##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended December 31, 2000

OR

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

For the transition period from _______ to ________

Commission File Number 0-21447

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

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

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

(469) 420-6000
(Registrants Telephone Number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

| |     |  |   |  |    |  |  |  |  |  |  | 
| | --- |  | - |  | -- |  |  |  |  |  |  | 
| | Yes |  | X |  | No |  |  | 
| |     |  |   |  |    |  | 

As of February 12, 2001, the registrant had (1) 25,734,042 shares of Class
A common stock, $.01 par value outstanding, (2) 4,207,300 shares of Class B-1
common stock, $.01 par value, outstanding and (3) 0 shares of Class B-2 common
stock, $.01 par value, outstanding.





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TABLE OF CONTENTS



|                                                     |                                                                                               |  |  |  |  |  |  | 
|---------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|CONDENSED CONSOLIDATED BALANCE SHEETS               
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                     | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|PART II. OTHER INFORMATION                          
|SIGNATURES                                          
|EX-10.3 Amendment No. 1 Stockholders' Agreement     
|EX-10.5 Form of Employment Agreement                



---



ADVANCEPCS

INDEX TO QUARTERLY REPORT FORM 10-Q

|                              |                                                                                               |                                                                                                                          |      |   |   | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ---- | - | - | 
|Part I. Financial Information |                                                                                               |                                                                                                                          | Page |  
|                             
|                             
|                             
|                             
|                              | Item 1. Financial Statements                                                                 
|                             
|                             
|                             
|                             
|                              |                                                                                               | A. Condensed Consolidated Balance Sheets as of
December 31, 2000 and March 31, 2000                                      |      |   | 1 | 
|                             
|                             
|                             
|                             
|                              |                                                                                               | B. Condensed Consolidated Statements of Operations for
the Three Months and Nine Months Ended December 31,
2000 and 1999 |      |   | 2 | 
|                             
|                             
|                             
|                             
|                              |                                                                                               | C. Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended December 31, 2000 and 1999                  |      |   | 3 | 
|                             
|                             
|                             
|                             
|                              |                                                                                               | D. Notes to Condensed Consolidated Financial Statements                                                                  |      |   | 4 | 
|                             
|                             
|                             
|                             
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations |                                                                                                                          |      | 8 |  
|                             
|                             
|                             
|                             
|Part II. Other Information    |                                                                                               |                                                                                                                          | 16   |  
|                             
|                             
|                             
|                             
|Signatures                    |                                                                                               |                                                                                                                          | 20   |  





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##### Table of Contents



ADVANCEPCS AND SUBSIDIARIES




|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             |                |               |                   |               |  |  | 
|--------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------ | ----------- | ----------- | -------------- | ------------- | ----------------- | ------------- |  |  | 
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             | March 31, 2000 |               | December 31, 2000
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             |                |               |                  
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      | ASSETS     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|CURRENT ASSETS:                                                                                                      
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Cash and cash equivalents                                                                               |                                                                                                      | $                                    | 55,243,000  |             |                | $             | 141,350,000       |              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Accounts receivable, net of allowance for doubtful accounts
of $1,248,000 and $12,564,000, respectively |                                                                                                      |                                      | 200,288,000 |             |                |               | 1,023,963,000     |              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Inventories                                                                                             |                                                                                                      |                                      | 5,965,000   |             |                |               | 29,980,000        |              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Prepaid expenses and other                                                                              |                                                                                                      |                                      | 3,241,000   |             |                |               | 7,919,000         |              
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             |                |               |                  
|                                                                                                                      |                                                                                                         | Total current assets                                                                                 |                                      |             | 264,737,000 |                |               |                   | 1,203,212,000 | 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $14,080,000 and $18,275,000, respectively |                                                                                                         |                                                                                                      | 33,107,000                           |             |             |                | 92,714,000    |                  
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|INTANGIBLE ASSETS, net of accumulated amortization of
$6,078,000 and $23,499,000, respectively                        |                                                                                                         |                                                                                                      | 101,154,000                          |             |             |                | 1,824,395,000 |                  
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|OTHER ASSETS                                                                                                          |                                                                                                         |                                                                                                      | 7,740,000                            |             |             |                | 22,274,000    |                  
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             |                |               |                  
|                                                                                                                      |                                                                                                         | Total assets                                                                                         |                                      | $           | 406,738,000 |                |               | $                 | 3,142,595,000 | 
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             |                |               |                  
|                                                                                                                      |                                                                                                         |                                                                                                      | LIABILITIES AND STOCKHOLDERS EQUITY
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|CURRENT LIABILITIES:                                                                                                 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Current portion of long-term debt                                                                       |                                                                                                      | $                                    |            |             |                | $             | 11,438,000        |              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Accounts payable                                                                                        |                                                                                                      |                                      | 242,440,000 |             |                |               | 1,381,670,000     |              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Accrued salaries and benefits                                                                           |                                                                                                      |                                      | 5,386,000   |             |                |               | 25,069,000        |              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Other accrued expenses                                                                                  |                                                                                                      |                                      | 4,803,000   |             |                |               | 130,327,000       |              
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             |                |               |                  
|                                                                                                                      |                                                                                                         | Total current liabilities                                                                            |                                      |             | 252,629,000 |                |               |                   | 1,548,504,000 | 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|NONCURRENT LIABILITIES:                                                                                              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Long-term debt                                                                                          |                                                                                                      |                                      | 50,000,000  |             |                |               | 798,562,000       |              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Deferred income taxes                                                                                   |                                                                                                      |                                      | 3,904,000   |             |                |               | 380,195,000       |              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Other noncurrent liabilities                                                                            |                                                                                                      |                                      | 2,160,000   |             |                |               | 21,428,000        |              
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             |                |               |                  
|                                                                                                                      |                                                                                                         | Total liabilities                                                                                    |                                      |             | 308,693,000 |                |               |                   | 2,748,689,000 | 
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             |                |               |                  
|COMMITMENTS AND CONTINGENCIES                                                                                        
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|STOCKHOLDERS EQUITY:                                                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Preferred stock, $.01 par value; 5,000,000 shares authorized:                                          
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      |                                                                                                         | Series A-1 convertible preferred stock, $.01 par value; 0
and 65,854 shares issued and outstanding   |                                      |             |            |                |               |                   | 1,000         | 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      |                                                                                                         | Series A-2 convertible preferred stock, $.01 par value; 0
and 125,000 shares issued and outstanding, |                                      |             |            |                |               |                   | 1,000         | 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Common stock, $.01 par value; 100,000,000 shares authorized:                                           
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      |                                                                                                         | Class A common stock, $.01 par value; 25,017,154 and
25,705,723 issued and outstanding               |                                      |             | 250,000     |                |               |                   | 257,000       | 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      |                                                                                                         | Class B-1 common stock, $.01 par value; 0 and 4,207,300
issued and outstanding                       |                                      |             |            |                |               |                   | 42,000        | 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Additional paid-in capital                                                                              |                                                                                                      |                                      | 58,927,000  |             |                |               | 339,444,000       |              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                      | Retained earnings                                                                                       |                                                                                                      |                                      | 38,868,000  |             |                |               | 54,161,000        |              
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             |                |               |                  
|                                                                                                                      |                                                                                                         | Total stockholders equity                                                                           |                                      |             | 98,045,000  |                |               |                   | 393,906,000   | 
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             |                |               |                  
|                                                                                                                      |                                                                                                         | Total liabilities and stockholders equity                                                           |                                      | $           | 406,738,000 |                |               | $                 | 3,142,595,000 | 
|                                                                                                                      |                                                                                                         |                                                                                                      |                                      |             |             |                |               |                  

See accompanying notes to financial statements.

