<PAGE> 1
EXHIBIT 99.1
INDEX
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Audited Financial Statements of FFI Health Services
Report of Independent Public Accountants 1
Combined Balance Sheet as of March 31, 2000 2
Combined Statement of Operations for the Year Ended March 31, 2000 3
Combined Statement of Stockholders' Equity for the Year Ended March 31, 2000 4
Combined Statement of Cash Flows for the Year Ended March 31, 2000 5
Notes to Combined Financial Statements 6
Unaudited Condensed Combined Balance Sheet as of June 30, 2000 10
Unaudited Condensed Combined Statement of Operations for the Three Months Ended June
30, 2000 11
Unaudited Condensed Combined Statement of Cash Flows for the Three Months Ended June
30, 2000 12
Notes to the Unaudited Condensed Combined Financial Statements 13
Unaudited Pro Forma Financial Statements
Unaudited Pro Forma Condensed Combined Financial Information 14
Unaudited Pro Forma Condensed Combined Statement of Operations for the Years Ended
March 31, 1998, 1999, and 2000 15
Unaudited Pro Forma Condensed Combined Statement of Operations for the Three Months
Ended June 30, 2000 18
Notes to the Unaudited Pro Forma Condensed Combined Statements of Operations 19
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2000 20
Notes to the Unaudited Pro Forma Condensed Combined Balance Sheet 21
</TABLE>
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of FFI Health Services:
We have audited the accompanying combined balance sheet of FFI Health Services
(the "Company" or "FFI" as defined in Note 1 to the combined financial
statements), as of March 31, 2000, and the related combined statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of FFI Health Services
as of March 31, 2000, and the results of their operations and their cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Dallas, Texas,
July 5, 2000
1
<PAGE> 3
FFI HEALTH SERVICES
COMBINED BALANCE SHEET--MARCH 31, 2000
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,131,827
Accounts receivable, net of allowance for doubtful
accounts of $880,000 18,164,398
Prepaid expenses and other 11,716
------------
Total current assets 23,307,941
PROPERTY AND EQUIPMENT, net 488,300
OTHER ASSETS 7,348
------------
Total assets $ 23,803,589
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 22,548,557
Accrued expenses 1,192,528
------------
Total current liabilities 23,741,085
CAPITAL LEASE OBLIGATIONS 21,778
------------
Total liabilities 23,762,863
------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, ranging from $1.00-$7.00 par value; 15,100 shares
authorized, 2,055 shares issued and outstanding 12,355
Additional paid-in-capital 239,990
Accumulated deficit (211,608)
------------
40,737
Less- Treasury stock (11)
------------
Total stockholders' equity 40,726
------------
Total liabilities and stockholders' equity $ 23,803,589
============
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
2
<PAGE> 4
FFI HEALTH SERVICES
COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2000
<TABLE>
<S> <C>
REVENUES $ 84,358,549
COST OF OPERATIONS:
Cost of revenues 67,801,995
Selling, general, and administrative expenses 16,137,173
------------
Total cost of operations 83,939,168
------------
Operating income 419,381
INTEREST INCOME 257,457
LOSS ON ASSET DISPOSALS (159,748)
------------
NET INCOME $ 517,090
============
</TABLE>
The accompanying notes are an integral part of
this combined financial statement.
3
<PAGE> 5
FFI HEALTH SERVICES
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------- ADDITIONAL ACCUMULATED
NUMBER OF PAID-IN TREASURY EARNINGS
SHARES AMOUNT CAPITAL STOCK (DEFICIT) TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1999 2,045 $ 12,345 $ -- $ (11) $ 1,221,302 $ 1,233,636
Net income and
comprehensive income -- -- -- -- 517,090 517,090
Distributions to owners -- -- -- -- (1,950,000) (1,950,000)
Issuance of common stock 10 10 239,990 -- -- 240,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, March 31, 2000 2,055 $ 12,355 $ 239,990 $ (11) $ (211,608) $ 40,726
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
this combined financial statement.
