<PAGE> 1
EXHIBIT 99.1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet.............................................................................. F-1
Condensed Consolidated Statement of Operations.................................................................... F-2
Condensed Consolidated Statement of Cash Flows.................................................................... F-3
Notes to Condensed Consolidated Financial Statements.............................................................. F-4
Unaudited Pro Forma Condensed Consolidated Financial Statements of AdvancePCS
Headnote to the Unaudited Pro Forma Condensed Consolidated Financial Information.................................. F-7
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended March 31, 2000.............. F-8
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six-months ended September 30, 2000.... F-9
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations...................................... F-10
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2000................................. F-13
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet................................................. F-14
</TABLE>
<PAGE> 2
PCS Holding Corporation and Subsidiaries
Condensed Consolidated Balance Sheet
As of September 23, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,050,000
Due from Parent 239,956,000
Accounts receivable 685,825,000
Less - Allowance for doubtful accounts (5,681,000)
---------------
Net accounts receivable 680,144,000
Inventories 30,348,000
Prepaid expenses and other 4,623,000
---------------
Total current assets 958,121,000
LONG-TERM ASSETS:
Property, plant and equipment 159,096,000
Less - Accumulated depreciation (72,509,000)
---------------
Net property, plant and equipment 86,587,000
GOODWILL, net of accumulated amortization of $53,733,883 1,232,356,000
INTANGIBLE ASSETS, net of accumulated amortization of $39,657,537 542,843,000
CAPITALIZED SOFTWARE, net of accumulated amortization 48,853,000
---------------
Total intangible assets 1,824,052,000
---------------
Total long-term assets 1,910,639,000
---------------
Total assets $ 2,868,760,000
===============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 64,025,000
Claims and rebates payable 559,899,000
Checks outstanding in excess of bank balances 363,158,000
Accrued expenses and other current liabilities 86,972,000
---------------
Total current liabilities 1,074,054,000
LONG-TERM LIABILITIES:
Deferred income taxes 222,658,000
Other noncurrent liabilities 18,800,000
---------------
Total long-term liabilities 241,458,000
---------------
Total liabilities 1,315,512,000
STOCKHOLDER'S EQUITY:
Common stock 1,000
Additional paid-in capital 1,518,472,000
Retained earnings 34,775,000
---------------
Total stockholder's equity 1,553,248,000
---------------
Total liabilities and stockholder's equity $ 2,868,760,000
===============
</TABLE>
F-1
<PAGE> 3
PCS Holding Corporation and Subsidiaries
Condensed Consolidated Statement of Operations
For the six-months ended September 23, 2000
(Unaudited)
<TABLE>
<S> <C>
Revenues $ 651,205,000
Cost of operations:
Cost of revenues (540,907,000)
Selling, general and administrative expenses (90,440,000)
-------------
Total cost of operations 631,347,000
Operating income 19,858,000
Interest income 5,994,000
Interest expense (270,000)
-------------
Income before income taxes 25,582,000
Provision for income taxes (16,741,000)
-------------
Net income $ 8,841,000
=============
</TABLE>
F-2
<PAGE> 4
PCS Holding Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
For the six-months ended September 23, 2000
(Unaudited)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,841,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 38,425,000
Provision for doubtful accounts 10,701,000
Deferred income taxes (9,822,000)
Loss on asset retirement 74,000
Changes in operating assets and liabilities:
Accounts receivable (74,435,000)
Inventories 4,502,000
Prepaid expenses and other assets 402,000
Accounts payable (7,221,000)
Claims and rebates payable 25,743,000
Checks outstanding in excess of bank balances 10,384,000
Accrued expenses and other (19,033,000)
------------
Net cash used in operating activities (11,439,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (3,178,000)
------------
Net cash used in investing activities (3,178,000)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of borrowings from parent 14,390,000
------------
Net cash provided by financing activities 14,390,000
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (227,000)
CASH AND CASH EQUIVALENTS, beginning of period 3,277,000
------------
CASH AND CASH EQUIVALENTS, end of period $ 3,050,000
============
SUPPLEMENTARY INFORMATION
Cash paid for interest $ 858,000
Cash paid for income taxes $ --
</TABLE>
F-3
<PAGE> 5
PCS HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 23, 2000
1. DESCRIPTION OF BUSINESS
PCS Holding Corporation and Subsidiaries (the "Company") is an
information-driven health solutions company operating in the United States. The
Company provides managed pharmaceutical-related programs and services that can
directly and positively improve the health of patients, and help reduce health
care costs.