1



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ADVANCEPCS AND SUBSIDIARIES




|                                             |                          |   |                    |             |                   |   |               |               |      |   |               |               |  |   |               |               | 
|-------------------------------------------- | ------------------------ | - | ------------------ | ----------- | ----------------- | - | ------------- | ------------- | ---- | - | ------------- | ------------- |  | - | ------------- | ------------- | 
|                                             |                          |   | Three Months Ended |             | Nine Months Ended
|                                             |                          |   | December 31,       |             | December 31,     
|                                             |                          |   |                    |             |                  
|                                             |                          |   | 1999               |             | 2000              |   | 1999          |               | 2000
|                                             |                          |   |                    |             |                   |   |               |               |     
|Revenues                                     |                          | $ | 519,858,000        |             |                   | $ | 2,916,471,000 |               |      | $ | 1,312,881,000 |               |  | $ | 4,032,904,000 |              
|                                             |                          |   |                    |             |                   |   |               |               |      |   |               |               |  |   |               |              
|Cost of operations:                         
|                                            
|                                            
|                                            
|                                            
|Cost of revenues                             |                          |   | 499,917,000        |             |                   |   | 2,824,629,000 |               |      |   | 1,257,864,000 |               |  |   | 3,897,830,000 |              
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |                          |   | 10,362,000         |             |                   |   | 55,072,000    |               |      |   | 28,593,000    |               |  |   | 75,568,000    |              
|                                            
|                                            
|                                            
|                                            
|Non-recurring charges                        |                          |   |                   |             |                   |   | 680,000       |               |      |   |              |               |  |   | 680,000       |              
|                                             |                          |   |                    |             |                   |   |               |               |      |   |               |               |  |   |               |              
|                                             | Total cost of operations |   |                    | 510,279,000 |                   |   |               | 2,880,381,000 |      |   |               | 1,286,457,000 |  |   |               | 3,974,078,000 | 
|                                             |                          |   |                    |             |                   |   |               |               |      |   |               |               |  |   |               |              
|Operating income                             |                          |   | 9,579,000          |             |                   |   | 36,090,000    |               |      |   | 26,424,000    |               |  |   | 58,826,000    |              
|                                            
|                                            
|                                            
|                                            
|Interest income                              |                          |   | 240,000            |             |                   |   | 1,587,000     |               |      |   | 801,000       |               |  |   | 2,297,000     |              
|                                            
|                                            
|                                            
|                                            
|Interest expense                             |                          |   | (974,000           | )           |                   |   | (22,114,000   | )             |      |   | (2,853,000    | )             |  |   | (24,250,000   | )            
|                                            
|                                            
|                                            
|                                            
|Merger costs                                 |                          |   |                   |             |                   |   |              |               |      |   |              |               |  |   | (1,200,000    | )            
|                                             |                          |   |                    |             |                   |   |               |               |      |   |               |               |  |   |               |              
|Income before income taxes                   |                          |   | 8,845,000          |             |                   |   | 15,563,000    |               |      |   | 24,372,000    |               |  |   | 35,673,000    |              
|                                            
|                                            
|                                            
|                                            
|Provision for income taxes                   |                          |   | (3,361,000         | )           |                   |   | (8,585,000    | )             |      |   | (9,261,000    | )             |  |   | (16,409,000   | )            
|                                             |                          |   |                    |             |                   |   |               |               |      |   |               |               |  |   |               |              
|Net income                                   |                          | $ | 5,484,000          |             |                   | $ | 6,978,000     |               |      | $ | 15,111,000    |               |  | $ | 19,264,000    |              
|                                             |                          |   |                    |             |                   |   |               |               |      |   |               |               |  |   |               |              
|Basic                                       
|                                            
|                                            
|                                            
|                                            
|Net income per share                         |                          | $ | 0.22               |             |                   | $ | 0.23          |               |      | $ | 0.61          |               |  | $ | 0.72          |              
|                                             |                          |   |                    |             |                   |   |               |               |      |   |               |               |  |   |               |              
|Weighted average shares outstanding          |                          |   | 24,714,000         |             |                   |   | 29,913,000    |               |      |   | 24,674,000    |               |  |   | 26,697,000    |              
|                                             |                          |   |                    |             |                   |   |               |               |      |   |               |               |  |   |               |              
|Diluted                                     
|                                            
|                                            
|                                            
|                                            
|Net income per share                         |                          | $ | 0.20               |             |                   | $ | 0.16          |               |      | $ | 0.54          |               |  | $ | 0.58          |              
|                                             |                          |   |                    |             |                   |   |               |               |      |   |               |               |  |   |               |              
|Weighted average shares outstanding          |                          |   | 27,657,000         |             |                   |   | 44,507,000    |               |      |   | 27,868,000    |               |  |   | 33,305,000    |              
|                                             |                          |   |                    |             |                   |   |               |               |      |   |               |               |  |   |               |              

See accompanying notes to financial statements.

2



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ADVANCEPCS AND SUBSIDIARIES




|                                               |                                                                                    |                                                                     |            |                                |             |      |             |                |                |  
|---------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ---------- | ------------------------------ | ----------- | ---- | ----------- | -------------- | -------------- | -
|                                               |                                                                                    |                                                                     |            | Nine Months Ended December 31,
|                                               |                                                                                    |                                                                     |            |                               
|                                               |                                                                                    |                                                                     |            | 1999                           |             | 2000
|                                               |                                                                                    |                                                                     |            |                                |             |     
|CASH FLOWS FROM OPERATING ACTIVITIES:         
|                                              
|                                              
|                                              
|                                              
|                                               | Net income                                                                         |                                                                     | $          | 15,111,000                     |             |      | $           | 19,264,000     |               
|                                              
|                                              
|                                              
|                                              
|                                               | Adjustments to reconcile net income to net
cash provided by operating activities -
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                    | Depreciation and amortization                                       |            |                                | 6,528,000   |      |             |                | 28,358,000     |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                    | Provision for doubtful accounts                                     |            |                                | 18,000      |      |             |                | 2,912,000      |  
|                                              
|                                              
|                                              
|                                              
|                                               | Change in certain assets and liabilities -                                        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                    | Accounts receivable                                                 |            |                                | (70,064,000 | )    |             |                | (240,301,000   | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                    | Inventories                                                         |            |                                | (2,782,000  | )    |             |                | 2,765,000      |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                    | Prepaid expenses and other assets                                   |            |                                | (2,662,000  | )    |             |                | (404,693,000   | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                    | Accounts payable, accrued expenses and
other noncurrent liabilities |            |                                | 76,236,000  |      |             |                | 711,482,000    |  
|                                               |                                                                                    |                                                                     |            |                                |             |      |             |               
|                                               |                                                                                    | Net cash provided by operating activities                           |            |                                | 22,385,000  |      |             |                | 119,787,000    |  
|                                               |                                                                                    |                                                                     |            |                                |             |      |             |               
|CASH FLOWS FROM INVESTING ACTIVITIES:         
|                                              
|                                              
|                                              
|                                              
|                                               | Purchase of property and equipment                                                 |                                                                     |            | (14,601,000                    | )           |      |             | (23,232,000    | )             
|                                              
|                                              
|                                              
|                                              
|                                               | Purchase of subsidiaries, net of cash acquired                                     |                                                                     |            |                               |             |      |             | (1,047,045,000 | )             
|                                               |                                                                                    |                                                                     |            |                                |             |      |             |               
|                                               |                                                                                    | Net cash used in investing activities                               |            |                                | (14,601,000 | )    |             |                | (1,070,277,000 | )
|                                               |                                                                                    |                                                                     |            |                                |             |      |             |               
|CASH FLOWS FROM FINANCING ACTIVITIES:         
|                                              
|                                              
|                                              
|                                              
|                                               | Distribution to FFI owners                                                         |                                                                     |            |                               |             |      |             | (3,970,000     | )             
|                                              
|                                              
|                                              
|                                              
|                                               | Net proceeds from issuance of common stock                                         |                                                                     |            | 836,000                        |             |      |             | 5,567,000      |               
|                                              
|                                              
|                                              
|                                              
|                                               | Stock issued to fund acquisition                                                   |                                                                     |            |                               |             |      |             | 275,000,000    |               
|                                              
|                                              
|                                              
|                                              
|                                               | Debt issued to fund acquisition                                                    |                                                                     |            |                               |             |      |             | 820,000,000    |               
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from long-term obligations                                                |                                                                     |            | 18,000,000                     |             |      |             | 87,000,000     |               
|                                              
|                                              
|                                              
|                                              
|                                               | Payments on long-term obligations                                                  |                                                                     |            | (18,000,000                    | )           |      |             | (147,000,000   | )             
|                                               |                                                                                    |                                                                     |            |                                |             |      |             |               
|                                               | Net cash provided by financing activities                                          |                                                                     |            | 836,000                        |             |      |             | 1,036,597,000  |               
|                                               |                                                                                    |                                                                     |            |                                |             |      |             |               
|INCREASE IN CASH                               |                                                                                    |                                                                     | 8,620,000  |                                |             |      | 86,107,000  |               
|                                              
|                                              
|                                              
|                                              
|CASH AND CASH EQUIVALENTS, beginning of period |                                                                                    |                                                                     | 45,895,000 |                                |             |      | 55,243,000  |               
|                                               |                                                                                    |                                                                     |            |                                |             |      |             |               
|CASH AND CASH EQUIVALENTS, end of period       |                                                                                    | $                                                                   | 54,515,000 |                                |             | $    | 141,350,000 |               
|                                               |                                                                                    |                                                                     |            |                                |             |      |             |               

See accompanying notes to financial statements.

