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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q/A

AMENDMENT NO. 1



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|- |  | -------------------------------------------------------

| |  | SECURITIES EXCHANGE ACT OF 1934
| |  | -------------------------------



For the Quarterly Period Ended June 30, 2002



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)



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



750 West John
Carpenter Freeway

Suite 1200

Irving, Texas 75039

(Address of principal executive offices)



(469) 524-4700

(Registrants Telephone Number, including area code)



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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 August 9, 2002, the registrant had (1) 79,535,732 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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Explanatory Statement



AdvancePCS is filing this Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2003 to include unaudited condensed consolidating
financial information in separate columns for the Company and its guarantor and non-guarantor subsidiaries with respect to the Companys public debt, as contemplated by Rule 3-10(f) of Regulation S-X. See Footnote 7 to the Financial Statements.



AdvancePCS and Subsidiaries



Index to Quarterly Report on Form 10-Q/A



|                              |  |                                                                                               |  |    |  |                                                                                                   |  | Page
|----------------------------- |  | --------------------------------------------------------------------------------------------- |  | -- |  | ------------------------------------------------------------------------------------------------- |  | ----
|                              | 
|Part I. Financial Information |  |                                                                                              
|                              |  |                                                                                              
|                              |  | Item 1. Financial Statements                                                                  |  |   
|                              |  |                                                                                               |  |   
|                              |  |                                                                                               |  | A. |  | Condensed Consolidated Balance Sheets as of June 30, 2002 and March 31, 2002                      |  | 1   
|                              |  |                                                                                               |  |   
|                              |  |                                                                                               |  | B. |  | Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2002 and 2001 |  | 2   
|                              |  |                                                                                               |  |   
|                              |  |                                                                                               |  | C. |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2002 and 2001 |  | 3   
|                              |  |                                                                                               |  |   
|                              |  |                                                                                               |  | D. |  | Notes to Condensed Consolidated Financial Statements                                              |  | 4   
|                              |  |                                                                                              
|                              |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 10
|                              |  |                                                                                              
|                              |  | Item 3. Qualitative and Quantitative Disclosures About Market Risk                            |  | 17
|                              | 
|Part II. Other Information    |  | 19                                                                                           
|                              | 
|Signatures                    |  | 22                                                                                           





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##### Table of Contents

AdvancePCS and Subsidiaries



Condensed Consolidated Balance Sheets

(in thousands, except share data)



(Unaudited)



|                                                                                                             |  | June 30,2002 |           |   | March 31,2002 |  
|------------------------------------------------------------------------------------------------------------ |  | ------------ | --------- | - | ------------- | -
|ASSETS                                                                                                       |  |              |           |   |               |  
|Current assets:                                                                                              |  |              |           |   |               |  
|Cash and cash equivalents                                                                                    |  | $            | 145,289   |   |               | $
|Accounts receivable, net of allowance for doubtful accounts of $29,714 and $26,150 respectively              |  |              | 1,523,495 |   |               |  
|Inventories                                                                                                  |  |              | 78,327    |   |               |  
|Prepaid expenses and other                                                                                   |  |              | 8,239     |   |               |  
|                                                                                                             |  |              |           |   |               |  
|Total current assets                                                                                         |  |              | 1,755,350 |   |               |  
|Noncurrent assets:                                                                                           |  |              |           |   |               |  
|Property and equipment, net of accumulated depreciation and amortization of $72,759 and $64,999 respectively |  |              | 132,079   |   |               |  
|Goodwill                                                                                                     |  |              | 1,198,925 |   |               |  
|Intangible assets, net                                                                                       |  |              | 370,162   |   |               |  
|Other noncurrent assets                                                                                      |  |              | 86,683    |   |               |  
|                                                                                                             |  |              |           |   |               |  
|Total assets                                                                                                 |  | $            | 3,543,199 |   |               | $
|                                                                                                             |  |              |           |   |               |  
|                                                                                                             |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                         |  |              |           |   |               |  
|Current liabilities:                                                                                         |  |              |           |   |               |  
|Current portion of long-term debt                                                                            |  | $            |          |   |               | $
|Claims and accounts payable                                                                                  |  |              | 1,852,932 |   |               |  
|Accrued salaries and benefits                                                                                |  |              | 26,030    |   |               |  
|Other accrued expenses                                                                                       |  |              | 72,802    |   |               |  
|                                                                                                             |  |              |           |   |               |  
|Total current liabilities                                                                                    |  |              | 1,951,764 |   |               |  
|Noncurrent liabilities:                                                                                      |  |              |           |   |               |  
|Long-term debt, less current portion                                                                         |  |              | 500,000   |   |               |  
|Deferred income taxes                                                                                        |  |              | 140,293   |   |               |  
|Other noncurrent liabilities                                                                                 |  |              | 34,669    |   |               |  
|                                                                                                             |  |              |           |   |               |  
|Total liabilities                                                                                            |  |              | 2,626,726 |   |               |  
|                                                                                                             |  |              |           |   |               |  
|                                                                                                             |  |             
|Commitments and contingencies                                                                                |  |              |           |   |               |  
|                                                                                                             |  |             
|Stockholders equity:                                                                                        |  |              |           |   |               |  
|Preferred stock, $.01 par value; 5,000,000 shares authorized:                                                |  |              |           |   |               |  
|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; 80,108,726 and 79,927,079 shares issued and outstanding respectively   |  |              | 801       |   |               |  
|Class B-1 common stock, $.01 par value; 12,913,334 shares issued and outstanding                             |  |              | 130       |   |               |  
|Class B-2 common stock, $.01 par value; 200 shares issued and outstanding                                    |  |              |          |   |               |  
|Additional paid-in capital                                                                                   |  |              | 721,027   |   |               |  
|Accumulated other comprehensive loss                                                                         |  |              | (12,959   | ) |               |  
|Accumulated earnings                                                                                         |  |              | 207,474   |   |               |  
|                                                                                                             |  |              |           |   |               |  
|Total stockholders equity                                                                                   |  |              | 916,473   |   |               |  
|                                                                                                             |  |              |           |   |               |  
|Total liabilities and stockholders equity                                                                   |  | $            | 3,543,199 |   |               | $
|                                                                                                             |  |              |           |   |               |  



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





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AdvancePCS and Subsidiaries



Condensed Consolidated Statements of Operations

(in thousands, except per share data)