On November 21, 1994, the Company was acquired by Eli Lilly and Company (the
"Parent") for approximately $4.1 billion. The acquisition was accounted for as
a purchase by its Parent, and the resulting goodwill was pushed down to the
Company's consolidated balance sheet. In November 1998, the Parent entered into
an agreement with Rite Aid Corporation (Rite Aid) whereby Rite Aid purchased
all outstanding shares of the Company's stock. On October 2, 2000, the Company
was acquired by Advance Paradigm, Inc. ("API"), for approximately $1.0 billion.
The acquisition will be accounted for as a purchase.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of the Company include PCS
Holding Corporation and its wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with generally accepted accounting
principles for interim financial information in the form prescribed by the
Securities and Exchange Commission (the "Commission"). 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 the
Company's management, the September 23, 2000, statements include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of results for this interim period. In the opinion of the
Company's management, the disclosures contained in these financial statements
are adequate to make the information presented not misleading when read in
conjunction with the Notes to Consolidated Financial Statements included
elsewhere in the Form 8-K, as amended. The results of operations for the six
month period ended September 23, 2000, are not necessarily indicative of the
results to be expected for the full year for any future period.
Management believes that the consolidated statements of operations include an
appropriate allocation of all material costs incurred by the Parent on the
Company's behalf.
F-4
<PAGE> 6
PCS HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 23, 2000
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures at the date of the consolidated
financial statements and during the reporting period. Actual results could
differ from those estimates.
Revenues
Revenues include claims processing fees which are accrued when the related
claim is processed and approved for payment. Certain of the Company's
agreements require its customers to pay a fee per covered member rather than a
fee per claim processed. The Company records these fees monthly based upon
member counts provided by its customers. Revenues from manufacturer programs
are recognized when services are performed. Mail order program revenue is
recognized when prescriptions are shipped. Other revenues are generally
recognized as the related services are performed.
F-5
<PAGE> 7
PCS HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 23, 2000
Recently Released Accounting Pronouncements
In June 1998, Financial Accounting Standards Board Statement 133, Accounting
for Derivative Instruments and Hedging Activities ("SFAS 133") 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. The
Company does not have any derivatives and SFAS 133 does not have a material
impact on the Company's financial position or disclosures. SFAS 133, as amended
by SFAS 137 and SFAS 138, is effective beginning in the fiscal year ended
February 2002.
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 revenues recognition issues in financial statements.
SAB 101 is effective in our fourth quarter of fiscal 2001. Management is
currently evaluating the impact of adopting SAB 101.
3. SALE OF THE COMPANY
Effective October 1, 2000, Advance Paradigm, Inc. acquired all of the equity of
PCS Holding Corporation. The aggregate purchase price paid by API was $1.0
billion, of which API paid Rite Aid Corporation ("Rite Aid"), the seller and
our parent company, $675 million in cash, and issued to Rite Aid $200 senior
subordinated notes and $125 million in the Company's 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, Inc. ("JLL"). The acquisition
of PCS will be accounted for using the purchase method of accounting. The
excess of the purchase price paid over the net identifiable assets and
liabilities of the Company will be recorded as goodwill.
4. COMMITMENTS AND CONTINGENCIES
The Company enters into risk contracts with certain customers in the ordinary
course of business. These contracts provide that the Company assume varying
percentages of the risk associated with claims experience differing from fixed
fee arrangements under managed care programs. In addition, the Company
guarantees a specific amount of savings for certain customers. Included in
other liabilities in the accompanying condensed consolidated balance sheet are
management's estimates of the amounts required to cover losses incurred under
such contracts.
The Company is subject to various claims, including possible legal actions
brought by plan sponsors for alleged errors or omissions arising out of the
ordinary course of business. Management believes that it has a combination of
adequate insurance coverage and reserves against potential losses and that the
outcome of such claims will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
F-6
<PAGE> 8
ADVANCEPCS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000
Effective October 2, 2000, Advance Paradigm, Inc. ("API") acquired all of the
equity of PCS Health Systems, Inc. ("PCS"). The aggregate purchase price paid
by API was $1.0 billion, of which API paid Rite Aid Corporation ("Rite Aid"),
the seller, $675 million in cash, and issued to Rite Aid $200 million in senior
subordinated notes and $125 million in API 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, Inc. ("JLL"). The acquisition of PCS
will be accounted for using the purchase method of accounting. The excess of
the purchase price paid over the net identifiable assets and liabilities of PCS
will be recorded as goodwill. The portion of the purchase price allocated to
the net identifiable assets and goodwill is preliminary and subject to revision
following the results of an appraisal and further identification of intangible
assets.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the
year ended March 31, 2000 and the six-month period ended September 30, 2000,
give effect to the Combinations as if they occurred on April 1, 1999 and 2000,
respectively. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 2000, reflects the Combinations as if they had occurred on
September 30, 2000. The historical financial statements of API are for the year
ended March 31, 2000, giving effect for the merger with First Florida
International Holdings, Inc., and six months ended September 30, 2000. The
historical financial statements of PCS are for the year ended February 26, 2000,
the most recent fiscal year for PCS and six months ended September 23, 2000. The
accompanying pro forma adjustments include: (i) the acquisition of PCS; (ii) the
establishment by API of a new credit facility; (iii) the payment of certain fees
and expenses associated with the PCS acquisitions; (iv) the issuance of equity
to JLL; and (v) the reduction of assets to reflect PCS assets not acquired by
API.