4
<PAGE> 6
FFI HEALTH SERVICES
COMBINED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 2000
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 517,090
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 84,217
Loss on asset disposals 159,748
Change in certain assets and liabilities-
Accounts receivable, net (585,433)
Prepaid expenses and other 52,529
Accounts payable and accrued expenses 2,309,559
-----------
Net cash provided by operating activities 2,537,710
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (204,008)
-----------
Net cash used in investing activities (204,008)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 240,000
Capital lease obligations 21,778
Distributions to owners (1,950,000)
-----------
Net cash used in financing activities (1,688,222)
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 645,480
CASH AND CASH EQUIVALENTS, beginning of year 4,486,347
-----------
CASH AND CASH EQUIVALENTS, end of year $ 5,131,827
===========
</TABLE>
The accompanying notes are an integral part of
this combined financial statements.
5
<PAGE> 7
FFI HEALTH SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS MARCH 31, 2000
1. NATURE OF BUSINESS:
FFI Health Services is a privately held health benefit management and
direct-to-consumer pharmaceutical marketing services company. FFI Health
Services includes the operations of the affiliated companies, First Florida
International Holdings, Inc., Phoenix Communications International, Inc.,
Innovative Pharmaceutical Strategies, Inc., HMN Health Services, and Mature Rx
Plus of Nevada, Inc. (collectively the "Company" or "FFI"). FFI, based in
Cleveland, Ohio, offers several pharmacy-related product lines marketed under
the names aVidaRx(C), femScript(C), MatureRx(C), and MatureRx(C)-Plus to
under-insured or uninsured individuals, women, and senior citizens. In addition,
FFI provides prescription benefit management services to employees and third
party administrators.
The accompanying financial statements include the accounts of the affiliated
companies of FFI on a combined basis. All significant intercompany accounts and
transactions have been eliminated in the combination.
Various aspects of the Company's businesses are governed by federal and state
laws and regulations, and compliance is a significant operational requirement
for the Company. The Company believes that they are in substantial compliance
with all existing legal requirements material to the operation of the business;
however, the application of complex standards to the detailed operation of the
business always creates areas of uncertainty. Moreover, regulation of the
business is evolving. Numerous health care laws and regulations have been
proposed at the state and federal level, many of which could affect the
business. The Company cannot predict what additional federal or state
legislation or regulatory initiatives may be enacted in the future regarding
health care or the business of pharmacy benefit management. It is possible that
federal or state governments might impose additional restrictions or adopt
interpretations of existing laws that could have a material adverse affect on
the business or financial position.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the March 31, 2000, financial
statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include overnight investments and money market
accounts with original maturities of three months or less.
6
<PAGE> 8
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over
estimated useful lives ranging from three to twenty years. Amortization of
leasehold improvements is computed over the lives of the assets or the lease
terms, whichever is shorter. Major renewals and betterments are added to the
property and equipment accounts while costs of repairs and maintenance are
charged to operating expenses in the period incurred. The cost of assets
retired, sold or otherwise disposed of and the applicable accumulated
depreciation are removed from the accounts, and the resultant gain or loss, if
any, is reflected in the combined statement of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash, receivables, payables, and accrued liabilities
approximate the fair values of these instruments because of their short-term
maturities.
REVENUE RECOGNITION
At the point-of-sale, the pharmacy claims are adjudicated using an on-line
claims processing system. When the Company has an independent obligation to pay
its participating pharmacy providers, the Company includes payments from plan
sponsors for these benefits as revenues and payments to its pharmacy providers
as cost of revenues. If the Company is only administering plan sponsors'
pharmacy contracts, the Company records the claims processing service fees as
revenues. Rebate revenues are recognized as they are earned in accordance with
contractual agreements. Revenue is recognized when a rebate is earned from the
pharmaceutical manufacturer for promoting and selling pharmaceutical products
through the Company's programs. Certain of these revenues are based on estimates
which are subject to final settlement with the contract party. These estimates
are reviewed and revised as settled.