(Unaudited)



|                                                                        |  | Three Months EndedJune 30, |          
|----------------------------------------------------------------------- |  | -------------------------- | ---------
|                                                                        |  | 2002                       |          
|Revenues                                                                |  | $                          | 3,592,238
|                                                                        |  |                            |          
|Cost of operations:                                                     |  |                            |          
|Cost of revenues                                                        |  |                            | 3,466,891
|Selling, general and administrative expenses                            |  |                            | 53,265   
|Non-recurring expenses                                                  |  |                            |         
|                                                                        |  |                            |          
|Total cost of operations                                                |  |                            | 3,520,156
|                                                                        |  |                            |          
|Operating income                                                        |  |                            | 72,082   
|Interest income                                                         |  |                            | 1,424    
|Interest expense                                                        |  |                            | (11,588  
|Loss from joint venture                                                 |  |                            | (1,033   
|                                                                        |  |                            |          
|Income before income taxes                                              |  |                            | 60,885   
|Provision for income taxes                                              |  |                            | (24,050  
|                                                                        |  |                            |          
|Net income before extraordinary loss                                    |  |                            | 36,835   
|Extraordinary loss on early retirement of debt, net of taxes            |  |                            | (1,491   
|                                                                        |  |                            |          
|Net income                                                              |  | $                          | 35,344   
|                                                                        |  |                            |          
|Basic                                                                   |  |                            |          
|Net income before extraordinary loss per share                          |  | $                          | 0.40     
|Extraordinary loss on early retirement of debt, net of taxes, per share |  |                            | (0.02    
|                                                                        |  |                            |          
|Net income per share                                                    |  | $                          | 0.38     
|                                                                        |  |                            |          
|Weighted average shares outstanding                                     |  |                            | 93,022   
|                                                                        |  |                            |          
|Diluted                                                                 |  |                            |          
|Net income before extraordinary loss per share                          |  | $                          | 0.36     
|Extraordinary loss on early retirement of debt, net of taxes, per share |  |                            | (0.01    
|                                                                        |  |                            |          
|Net income per share                                                    |  | $                          | 0.35     
|                                                                        |  |                            |          
|Weighted average shares outstanding                                     |  |                            | 102,099  
|                                                                        |  |                            |          



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)



|                                                                                  |  | Three Months Ended June 30, |         
|--------------------------------------------------------------------------------- |  | --------------------------- | --------
|                                                                                  |  | 2002                        |         
|Cash flows from operating activities:                                             |  |                             |         
|Net income                                                                        |  | $                           | 35,344  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                             |         
|Depreciation and amortization                                                     |  |                             | 10,760  
|Provision for doubtful accounts and reserves                                      |  |                             | 9,398   
|Deferred income taxes                                                             |  |                             | 2,413   
|Extraordinary loss on early retirement of debt, net of taxes                      |  |                             | 1,491   
|Change in certain assets and liabilities                                         |  |                             |         
|Accounts receivable                                                               |  |                             | (299,255
|Inventories                                                                       |  |                             | (12,991 
|Prepaid expenses and other noncurrent assets                                      |  |                             | 1,560   
|Claims and accounts payable, accrued expenses and other noncurrent liabilities    |  |                             | 277,428 
|                                                                                  |  |                             |         
|Net cash provided by operating activities                                         |  |                             | 26,148  
|                                                                                  |  |                             |         
|Cash flows from investing activities:                                             |  |                             |         
|Purchase of property and equipment                                                |  |                             | (18,895 
|Acquisition and joint venturenet of cash acquired                                |  |                             | (950    
|                                                                                  |  |                             |         
|Net cash used in investing activities                                             |  |                             | (19,845 
|                                                                                  |  |                             |         
|Cash flows from financing activities:                                             |  |                             |         
|Net proceeds from issuance of Common Stock                                        |  |                             | 1,528   
|Deferred financing costs                                                          |  |                             | (901    
|Proceeds from long-term obligations                                               |  |                             | 341,000 
|Net borrowings on asset securitization facility                                   |  |                             | 150,000 
|Payments on long-term obligations                                                 |  |                             | (491,786
|                                                                                  |  |                             |         
|Net cash used in financing activities                                             |  |                             | (159    
|                                                                                  |  |                             |         
|Increase in cash                                                                  |  |                             | 6,144   
|Cash and cash equivalents, beginning of period                                    |  |                             | 139,145 
|                                                                                  |  |                             |         
|Cash and cash equivalents, end of period                                          |  | $                           | 145,289 
|                                                                                  |  |                             |         



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 of America for the 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 of America for annual financial statements. In the opinion of AdvancePCSs management, the June 30, 2002 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/A 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, 2002. The results of
operations for the three month period ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year or for any future period.



Principles of Consolidation



The accompanying consolidated financial statements include the accounts of AdvancePCS and its 50% or more owned subsidiaries and affiliates. In January
2000, Advance acquired a 19% equity interest in Consumer Health Interactive, Inc. (CHI), an internet health portal development company, with an option to acquire the additional interest. The acquisition of the remaining 81% equity interest was
completed effective September 30, 2001 with cash of $9.2 million, making CHI a wholly owned subsidiary. The Company had previously accounted for its interest in CHI on the cost basis. As a result of the acquisition of the remaining 81% interest,
Opinions of the Accounting Principles Board (APB) No. 18 requires the Companys prior years financial statements to be restated to reflect CHI as if it had been accounted for under the equity method. Accordingly, the three month period ended
June 30, 2001 has been restated to reflect after tax losses of CHI of $226,000 (or diluted net income per share of $.002).



All significant intercompany accounts and transactions have been eliminated in consolidation.



Reclassification



Certain prior year amounts have been reclassified to conform with the current year presentation.



Recent Accounting Pronouncements



In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) 143, Accounting for Asset Retirement Obligations. SFAS 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, construction, development and/or the normal operation of a long-lived
asset. SFAS 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 fiscal years beginning after June 15,
2002. The Company is assessing the impact that SFAS 143 will have on its financial position or results of operations.



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In May 2002, the FASB issued SFAS 145 Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13,
and Technical Corrections as of April 2002. This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, and FASB Statement No. 64, Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. SFAS 145 is effective for fiscal years beginning after May 15, 2002. The Company is assessing the impact that SFAS 145 will have on its financial position or results of operations.



In July 2002, the FASB issued SFAS 146 Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 requires that a liability for a cost that is associated with an exit or disposal activity be recognized when the liability is incurred. It nullifies the guidance of Emerging Issues Task
Force (EITF) in EITF Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 also establishes that fair value is the
objective for the initial measurement of the liability. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002.



|2. |  | Acquisitions
|-- |  | ------------



In January 2000, Advance acquired a 19% interest in CHI with an option to acquire the additional interest. Effective September 30, 2001, the Company
acquired the remaining equity interests of CHI for $9.2 million in cash. The acquisition of the remaining interest was accounted for using the purchase method of accounting. The Company had previously accounted for its interest in CHI on the cost
basis. Under the terms of the acquisition the Company may pay additional cash upon the achievement by CHI of certain account growth targets.



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 1.3 million shares of Class A common stock. An additional 384,006 shares of Class A
common stock were placed in escrow, subject to achievement of future financial performance. 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, $39.1 million, was recorded as goodwill. The Company also recognized $4.7 million in intangible customer contracts. Unaudited
pro forma financial information is not presented because the acquisition of TheraCom was not a material business combination for the Company.



