Our existing facilities consist of approximately 1.3 million square feet, of which we own 150,400 square feet and lease the remainder. The monthly lease payments were approximately $1.6 million in the month of March 2002. The following table sets forth information with respect to our principal facilities.
The following tables present selected consolidated statement of operations, balance sheet and supplemental data of AdvancePCS for the periods and dates indicated. The selected statement of operations for each of the years in the five-year period ended March 31, 2002 and the balance sheet data as of March 31, 1998, 1999, 2000, 2001 and 2002 presented below are derived from our consolidated financial statements and accompanying notes, which, for the fiscal years 1998 through 2001 have been audited by Arthur Andersen LLP, independent accountants and for fiscal year 2002 have been audited by PricewaterhouseCoopers LLP, independent accountants.
The results of operations of PCS for the period commencing October 2, 2000, the date of our acquisition of PCS, are reflected in the financial statements of AdvancePCS after that date.
The information contained in this section should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the historical consolidated financial statements and related notes of each of AdvancePCS and PCS.
Historical revenues for AdvancePCS have been reclassified to reflect adoption of consistent revenue recognition policies with PCS.
We purchased 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 Advance Paradigm and PCS. These changes are reflected in all periods presented. These changes are as follows:
Clinical services fees received from the plan sponsors or pharmaceutical manufacturers are recognized in revenues as earned in accordance with the contractual agreements. Clinical services revenue includes service fees for negotiating rebates
with pharmaceutical manufacturers on behalf of its health plan sponsor customers. The rebate due from the manufacturer is determined based on a complex formula including such factors as volume and quarterly drug utilization. We estimate the most recent quarter’s rebate receivables from the manufacturers and rebate payable to plan sponsors and its fees based on the terms of its contracts and claims for the quarter. Following the end of the quarter, we invoice the drug manufacturer. We revise our estimates based upon the invoiced amounts. Rebates received from pharmaceutical manufacturers on behalf of plan sponsors are excluded from revenues. Clinical services revenues from certain disease management and health benefit management products are reimbursed at predetermined contractual rates based on the delivery or completion of the services.
Accounts receivable balances represent trade receivables generated from health benefit management and related services. To reduce the potential for credit risk, the Company performs ongoing evaluations of its customer’s financial condition but does not generally require significant collateral. As of March 31, 2001 and 2002, unbilled receivables were $418.6 million and $495.7 million, respectively. Unbilled receivables to plan sponsors are typically billed within 15 days and unbilled receivables to manufacturers are typically billed within 90 days, based on the respective contractual billing schedule.
We have adopted Statement of Accounting Financial Standards (SFAS) 142 effective April 1, 2001. Under SFAS 142 goodwill is no longer amortized. In addition, certain identified intangibles with indefinite lives are also not amortized, but are subject to periodic impairment testing. Amortization expense for the fiscal year ended March 31, 2002 was $10.9 million, which represented the amortization relating to the identified intangible assets with finite lives. Over the next five years, intangible amortization expense relating to these identified intangibles will be as follows (in thousands):
As required by SFAS 142 the results for the prior year’s financials have not been restated. Net income as if SFAS 142 had been adopted is presented below:
On October 2, 2000 we completed the acquisition of PCS for an aggregate purchase price of approximately $1.0 billion, of which we paid 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 JLL. In connection with the equity financing, we issued to JLL 65,854 shares of Series A-1 preferred stock for an aggregate purchase price of $65.9 million, six shares of Series B convertible preferred stock and 8.4 million shares of our Class A common stock for an aggregate purchase price of $84.1 million. On December 8, 2000, the six shares of Series B convertible preferred stock and the 8.4 million shares of Class A common stock automatically converted into 8.4 million shares of Class B-1 common stock. In connection with the senior subordinated notes, we issued to Rite Aid warrants to purchase 1.6 million shares of Class A common stock. The senior subordinated notes were fully redeemed on March 13, 2001. The warrants terminated upon repayment of the senior subordinated notes. The acquisition of PCS was accounted for using the purchase method of accounting. The excess of the purchase price paid over the net identifiable assets and liabilities of PCS was recorded as goodwill.
Effective July 5, 2000, we completed a merger with FFI. We issued seven million shares of our Class A common stock in exchange for all of the outstanding shares of FFI. The merger constituted a tax-free reorganization and has been accounted for as a pooling of interests. The historical financial results have been restated in accordance with APB 16 to reflect the merger as though FFI had always been a part of AdvancePCS.