COST OF REVENUES
Cost of revenues includes product costs, pharmacy claims payments, and other
direct costs associated with the sale and dispensing of prescriptions. Certain
of these expenses are recognized based on estimates which are subject to final
settlement with the contract party. These estimates are reviewed and revised as
settled.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires all derivatives to be
recognized as either assets or liabilities in the balance sheet and recorded at
fair value. In addition, SFAS No. 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. The Company does not have any derivatives, and SFAS
No. 133 does not have a material impact on the Company's financial position or
disclosures. SFAS No. 133, as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of Effective Date - an
Amendment of FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133," is effective beginning in fiscal year March 31, 2002.
In December 1999, the SEC staff issued SAB 101 "Revenue Recognition in
Financial Statements". SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition in financial statements. SAB 101 is
effective in our fourth fiscal quarter of 2001. Management is currently
evaluating the impact of adopting SAB 101.
7
<PAGE> 9
3. PROPERTY AND EQUIPMENT:
Property and equipment as of March 31, 2000, consists of the following:
<TABLE>
<S> <C>
Furniture and fixtures $ 151,909
Computer equipment and software 752,204
Leasehold improvements 216,214
-----------
1,120,327
Less- Accumulated depreciation and amortization (632,027)
-----------
Property and equipment, net $ 488,300
===========
</TABLE>
4. LEASES:
The Company leases office space, equipment, and automobiles under various
operating leases. The Company was obligated to make future minimum payments
under noncancelable operating lease agreements as of March 31, 2000, as follows:
<TABLE>
<CAPTION>
YEARS ENDING
MARCH 31,
------------
<S> <C>
2001 $ 197,616
2002 177,459
2003 129,960
2004 71,361
2005 --
---------
Total minimum lease payments $ 576,396
=========
</TABLE>
Total rent expense incurred in the year ended March 31, 2000, was approximately
$599,000.
5. INCOME TAXES:
Effective January 1, 1998, the stockholders of the Company elected to be taxed
as a Subchapter S corporation under the Internal Revenue Code Section 1362 and
the respective state codes. As a Subchapter S corporation, no federal income
taxes are payable by the Company and none have been provided for in the
accompanying combined financial statements. The shareholders are to include
their respective distributions of the Company profits or losses in their
individual tax returns. Distributions to shareholders for the year ended March
31, 2000, were approximately $1,950,000.
The Company's tax return and the amounts of allocable profits or losses are
subject to examination by taxing authorities. If such examinations result in
changes to the Company's profits or losses, the tax liability of the
shareholders could be changed accordingly. The Company is currently undergoing
an audit by the Internal Revenue Service for the years ended 1997 and 1998.
6. COMMITMENTS AND CONTINGENCIES:
The Company is party to routine legal and administrative proceedings arising in
the ordinary course of business. The proceedings currently pending are not, in
the opinion of management, material either individually or in the aggregate.
The Company has entered into long-term employment and noncompete agreements with
certain management employees. These employment agreements provide for certain
minimum payments should the agreements be terminated.
8
<PAGE> 10
7. CONCENTRATION OF BUSINESS:
A significant portion of the Company's revenues result from contracts with
customers. No customer accounted for over 10% of the Company's revenues for
fiscal year ended March 31, 2000.
8. RETIREMENT PLAN BENEFITS:
The Company sponsors a retirement plan for all eligible employees, as defined in
the plan agreement. The plan is qualified under Section 401(k) of the Internal
Revenue Code. The Company makes contributions to the plan at the discretion of
the Company's Board of Directors. The Company did not make contributions to the
plan for the year ended March 31, 2000.
9. SUBSEQUENT EVENT:
On July 5, 2000, all of the stockholders of the affiliated companies exchanged
their shares of stock for shares of Advance Paradigm, Inc. in a tax-free merger.
The merger is expected to be accounted for as a pooling-of-interest.