API usually implements significant changes to the operations of the entities
that it acquires to enhance profitability. In addition, API will consolidate
certain operations of PCS and API which is expected to result in costs to exit
activities during the third quarter of the fiscal year ended March 31, 2001.
The expected benefits and cost reductions anticipated by API have not been
reflected in the following Unaudited Pro forma Condensed Consolidated Financial
Statements because their realization cannot be assured. Accordingly, these
Unaudited Condensed Consolidated Pro Forma Financial Statements are not
necessarily indicative of the operating results that would have been achieved
had the Combinations occurred on April 1, 1999 and 2000, respectively.
The Unaudited Condensed Consolidated Pro Forma Financial information is based
on the historical financial statements of API and the historical financial
statements of PCS. The pro forma adjustments are based upon available
information. While the pro forma adjustments are based upon certain assumptions
that API considers reasonable in the circumstances, final amounts will differ
from those set forth. These adjustments are directly attributable to the
transactions referenced above and are expected to have a continuing impact on
the API business, results of operations, and financial position.
F-7
<PAGE> 9
ADVANCEPCS AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Purchase
Historical Historical Pro Forma API PCS
API(A) PCS(A) Adjustments Pro Forma
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES $ 2,028,736,296 $ 1,264,694,000 $ -- $ 3,293,430,296
COST OF REVENUE (1,953,234,742) (1,057,413,000) -- (3,010,647,742)
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES (38,793,196) (154,116,000) 1,388,250(B) (191,520,946)
----------------- ----------------- ----------------- -----------------
OPERATING INCOME (LOSS) 36,708,358 53,165,000 1,388,250 91,261,608
INTEREST INCOME 1,064,457 7,479,000 (7,479,000)(C) 1,064,457
INTEREST EXPENSE (3,943,000) (1,612,000) (81,821,667)(D) (87,376,667)
OTHER INCOME (EXPENSE) -- -- -- --
LOSS ON ASSET DISPOSAL (159,748) -- -- (159,748)
----------------- ----------------- ----------------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES 33,670,067 59,032,000 (87,912,417) 4,789,650
INCOME TAX (EXPENSE) BENEFIT (12,794,064) (37,536,000) 37,481,405(E) (12,848,659)
----------------- ----------------- ----------------- -----------------
NET INCOME (LOSS) $ 20,876,003 $ 21,496,000 $ (50,431,012) $ (8,059,009)
================= ================= ================= =================
P/S DIVIDENDS(G) -- -- -- --
NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS $ 20,876,003 $ (8,059,009)
BASIC:
Net income (loss) available to common
shareholders $ 20,876,003 $ (8,059,009)
Net income (loss) per share $ 0.84 $ (0.28)
Weighted average shares outstanding 24,760,163 4,207,000(F) 28,967,163
DILUTED:
Net income (loss) available to common
shareholders $ 20,876,003 $ --(H)
Net income (loss) per share $ 0.75 13,750,000(F) --(H)
Weighted average shares outstanding 27,737,216 -- --(H)
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
F-8
<PAGE> 10
ADVANCE PCS AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX-MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Purchase
Historical Historical Pro Forma API PCS
API(A) PCS(A) Adjustments Pro Forma
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $ 1,230,795,000 $ 651,205,000 $ -- $ 1,882,000,000
COST OF SALES (1,187,563,000) (540,907,000) -- (1,728,470,000)
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES (20,496,000) (90,440,000) (2,929,000)(B) (113,865,000)
--------------- --------------- --------------- ---------------
OPERATING INCOME (LOSS) 22,736,000 19,858,000 (2,929,000) 39,665,000
INTEREST INCOME 710,000 5,994,000 (5,994,000)(C) 710,000
INTEREST EXPENSE (2,135,000) (270,000) (41,283,000)(D) (43,688,000)
OTHER INCOME (EXPENSE) (1,200,000) -- -- (1,200,000)
--------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 20,111,000 25,582,000 (50,206,000) (4,513,000)
INCOME TAX BENEFIT (EXPENSE) (7,824,000) (16,741,000) 19,191,000(E) (5,374,000)
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ 12,287,000 $ 8,841,000 $ (31,015,000) $ (9,887,000)