3



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ADVANCEPCS AND SUBSIDIARIES




1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements
have been prepared by AdvancePCS in accordance with generally accepted
accounting principles for interim financial information in the form prescribed
by the Securities and Exchange Commission, or 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 generally accepted accounting
principles for complete financial statements. In the opinion of AdvancePCSs
management, the December 31, 2000 and 1999 unaudited interim financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of results for this interim period. In the
opinion of AdvancePCSs management, the disclosures contained in this Form 10-Q
are adequate to make the information presented not misleading when read in
conjunction with the Notes to Consolidated Financial Statements included in
Form 10-K of AdvancePCS for the year ended March 31, 2000 and the Form 8-K
subsequently filed December 14, 2000. The results of operations for the three
month and nine month periods ended December 31, 2000 are not necessarily
indicative of the results to be expected for the full year or for any future
period.

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

In June 1998, Financial Accounting Standards Board Statement 133
Accounting for Derivative Instruments and Hedging Activities was issued.
SFAS 133 requires all derivatives to be recognized as either assets or
liabilities in the statement of financial position and measured at fair value.
In addition, SFAS 133 specifies the accounting for changes in the fair value of
a derivative based on the intended use of the derivative and the resulting
designation. SFAS 133, as amended by SFAS 137 and SFAS 138, is effective
beginning in fiscal year March 31, 2002. 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 drops to $300 million in October 2001 and to $200 million
in October 2002. We will declare these agreements hedges in accordance with
SFAS 133, as amended, and will recognize the fair value of these financial
instruments on the balance sheet effective April 1, 2001 upon adoption of SFAS
133. These instruments will be marked to market at each reporting date with
the adjustment recognized as a component of other comprehensive income (loss)
in stockholders equity.

Changes in Revenue Recognition

We purchased PCS Holding Corporation, or PCS, on October 2, 2000 and have
included this business in our consolidated results of operations since that
time. We made changes in our revenue recognition presentation to conform the
different policies used by us and PCS. These changes are reflected in all
periods presented. These changes are as follows.

The historical PCS amounts have been reclassified to reflect the change in
presentation of data services revenues. In cases in which we have assumed an
independent obligation to pay our network pharmacy providers, we include
payments from our plan sponsors for these benefits as revenues and payments to
our pharmacy providers as cost of revenues (i.e. gross reporting).
Historically, PCS recorded

4



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##### Table of Contents



only claims processing fees as revenues (i.e. net reporting). The change
results in higher revenues and an equal increase in cost of revenues. This
change had no effect on gross profit or operating income.

In addition, the historical financial statements of AdvancePCS have been
revised to reflect a change in recognition of clinical and other services
revenues. We receive funds from pharmaceutical manufacturers for formulary
rebate programs that we administer on behalf of our health plan sponsors. We
record revenues in the amount of the administration fees we charge for our
services (i.e. net reporting) and include the cost of such services in cost of
revenues. Previously, we recognized the entire amount of the rebate, including
our administration fee, in revenues and the portion of the rebate paid to our
client in cost of revenues (i.e. gross reporting). This revision resulted in
lower revenues and an equal decrease in cost of revenues. This change had no
effect on gross profit or operating income.

In December 1999, the Commission staff issued SAB 101 Revenue Recognition
in Financial Statements. SAB 101 provides guidance on applying generally
accepted accounting principles to revenue recognition issues in financial
statements. In addition, the Emerging Issues Task Force (EITF) issued a
consensus in EITF 99-19 Reporting Gross Revenue as a Principal vs. Net as an
agent. SAB 101 and the EITF are effective in our fourth fiscal quarter of 2001.
In connection with our recent acquisitions and the issuance of these
pronouncements, we are evaluating certain aspects of SAB 101 and the EITF,
including gross versus net reporting of data and clinical revenues. We can
provide no assurance that we may not need to report on a net basis in future
periods. Net reporting of these revenues would have no effect on gross profit
or operating income. If we had reported our data services revenues using net
reporting, revenues and cost of revenues would have decreased by $435 million
and $2.5 billion, respectively, for the three months ended December 31, 1999
and 2000 and $1.1 billion and $3.4 billion, respectively, for the nine months
ended December 31, 1999 and 2000.

The EITF also has issued EITF 00-22 Accounting for Other
Volume Based Sales Incentive Offers. This pronouncement provides accounting
guidance for certain volume rebate programs. We are currently evaluating the
impact, if any, of this EITF. This pronouncement is expected to be effective
in our fourth quarter of 2001.

Use of Estimates

Preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. As of December 31, 2000 and the three month and nine
month periods then ended the Company had made significant estimates of the
purchase price, fair market value of the assets acquired and liabilities
assumed in the PCS acquisition and the value of its senior subordinated notes.
The Company continually evaluates the appropriateness of the amounts recorded
and revises these estimates regularly. Actual results could differ from those
estimates.

2. PCS ACQUISITION

Effective October 2, 2000, we acquired all of the equity of PCS. The
aggregate purchase price paid by us was approximately $1.0 billion, of which we
paid Rite Aid Corporation, or Rite Aid, the seller, $675 million in cash, and
issued to Rite Aid $200 million in senior subordinated notes and $125 million
in our convertible preferred stock. The cash portion of the purchase price was
financed with the proceeds of an $825 million senior secured credit facility
and $150 million in equity financing committed by Joseph Littlejohn & Levy Fund
III, L.P. and certain other investors, collectively referred to as JLL. The
acquisition of PCS has been accounted for using the purchase method of
accounting.

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##### Table of Contents



The preliminary allocation of the net purchase price is as follows (in
thousands):

|                              |  |   |            |  
|----------------------------- |  | - | ---------- | -
|Assets                        |  | $ | 667,274    |  
|                             
|                             
|                             
|                             
|Goodwill and intangibles      |  |   | 1,740,661  |  
|                             
|                             
|                             
|                             
|Liabilities assumed           |  |   | (1,030,935 | )
|                             
|                             
|                             
|                             
|Deferred income tax liability |  |   | (377,000   | )
|                              |  |   |            |  
|Net purchase price            |  | $ | 1,000,000  |  
|                              |  |   |            |  

The excess of the purchase price paid over the net identifiable assets and
liabilities of PCS has been recorded as goodwill in intangible assets. The
purchase price allocated to the assets and liabilities assumed is preliminary
and subject to revision following the results of an appraisal and further
identification of intangible assets. This revision is expected to be reflected
in our financial results for the quarter ended March 31, 2001. Total
identifiable intangible assets and goodwill are being amortized over
approximately 30 years.

The following unaudited pro forma information presents our results of
operations as if the PCS acquisition had taken place at the beginning of the
periods presented:

|                             |         |   |                    |       |                   |   |               |       |   |   |               |       |  
|---------------------------- | ------- | - | ------------------ | ----- | ----------------- | - | ------------- | ----- | - | - | ------------- | ----- | -
|                             |         |   | Three Months Ended |       | Nine Months Ended
|                             |         |   | December 31,       |       | December 31,     
|                             |         |   | 1999               |       | 1999              |   | 2000         
|                             |         |   |                    |       |                   |   |              
|Revenues                     |         | $ | 2,633,168,000      |       |                   | $ | 7,439,269,000 |       |   | $ | 8,320,548,000 |      
|                            
|                            
|                            
|                            
|Net income (loss)            |         |   | (9,116,000         | )     |                   |   | (19,808,000   | )     |   |   | (2,910,000    | )    
|                            
|                            
|                            
|                            
|Net income (loss) per share:
|                            
|                            
|                            
|                            
|                             | Basic   |   | $                  | (0.32 | )                 |   | $             | (0.69 | ) |   | $             | (0.10 | )
|                            
|                            
|                            
|                            
|                             | Diluted |   |                    | (1    | )                 |   |               | (1    | ) |   |               | (1    | )



---

|(1) |  | Potential dilutive securities were not included in the computation of
fully diluted earnings per share. Inclusion of such securities would have
been anti-dilutive, therefore, fully diluted earnings per share is equal
to basic earnings per share.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the three months ended December 31, 2000 we recorded a pre-tax,
non-recurring charge of $680,000 ($415,000 after taxes or $0.01 per share) for
severance of certain management employees that were terminated or resigned, in
connection with the PCS acquisition. All of these severance costs were paid
prior to December 31, 2000. We expect to consolidate certain operations in
connection with the integration of PCS, which will result in additional
non-recurring charges consisting primarily of facility closure costs and
severance costs in the three months ended March 31, 2001.