9
<PAGE> 11
FFI HEALTH SERVICES
UNAUDITED CONDENSED COMBINED BALANCE SHEET AS OF JUNE 30, 2000
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,053,617
Accounts receivable, net 12,864,770
------------
Total current assets 17,918,387
------------
PROPERTY AND EQUIPMENT, net 716,230
OTHER ASSETS 19,064
------------
Total assets $ 18,653,681
============
CURRENT LIABILITIES:
Accounts payable $ 20,640,862
Accrued salaries and benefits 1,585,781
------------
Total current liabilities 22,226,643
CAPITAL LEASE OBLIGATIONS 21,778
------------
Total liabilities 22,248,421
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 12,355
Additional paid-in-capital 239,990
Accumulated deficit (3,847,074)
------------
(3,594,729)
Less- Treasury stock (11)
------------
Total stockholders' equity (deficit) (3,594,740)
------------
Total liabilities and stockholders' equity (deficit) $ 18,653,681
============
</TABLE>
The accompanying notes are an integral part of
this condensed combined balance sheet.
10
<PAGE> 12
FFI HEALTH SERVICES
UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 2000
<TABLE>
<S> <C>
REVENUES $ 23,113,200
COST OF OPERATIONS:
Cost of revenue (18,648,026)
Selling, general, and administrative expenses (4,521,737)
------------
Total cost of operations (23,169,763)
------------
OPERATING LOSS (56,563)
INTEREST INCOME 91,097
------------
NET INCOME $ 34,534
============
</TABLE>
The accompanying notes are an integral part of
this condensed combined financial statement.
11
<PAGE> 13
FFI HEALTH SERVICES
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED
JUNE 30, 2000
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,534
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 22,159
Change in certain assets and liabilities-
Accounts receivable, net 5,299,628
Accounts payable and accrued expenses (1,514,442)
-----------
Net cash provided by operating activities 3,841,879
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (250,089)
-----------
Net cash used in investing activities (250,089)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to owners (3,670,000)
-----------
Net cash used in financing activities (3,670,000)
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (78,210)
CASH AND CASH EQUIVALENTS, beginning of period 5,131,827
-----------
CASH AND CASH EQUIVALENTS, end of period $ 5,053,617
===========
</TABLE>
The accompanying notes are an integral part of
this condensed combined financial statement.
12
<PAGE> 14
FFI HEALTH SERVICES
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED JUNE 30, 2000
1. BASIS OF PRESENTATION:
The Unaudited Condensed Combined Financial Statements include the accounts of
the affiliated companies of First Florida International Holdings, Inc., Phoenix
Communications International, Inc., Innovative Pharmaceutical Strategies, Inc.,
HMN Health Services and Mature Rx Plus of Nevada, Inc. (collectively "FFI") on a
combined basis as of and for the three months ended June 30, 2000. All
significant intercompany accounts and transactions have been eliminated. The
Unaudited Condensed Combined Financial Statements have been prepared by FFI in
accordance with generally accepted accounting principles for interim financial
information and substantially in the form prescribed by the Securities and
Exchange Commission in 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 FFI's
management, the June 30, 2000, Unaudited Condensed Combined Financial Statements
include all adjustments, consisting of normal recurring adjustments, necessary
for fair presentation of results for this interim period. In the opinion of
FFI's management, the Unaudited Condensed Combined Financial Statements and
notes should be read in conjunction with FFI's Combined Financial Statements and
related notes for the year ended March 31, 2000, included in this Form 8-K/A.
The results of operations for the three-month period ended June 30, 2000, are
not necessarily indicative of the results to be expected for the full year or
for any future period.
2. SUBSEQUENT EVENT:
On July 5, 2000, all of the stockholders of the affiliated companies exchanged
their shares of stock for shares of Advance Paradigm, Inc. in a tax-free merger.
The merger is expected to be accounted for as a pooling of interest.
13
<PAGE> 15
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
years ended March 31, 1998, 1999, and 2000, and the three-month period ended
June 30, 2000, give effect to the July 5, 2000, merger of Advance Paradigm, Inc.
and subsidiaries ("API") with First Florida International Holdings, Inc.,
Phoenix Communications International, Inc., Innovative Pharmaceutical
Strategies, Inc., HMN Health Services, and Mature Rx Plus of Nevada, Inc.
