Company does not believe that the
adoption of SFAS No. 144 will have a material effect on its financial position
or results of operations.Impact of InflationChanges in prices charged by manufacturers and wholesalers for
pharmaceuticals we dispense affect our cost of revenues. Historically, we have
been able to pass the effect of such price changes to our customers under the
terms of our agreements. As a result, changes in pharmaceutical prices due to
inflation have not adversely affected us.
Item 3. Quantitative and Qualitative Disclosures about Market RiskWe have entered into interest rate protection agreements (interest rate
swaps  see Note 1 to the condensed consolidated financial statements) that
have fixed the LIBOR rate as of November 7, 2000 at 6.60% for $400 million of
our variable rate debt under our credit facility. The notional amount dropped
to $300 million in October 2001, and drops to $200 million in October 2002. We
use the interest rate swaps to manage our interest rate risk on future interest
payments. In addition the Company has $200 million of 8 1/2% Senior Notes
outstanding. As a result, virtually all of the Companys debt is effectively
fixed rate debt as of December 31, 2001. Due to these measures a change in
interest rates would have no material effect on our statement of operations.SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Form 10-Q includes 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. We have based these forward-looking statements on our
current expectations and projections about future events. Statements that are
predictive in nature, that depend upon or refer to future events or conditions
or that include words such as expects, anticipates, intends, plans,
believes, estimates, thinks, and similar expressions are forward-looking
statements. These statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results and performance to be
materially different from any future results or performance expressed or
implied by these forward-looking statements. These factors include, among other
things, those matters set forth in our Form 10-K, as amended, under the caption
Risk Factors, as well as the following:
        
        general economic and business conditions;
        
        competition;
        
        demographic changes;17Table of Contents
        
        new governmental regulations and changes in, or the failure to
comply with, existing governmental regulations;
        
        legislative proposals that impact our industry or the way we do business;
        
        changes in our industry;
        
        changes in Medicare and Medicaid payment levels;
        
        liability and other claims asserted against us;
        
        integration of PCS and realization of synergies; and
        
        our ability to attract and retain qualified personnel.Although we believe that these statements are based upon reasonable
assumptions, we can give no assurance that our goals will be achieved. Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on these forward-looking statements. These forward-looking statements
speak only as of the date made. Except as required by law, we are under no
duty to update any of the forward-looking statements after the date of this
report to conform such statements to actual results.18Table of Contents
PART II. OTHER INFORMATIONItem 1. Legal Proceedings.AdvancePCS was served with a purported private class action lawsuit filed
in the United States District Court in Arizona on or about December 17, 2001.
The lawsuit alleges that AdvancePCS acts as a fiduciary, as that term is
defined in the Employee Retirement Income Security Act (ERISA), and that
AdvancePCS has breached certain fiduciary obligations under ERISA. AdvancePCS
believes that it does not act as an ERISA fiduciary or assume the ERISA
fiduciary responsibilities as alleged in the complaint. AdvancePCS believes
that its business practices are in compliance with ERISA. The lawsuit seeks
unspecified monetary damages and injunctive relief. AdvancePCS believes that
it does not assume any of the plan fiduciary responsibilities that would
subject it to regulations under ERISA. Although the ultimate outcome is
uncertain, an adverse determination could potentially cause us to change our
business practices with respect to formularies, preferred drug listings and
intervention programs, potentially reducing our profitability and growth
prospects. A class of plaintiffs has not yet been certified, and we intend to
oppose such certification. AdvancePCS has denied all allegations of wrongdoing
and is vigorously defending this suit.Item 2. Changes in Securities and Use of Proceeds.Not applicable.Item 3. Defaults Upon Senior Securities.Not applicable.Item 4. Submission of Matters to a Vote of Security Holders.We filed a Current Report on Form 8-K with the Commission on November 9,
2001, which sets forth the results of our annual meeting of stockholders held
on November 1, 2001.Item 5. Other Information.Not applicable.Item 6. Exhibits and Reports on Form 8-K.(a)  Exhibits.

|            |  |                                                                                                                                                                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibits                                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                        
|3.1         |  | Certificate of Amendment to the Second Amended and Restated
Certificate of Incorporation of AdvancePCS (incorporated by
reference to exhibit 99.1 of AdvancePCSs Current Report on
Form 8-K as filed with the Securities and Exchange Commission
on November 9, 2001).
|3.2         |  | Second Amended and Restated Certificate of Incorporation of
AdvancePCS (incorporated by reference to Exhibit 99.1 of
AdvancePCSs Current Report on Form 8-K as filed with the
Securities and Exchange Commission on December 11, 2000).                               