3. MERGER WITH FIRST FLORIDA INTERNATIONAL HOLDINGS, INC.

On July 5, 2000, we completed a merger with First Florida International
Holdings, Inc., which is a privately-held health benefit management and
directto-consumer pharmaceutical marketing services company. First Florida
International Holdings, Inc. includes the operations of its affiliated
companies, Phoenix Communications International, Inc., Innovative
Pharmaceutical Strategies, Inc., HMN Health Services, Inc. and Mature Rx Plus
of Nevada, Inc., collectively referred to as FFI. FFI, based in Cleveland,
Ohio, offers several pharmacy-related product lines marketed under the names
aVidaRx©, femScript©, MatureRx©Plus to
under-insured or uninsured individuals, women, and senior citizens. In
addition, FFI provides prescription benefit management services to employees
and third party

6



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##### Table of Contents



administrators. We issued 3.5 million shares of our common stock in exchange
for all the outstanding shares of FFI.

The merger constituted a tax-free reorganization and has been accounted
for as a pooling of interests under APB No.16. Total combination related costs
and provisions are estimated to be approximately $1,200,000 and are reflected
as an expense in the post-combination accounting period, the three-month period
ended September 30, 2000.

The table below presents a reconciliation of revenues and net income, as
reported in the consolidated statements of operations, with those previously
reported by us. The references to AdvancePCS in this table are to our
historical operating results prior to the merger with FFI.

|                                           |            |   |                    |             |                   |   |               |               | 
|------------------------------------------ | ---------- | - | ------------------ | ----------- | ----------------- | - | ------------- | ------------- | 
|                                           |            |   | Three Months Ended |             | Nine Months Ended
|                                           |            |   | December 31,       |             | December 31,     
|                                           |            |   | 1999               |             | 1999             
|                                           |            |   |                    |             |                  
|Revenues:                                 
|                                          
|                                          
|                                          
|                                          
|                                           | AdvancePCS |   | $                  | 491,539,000 |                   |   | $             | 1,256,202,000 | 
|                                          
|                                          
|                                          
|                                          
|                                           | FFI        |   |                    | 28,319,000  |                   |   |               | 56,679,000    | 
|                                           |            |   |                    |             |                   |   |               |              
|Total supplemental consolidated revenues   |            | $ | 519,858,000        |             |                   | $ | 1,312,881,000 |              
|                                           |            |   |                    |             |                   |   |               |              
|Net income:                               
|                                          
|                                          
|                                          
|                                          
|                                           | AdvancePCS |   | $                  | 5,317,000   |                   |   | $             | 14,944,000    | 
|                                          
|                                          
|                                          
|                                          
|                                           | FFI        |   |                    | 167,000     |                   |   |               | 167,000       | 
|                                           |            |   |                    |             |                   |   |               |              
|Total supplemental consolidated net income |            | $ | 5,484,000          |             |                   | $ | 15,111,000    |              
|                                           |            |   |                    |             |                   |   |               |              

4.  NET INCOME PER SHARE

Basic net income per share is computed using the weighted average number
of common shares (including both Class A common stock and Class B common stock)
outstanding during the periods presented. Diluted net income per share is
computed in the same manner as basic net income per share but includes the
number of additional common shares that would have been outstanding for the
period if the other dilutive securities had been issued. The difference between
the number of weighted average shares used in the basic and diluted calculation
for all periods are outstanding stock options and stock warrants, all
calculated under the treasury stock method in accordance with Financial
Accounting Standards Board Statement No. 128 Earnings Per Share. In
addition, in the quarter ended December 31, 2000, our preferred stock is
convertible at the discretion of the holders into 9,543,000 shares of Class A
common stock and are included in the diluted weighted average share
calculation.

5.  INCOME TAXES

In the three months and nine months ended December 31, 1999, we recorded
income tax expense approximated an effective tax rate of 38%. In the three
months and nine months ended December 31, 2000, our effective tax rate was 55%
and 46%. The higher rate in 2000 resulted from non-deductible amortization
relating to our acquisition of PCS. In connection with the acquisition of PCS
we recognized a significant deferred tax liability representing the future tax
deductions attributable to the identifiable intangible assets. The realization
of this deferred tax liability was recognized, in goodwill, as a cost of the
acquisition.

7



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##### Table of Contents



6.  DEBT

In conjunction with our acquisition of PCS, we obtained an $825 million
senior secured credit facility that includes a $175.0 million revolving credit
facility, $100 million interim revolving credit facility, and two term notes
totaling $550.0 million. The revolving credit facility expires on October 2,
2005. The term notes are due on October 2, 2005 and October 2, 2007. The $175
million revolving credit facility accrues interest at LIBOR plus 3%. As of
December 31, 2000, $60 million was outstanding under this facility. The term
notes accrue interest at LIBOR plus 3% and LIBOR plus 3.5%. 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 drops to $300 million in October 2001 and
to $200 million in October 2002.

We intend to refinance the $100 million interim revolving credit facility
with a collateralized accounts receivable facility prior to April 1, 2001. The
secured credit facility replaced the $75.0 million, three year revolving credit
facility. The senior secured credit facility contains covenants that are
typical for this type of document. The senior subordinated notes have been
unconditionally guaranteed, jointly or 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. In addition,
we issued to Rite Aid $200 million in senior subordinated notes that accrue
interest at 11% through April 2002, 12% from April 2002 to October 2002 and 13%
thereafter.

7.  EQUITY

In connection with our acquisition of PCS we issued Rite Aid 125,000
shares of Series A-2 convertible preferred stock that is convertible into Class
B-2 common stock for $125 million. In addition, we issued JLL 4,207,300 shares
of Class B-1 common stock and 65,854 shares of Series A-1 preferred convertible
stock for $150 million. In connection with the issuance of the senior
subordinated notes described in Note 6 above, we issued Rite Aid warrants to
purchase 780,000 shares of our Class A common stock. The warrants are not
exercisable until October 2, 2002 and will terminate if we repay the senior
subordinated notes.

The Series A-1 and Series A-2 convertible preferred stock is convertible
into Class B-1 and Class B-2 common stock, respectively, at a conversion ratio
of 1:50. The Class B common stock carries certain voting rights to vote as a
separate class. The Class B common stock is convertible into Class A common
stock at a conversion ratio of 1:1.

On October 12, 1999, we announced a two-for-one stock split, effected in
the form of a stock dividend of our common stock. The record date was November
11, 1999 and the date of payment was November 30, 1999. Financial information
and stock prices contained throughout the Form 10-Q have been retroactively
adjusted to reflect the impact of the stock split in all periods presented.




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

Results Of Operations  AdvancePCS

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

8



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##### Table of Contents



|                                              |                             |                |        |                   |           |                    |         |                        |           |         |        |         |         |  |        |           |           | 
|--------------------------------------------- | --------------------------- | -------------- | ------ | ----------------- | --------- | ------------------ | ------- | ---------------------- | --------- | ------- | ------ | ------- | ------- |  | ------ | --------- | --------- | 
|                                              |                             |                |        | Nine Months Ended |           | Three Months Ended
|                                              |                             |                |        | December 31,      |           | December 31,      
|                                              |                             |                |        |                   |           |                   
|                                              |                             |                |        | 1999              |           | 2000(1)            |         | 1999                   |           | 2000(1)
|                                              |                             |                |        |                   |           |                    |         |                        |           |        
|                                              |                             |                |        |                   |           |                    |         | (Dollars in thousands)
|Revenues:                                    
|                                             
|                                             
|                                             
|                                             
|                                              | Data services               |                | $      | 1,120,040         |           |                    | $       | 3,462,486              |           |         | $      | 446,235 |         |  | $      | 2,520,225 |          
|                                             
|                                             
|                                             
|                                             
|                                              | Mail services               |                |        | 132,666           |           |                    |         | 397,013                |           |         |        | 49,087  |         |  |        | 285,244   |          
|                                             
|                                             
|                                             
|                                             
|                                              | Clinical and other services |                |        | 60,175            |           |                    |         | 173,405                |           |         |        | 24,536  |         |  |        | 111,002   |          
|                                             
|                                             
|                                             
|                                             
|                                              |                             | Total revenues |        |                   | 1,312,881 |                    |         |                        | 4,032,904 |         |        |         | 519,858 |  |        |           | 2,916,471 | 
|                                             
|                                             
|                                             
|                                             
|Gross profit                                  |                             |                | 55,017 |                   |           |                    | 135,074 |                        |           |         | 19,941 |         |         |  | 91,842 |          
|                                             
|                                             
|                                             
|                                             
|Selling, general, and administrative expenses |                             |                | 28,593 |                   |           |                    | 75,568  |                        |           |         | 10,362 |         |         |  | 55,072 |          
|                                             
|                                             
|                                             
|                                             
|Operating income                              |                             |                | 26,424 |                   |           |                    | 58,826  |                        |           |         | 9,579  |         |         |  | 36,090 |          
|                                             
|                                             
|                                             
|                                             
|Net income                                    |                             |                | 15,111 |                   |           |                    | 19,264  |                        |           |         | 5,484  |         |         |  | 6,978  |          