(collectively "FFI") (referred to as the "Combination") as if the transaction
had occurred on April 1, 1997, 1998, and 1999, respectively. The Unaudited Pro
Forma Condensed Combined Balance Sheet as of June 30, 2000, reflects the
Combination as if the transaction had occurred on June 30, 2000.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
years ended March 31, 1998 and 1999, combine the audited historical statements
of operations of API for the years ended March 31, 1998 and 1999, and the
unaudited historical statements of operations of FFI for the years ended
December 31, 1997 and 1998, respectively. The Unaudited Pro Forma Condensed
Combined Statements of Operations for the year ended March 31, 2000, combine the
audited historical financial statements of API and FFI for the year ended March
31, 2000. The Unaudited Pro Forma Condensed Combined Statements of Operations
for the three months ended June 30, 2000, combines the unaudited historical
financial statements of API and FFI for the three months ended June 30, 2000.
API usually implements significant changes to the operations of the entities
that it merges with to enhance profitability. The expected benefits and cost
reductions anticipated by API have not been reflected in the following Unaudited
Pro forma Condensed Combined Financial Statements. Accordingly, these Unaudited
Pro Forma Condensed Combined Financial Statements are not necessarily indicative
of the operating results that would have been achieved had the Combination with
the FFI occurred on April 1, 1997, 1998, or 1999.
The Unaudited Pro Forma Condensed Combined Financial information is based on the
historical financial statements of API and the historical financial statements
of FFI. The pro forma adjustments are based upon available information. These
adjustments are directly attributable to the transaction referenced above and
are expected to have a continuing impact on the API business, results of
operations, and financial position. The merger of API with FFI will be accounted
for as a business combination using the pooling-of-interest method of accounting
in accordance with Accounting Principles Board Opinion No. 16, Business
Combinations.
14
<PAGE> 16
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
API(A) FFI(A) ADJUSTMENTS AS ADJUSTED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES $ 476,664,000 $ 46,861,000 $ -- $ 523,525,000
COST OF REVENUE (455,847,000) (37,872,000) -- (493,719,000)
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES (10,083,000) (8,872,000) 2,881,000(C) (16,074,000)
------------- ------------- ------------- -------------
OPERATING INCOME 10,734,000 117,000 2,881,000 13,732,000
INTEREST INCOME 2,814,000 136,000 -- 2,950,000
INTEREST EXPENSE (67,000) -- -- (67,000)
OTHER EXPENSE (689,000) -- (1,000,000)(D) (1,689,000)
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 12,792,000 253,000 1,881,000 14,926,000
PROVISION FOR INCOME TAXES (4,861,000) (96,000) (786,000)(E) (5,743,000)
------------- ------------- ------------- -------------
NET INCOME $ 7,931,000 $ 157,000 $ 1,095,000 $ 9,183,000
============= ============= ============= =============
BASIC:
Net income per share $ 0.44 -- -- $ 0.44
Weighted average shares outstanding 17,511,508 -- 3,500,000 21,011,508
DILUTED:
Net income per share $ 0.35 -- -- $ 0.35
Weighted average shares outstanding 22,701,838 -- 3,500,000 26,201,838
</TABLE>
The accompanying notes are an integral part of
this unaudited pro forma financial statement.
15
<PAGE> 17
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
API(A) FFI(A) ADJUSTMENTS AS ADJUSTED
--------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
REVENUES $ 774,822,000 $ 64,386,000 $ -- $ 839,208,000
COST OF REVENUE (743,084,000) (55,165,000) -- (798,249,000)
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES (13,949,000) (7,057,000) 1,156,000(C) (19,850,000)
--------------- ------------ ------------ ---------------
OPERATING INCOME 17,789,000 2,164,000 1,156,000 21,109,000
INTEREST INCOME 2,685,000 175,000 -- 2,860,000
OTHER EXPENSE -- -- (1,000,000)(D) (1,000,000)
--------------- ------------ ------------ ---------------
INCOME BEFORE INCOME TAXES 20,474,000 2,339,000 156,000 22,969,000
PROVISION FOR INCOME TAXES (7,780,000) (889,000) (131,000)(E) (8,800,000)
--------------- ------------ ------------ ---------------
NET INCOME $ 12,694,000 $ 1,450,000 $ 25,000 $ 14,169,000
=============== ============ ============ ===============
BASIC:
Net income per share $ 0.62 -- -- $ 0.59
Weighted average shares outstanding 20,504,290 -- 3,500,000 24,004,290
DILUTED:
Net income per share $ 0.54 -- -- $ 0.53
Weighted average shares outstanding 23,376,202 -- 3,500,000 26,876,202
</TABLE>
The accompanying notes are an integral part of
this unaudited pro forma financial statement.