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 (the Venture), 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%.



|3. |  | 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



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but includes the number of additional common shares that would have been outstanding for the period if he 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.



|4. |  | Income Taxes
|-- |  | ------------



In the three months ended June 30, 2002 and 2001, our income tax expense approximated an effective tax rate of 39.5%.



|5. |  | Debt Transactions  Extraordinary Loss
|-- |  | --------------------------------------



Long term debt consists of the following (in thousands):



|                                                                                                                                                                                    |  | June 30, 2002 |         | March 31, 2002
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | --------------
|Senior Secured Credit Facility:                                                                                                                                                     |  |               |         |               
|Revolver, with interest at LIBOR plus 2.00%, expires October, 2005                                                                                                                  |  | $             |        |               
|Term B, with interest at LIBOR plus 3.25%, paid June, 2002                                                                                                                          |  |               |        |               
|                                                                                                                                                                                    |  |               |         |               
|Senior Notes, with interest at 8.50%, due March, 2008                                                                                                                               |  |               | 200,000 |               
|Asset Securitization Facility, with interest at funding agents A-1+/P-1 commercial paper rate of 1.86% and 1.91%
respectively, plus .85% and .65% respectively, due December, 2006 |  |               | 300,000 |               
|                                                                                                                                                                                    |  |               |         |               
|                                                                                                                                                                                    |  |               | 500,000 |               
|Less current portion                                                                                                                                                                |  |               |        |               
|                                                                                                                                                                                    |  |               |         |               
|Total Long Term Debt                                                                                                                                                                |  | $             | 500,000 |               
|                                                                                                                                                                                    |  |               |         |               



In December 2001, the
Company securitized certain of its accounts receivable pursuant to a $150 million facility (the Asset Securitization Facility). The Company used the proceeds to repay $150 million of its Term B note. In addition, the Companys $100
million interim revolver was eliminated. In June of 2002 the Company completed an increase in its Asset Securitization Facility to $300 million. The Company used the proceeds to pay the remaining $150 million of its Term B note. The Asset
Securitization Facility is included in the Companys debt balance as of June 30, 2002 and will continue to be reflected on-balance sheet.



In connection with the repayment of the Term B note in June 2002 from the increase in the securitization facility, 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 $2.4 million of the deferred financing fees related to the Term B note financing agreements. After adjusting for the $953,000 tax impact,
the net charge was $1.5 million.



In March 2001, the Company
issued $200 million of 8.50% Senior Notes (the Senior Notes). The proceeds from this offering were used to retire the $200 million senior subordinated notes due 2010 that were issued to Rite Aid in connection with the PCS acquisition.
The Senior Notes contain covenants that are typical for this type of debt including, among others, fixed charge ratio, payment of dividends and sales of assets. The Senior Notes have been unconditionally guaranteed, jointly and severally, by all of
our subsidiaries, which are all 100% owned. There are no restrictions on the ability of the guarantors to pay dividends, make loans or advances to the parent.



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|6. |  | 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 information and stock prices contained throughout this Form 10-Q/A have been retroactively adjusted to reflect the impact of the stock splits in all periods presented.





|7. |  | Condensed Consolidating Financial Information
|-- |  | ---------------------------------------------



In March 2001, the Company issued $200 million of Senior Notes, which were unconditionally guaranteed, jointly and severally, by all of the existing and
future domestic subsidiaries, other than subsidiaries treated as unrestricted subsidiaries or receivables subsidiaries, each as defined in the Senior Notes Indenture. Subsequent to the issuance of the Senior Notes and in accordance with the terms of
the Senior Notes Indenture, the Company has created unrestricted subsidiaries and receivables subsidiaries that have not guaranteed these Senior Notes. Presented below are condensed consolidating balance sheets as of June 30, 2002 and March 31,
2002, the condensed consolidating statements of operations for the three months ended June 30, 2002 and 2001, and the condensed consolidating statement of cash flows for the three months ended June 30, 2002 and 2001 of AdvancePCS (Parent and
Issuer), guarantor subsidiaries (Guarantor Subsidiaries) and the subsidiaries which are not guarantors (Non-guarantor Subsidiaries) (in thousands):





Condensed Consolidating Balance Sheets:



|                                           |  | Parent |           | GuarantorSubsidiaries |   |           | Non-guarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated
|------------------------------------------ |  | ------ | --------- | --------------------- | - | --------- | ------------------------- |  | - | ------------ | - |  | ------------
|As of June 30, 2002                        |  |        |           |                       |   |           |                           |  |   |              |   |  |             
|Current assets                             |  | $      | 138,340   |                       | $ | 1,092,054 |                           |  | $ | 524,956      |   |  | $           
|Property and equipment, net                |  |        |          |                       |   | 131,380   |                           |  |   | 699          |   |  |             
|Investment in subsidiaries                 |  |        | 262,269   |                       |   | 1,275     |                           |  |   |             |   |  |             
|Intercompany                               |  |        | 728,663   |                       |   | (527,573  | )                         |  |   | (201,090     | ) |  |             
|Goodwill and intangible assets, net        |  |        |          |                       |   | 1,569,087 |                           |  |   |             |   |  |             
|Other assets                               |  |        | 13,140    |                       |   | 73,543    |                           |  |   |             |   |  |             
|                                           |  |        |           |                       |   |           |                           |  |   |              |   |  |             
|Total assets                               |  | $      | 1,142,412 |                       | $ | 2,339,766 |                           |  | $ | 324,565      |   |  | $           
|                                           |  |        |           |                       |   |           |                           |  |   |              |   |  |             
|Current liabilities                        |  | $      | 7,994     |                       | $ | 1,931,532 |                           |  | $ | 12,238       |   |  | $           
|Long-term debt, less current portion       |  |        | 200,000   |                       |   |          |                           |  |   | 300,000      |   |  |             
|Other liabilities                          |  |        | 17,945    |                       |   | 154,561   |                           |  |   | 2,456        |   |  |             
|Stockholders equity                       |  |        | 916,473   |                       |   | 253,673   |                           |  |   | 9,871        |   |  |             
|                                           |  |        |           |                       |   |           |                           |  |   |              |   |  |             
|Total liabilities and stockholders equity |  | $      | 1,142,412 |                       | $ | 2,339,766 |                           |  | $ | 324,565      |   |  | $           
|                                           |  |        |           |                       |   |           |                           |  |   |              |   |  |             
|                                           |  |        |           |                       |  
|As of March 31, 2002                       |  |        |           |                       |   |           |                           |  |   |              |   |  |             
|Current assets                             |  | $      | 117,929   |                       | $ | 965,602   |                           |  | $ | 364,887      |   |  | $           
|Property and equipment, net                |  |        |          |                       |   | 121,008   |                           |  |   | 269          |   |  |             
|Investment in subsidiaries                 |  |        | 219,818   |                       |   | 1,275     |                           |  |   |             |   |  |             
|Intercompany                               |  |        | 894,441   |                       |   | (689,155  | )                         |  |   | (205,286     | ) |  |             
|Goodwill and intangible assets, net        |  |        |          |                       |   | 1,571,966 |                           |  |   |             |   |  |             
|Other assets                               |  |        | 24,301    |                       |   | 58,002    |                           |  |   |             |   |  |             
|                                           |  |        |           |                       |   |           |                           |  |   |              |   |  |             
|Total assets                               |  | $      | 1,256,489 |                       | $ | 2,028,698 |                           |  | $ | 159,870      |   |  | $           
|                                           |  |        |           |                       |   |           |                           |  |   |              |   |  |             
|Current liabilities                        |  | $      | 15,479    |                       | $ | 1,657,982 |                           |  | $ | 3,881        |   |  | $           
|Long-term debt, less current portion       |  |        | 349,263   |                       |   |          |                           |  |   | 150,000      |   |  |             
|Other liabilities                          |  |        | 14,487    |                       |   | 155,574   |                           |  |   | 38           |   |  |             
|Stockholders equity                       |  |        | 877,260   |                       |   | 215,142   |                           |  |   | 5,951        |   |  |             
|                                           |  |        |           |                       |   |           |                           |  |   |              |   |  |             
|Total liabilities and stockholders equity |  | $      | 1,256,489 |                       | $ | 2,028,698 |                           |  | $ | 159,870      |   |  | $           
|                                           |  |        |           |                       |   |           |                           |  |   |              |   |  |             