---

|(1) |  | Includes PCS data since the acquisition on October 2, 2000.
|--- |  | -----------------------------------------------------------

Pro Forma Results of Operations for PCS Acquisition

The following table sets forth certain pro forma, unaudited financial data
for the PCS acquisition. Historical revenues for AdvancePCS and PCS have been
revised to reflect adoption of consistent revenue recognition policies as
described in Notes to Condensed Consolidated Financial Statements  Changes in
Revenue Recognition.

|                                              |                             |                |           |                   |           |                    |           |                        |           |          |           |         |           |   |           |         |           | 
|--------------------------------------------- | --------------------------- | -------------- | --------- | ----------------- | --------- | ------------------ | --------- | ---------------------- | --------- | -------- | --------- | ------- | --------- | - | --------- | ------- | --------- | 
|                                              |                             |                |           | Nine Months Ended |           | Three Months Ended
|                                              |                             |                |           | December 31,      |           | December 31,      
|                                              |                             |                |           |                   |           |                   
|                                              |                             |                |           | 1999              |           | 2000 (1)           |           | 1999                   |           | 2000 (1)
|                                              |                             |                |           |                   |           |                    |           |                        |           |         
|                                              |                             |                |           |                   |           |                    |           | (Dollars in thousands)
|Revenues                                      |                             |                |           |                   |           |                    |           |                        |           |          |           |         |           |   |           |        
|                                             
|                                             
|                                             
|                                             
|                                              | Data services               | $              | 6,450,867 |                   |           | $                  | 7,162,903 |                        |           | $        | 2,287,556 |         |           | $ | 2,520,225 |        
|                                             
|                                             
|                                             
|                                             
|                                              | Mail services               |                |           | 695,395           |           |                    |           | 825,799                |           |          |           | 244,127 |           |   |           | 285,244 |          
|                                             
|                                             
|                                             
|                                             
|                                              | Clinical and other services |                |           | 293,007           |           |                    |           | 331,846                |           |          |           | 101,485 |           |   |           | 111,002 |          
|                                             
|                                             
|                                             
|                                             
|                                              |                             | Total revenues |           |                   | 7,439,269 |                    |           |                        | 8,320,548 |          |           |         | 2,633,168 |   |           |         | 2,916,471 | 
|                                             
|                                             
|                                             
|                                             
|Gross profit                                  |                             |                | 210,663   |                   |           |                    | 245,372   |                        |           |          | 68,193    |         |           |   | 91,842    |        
|                                             
|                                             
|                                             
|                                             
|Selling, general, and administrative expenses |                             |                | 150,550   |                   |           |                    | 168,937   |                        |           |          | 53,257    |         |           |   | 55,072    |        
|                                             
|                                             
|                                             
|                                             
|Operating income                              |                             |                | 60,113    |                   |           |                    | 75,755    |                        |           |          | 14,936    |         |           |   | 36,090    |        



---

|(1) |  | Includes PCS data since the acquisition on October 2, 2000.
|--- |  | -----------------------------------------------------------

Historical AdvancePCS:

Three Months Ended December 31, 2000 Compared to Three Months Ended December
31, 1999

Revenues. Our revenues for the three months ended December 31, 2000
increased by $2.4 billion, or 461%, compared to revenues for the three months
ended December 31, 1999. The increase in revenues was primarily the result of
our acquisition of PCS on October 2, 2000. Approximately $2.1 billion, or 87%,
of the increase in revenues was attributable to data services and a 385%
increase in the number of pharmacy claims processed during the period. Claims
processed increased from 22 million in the three months ended December 31, 1999
to 108 million for the three

9



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##### Table of Contents



months ended December 31, 2000. The addition of
PCS added approximately 81 million claims for the quarter. Approximately 10%
of the
increase was attributable to additional sales of our mail pharmacy
services, resulting from a 404% increase in the number of mail prescriptions
dispensed. Mail pharmacy prescriptions dispensed increased from 446,000 in the
three months ended December 31, 1999 to 2.2 million for the three months ended
December 31, 2000. The addition of PCSs two mail pharmacies added
approximately 97% of the increase of the mail prescriptions dispensed. The
remaining 3% of the increase in revenues resulted from an increase in clinical
and other services revenues derived from formulary and disease management
services, as well as clinical trials.

Gross profit. Our gross profit for the three months ended December 31,
2000 increased by $71.9 million, or 361%, compared to the same period in 1999.
This increase was attributable primarily to the additional revenue and gross
profit associated with the PCS acquisition. As a percentage of revenues, gross
profit was approximately 3.1% in the three months ended December 31, 2000 and
3.8% in the same period in 1999. The decrease was primarily due to an increase
in data services revenues from the PCS acquisition, which have lower percentage
margins than other services.

Selling, general and administrative expenses. Our selling, general and
administrative expenses for the three months ended December 31, 2000 increased
by $44.7 million, or 432% compared to the same period in 1999. This increase
is due largely to the acquisition of PCS. In addition, approximately $14.5
million of the increase is due to additional goodwill and other intangibles
amortization. Selling, general and administrative expenses as a percentage of
revenues decreased from 2.0% for the three months ended December 31, 1999 to
1.9% in the same period in 2000.

Non-recurring charges.The non-recurring charge of $680,000 ($415,000
after taxes, or $0.01 per share) represents severance costs for certain
management employees that were terminated or resigned following and as a result
of the acquisition with PCS. All of these severance costs were paid prior to
December 31, 2000. We expect to consolidate certain operations in connection
with the integration of PCS, which will result in additional non-recurring
charges consisting primarily of facility closure costs and severance costs in
the three months ended March 31, 2001.

Interest income and interest expense. Interest expense, net of interest
income, for the three months ended December 31, 2000 increased $19.8 million
compared to the same period in 1999. The increase resulted from the acquisition
of PCS, which was partially funded by approximately $800 million in debt.

Income taxes. For the three months ended December 31, 2000 our effective
tax rate was approximately 55%. For the three months ended December 31, 1999
our recorded income tax expense approximated an effective tax rate of 38%. The
effective rate for the three months ended December 31, 2000 was higher due to
the non-deductible nature of the goodwill acquired in the PCS acquisition.

Diluted net income per share. We reported diluted net income per share of
$0.16 per share for the three months ended December 31, 2000
compared to $0.20
per share for the same period in 1999. The weighted average shares outstanding
were 27.7 million and 44.5 million for the three months ended December 31, 1999
and 2000, respectively. The decrease in diluted net income per share resulted
from additional interest expense and goodwill and other intangibles
amortization in connection with the PCS acquisition. In addition, we issued
securities convertible into common stock in connection with the PCS
acquisition, resulting in an increase in weighted average shares outstanding.

10



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##### Table of Contents



Pro Forma AdvancePCS:

Actual Three Months Ended December 31, 2000 Compared to Pro Forma Three Months
Ended December 31, 1999

Revenues. Our revenues for the three months ended December 31, 2000
increased by $283.3 million, or 11%, compared to the pro forma revenues for the
three months ended December 31, 1999. Approximately $232.7 million or 82% of
the increase in revenues was attributable to data services and a 4.4% increase
in the number of pharmacy claims processed during the period. Claims processed
increased from 104 million in the pro forma three months ended December 31,
1999 to 108 million for the three months ended December 31, 2000.
Approximately 15% of the increase was attributable to additional sales of our
mail pharmacy services, resulting from a 4% increase in the number of mail
prescriptions dispensed. The remaining 3% of the increase in revenues resulted
from an increase in clinical and other services revenues derived from formulary
and disease management services.

Gross profit. Our gross profit for the three months ended December 31,
2000 increased by $23.6 million, or 35%, compared to the same period in 1999 on
a pro forma basis. This increase was attributable primarily to the additional
revenue and gross profit generated by the improvement in operations at the two
PCS mail facilities. The improvement resulted from an overall decrease in
headcount in the mail facilities and the call centers despite a 4% growth in
prescriptions filled. As a percentage of revenues, gross profit was
approximately 3.1% in the three months ended December 31, 2000, compared to
2.6% in the same period in 1999 on a pro forma basis.

Selling, general and administrative expenses. Our selling, general and
administrative expenses for the three months ended December 31, 2000 increased
by $1.8 million, or 3%, compared to the same period in 1999 on a pro forma
basis. Selling, general and administrative expenses as a percentage of
revenues decreased from 2.0% for the three months ended December 31, 1999 on a
pro forma basis to 1.9% in the same period in 2000.