We group the revenues from all of our health improvement service offerings into three categories: data, mail and clinical services.
Through our data services operations we process prescription claims on behalf of our health plan sponsor customers. When a member of one of our health plan sponsors presents a prescription or health plan identification card to a retail pharmacist in our network, the pharmacist accesses our online system to receive information regarding eligibility, patient history, health plan formulary listings and negotiated price. The member generally pays a co-pay to the retail pharmacy and the pharmacist fills the prescription. On behalf of our health plan sponsors, during each billing cycle, our systems electronically aggregate pharmacy benefit claims, which include prescription costs plus our claims processing fees. Once we receive payments from health plan sponsors, we remit the amounts owed by those health plan sponsors to the retail pharmacies and retain the claims processing fees.
We have established a nationwide network of over 60,000 retail pharmacies, each of which pay an access fee to be included in our network. Our contracts with most of our health plan sponsors provide for member access to our retail pharmacy network. Under these contracts, we have an independent obligation to pay network retail pharmacies for the drugs dispensed, meaning we have assumed this risk. We are a principal in the transaction; therefore, we record the aggregate pharmacy benefit claim payments from our health plan sponsors as revenues and include prescription costs to be paid to retail pharmacies in cost of revenues.
Financial information for 2000 and 2001 has been restated for the purchase of CHI (See Notes 2 and 15 to the financial statements included in this report).
Gross profit. Our gross profit for fiscal year 2002 increased by $222 million, or 97%, compared to the same period in fiscal year 2001. 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 3.5% in fiscal year 2002 compared to 3.3% in the same period in fiscal year 2001. The increase was due to a decrease in data services revenues as a percentage of total revenues. Data services revenues generally have a lower percentage margin than other services.
Non-recurring and impairment expenses. Net income for the year ended March 31, 2001 reflected a non-recurring charge of $11.1 million ($6.8 million after taxes, or $0.09 per diluted share) representing an impairment related to the combination of our mail facilities. Our mail facility in Richardson, Texas has been closed and operations moved to the Fort Worth and Birmingham facilities. In addition, the charges include severance costs for certain management employees that were terminated or resigned following and as a result of the acquisition of PCS. All of these severance costs to management employees were paid prior to March 31, 2001.
Revenues. Our revenues for fiscal year 2001 increased by $5.2 billion, or 283%, compared to revenues for fiscal year 2000. The increase in revenues was primarily the result of our acquisition of PCS on October 2, 2000. Approximately $4.5 billion, or 86% of the increase in revenues was attributable to data services and a 232% increase in the number of pharmacy claims processed during the period. Claims processed increased from 81 million in fiscal year 2000 to 269 million for fiscal year 2001. The addition of PCS added approximately 160 million claims for the period. Approximately 10% of the increase was attributable to additional sales of our mail pharmacy services, resulting from a 239% increase in the number of mail prescriptions dispensed. Mail pharmacy prescriptions dispensed increased from 1.7 million in fiscal year 2000 to 5.7 million for fiscal year 2001. The addition of PCS’s two mail pharmacies accounted for approximately 91% 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.
Interest income and interest expense. Interest expense, net of interest income, for fiscal year 2001 increased $39.0 million compared to the same period in fiscal year 2000. The increase resulted from the acquisition of PCS, which was partially funded by over $800 million in additional debt.
Diluted net income per share. We reported diluted net income per share of $0.30 per share for fiscal year 2001 compared to $0.37 per share for the same period in fiscal year 2000. The weighted average shares outstanding were 55.5 million and 72.4 million for fiscal years 2000 and 2001, 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.
Operating income would have been $129.8 million and selling, general and administrative expenses would have been $199 million if SFAS 142 had been adopted for the twelve-month period ended March 31, 2001.
Actual AdvancePCS results for the twelve-month period ended March 31, 2002.