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Condensed Consolidating Statement of Operations:



|                                                                |  | Parent |         |   | GuarantorSubsidiaries |   |           | Non-guarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |        
|--------------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | --------- | ------------------------- |  | - | ------------ | - |  | ------------ | -------
|Three Months Ended June 30, 2002                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        
|Total revenues                                                  |  | $      |        |   |                       | $ | 3,586,932 |                           |  | $ | 15,282       |   |  | $            | (9,976 
|Cost of operations                                              |  |        |        |   |                       |   | 3,522,507 |                           |  |   | 7,625        |   |  |              | (9,976 
|                                                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        
|Operating income                                                |  |        |        |   |                       |   | 64,425    |                           |  |   | 7,657        |   |  |              |       
|Interest (expense) income, net                                  |  |        | (10,274 | ) |                       |   | 1,760     |                           |  |   | (1,650       | ) |  |              |       
|Loss from joint venture                                         |  |        | (1,033  | ) |                       |   |          |                           |  |   |             |   |  |              |       
|                                                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        
|Income (loss) before income taxes                               |  |        | (11,307 | ) |                       |   | 66,185    |                           |  |   | 6,007        |   |  |              |       
|Income tax provision                                            |  |        | 4,466   |   |                       |   | (26,429   | )                         |  |   | (2,087       | ) |  |              |       
|                                                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        
|Net income (loss) before equity earnings and extraordinary loss |  |        | (6,841  | ) |                       |   | 39,756    |                           |  |   | 3,920        |   |  |              |       
|Equity earnings in subsidiaries                                 |  |        | 40,694  |   |                       |   |          |                           |  |   |             |   |  |              | (40,694
|Extraordinary loss on early retirement of debt, net of taxes    |  |        | 1,491   |   |                       |   | (2,982    | )                         |  |   |             |   |  |              |       
|                                                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        
|Net income                                                      |  | $      | 35,344  |   |                       | $ | 36,774    |                           |  | $ | 3,920        |   |  | $            | (40,694
|                                                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        
|                                                                |  |        |         |   |                      
|                                                                |  | Parent |         |   | GuarantorSubsidiaries |   |           | Non-guarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |        
|Three Months Ended June 30, 2001                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        
|Total revenues                                                  |  | $      |        |   |                       | $ | 3,147,894 |                           |  | $ |             |   |  | $            |       
|Cost of operations                                              |  |        |        |   |                       |   | 3,086,738 |                           |  |   |             |   |  |              |       
|                                                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        
|Operating income                                                |  |        |        |   |                       |   | 61,156    |                           |  |   |             |   |  |              |       
|Interest (expense) income, net                                  |  |        | (20,673 | ) |                       |   | 1,374     |                           |  |   |             |   |  |              |       
|Loss from joint venture                                         |  |        | (659    | ) |                       |   |          |                           |  |   |             |   |  |              |       
|                                                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        
|Income (loss) before income taxes                               |  |        | (21,332 | ) |                       |   | 62,530    |                           |  |   |             |   |  |              |       
|Income tax provision                                            |  |        | 8,426   |   |                       |   | (24,692   | )                         |  |   |             |   |  |              |       
|                                                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        
|Net income (loss) before equity earnings and extraordinary loss |  |        | (12,906 | ) |                       |   | 37,838    |                           |  |   |             |   |  |              |       
|Equity earnings in subsidiaries                                 |  |        | 37,838  |   |                       |   |          |                           |  |   |             |   |  |              | (37,838
|Extraordinary loss on early retirement of debt, net of taxes    |  |        |        |   |                       |   |          |                           |  |   |             |   |  |              |       
|                                                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        
|Net income                                                      |  | $      | 24,932  |   |                       | $ | 37,838    |                           |  | $ |             |   |  | $            | (37,838
|                                                                |  |        |         |   |                       |   |           |                           |  |   |              |   |  |              |        



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Condensed
Consolidating Statement of Cash Flows:



|                                                    |  | Parent |         |   | GuarantorSubsidiaries |   |          | Non-guarantor Subsidiaries |  |   | Eliminations |   | Consolidated |  
|--------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | -------- | -------------------------- |  | - | ------------ | - | ------------ | -
|Three Months Ended June 30, 2002                    |  |        |         |   |                       |   |          |                            |  |   |              |   |              |  
|Net cash provided by (used in) operating activities |  | $      | 6,690   |   |                       | $ | 180,017  |                            |  | $ | (160,559     | ) |              | $
|Net cash used in investing activities               |  |        | (950    | ) |                       |   | (18,436  | )                          |  |   | (459         | ) |              |  
|Net cash provided by (used in) financing activities |  |        | 15,617  |   |                       |   | (161,581 | )                          |  |   | 145,805      |   |              |  
|                                                    |  |        |         |   |                       |   |          |                            |  |   |              |   |              |  
|Increase (decrease) in cash and cash equivalents    |  |        | 21,357  |   |                       |   |         |                            |  |   | (15,213      | ) |              |  
|Cash and cash equivalents, beginning of period      |  |        | 116,983 |   |                       |   |         |                            |  |   | 22,162       |   |              |  
|                                                    |  |        |         |   |                       |   |          |                            |  |   |              |   |              |  
|Cash and cash equivalents, end of period            |  | $      | 138,340 |   |                       | $ |         |                            |  | $ | 6,949        |   |              | $
|                                                    |  |        |         |   |                       |   |          |                            |  |   |              |   |              |  
|                                                    |  |        |         |   |                      
|                                                    |  | Parent |         |   | GuarantorSubsidiaries |   |          | Non-guarantor Subsidiaries |  |   | Eliminations |   | Consolidated |  
|Three Months Ended June 30, 2001                    |  |        |         |   |                       |   |          |                            |  |   |              |   |              |  
|Net cash (used in) provided by operating activities |  | $      | (2,372  | ) |                       | $ | 62,419   |                            |  | $ |             |   |              | $
|Net cash used in investing activities               |  |        | (950    | ) |                       |   | (7,360   | )                          |  |   |             |   |              |  
|Net cash provided by (used in) financing activities |  |        | 43,249  |   |                       |   | (55,059  | )                          |  |   |             |   |              |  
|                                                    |  |        |         |   |                       |   |          |                            |  |   |              |   |              |  
|Increase in cash and cash equivalents               |  |        | 39,927  |   |                       |   |         |                            |  |   |             |   |              |  
|Cash and cash equivalents, beginning of period      |  |        | 110,048 |   |                       |   |         |                            |  |   |             |   |              |  
|                                                    |  |        |         |   |                       |   |          |                            |  |   |              |   |              |  
|Cash and cash equivalents, end of period            |  | $      | 149,975 |   |                       | $ |         |                            |  | $ |             |   |              | $
|                                                    |  |        |         |   |                       |   |          |                            |  |   |              |   |              |  





|8. |  | Subsequent EventsStock and Debt Transactions
|-- |  | ---------------------------------------------