Non-recurring charges.The non-recurring charge of $680,000 ($415,000
after taxes, or $0.01 per share) represents severance costs for certain
management employees that were terminated or resigned following and as a result
of the acquisition with PCS. All of these severance costs were paid prior to
December 31, 2000. We expect to consolidate certain operations in connection
with the integration of PCS, which will result in additional non-recurring
charges consisting primarily of facility closure costs and severance costs in
the three months ended March 31, 2001.

Operating income. Our operating income increased by $21.2 million, or
142% for the three months ended December 31, 2000 compared to the same period
in 1999 on a pro forma basis. The increase resulted from the factors mentioned
above as revenues improved and PCSs headcount and costs as a percentage of
revenues declined.

Historical AdvancePCS:

Nine Months Ended December 31, 2000 Compared to Nine Months Ended December 31,
1999

Revenues. Our revenues for the nine months ended December 31, 2000
increased by $2.7 billion, or 207%, compared to revenues for the nine months
ended December 31, 1999. The increase in revenues was primarily the result of
our acquisition of PCS on October 2, 2000. Approximately $2.4 billion, or 86%,
of the increase in revenues was attributable to data services and a 171%
increase in the number of pharmacy claims processed during the period. Claims
processed increased from 60 million in the nine months ended December 31, 1999
to 156 million for the nine months ended December 31, 2000. The

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addition of PCS added approximately 81 million claims for the period.
Approximately 10% of the increase was attributable to additional sales of our
mail pharmacy services, resulting from a 160% increase in the number of mail
prescriptions dispensed. Mail pharmacy prescriptions dispensed increased from
1.2 million in the nine months ended December 31, 1999 to 3.2 million for the
nine months ended December 31, 2000. The addition of PCSs two mail pharmacies
added approximately 89% of the increase. The remaining 4% of the increase in
revenues resulted from an increase in clinical and other services revenues
derived from formulary and disease management services as well as clinical
trials.

Gross profit. Our gross profit for the nine months ended December 31,
2000 increased by $80.1 million, or 145%, compared to the same period in 1999.
This increase was attributable primarily to the additional revenue and gross
profit associated with the PCS acquisition. As a percentage of revenues, gross
profit was approximately 3.3% in the nine months ended December 31, 2000
compared to 4.2% in the same period in 1999. The decrease was primarily due to
an increase in data services revenues from the PCS acquisition, which have
lower margins than other services.

Selling, general and administrative expenses. Our selling, general and
administrative expenses for the nine months ended December 31, 2000 increased
by $47.0 million, or 164%, compared to the same period in 1999. This increase
is due to the acquisition of PCS. In addition, approximately $15 million of the
increase is due to additional goodwill and other intangibles amortization.
Selling, general and administrative expenses as a percentage of revenues was
approximately 1.9% in the nine months ended December 31, 2000 compared to 2.2%
in the same period in 1999.

Non-recurring charges.The non-recurring charge of $680,000 ($415,000
after taxes, or $0.01 per share) represents severance costs for certain
management employees that were terminated or resigned following and as a result
of the acquisition with PCS. All of these severance costs were paid prior to
December 31, 2000. We expect to consolidate certain operations in connection
with the integration of PCS, which will result in additional non-recurring
charges consisting primarily of facility closure costs and severance costs in
the three months ended March 31, 2001.

Interest income and interest expense. Interest expense, net of interest
income, for the nine months ended December 31, 2000 increased $19.9 million
compared to the same period in 1999. The increase resulted from the acquisition
of PCS which was partially funded by approximately $800 million in debt.

Merger costs.Net income for the nine months ended December 31, 2000
reflected a pre-tax charge of $1.2 million ($926,000 after taxes) relating to
merger costs incurred in connection with FFI.

Income taxes. For the nine months ended December 31, 2000 our effective
tax rate was approximately 46%. For the nine months ended December 31, 1999 our
recorded income tax expense approximated an effective tax rate of 38%. The
effective rate for the nine months ended December 31, 2000 was higher due to
the non-deductible nature of the goodwill and other intangible assets acquired
in the PCS acquisition.

Diluted net income per share. We reported diluted net income per share of
$0.58 per share for the nine months ended December 31, 2000 compared to $0.54
per share for the same period in 1999. The weighted average shares outstanding
were 27.9 million and 33.3 million for the nine months ended December 31, 1999
and 2000, respectively. The decrease in diluted net income per share resulted
from additional interest expense and goodwill and other intangibles
amortization in connection with the PCS acquisition. In addition, securities
convertible into common stock were issued in connection with the PCS
acquisition resulting in an increase in weighted average shares outstanding.

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Pro Forma AdvancePCS:

Pro Forma Nine Months Ended December 31, 2000 Compared to Pro Forma Nine Months
Ended December 31, 1999

Revenues. Our pro forma revenues for the nine months ended December 31,
2000 increased by $881 million, or 12%, compared to the pro forma revenues for
the nine months ended December 31, 1999. Approximately $712.0 million, or 81%,
of the increase in revenues was attributable to data services and a 9.1%
increase in the number of pharmacy claims processed during the period. Pro
forma claims processed increased from 295.7 million in the nine months ended
December 31, 1999 to 322.6 million for the nine months ended December 31, 2000.
Approximately 15% of the increase was attributable to additional sales of our
mail pharmacy services, resulting from an 8% increase in the number of mail
prescriptions dispensed. The remaining 4% of the increase in revenues resulted
from an increase in clinical and other services revenues derived from formulary
and disease management services.

Gross profit. Our gross profit for the nine months ended December 31,
2000 increased by $34.7 million, or 16%, compared to the same period in 1999 on
a pro forma basis. This increase was attributable primarily to the additional
revenue and gross profit generated by the improvement in operations at the two
PCS mail facilities. The improvement resulted from an overall decrease in
headcount in the mail facilities and the call centers despite an 8% growth in
prescriptions filled. As a percentage of revenues, gross profit was
approximately 2.9% in the nine months ended December 31, 2000, compared to 2.8%
in the same period in 1999.

Selling, general and administrative expenses. Our selling, general and
administrative expenses for the pro forma nine months ended December 31, 2000
increased by $18.4 million, or 12%, compared to the same period in 1999 on a
pro forma basis. This increase resulted from losses of approximately $6
million incurred in connection with performance-based contracts in the nine
months ended December 31, 2000. In addition, approximately $6 million was
incurred in the nine months ended December 31, 2000 for severance and retention
costs related to executive employment agreements.

Non-recurring charges.The non-recurring charge of $680,000 ($415,000
after taxes, or $0.01 per share) represents severance costs for certain
management employees that were terminated or resigned following and as a result
of the acquisition with PCS. All of these severance costs were paid prior to
December 31, 2000. We expect to consolidate certain operations in connection
with the integration of PCS, which will result in additional non-recurring
charges consisting primarily of facility closure costs and severance costs in
the three months ended March 31, 2001.

Operating income. Our operating income increased by $15.6 million, or
26%, for the pro forma nine months ended December 31, 2000 compared to the same
period in 1999 on a pro forma basis. The increase resulted from the factors
mentioned above as revenues improved and PCSs headcount and costs declined.

Liquidity and Capital Resources

As of December 31, 2000, we had a working capital deficit of $345.3
million. We use our excess cash balances to reduce debt under our revolving
credit facility, which results in a net deficit in working capital. The
majority of our current obligations are not due until cash is collected from
our customers. Our net cash provided by operating activities was $119.8 million
for the nine months ended December 31, 2000 resulting primarily from net income
and also due to the timing of receivables and payables resulting from our
continued growth. During the nine months ended December 31, 2000, we used cash
of $23.2

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million ($26.5 million on a pro forma basis) for purchases of property,
plant and equipment associated with the growth and expansion of our systems and
facilities.

Historically, we have been able to fund our operations and continued
growth through cash flow from operations. In fiscal years 1998, 1999 and 2000,
and for the nine months ended December 31, 1999 and 2000, 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.