16
<PAGE> 18
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PRO FORMA
API(A) FFI(A) ADJUSTMENTS AS ADJUSTED
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $ 1,968,406,000 $ 84,359,000 $ (24,028,000)(B) $ 2,028,737,000
COST OF REVENUE (1,909,461,000) (67,802,000) 24,028,000(B) (1,953,235,000)
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES (22,656,000) (16,137,000) 3,399,000(C) (35,394,000)
--------------- --------------- --------------- ---------------
OPERATING INCOME 36,289,000 420,000 3,399,000 40,108,000
INTEREST INCOME 807,000 257,000 -- 1,064,000
INTEREST EXPENSE (3,943,000) -- -- (3,943,000)
OTHER EXPENSE -- -- (1,000,000)(D) (1,000,000)
LOSS ON ASSET DISPOSALS -- (160,000) -- (160,000)
--------------- --------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 33,153,000 517,000 2,399,000 36,069,000
PROVISION FOR INCOME TAXES (12,598,000) -- (983,000)(E) (13,581,000)
--------------- --------------- --------------- ---------------
NET INCOME $ 20,555,000 $ 517,000 $ 1,416,000 $ 22,488,000
=============== =============== =============== ===============
BASIC:
Net income per share $ 0.97 -- -- $ 0.91
Weighted average shares outstanding 21,260,163 -- 3,500,000 24,760,163
DILUTED:
Net income per share $ 0.85 -- -- $ 0.81
Weighted average shares outstanding 24,237,216 -- 3,500,000 27,737,216
</TABLE>
The accompanying notes are an integral part of
this unaudited pro forma financial statement.
17
<PAGE> 19
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
PRO FORMA
API(A) FFI(A) ADJUSTMENTS AS ADJUSTED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES $ 594,327,000 $ 23,113,000 $ (6,300,000)(B) $ 611,140,000
COST OF REVENUE (576,612,000) (18,648,000) 6,300,000(B) (588,960,000)
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES (7,328,000) (4,522,000) 1,917,000(C) (9,933,000)
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) 10,387,000 (57,000) 1,917,000 12,247,000
INTEREST INCOME 259,000 91,000 -- 350,000
INTEREST EXPENSE (1,130,000) -- -- (1,130,000)
OTHER EXPENSE -- -- (1,000,000)(D) (1,000,000)
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 9,516,000 34,000 917,000 10,467,000
PROVISION FOR INCOME TAXES (3,616,000) -- (452,000)(E) (4,068,000)
------------- ------------- ------------- -------------
NET INCOME $ 5,900,000 $ 34,000 $ 465,000 $ 6,399,000
============= ============= ============= =============
BASIC:
Net income per share $ 0.27 -- -- $ 0.26
Weighted average shares outstanding 21,537,000 -- 3,500,000 25,037,000
DILUTED:
Net income per share $ 0.25 -- -- $ 0.24
Weighted average shares outstanding 23,479,000 -- 3,500,000 26,979,000
</TABLE>
The accompanying notes are an integral part of
this unaudited pro forma financial statement.
18
<PAGE> 20
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(A) Reflects the audited historical consolidated statements of operations of
API for the years ended March 31, 1998, 1999, 2000, and the unaudited
historical consolidated statements of operations of FFI for the years ended
December 1997 and 1998 and the audited historical combined statement of
operations of FFI for the year ended March 31, 2000 and the unaudited
condensed consolidated statement of operations of API for the three-month
period ended June 30, 2000 and the unaudited condensed combined statement
of operations of FFI for the three-month period ended June 30, 2000.