On June 6, 2002, we filed a Form 8-K announcing the authorization from the board of directors of a stock repurchase program of up to $150 million of its
outstanding shares of Class A common stock in the open market or private transactions. As of August 9, 2002, the Company has purchased 2.8 million shares under this repurchase program at a cost of approximately $50.2 million. In addition, as of
August 8, 2002, the Company has repurchased Senior Notes with a face value of approximately $6.2 million in open market transactions.



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



Critical Accounting Policies



Revenue Recognition



At the point of sale, pharmacy claims are adjudicated using the Companys on-line claims processing system. When the Company independently contracts
to pay its network pharmacy providers, it assumes credit risk and acts as a principal in the transaction, therefore the Company includes payments from plan sponsors for these benefits as revenues and payments to its pharmacy providers as cost of
revenues (i.e. gross reporting) in accordance with EIFT 99-19 Reporting Gross Revenue as a Principal vs Net as an Agent. When the Company is only administering the plan sponsors network pharmacy contracts, it does not assume credit
risk or act as a principal in the transaction, therefore, the Company only records the claims processing fees as revenues (i.e. net reporting).



Revenues from the dispensing of pharmaceuticals from the Companys mail service pharmacies are recognized when each prescription is shipped. Revenues
from the sales of prescription drugs by pharmacies in the Companys nationwide network and claims processing fees are recognized when the claims are adjudicated.



Clinical services fees received from the plan sponsors or pharmaceutical manufacturers are recognized in revenues as earned
in accordance with the contractual agreements. Clinical services revenue includes service fees for negotiating rebates with pharmaceutical manufacturers on behalf of its health plan sponsor customers. The rebate due from the manufacturer is
determined based on a complex formula including such factors as volume and quarterly drug utilization. The Company estimates the most recent quarters rebate receivables from the manufacturers, rebate payables to plan sponsors and its fees
based on the terms of its contracts and claims for the quarter. Following the end of the quarter, the Company invoices the drug manufacturer. The Company revises its estimates based upon the invoiced amounts. Rebates received from pharmaceutical
manufacturers on behalf of plan sponsors are excluded from revenues. Clinical services revenues from certain disease management and health benefit management products are reimbursed at predetermined contractual rates based on the delivery or
completion of the services.





Cost of Revenues



Cost
of revenues includes product costs, pharmacy claims payments made to our retail network pharmacies and other direct costs associated with the provision of customer services and the sale and/or dispensing of prescriptions including our call center
operations. Rebate amounts paid to plan sponsors, collected from pharmaceutical manufacturers, are excluded from cost of revenues.





Selling, General and Administrative



Selling, general and administrative expenses reflect the costs of operations
dedicated to generating new sales and maintaining existing client relationships. These expenses also include costs relating to certain corporate functions including executive oversight, accounting, treasury, tax, legal, public affairs, human
resources, procurement and other services.





Use of Estimates



Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 reported amounts of revenues and
expenses during the reporting periods. The Company has made significant estimates of the purchase price and fair market



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value of the assets acquired and liabilities assumed in our acquisitions. Other significant estimates include clinical
services revenues and costs, reserves for uncollectable accounts, liabilities relating to customer rebate guarantees, performance commitments and service warranties. The Company has also made significant estimates relating to contract losses, the
value of our various investments and recoverability of the capitalized amounts for internally developed software. The Company bases its estimates on historical experience and on various assumptions that the Company believes are reasonable under the
circumstances. The Company continually evaluates the appropriateness of the amounts recorded and revises these estimates regularly. Actual results could differ from those estimates, and any such change could adversely affect the Companys
results of operations.





Accounts Receivable



Accounts receivable balances represent trade receivables generated from health benefit management and related services. To reduce the potential for credit risk, the Company performs ongoing evaluations of its customers financial
condition but does not generally require significant collateral. Accounts receivable balances are used as collateral for the Companys debt. As of June 30, 2002, unbilled receivables were $330.1 million. Unbilled receivables to plan sponsors
are typically billed within 15 days and unbilled receivables to manufacturers are typically billed within 90 days, based on the respective contractual billing schedule. The Company establishes an allowance for doubtful accounts based on performance
factors, historical trends and other pertinent information.





Results Of OperationsAdvancePCS



The following table sets forth certain consolidated, unaudited historical financial data of AdvancePCS.



|                                                             |  | Three Months Ended June 30,           |          
|------------------------------------------------------------ |  | ------------------------------------- | ---------
|                                                             |  | 2002                                  |          
|                                                             |  | (in thousands, except per share data) |          
|Revenues:                                                    |  |                                       |          
|Data services                                                |  | $                                     | 2,911,015
|Mail services                                                |  |                                       | 516,918  
|Clinical and other services                                  |  |                                       | 164,305  
|                                                             |  |                                       |          
|Total revenues                                               |  |                                       | 3,592,238
|Gross profit                                                 |  |                                       | 125,347  
|Selling, general and administrative expenses                 |  |                                       | 53,265   
|Non-recurring expenses                                       |  |                                       |         
|Operating income                                             |  |                                       | 72,082   
|Net interest expense                                         |  |                                       | (10,164  
|Loss from joint venture                                      |  |                                       | (1,033   
|Extraordinary loss on early retirement of debt, net of taxes |  |                                       | (1,491   
|Net income                                                   |  | $                                     | 35,344   
|Diluted net income per share                                 |  | $                                     | .35      



(1) Financial information for 2001 has
been restated for the purchase of CHI (see Note 1 to the financial statements included in this report).





Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001



Revenues. Our revenues for the three months ended
June 30, 2002 increased by $444 million, or 14%, compared to revenues for the three months ended June 30, 2001. The increase in revenues was



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primarily the result of an increase in pharmacy claims and a corresponding increase in claims processing revenue.
Approximately $233 million, or 52%, of the increase in revenues was attributable to data services and a 5.1% increase in the number of pharmacy claims processed during the period. Claims processed increased to 118.7 million in the three months ended
June 30, 2002 from 113.0 million for the three months ended June 30, 2001. Approximately 41% of the increase was attributable to additional sales of our mail pharmacy services including our specialty pharmacy services, resulting from a 34.1%
increase in the number of mail prescriptions dispensed. Mail pharmacy prescriptions dispensed increased to 3.5 million for the three months ended June 30, 2002 from 2.6 million in the three months ended June 30, 2001. Approximately 7% of the
increase in revenues resulted from an increase in clinical and other services revenues derived from formulary and health improvement services, as well as clinical trials and other products and services for pharmaceutical manufacturers.