In conjunction with our acquisition of PCS, we obtained an $825 million
senior secured credit facility that includes a $175.0 million revolving credit
facility, $100 million interim revolving credit facility and two term notes
totaling $550.0 million. Our $150 million Term A note accrues interest at
LIBOR plus 3%, with escalating quarterly principal payments, and is due on
September 30, 2005. Our $400 million Term B note accrues interest at LIBOR
plus 3.5%, with quarterly principal payments of $1 million until December 31,
2006 and payments of $94.5 million thereafter on each of December 31, 2006,
March 31, 2007, June 30, 2007 and September 30, 2007. Our $175 million
revolving credit facility accrues interest at LIBOR plus 3%. The revolving
credit facility expires on October 2, 2005. As of December 31, 2000, $60
million is outstanding under this facility. We intend to refinance the $100
million interim revolving credit facility with a collateralized accounts
receivable facility during the fourth quarter of fiscal 2001. The senior
secured credit facility contains covenants that are typical for this type of
document. In addition, we issued to Rite Aid $200 million in senior
subordinated notes that accrue interest at 11% until April 2002, 12% from April
2002 to October 2002 and 13% thereafter. The senior subordinated notes issued
to Rite Aid have been unconditionally guaranteed, jointly or severally, by all
of our subsidiaries. Each subsidiary is 100% owned. There are no restrictions
on the ability of the subsidiary guarantors to pay dividends, make loans or
advances to the parent. In connection with the senior subordinated notes, we
issued Rite Aid warrants to purchase 780,000 shares of our Class A common
stock. The warrants are not exercisable until October 2, 2002 and will
terminate if we repay the senior subordinated notes. We also issued Rite Aid
$125 million in convertible preferred stock that is convertible into a Class B
common stock. In addition, we issued $150 million in common stock and
convertible preferred stock to JLL. See Item 2 "Changes in
Securities and Use of Proceeds" for further description of
securities issued.

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

Recent Accounting Pronouncements

In June 1998, Financial Accounting Standards Board Statement 133
Accounting for Derivative Instruments and Hedging Activities was issued.
SFAS 133 requires all derivatives to be recognized as either assets or
liabilities in the statement of financial position and measured at fair value.
In addition, SFAS 133 specifies the accounting for changes in the fair value of
a derivative based on the intended use of the derivative and the resulting
designation. SFAS 133, as amended by SFAS 137 and SFAS 138, is effective
beginning in fiscal year March 31, 2002. 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 drops to $300 million in October 2001 and to $200 million
in October 2002. We will declare these agreements hedges in accordance with
SFAS 133, as amended, and will recognize the fair value of these financial
instruments on the balance sheet effective April 1, 2001 upon adoption of SFAS
133. These instruments will be marked to market at each reporting date with
the adjustment recognized as a component of other comprehensive income (loss)
in stockholders equity.

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In December 1999, the Commission staff issued SAB 101 Revenue Recognition
in Financial Statements. SAB 101 provides guidance on applying generally
accepted accounting principles to revenue recognition issues in financial
statements. In addition, the Emerging Issues Task Force (EITF) issued a
consensus in EITF 99-19 Reporting Gross Revenue as a Principal vs. Net as an
agent. SAB 101 and the EITF are effective in our fourth fiscal quarter of
2001. In connection with our recent acquisitions and the issuance of these
pronouncements, we are evaluating certain aspects of SAB 101 and the EITF,
including gross versus net reporting of data and clinical revenues. Net
reporting of these revenues would have no effect on gross profit or operating
income. See Note 1 to the Notes to Condensed Consolidated Financial
Statements.

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

Our primary market risk is that of interest rate risk. A change in LIBOR
or the Prime Rate as set by Bank of America, N.A. would affect the rate at
which we could borrow funds under our credit facilities.

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 drops to $300 million
in October 2001 and to $200 million in October 2002.

Forward-Looking Statements

This report contains or may contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 including
statements of AdvancePCSs and managements expectations, intentions, plans and
beliefs, including those contained in or implied by Managements Discussion
and Analysis of Financial Condition and Results of Operations and the Notes to
Condensed Consolidated Financial Statements. These forward-looking statements,
as defined in Section 21E of the Securities Exchange Act of 1934, are dependent
on certain events, risks and uncertainties that may be outside our control.
These forward-looking statements may include statements of managements plans
and objectives for our future operations and statements of future economic
performance, our capital budget and future capital requirements, our meeting
our future capital needs, and the assumptions described in this report
underlying such forward-looking statements. Actual results and developments
could differ materially from those expressed in or implied by such statements
due to a number of factors, including, without limitation, those described in
the context of such forward-looking statements, and the factors set forth in
our Form 10-K under the caption Risk Factors. All subsequent written and
oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by this section.

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PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

In November 1999, PCS received a federal subpoena by the Department of
Health and Human Services Office of Inspector General, requesting PCS to
produce certain documents about its programs and how they operate in connection
with an industry-wide investigation. The investigation was instigated and is
being pursued by the U.S. Attorneys Office in Philadelphia, which indicated an
intention to review PBMs programs in light of anti-kickback and other laws and
regulations. Specifically, the focus of this investigation appears to be PBMs
relationships with pharmaceutical manufacturers and retail pharmacies and PBMs
programs relating to drug formulary compliance. AdvancePCS is cooperating with
this investigation and there has been no allegation of any wrongdoing on our
part. At this time, we are unable to predict whether the government will
commence any action challenging any of our programs and practices. AdvancePCS
believes that its programs, and those of PCS prior to the acquisition, are in
compliance with the requirements imposed by anti-kickback laws and other
applicable laws and regulations. AdvancePCS plans to continue to cooperate
with the OIG with respect to this investigation. Nevertheless, we could be
subject to scrutiny, investigation or challenge under these laws and
regulations, which could have a material adverse effect upon us.

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 AdvancePCS 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. AdvancePCS believes that it does
not assume any of the plan fiduciary responsibilities that would subject it to
regulations under ERISA. At this time, we are unable to predict whether a
negative outcome in the case would have a material adverse effect on our
business. 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.

On October 2, 2000, in connection with our acquisition of PCS, we paid to
Rite Aid (i) $675,000,000 in cash, (ii) 125,000 shares of Series A-2 11%
preferred stock, (iii) $200 million aggregate principal amount of our senior
subordinated notes and (iv) warrants to purchase 780,000 shares of our common
stock in exchange for all outstanding shares of capital stock of PCS. Upon the
filing of our Second Amended and Restated Certificate of Incorporation on
December 8, 2000, the Series A-2 preferred stock became convertible into an
aggregate of 6,250,000 shares of Class B-2 common stock, which is convertible
into an aggregate of 6,250,000 shares of Class A common stock. The warrants
are not exercisable until October 2, 2002 and the number of shares of common
stock issuable upon exercise of the warrants shall be reduced if the notes
issued to Rite Aid have been redeemed in whole or in part, on or before October
2, 2002. The exercise price of the warrants is $20.00 per share, subject to
certain adjustments. The transaction did not involve any underwriters,
underwriting discounts or commissions, or any public offering, and we believe
that it was exempt from the registration requirements of the Securities Act of
1933, as amended, by virtue of Section 4(2) thereof. The recipient of the
securities represented its intention to acquire the securities for investment
only, had access to all relevant material

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information regarding AdvancePCS necessary to evaluate the investment and
was an accredited investor with sufficient knowledge and experience to evaluate
the transaction.

On October 2, 2000, also in connection with our acquisition of PCS, we
issued to JLL (i) 65,854 shares of Series A-1 11% preferred stock for an
aggregate purchase price of $65,854,000 and (ii) six shares of Series B
convertible preferred stock and 4,207,000 shares of common stock for an
aggregate purchase price of $84,146,000. Upon the filing of our Second Amended
and Restated Certificate of Incorporation on December 8, 2000, the Series A-1
preferred stock became convertible into an aggregate of 3,292,700 shares of
Class B-1 common stock, which is convertible into an aggregate of 3,292,700
shares of Class A common stock and the six shares of Series B preferred stock
and the 4,207,000 shares of common stock automatically converted into 4,207,300
shares of Class B-1 common stock. These shares are convertible into an
aggregate of 4,207,300 shares of Class A common stock. The transaction did not
involve any underwriters, underwriting discounts or commissions, or any public
offering, and we believe that it was exempt form the registration requirements
of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof.
The recipients of the securities represented their intention to acquire the
securities for investment only, had access to all relevant material information
regarding AdvancePCS necessary to evaluate the investment and were accredited
investors with sufficient knowledge and experience to evaluate the transaction.

Upon receiving stockholder approval at our annual stockholder meeting on
December 7, 2000, we filed a Second Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware effective
December 8, 2000, which, among other things, created classes of common stock to
be denominated Class A, Class B-1 and Class B-2 and reclassified the existing
common stock as Class A common stock. The Class B-1 and Class B-2 common stock
is, at any time and from time to time, convertible into shares of Class A
common stock on a one-for-one basis.

Item 3.  Defaults Upon Senior Securities.

Not applicable.

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

We filed a Current Report on Form 8-K with the Commission on December 11,
2000, which set forth the results of our annual meeting of stockholders held on
December 7, 2000.

Item 5.  Other Information.