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|            |  |                                                                                                                                                                                                                                                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibits                                                                                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                                         
|3.3         |  | Second Amended and Restated Bylaws of AdvancePCS (incorporated
by reference to Exhibit 3.1 of AdvancePCSs Current Report on
Form 8-K as filed with the Securities and Exchange Commission
on October 16, 2000).                                                                                                        
|10.1        |  | Amendment No. 2 to AdvancePCS Amended and Restated Incentive
Stock Option Plan (incorporated by reference to Exhibit 10.1
of AdvancePCSs Quarterly Report on Form 10-Q as filed with
the Securities and Exchange Commission on November 14, 2001).                                                                     
|10.2        |  | Amendment No. 1 to AdvancePCS Amended and Restated 1997
Nonstatutory Stock Option Plan (incorporated by reference to
Exhibit 10.2 of AdvancePCSs Quarterly Report on Form 10-Q as
filed with the Securities and Exchange Commission on November
14, 2001).                                                             
|10.3        |  | Amendment No. 3 to Credit Agreement dated as of October 2,
2000 by and among AdvancePCS, Merrill Lynch Capital
Corporation and a syndicate of banks (incorporated by
reference to Exhibit 10.3 of AdvancePCSs Quarterly Report on
Form 10-Q as filed with the Securities and Exchange Commission
on November 14, 2001).
|10.4*       |  | Receivables Purchase and Contribution Agreement dated as of
December 10, 2001 by and among AdvancePCS Health L.P., AFC
Receivables Holding Corporation, ADVP Management, L.P. and
AdvancePCS.                                                                                                                           
|10.5*       |  | Receivables Sale and Contribution Agreement dated December 10,
2001 by and among AFC Receivables Holding Corporation, Advance
Funding Corporation, ADVP Management L.P. and AdvancePCS.                                                                                                                                 
|10.6*       |  | Receivables Purchase and Servicing Agreement dated December
10, 2001 by and among Advance Funding Corporation, Redwood
Receivables Corporation, ADVP Management, L.P. and General
Electric Capital Corporation.                                                                                                         
|10.7*       |  | Annex X to Receivables Purchase and Contribution Agreement,
Receivables Sale and Contribution Agreement and Receivables
Purchase and Servicing Agreement each dated as of December 10,
2001.                                                                                                                            
|10.9*       |  | Parent Guaranty dated as of December 10, 2001 by AdvancePCS in
favor of AdvancePCS Health, L.P., AFC Receivables Holding
Corporation, Advance Funding Corporation and ADVP Management,
L.P.                                                                                                                             



---

|* |  | Filed herewith.
|- |  | ---------------

(b)  Reports on Form 8-K.

On November 9, 2001, we filed a Form 8-K announcing the results of the
various proposals voted on at our annual meeting of stockholders held on
November 1, 2001.

On December 28, 2001, we filed a Form 8-K announcing that we had been
served with a purported private class action lawsuit filed in the United States
District Court in Arizona on or about December 17, 2001.

20



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##### Table of Contents






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.

|                        |  |     |  |                                                                                                                                    
|----------------------- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------
|                        |  |     |  | AdvancePCS
(Registrant)                                                                                                            
|                       
|Date: February 12, 2002 |  | By: |  | /s/ David D. HalbertDavid D. Halbert, Chairman of the Board and
Chief Executive Officer                                            
|                       
|Date: February 12, 2002 |  | By: |  | /s/ Danny PhillipsDanny Phillips, Chief Financial Officer and
Executive Vice President (Principal Financial and
Accounting Officer)

21



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##### Table of Contents



INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                                                         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                         
|Number  |  | Description                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                         
|3.1     |  | Certificate of Amendment to the Second Amended and Restated
Certificate of Incorporation of AdvancePCS (incorporated by
reference to exhibit 99.1 of AdvancePCSs Current Report on
Form 8-K as filed with the Securities and Exchange Commission
on November 9, 2001).                                                 
|3.2     |  | Second Amended and Restated Certificate of Incorporation of
AdvancePCS (incorporated by reference to Exhibit 99.1 of
AdvancePCSs Current Report on Form 8-K as filed with the
Securities and Exchange Commission on December 11, 2000).                                                                                
|3.3     |  | Second Amended and Restated Bylaws of AdvancePCS (incorporated
by reference to Exhibit 3.1 of AdvancePCSs Current Report on
Form 8-K as filed with the Securities and Exchange Commission
on October 16, 2000).                                                                                                        
|10.1    |  | Amendment No. 2 to AdvancePCS Amended and Restated Incentive
Stock Option Plan (incorporated by reference to Exhibit 10.1
of AdvancePCSs Quarterly Report on Form 10-Q as filed with
the Securities and Exchange Commission on November 14, 2001).                                                                     
|10.2    |  | Amendment No. 1 to AdvancePCS Amended and Restated 1997
Nonstatutory Stock Option Plan (incorporated by reference to
Exhibit 10.2 of AdvancePCSs Quarterly Report on Form 10-Q as
filed with the Securities and Exchange Commission on November
14, 2001).                                                             
|10.3    |  | Amendment No. 3 to Credit Agreement dated as of October 2,
2000 by and among AdvancePCS, Merrill Lynch Capital
Corporation and a syndicate of banks (incorporated by
reference to Exhibit 10.3 of AdvancePCSs Quarterly Report on
Form 10-Q as filed with the Securities and Exchange Commission
on November 14, 2001).
|10.4*   |  | Receivables Purchase and Contribution Agreement dated as of
December 10, 2001 by and among AdvancePCS Health L.P., AFC
Receivables Holding Corporation, ADVP Management, L.P. and
AdvancePCS.                                                                                                                           
|10.5*   |  | Receivables Sale and Contribution Agreement dated December 10,
2001 by and among AFC Receivables Holding Corporation, Advance
Funding Corporation, ADVP Management L.P. and AdvancePCS.                                                                                                                                 
|10.6*   |  | Receivables Purchase and Servicing Agreement dated December
10, 2001 by and among Advance Funding Corporation, Redwood
Receivables Corporation, ADVP Management, L.P. and General
Electric Capital Corporation.                                                                                                         
|10.7*   |  | Annex X to Receivables Purchase and Contribution Agreement,
Receivables Sale and Contribution Agreement and Receivables
Purchase and Servicing Agreement each dated as of December 10,
2001.                                                                                                                            
|10.9*   |  | Parent Guaranty dated as of December 10, 2001 by AdvancePCS in
favor of AdvancePCS Health, L.P., AFC Receivables Holding
Corporation, Advance Funding Corporation and ADVP Management,
L.P.                                                                                                                             



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|* |  | Filed herewith.
|- |  | ---------------

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