Gross profit. Our gross profit for the three months ended June 30,
2002 increased by $18 million, or 16%, compared to the same period in 2001. As a percentage of revenues, gross profit was approximately 3.5% in the three months ended June 30, 2002 and 3.4% in the same period in 2001. Data services revenues
decreased and mail services increased as a percentage of total revenues. Mail services revenues generally have a higher percentage margin than data services.



Selling, general and administrative expenses. Our selling, general and administrative expenses for the three months ended June 30, 2002 increased
by $7.5 million, or 16% compared to the same period in 2001. Selling, general and administrative expenses as a percentage of revenues were 1.5% for the three months ended June 30, 2002 and 2001.



Interest income and interest expense. Interest expense, net of
interest income, for the three months ended June 30, 2002 decreased $9.1 million compared to the same period in 2001. The decrease was due primarily to the reduction in outstanding debt through proceeds from the sale of nine million shares of Class
A common stock in August of 2001. In addition, the Asset Securitization Facility incurs interest at a lower rate than the debt it replaced.



Loss from joint venture.In February 2001, we entered into an agreement with Express Scripts and Merck-Medco, to form RxHub, LLC (RxHub) to develop
electronic prescribing technology. We own one third of the equity of RxHub. We have recorded our investment in RxHub under the equity method of accounting and record our percentage interest in RxHubs results in our Consolidated Statement of
Operations. For the three month period ending June 30, 2002 and 2001, we recorded a net loss of $1,033,000 and $659,000 from our interest in RxHub respectively.



Income taxes. For the three months ended June 30, 2002 and June 30, 2001, our effective tax rate was approximately 39.5%.



Extraordinary loss on early retirement of debt, net of taxes. In
connection with the refinancing and the bank debt repayment, 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 $1.5 million, net of taxes.



Diluted net income per share. We reported diluted net income of $0.35 per share for the three months ended June 30, 2002 compared to $0.27 per share for the same period in 2001. The weighted average shares
outstanding were 102.1 million and 91.6 million for the three months ended June 30, 2002 and 2001, respectively. On August 23, 2001 the Company completed the sale of nine million shares of Class A common stock.



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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/A have been retroactively adjusted to reflect the impact of the
stock split.



Liquidity and Capital Resources



As of June 30, 2002, we had a working capital deficit of $196.4 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 credit facilities, which results in a net deficit in working capital. Our net cash provided by
operating activities was $26.1 million for the three months ended June 30, 2002 resulting primarily from net income and also due to the timing of receivables and payables resulting from our claims processing cycle. During the three months ended June
30, 2002, we used cash of $18.9 million for purchases of property and equipment associated with the growth and expansion of our systems and facilities.



Historically, we have been able to fund our operations and continued growth through cash flow from operations. In fiscal years 2001, 2002 and in the 1st
Quarter of 2003 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 and our stock repurchase program, for at least the next 18 months. As of
August 9, 2002, we have purchased 2.8 million shares under our stock repurchase program at a cost of approximately $50.2 million. 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.



In December
2001, we securitized certain of our accounts receivable pursuant to a $150 million facility (the Asset Securitization Facility). In June 2002, we completed an increase to the Asset Securitization Facility of an additional $150 million.
The $300 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 .85%. As of June 30, 2002, we had drawn $300 million under
this facility. The Asset Securitization Facility is included in our debt balance as of June 30, 2002 and will continue to be reflected on-balance sheet. The proceeds were used to repay $300 million of our Term B debt. In addition, our
$100 million interim revolving credit facility was eliminated. As of June 30, 2002 our debt consists of the following in thousands:



|Asset Securitization Facility |  | $ | 300,000
|----------------------------- |  | - | -------
|Senior Notes                  |  |   | 200,000
|                              |  |   |        
|                              |  | $ | 500,000
|                              |  |   |        



In addition, we have a
$175 million revolving credit facility that expires in 2005. As of June 30, 2002, no amounts were drawn on this revolving facility. In connection with the bank debt repayment made in June 2002, we 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 $1.5 million, net of taxes.



Effective April 1, 2001, we adopted SFAS 133 Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS 137 and SFAS 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 designated these agreements fair value hedges in accordance with SFAS 133, as amended and
have reflected the fair value



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of these financial instruments in the condensed consolidated balance sheet effective April 1, 2001 upon adoption of SFAS
133. As a portion of the debt interest rates and underlying index of the interest rate protection agreements do not coincide, we test for hedge effectiveness using the hypothetical derivative method. The results of this test at June 30, 2002
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 June 30, 2002, with the adjustment recognized as a component of other comprehensive
income in stockholders equity. The fair value of our interest rate swaps, a liability of $14.9 million at June 30, 2002 and $14.5 million at March 31, 2002, was based upon quoted market prices. Under SFAS 133, we have recorded a charge to
other comprehensive income of $273,000, net of taxes, for the three months ended June 30, 2002.



HIPAA



Pursuant to the
Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Department of Health and Human Services, or 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 establish 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. We expect that HIPAA requirements will result in additional
capital expenditures over the level required for maintenance and growth of our operations though 2003, which is the scheduled deadline for HIPAA compliance. Currently, we do not expect the cost of implementation to have a material effect to our
financial condition, results of operations, or cash flows. We can give no assurances that our current estimate of the cost of implementation will prove to be accurate.



Legal Proceedings



In November 1999, PCS Health Systems, Inc., or PCS, a subsidiary of PCS Holding Corporation, which was acquired by the Company in October 2001, received a
subpoena from the Department of Health and Human Services Office of Inspector General, or OIG, requesting that PCS produce documents in connection with an industry-wide investigation. The investigation is being pursued under the direction of the
United States Attorneys Office for the Eastern District of Pennsylvania. Based on public statements from that office, the investigation involves a review of the practices of pharmacy benefit management companies, or PBMs, under federal
anti-kickback statutes and other laws and regulations. This investigation appears to focus on PBMs relationships with pharmaceutical manufacturers and retail pharmacies and PBMs programs relating to drug formulary compliance, which
includes rebate and other payments made by pharmaceutical manufacturers to PBMs. The investigation also appears to focus on payments made by PBMs to retail pharmacies or others in connection with therapeutic intervention activities. AdvancePCS has
turned over documents responsive to the subpoena. The United States Attorneys Office has also contacted some of the pharmaceutical manufacturers with which we have agreements and has asked them to provide copies of documents relating to their
agreements with us.