Not applicable.

Item 6.  Exhibits and Reports on Form 8-K.

(a) Exhibits.

|            |  |                                                                                                                                                                                                                      | 
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Exhibit No. |  | Exhibits                                                                                                                                                                                                             | 
|            |  |                                                                                                                                                                                                                      | 
|2.1         |  | Stock Purchase Agreement dated as of July 11, 2000 by and
between AdvancePCS and Rite Aid (filed as Exhibit 2.1 to our
Form 8-K filed with the Commission on July 31, 2000 and
incorporated herein by reference).   
|           
|           
|           
|           
|2.2         |  | Securities Purchase Agreement dated as of July 11, 2000 by and
between AdvancePCS and JLL (filed as Exhibit 2.2 to our Form
8-K filed with the Commission on October 16, 2000 and
incorporated herein by reference).

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|            |  |                                                                                                                                                                                                                                                                  | 
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Exhibit No. |  | Exhibits                                                                                                                                                                                                                                                         | 
|            |  |                                                                                                                                                                                                                                                                  | 
|           
|           
|           
|           
|2.3         |  | Exchange Agreement dated as of October 2, 2000 by and between
AdvancePCS and JLL (filed as Exhibit 2.3 to our Form 8-K filed
with the Commission on October 16, 2000 and incorporated
herein by reference).                                                     
|           
|           
|           
|           
|3.1         |  | Second Amended and Restated Certificate of Incorporation of
AdvancePCS (filed as Exhibit 99.1 to our Form 8-K filed with
the Commission on December 11, 2000 and incorporated herein by
reference).                                                             
|           
|           
|           
|           
|3.2         |  | Second Amended and Restated Bylaws of AdvancePCS (filed as
Exhibit 3.1 to our Form 8-K filed with the Commission on
October 16, 2000 and incorporated herein by reference).                                                                                     
|           
|           
|           
|           
|4.1         |  | Warrant dated as of October 2, 2000 issued to Rite Aid (filed
as Exhibit 10.3 to our Form 8-K filed with the Commission on
October 16, 2000 and incorporated herein by reference).                                                                              
|           
|           
|           
|           
|4.2         |  | Indenture dated as of October 2, 2000 by and among AdvancePCS,
various guarantors and U.S. Trust Company of Texas, N.A.
(filed as Exhibit 10.5 to our Form 8-K filed with the
Commission on October 16, 2000 and incorporated herein by
reference).             
|           
|           
|           
|           
|10.1        |  | Credit Agreement dated as of October 2, 2000 by and among
AdvancePCS, Merrill Lynch Capital Corporation and a syndicate
of banks (filed as Exhibit 10.4 to our Form 8-K filed with the
Commission on October 16, 2000 and incorporated herein by
reference).    
|           
|           
|           
|           
|10.2        |  | Stockholders Agreement dated as of October 2, 2000 by and
among AdvancePCS, Rite Aid, JLL and various other investors
named therein (filed as Exhibit 10.1 to our Form 8-K filed
with the Commission on October 16, 2000 and incorporated
herein by reference).
|           
|           
|           
|           
|10.3*       |  | Amendment No. 1 to Stockholders Agreement dated as of October
20, 2000 by and among AdvancePCS, Rite Aid, JLL and various
other investors named therein.                                                                                                       
|           
|           
|           
|           
|10.4        |  | Registration Rights Agreement dated as of October 2, 2000 by
and among AdvancePCS, various guarantors named therein and
Rite Aid (filed as Exhibit 10.2 to our Form 8-K filed with the
Commission on October 16, 2000 and incorporated herein by
reference).    
|           
|           
|           
|           
|10.5*       |  | Form of Employment Agreement dated as of October 2, 2000 by
and between AdvancePCS and each of Jon S. Halbert, David A.
George, Susan S. de Mars and Laura I. Johansen.                                                                                         



---

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

(b) Reports on Form 8-K.

On July 19, 2000, we filed a Form 8-K in connection with our merger of
FFI. This Form 8-K was amended on September 18, 2000 and October 26, 2000 to
include audited financial statements of FFI and certain unaudited pro forma
financial data and supplemental consolidated financial statements of
AdvancePCS.

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On October 16, 2000, we filed a Form 8-K in connection with our
acquisition of PCS. This Form 8-K was amended on October 26, 2000 and December
16, 2000 to include audited historical financial statements for PCS, unaudited
pro forma condensed consolidated financial statements and unaudited financial
statements for PCS for the six months ended September 30, 2000.

On December 11, 2000, we filed a Form 8-K to disclose the results of our
annual meeting of stockholders held on December 7, 2000.

On December 14, 2000, we filed a Form 8-K to provide consolidated
financial data, managements discussion and analysis of financial condition and
results of operations and consolidated financial statements to give effect to
our acquisition of FFI.

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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: February 12, 2001 |  | By: |  | DAVID D. HALBERT                                                                                                 
|                        |  |     |  |                                                                                                                  
|                        |  |     |  | David D. Halbert, Chairman of the Board and
Chief Executive Officer                                              
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|Date: February 12, 2001 |  | By: |  | DANNY PHILLIPS                                                                                                   
|                        |  |     |  |                                                                                                                  
|                        |  |     |  | Danny Phillips, Chief Financial Officer and
Executive Vice President (Principal Financial and
Accounting Officer)

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INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                                                                                 
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT
|NUMBER  |  | DESCRIPTION                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                 
|2.1     |  | Stock Purchase Agreement dated as of July 11, 2000 by and
between AdvancePCS and Rite Aid (filed as Exhibit 2.1 to our
Form 8-K filed with the Commission on July 31, 2000 and
incorporated herein by reference).                                               
|       
|       
|       
|       
|2.2     |  | Securities Purchase Agreement dated as of July 11, 2000 by and
between AdvancePCS and JLL (filed as Exhibit 2.2 to our Form
8-K filed with the Commission on October 16, 2000 and
incorporated herein by reference).                                            
|       
|       
|       
|       
|2.3     |  | Exchange Agreement dated as of October 2, 2000 by and between
AdvancePCS and JLL (filed as Exhibit 2.3 to our Form 8-K filed
with the Commission on October 16, 2000 and incorporated
herein by reference).                                                     
|       
|       
|       
|       
|3.1     |  | Second Amended and Restated Certificate of Incorporation of
AdvancePCS (filed as Exhibit 99.1 to our Form 8-K filed with
the Commission on December 11, 2000 and incorporated herein by
reference).                                                             
|       
|       
|       
|       
|3.2     |  | Second Amended and Restated Bylaws of AdvancePCS (filed as
Exhibit 3.1 to our Form 8-K filed with the Commission on
October 16, 2000 and incorporated herein by reference).                                                                                     
|       
|       
|       
|       
|4.1     |  | Warrant dated as of October 2, 2000 issued to Rite Aid (filed
as Exhibit 10.3 to our Form 8-K filed with the Commission on
October 16, 2000 and incorporated herein by reference).                                                                              
|       
|       
|       
|       
|4.2     |  | Indenture dated as of October 2, 2000 by and among AdvancePCS,
various guarantors and U.S. Trust Company of Texas, N.A.
(filed as Exhibit 10.5 to our Form 8-K filed with the
Commission on October 16, 2000 and incorporated herein by
reference).             
|       
|       
|       
|       
|10.1    |  | Credit Agreement dated as of October 2, 2000 by and among
AdvancePCS, Merrill Lynch Capital Corporation and a syndicate
of banks (filed as Exhibit 10.4 to our Form 8-K filed with the
Commission on October 16, 2000 and incorporated herein by
reference).    
|       
|       
|       
|       
|10.2    |  | Stockholders Agreement dated as of October 2, 2000 by and
among AdvancePCS, Rite Aid, JLL and various other investors
named therein (filed as Exhibit 10.1 to our Form 8-K filed
with the Commission on October 16, 2000 and incorporated
herein by reference).
|       
|       
|       
|       
|10.3*   |  | Amendment No. 1 to Stockholders Agreement dated as of October
20, 2000 by and among AdvancePCS, Rite Aid, JLL and various
other investors named therein.                                                                                                       
|       
|       
|       
|       
|10.4    |  | Registration Rights Agreement dated as of October 2, 2000 by
and among AdvancePCS, various guarantors named therein and
Rite Aid (filed as Exhibit 10.2 to our Form 8-K filed with the
Commission on October 16, 2000 and incorporated herein by
reference).    
|       
|       
|       
|       
|10.5*   |  | Form of Employment Agreement dated as of October 2, 2000 by
and between AdvancePCS and each of Jon S. Halbert, David A.
George, Susan S. de Mars and Laura I. Johansen.                                                                                         



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