Revenues. Our revenues for fiscal year 2002 increased by $1.8 billion, or 16% compared to the pro forma revenues for fiscal year 2001. Approximately $1.3 billion, or 71% of the increase in revenues was attributable to data services and a 4.5%
Gross profit. Our gross profit for fiscal year 2002 increased by $111.7 million, or 33%, compared to the same period in fiscal year 2001 on a pro forma basis. This increase was attributable primarily to the additional revenue and gross profit generated by the improvement in operations at our mail facilities. The improvement resulted from the closing of the Richardson, Texas mail facility along with the acquisition of PCS and the cost savings from the integration and streamlining of operations. As a percentage of revenues, gross profit was approximately 3.5% in fiscal year 2002, compared to 3.0% in the same period in fiscal year 2001 on a pro forma basis.
Selling, general and administrative expenses. Our selling, general and administrative expenses for fiscal year 2002 decreased by $33.5 million, or 15%, compared to the same period in fiscal year 2001 on a pro forma basis. This decrease was due to losses of approximately $7 million that were incurred in connection with performance-based contracts in fiscal year 2001. Savings also came from the integration and synergies created by the PCS acquisition. Also, savings came from the implementation of FAS 142 and the related reduction in amortization of goodwill. As a percentage of revenue, selling general and administrative costs for 2002 were 1.4%, compared to 2.0% in the same period in fiscal year 2001 on a pro forma basis. If SFAS 142 had been adopted for the twelve months ended March 31, 2001, selling, general and administrative expenses would have been $199 million, or 1.8% of revenues on a pro forma basis.
interest at LIBOR plus 2%. The Term B note has been fully repaid as of June 5, 2002. The revolving credit facility expires on October 2, 2005. As of March 31, 2002, we had no amount outstanding under this revolving credit facility. The senior secured credit facility contains covenants that are typical for this type of loan. The Company is in compliance with all covenants. The senior secured credit facility has been unconditionally guaranteed, jointly and severally, by all of our subsidiaries. In addition, the senior secured credit facility is secured by a first priority lien on the stock of our subsidiaries and substantially all of our assets and the assets of our subsidiaries. Each subsidiary is 100% owned. There are no restrictions on the ability of the subsidiary guarantors to pay dividends or make loans or advances to the parent. We also issued to Rite Aid $125 million in convertible preferred stock substantially all of which was subsequently converted into Class A common stock and sold by Rite Aid. In addition, we issued $150 million in 8.4 million shares of common stock and 65,854 shares of convertible preferred stock to JLL. Also, we issued to Rite Aid $200 million in senior subordinated notes. In March 2001, the Company issued $200 million in 8 1/2 % Senior Notes Due 2008 (Senior Notes). The proceeds from this offering were used to retire the $200 million senior subordinated notes due 2010 that were issued to Rite Aid in connection with the PCS acquisition. The Senior Notes contain covenants that are typical for this type of debt. The Senior Notes have been unconditionally guaranteed, jointly and severally, by all of our subsidiaries, which are all 100% owned. There are no restrictions on the ability of the guarantors to pay dividends, make loans or advances to the parent.
On August 23, 2001 we completed the sale of nine million shares of Class A common stock. The proceeds, net of offering costs, of approximately $291 million were used to reduce debt. The Term A debt of approximately $147 million was fully repaid and the remaining $144 million was used to repay a portion of the outstanding Term B debt. In addition, during the three-month period ended September 30, 2001, our preferred stockholders converted their preferred shares totaling 65,854 shares into 6.6 million shares of Class B-1 common stock.
In addition, we have a $175 million revolving credit facility that expires in 2005. As of March 31, 2002, no amounts were drawn on this revolving facility. In connection with the bank debt repayments made in the second and third quarters of fiscal year 2002 and the securitization, we recorded an extraordinary loss, associated with the early retirement of debt. The loss was attributable to a non-cash charge to write-off a portion of the deferred financing fees related to the secured bank agreement in the amount of $5.3 million, net of tax.
On June 5, 2002 we completed an increase in our Asset Securitization Facility. The $150 million commitment under the facility was expanded to $300 million and is due December 10, 2006. The Asset Securitization Facility now incurs interest at the funding agent’s A-1+/P-1 commercial paper rate plus .85%. The Asset Securitization Facility is included in our debt balance as of March 31, 2002 and will continue to be reflected “on-balance sheet”. We used the proceeds to repay the remaining $150 million of our Term B note.
The following table sets forth our schedule of current maturities of long-term debt, excluding the deferred interest rate swap gain or loss of $14.5 million at March 31, 2002, and future minimum lease payments due under noncancellable operating leases (in thousands):