There is litigation pending in the Eastern
District of Pennsylvania regarding further enforcement of the subpoena and other matters relating to the propriety of the governments investigation. In December 2001, the OIG filed a motion seeking to enforce its demand under the subpoena for
AdvancePCS to produce certain employee e-mails. AdvancePCS has opposed the enforcement motion, objecting to the scope and breadth of this request. This matter has been fully briefed and the parties are awaiting the courts ruling. On April 10,
2002, the United States Attorney General issued Civil Investigative



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Demands, or CIDs, seeking to compel interviews with eight of our employees and former employees in connection with a
purported Federal False Claims Act inquiry related to its ongoing investigation. These eight individuals have filed a joint petition in the United States District Court for the Eastern District of Pennsylvania seeking to set aside the CIDs. The
United States Attorney has filed a petition seeking an order enforcing the CIDs and has filed a response to the petition to set aside the CIDs. The court has not ruled on these requests. Although AdvancePCS is not a party to the CID related
litigation, these proceedings are related to the ongoing OIG investigation.



It is not possible to predict the outcome of this investigation or whether the government will commence any action challenging any of our programs and practices. We believe that our programs and those of PCS prior to
the acquisition are in compliance with the requirements of the anti-kickback and false claims statutes and other applicable laws and regulations. Moreover, other than those actions filed in connection with the enforcement of the subpoena, neither
the OIG nor United States Attorney has filed any actions or claims against AdvancePCS nor have they indicated their intention to do so. Nevertheless, as a result of this investigation, we could be subject to scrutiny, further investigation or
challenge under federal or state anti-kickback and false claims statutes or other laws and regulations which could cause our business, profitability and growth prospects to suffer materially.



AdvancePCS was served with two purported private class action lawsuits filed
by the same counsel for different plaintiffs in the United States District Court in Arizona. One was filed on or about December 17, 2001 and the other was served on or about April 19, 2002. The lawsuits allege that AdvancePCS acts as a fiduciary, as
that term is defined in the Employee Retirement Income Security Act, or ERISA, and that AdvancePCS has breached certain fiduciary obligations under ERISA. In the earlier of the two cases filed, the plaintiff withdrew the class action allegations in
April 2002 and the case is proceeding as a single plaintiff seeking to represent one health plan. As to both cases, AdvancePCS believes that it does not act as an ERISA fiduciary or assume the ERISA fiduciary responsibilities as alleged in the
complaints. AdvancePCS believes that, in any event, its business practices are in compliance with ERISA. The lawsuit seeks unspecified monetary damages and injunctive relief. 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, rebates, and intervention programs, potentially reducing our profitability and growth prospects. In the later of the two cases filed, class
allegations remain, but 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.



In March 1998, a class action lawsuit captioned Mulder v. PCS Health
Systems, Inc., case number 98-1003, was filed in the United States District Court of the District of New Jersey. This action alleges that PCS is an ERISA fiduciary and that we have breached our fiduciary obligations under ERISA in connection
with our development and implementation of formularies, preferred drug listings and intervention programs for our sponsors of ERISA health plans. In particular, plaintiffs allege that our therapeutic interchange programs and negotiation of formulary
rebates and discounts from pharmaceutical manufacturers violate fiduciary obligations. The plaintiffs are seeking injunctive relief and monetary damages in an unspecified amount. AdvancePCS believes that it does not assume any of the plan fiduciary
responsibilities that would subject it to regulation under ERISA as alleged in the complaint. 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, intervention programs, and rebates, potentially reducing our profitability and growth prospects. A class of plaintiffs has not yet been certified and we have opposed such certification. AdvancePCS has denied all
allegations of wrongdoing and is vigorously defending this suit.



On December 17, 2001, AARP and United Healthcare Insurance Co. (United) filed a multi-count complaint against AdvancePCS in federal court in Minneapolis, Minnesota in a matter captioned United Healthcare Insurance Co. and AARP v.
AdvancePCS, Civ. No. 01-CV-2320 (D. Minn.). AARP and United have asserted claims against AdvancePCS for violation of Minnesotas deceptive trade practices act,



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tortious interference with prospective economic advantage and unjust enrichment. Specifically, AARP and United claim that
AdvancePCS created confusion among certain AARP members and pharmacists through the launch of the AdvancePCS prescription drug discount program. AARP and United have requested preliminary and permanent injunctive relief and recently quantified their
compensatory damage claim of $30 million, including attorneys fees and costs. AdvancePCS has moved to dismiss all counts of the complaint. On March 18, 2002, without holding an evidentiary hearing, the district court granted AARP and
Uniteds request for preliminary injunctive relief. The courts order was modified on March 22, 2002. AdvancePCS has appealed the district courts orders and this appeal is pending. AdvancePCS has denied AARP and Uniteds
allegations and is vigorously defending this matter.



Various aspects of the
Companys businesses are governed by federal and state laws and regulations and compliance is a significant operational requirement for the Company. Management believes that the Company is in substantial compliance with all existing legal
requirements material to the operation of its business; however, the application of complex standards to the detailed operation of the business always creates areas of uncertainty. Moreover, regulation of the field is in a state of flux. Numerous
health care laws and regulations have been proposed at the state and federal level, many of which could affect the Companys business. Management cannot predict what additional federal or state legislation or regulatory initiatives may be
enacted in the future regarding health care, or the business of pharmacy benefit management. It is possible that federal or state governments might impose additional restrictions or adopt interpretations of existing laws that could have a material
adverse affect on the Companys business or financial position.



In addition, we are a defendant in lawsuits from time to time arising in the ordinary course of business, the outcome of which we believe will not have a material adverse effect on our business, profitability and growth prospects.



Recent Accounting Pronouncements



In June 2001, the FASB issued SFAS 143, Accounting for Asset
Retirement Obligations. SFAS 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, construction, development and/or the normal operation of a long-lived asset. SFAS 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 fiscal years beginning after June 15, 2002. The Company is assessing the impact that SFAS 143 will have on its
financial position or results of operations.



In May 2002, the
FASB issued SFAS 145 Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002. This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of that Statement, and FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other
existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS 145 is effective for fiscal years beginning after May 15, 2002. The Company is assessing
the impact that SFAS 145 will have on its financial position or results of operations.



In July 2002, the FASB issued SFAS 146 Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 requires that a liability for a cost that is associated with an exit or disposal activity



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be recognized when the liability is incurred. It nullifies the guidance of the Emerging Issues Task Force (EITF) in EITF
Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 also establishes that fair value is the objective for the
initial measurement of the liability. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002.



Impact of Inflation



Changes 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 Risk
|-------- |  | ----------------------------------------------------------



The Company has not entered into derivatives or other financial instruments for trading purposes. We have entered into interest rate protection agreements
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 8.50% Senior Notes outstanding. As a result, virtually all of our debt is effectively fixed rate debt as of June 30, 2002.
Due to these measures a change in interest rates would have no material effect on our statement of operations but could impact the fair value of debt outstanding relative to current market rates.



A sensitivity analysis is used to determine the impact interest rate changes
will have on the fair value of the interest rate swap, measuring the change in the net present value arising from the change in the interest rate. The fair value of the swap is then determined by calculating the present value of all cash flows
expected to arise thereunder, with future interest rate levels implied from prevailing mid-market swap rates. Anticipated cash flows are then discounted on the assumption of a continuously compounded zero-coupon yield curve.