(B) Reflects the elimination of intercompany transactions between API and FFI.
(C) Reflects the reduction of salary expense paid by FFI to its shareholders to
reflect the ongoing management salaries under new employment agreements.
(D) Reflects the estimated transaction costs incurred as a result of the
Combination. These costs are assumed to be 30% nondeductible for income tax
purposes.
(E) Reflects the tax effects of the pro forma adjustments at API's effective
tax rate of 38% and adjustments to the provision for income taxes for
deferred tax assets realized in connection with the conversion of FFI from
an S-Corporation to a C-Corporation.
19
<PAGE> 21
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
PRO FORMA
API(A) FFI(A) ADJUSTMENTS AS ADJUSTED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 51,614,000 $ 5,054,000 $ -- $ 56,668,000
Accounts receivable, net 193,121,000 12,865,000 (5,000,000)(B) 200,986,000
Inventories 6,288,000 -- -- 6,288,000
Prepaid expenses and other 3,025,000 -- -- 3,025,000
Deferred tax asset -- -- 377,000(C) 377,000
------------ ------------ ------------ ------------
Total current assets 254,048,000 17,919,000 (4,623,000) 267,344,000
PROPERTY AND EQUIPMENT, net 37,451,000 716,000 -- 38,167,000
INTANGIBLE ASSETS, net 100,183,000 -- -- 100,183,000
OTHER ASSETS 7,582,000 19,000 -- 7,601,000
------------ ------------ ------------ ------------
Total assets $399,264,000 $ 18,654,000 $ (4,623,000) $413,295,000
============ ============ ============ ============
CURRENT LIABILITIES:
Accounts payable $227,170,000 $ 20,641,000 $ (4,000,000)(B)(D) $243,811,000
Accrued salaries and benefits 4,506,000 1,586,000 -- 6,092,000
Income taxes payable 2,779,000 -- -- 2,779,000
Other accrued expenses 2,822,000 -- -- 2,822,000
------------ ------------ ------------ ------------
Total current liabilities 237,277,000 22,227,000 (4,000,000) 255,504,000
NONCURRENT LIABILITIES:
Long-term debt 50,000,000 -- -- 50,000,000
Deferred income taxes 4,324,000 -- -- 4,324,000
Other noncurrent liabilities 2,157,000 22,000 -- 2,179,000
------------ ------------ ------------ ------------
Total liabilities 293,758,000 22,249,000 (4,000,000) 312,007,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 215,000 12,000 23,000(E) 250,000
Additional paid-in-capital 58,808,000 240,000 (23,000)(E) 59,025,000
Retained earnings (deficit) 46,483,000 (3,847,000) (623,000)(F) 42,013,000
------------ ------------ ------------ ------------
Total stockholders'
equity (deficit) 105,506,000 (3,595,000) (623,000) 101,288,000
------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity (deficit) $399,264,000 $ 18,654,000 $ (4,623,000) $413,295,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
this unaudited pro forma financial statement.
20
<PAGE> 22
ADVANCE PARADIGM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(A) Reflects the unaudited historical consolidated balance sheet of API as of
June 30, 2000, and the unaudited historical combined balance sheet of FFI
as of June 30, 2000.
(B) Reflects the elimination of intercompany transactions between API and FFI.
(C) Reflects the realization of a deferred tax asset from converting FFI from
an S-Corporation to a C-Corporation, and the effects of deferred tax assets
as a result of the combination.
(D) Reflects the transaction costs incurred as a result of the combination.
(E) Represents the exchange of 3,500,000 common shares of API as a result of
the Combination.
(F) Reflects the adjustment to retained earnings for transaction costs
associated with the FFI acquisition and the realization of deferred tax
assets as follows:
<TABLE>
<S> <C>
Transaction cost (see (C)) $ (1,000,000)
Deferred tax effect (see (B)) 377,000
------------
Total $ (623,000)
============
</TABLE>
21