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



This Form 10-Q/A 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, under the caption Risk Factors, as well as the following:



| |  |  | general economic and business conditions;
| | - |  | -----------------------------------------



| |  |  | competition;
| | - |  | ------------



| |  |  | demographic changes;
| | - |  | --------------------



| |  |  | new governmental regulations and changes in, or the failure to comply with, existing governmental regulations;
| | - |  | --------------------------------------------------------------------------------------------------------------





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| |  |  | 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; 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 these forward looking statements 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.





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PART II. OTHER INFORMATION



|Item  1. |  | Legal Proceedings
|-------- |  | -----------------



In November 1999, PCS Health Systems, Inc., or PCS, a subsidiary of PCS Holding Corporation, which was acquired by the Company in October 2001, received a
subpoena from the Department of Health and Human Services Office of Inspector General, or OIG, requesting that PCS produce documents in connection with an industry-wide investigation. The investigation is being pursued under the direction of the
United States Attorneys Office for the Eastern District of Pennsylvania. Based on public statements from that office, the investigation involves a review of the practices of pharmacy benefit management companies, or PBMs, under federal
anti-kickback statutes and other laws and regulations. This investigation appears to focus on PBMs relationships with pharmaceutical manufacturers and retail pharmacies and PBMs programs relating to drug formulary compliance, which
includes rebate and other payments made by pharmaceutical manufacturers to PBMs. The investigation also appears to focus on payments made by PBMs to retail pharmacies or others in connection with therapeutic intervention activities. AdvancePCS has
turned over documents responsive to the subpoena. The United States Attorneys Office has also contacted some of the pharmaceutical manufacturers with which we have agreements and has asked them to provide copies of documents relating to their
agreements with us.



There is litigation pending in the Eastern
District of Pennsylvania regarding further enforcement of the subpoena and other matters relating to the propriety of the governments investigation. In December 2001, the OIG filed a motion seeking to enforce its demand under the subpoena for
AdvancePCS to produce certain employee e-mails. AdvancePCS has opposed the enforcement motion, objecting to the scope and breadth of this request. This matter has been fully briefed and the parties are awaiting the courts ruling. On April 10,
2002, the United States Attorney General issued Civil Investigative Demands, or CIDs, seeking to compel interviews with eight of our employees and former employees in connection with a purported Federal False Claims Act inquiry related to its
ongoing investigation. These eight individuals have filed a joint petition in the United States District Court for the Eastern District of Pennsylvania seeking to set aside the CIDs. The United States Attorney has filed a petition seeking an order
enforcing the CIDs and has filed a response to the petition to set aside the CIDs. The court has not ruled on these requests. Although AdvancePCS is not a party to the CID related litigation, these proceedings are related to the ongoing OIG
investigation.



It is not possible to predict the outcome of
this investigation or whether the government will commence any action challenging any of our programs and practices. We believe that our programs and those of PCS prior to the acquisition are in compliance with the requirements of the anti-kickback
and false claims statutes and other applicable laws and regulations. Moreover, other than those actions filed in connection with the enforcement of the subpoena, neither the OIG nor United States Attorney has filed any actions or claims against
AdvancePCS nor have they indicated their intention to do so. Nevertheless, as a result of this investigation, we could be subject to scrutiny, further investigation or challenge under federal or state anti-kickback and false claims statutes or other
laws and regulations which could cause our business, profitability and growth prospects to suffer materially.



AdvancePCS was served with two purported private class action lawsuits filed by the same counsel for different plaintiffs in the United States District
Court in Arizona. One was filed on or about December 17, 2001 and the other was served on or about April 19, 2002. The lawsuits allege that AdvancePCS acts as a fiduciary, as that term is defined in the Employee Retirement Income Security Act, or
ERISA, and that AdvancePCS has breached certain fiduciary obligations under ERISA. In the earlier of the two cases filed, the plaintiff withdrew the class action allegations in April 2002 and the case is



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proceeding as a single plaintiff seeking to represent one health plan. As to both cases, AdvancePCS believes that it does
not act as an ERISA fiduciary or assume the ERISA fiduciary responsibilities as alleged in the complaints. AdvancePCS believes that, in any event, its business practices are in compliance with ERISA. The lawsuit seeks unspecified monetary damages
and injunctive relief. 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, rebates, and intervention programs,
potentially reducing our profitability and growth prospects. In the later of the two cases filed, class allegations remain, but 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.



In addition, we are a defendant in lawsuits from time to time arising in the ordinary course of business, the outcome of which we believe will not have a material adverse effect on our business, profitability and growth prospects.



|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.
|-------- |  | ----------------------------------------------------



Not applicable.



|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).                               
|            | 
|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. 5 to Credit Agreement dated as of July 17, 2002 by and among                                                                                                                                                                                             



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|     |   |  | AdvancePCS, Merrill Lynch Capital Corporation and a syndicate of banks (incorporated by reference to Exhibit 10.1 ofAdvance PCSs Quarterly Report on Form 10-Q as filed
with the Securities and Exchange Commission on August 14,2002).
|---- | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  
|99.1 | * |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                            
|     |  
|99.2 | * |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                            

---

*Filed herewith.



(b) Reports on Form 8-K.



On June 6, 2002, we filed a Form 8-K announcing the authorization from the
board of directors of a stock repurchase program of up to $150 million of its outstanding shares of Class A common stock in the open market or private transactions.



On June 30, 2002, we filed a Form 8-K announcing the appointment to the board of directors of Dr. George Poste. Dr. Poste
fills a vacancy in the Companys independent class of directors and will be up for re-nomination at the shareholders meeting in 2003. The Company also announced the resignations of board members Robert G. Miller and David R. Jessick, effective
June 30, 2002.



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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: June 30, 2003 |  | By: |  | /s/     DAVID D.
HALBERT                                           
|                    |  |     |  | David D. Halbert, Chairman of the Board and Chief Executive Officer



|                    |  |     |  |                                                                                                                 
|------------------- |  | --- |  | ----------------------------------------------------------------------------------------------------------------
|                    |  |    
|Date: June 30, 2003 |  | By: |  | /s/     YON Y.
JORDEN                                                                                           
|                    |  |     |  | Yon Y. Jorden, Chief Financial Officer and Executive Vice President (Principal Financial and Accounting
Officer)



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CHIEF EXECUTIVE OFFICER CERTIFICATION

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002



I, David D. Halbert, certify that:



1. I have reviewed this quarterly report on Form 10-Q/A of AdvancePCS;



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



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



Date: June 30, 2003



|                                                     
|-----------------------------------------------------
|/s/    DAVID D.
HALBERT                              
|David D. Halbert Chairman and Chief Executive Officer



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CHIEF FINANCIAL OFFICER CERTIFICATION

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002



I, Yon Y. Jorden, certify that:



1. I have reviewed this quarterly report on Form 10-Q/A of AdvancePCS;



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



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



Date: June 30, 2003



|                                     
|-------------------------------------
|/s/    YON Y.
JORDEN                 
|Yon Y. Jorden Chief Financial Officer



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