=============== =============== =============== ===============
P/S DIVIDENDS(G) $ -- $ -- $ -- $ --
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $ 12,287,000 $ (9,887,000)
BASIC:
Net income (loss) available to common
shareholders $ 12,287,000 $ (9,887,000)
Net income (loss) per share $ 0.49 $ (0.34)
Weighted average shares outstanding 25,089,000 $ 4,207,000(F) $ 29,296,000
DILUTED:
Net income (loss) available to common
shareholders $ 12,287,000 $ --(H)
Net income (loss) per share $ 0.44 --(H)
Weighted average shares outstanding 27,704,000 13,750,000(F) --(H)
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
F-9
<PAGE> 11
ADVANCEPCS AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
DETERMINATION AND ALLOCATION OF PCS PURCHASE PRICE
At the date of the PCS acquisition, all of the equity of PCS was purchased for
$1 billion. The PCS acquisition will be accounted for using the purchase method
of accounting for business combinations. The preliminary allocation of the pro
forma purchase price is as follows:
<TABLE>
<CAPTION>
April 1, 1999 April 1, 2000
---------------- ----------------
<S> <C> <C>
PCS purchase price $ 1,000,000,000 $ 1,000,000,000
Transaction Costs 8,700,000 8,700,000
---------------- ----------------
Pro forma purchase price 1,008,700,000 1,008,700,000
Net liabilities assumed (the liabilities assumed
exceeded the net identifiable assets acquired) 243,989,000 429,963,000
---------------- ----------------
Excess purchase price $ 1,252,689,000 $ 1,438,663,000
================ ================
Allocation of excess purchase price:
Goodwill $ 1,091,389,000 $ 1,251,363,000
Intangible assets 445,000,000 511,000,000
Deferred income tax liabilities (273,000,000) (313,000,000)
Accrued liabilities (10,700,000) (10,700,000)
---------------- ----------------
Excess purchase price $ 1,252,689,000 $ 1,438,663,000
================ ================
</TABLE>
(A) Reflects the audited historical combined statement of operations of API
for the year ended March 31, 2000, and the unaudited consolidated
statement of operations of API for the six-month period ended September
30, 2000.
The historical PCS column reflects the audited historical consolidated
statement of operations of PCS for the year ended February 26, 2000, and
the unaudited consolidated statement of operations of PCS for the
six-month period ended September 23, 2000.
F-10
<PAGE> 12
(B) The pro forma adjustment to increase selling, general and administrative
expenses results from (i) the elimination of historical PCS amortization
of goodwill and intangible assets; (ii) the addition of pro forma
goodwill and intangible asset amortization resulting from the
preliminary allocation of $1,091,389,000 and $1,251,363,000 at March 31,
1999 and 2000, respectively, to goodwill and $445,000,000 and
$511,000,000 at March 31, 1999 and 2000, respectively, to intangible
assets; (iii) the elimination of historical PCS depreciation expense on
the PCS land and building not acquired; and (iv) the addition of lease
expense resulting from the lease of land and buildings for the PCS
operations. Goodwill is expected to be amortized over 30 years and the
intangible assets will be amortized over their estimated useful lives of
5-40 years. These adjustments are as follows:
<TABLE>
<CAPTION>
March 31, 2000 September 30, 2000
-------------- ------------------
<S> <C> <C>
Elimination of historical PCS goodwill amortization $ (32,064,000) $ (16,044,000)
Elimination of historical PCS intangible asset amortization (29,653,000) (14,826,000)
Pro forma goodwill amortization 36,380,000 21,157,000
Pro forma intangible asset amortization 21,248,750 11,292,000
Elimination of historical PCS depreciation expense (1,500,000) (750,000)
Pro forma lease expense 4,200,000 2,100,000
-------------- --------------
Pro forma adjustment $ (1,388,250) $ 2,929,000
============== ==============
</TABLE>
(C) Reflects the elimination of PCS affiliate interest income earned on a
receivable from Rite Aid.
(D) Reflects pro forma interest expense (at assumed rates of interest) for
the year ended March 31, 2000, and for the six months ended September
30, 2000, resulting from pro forma borrowings and the amortization of
deferred financing costs paid to obtain the Senior Secured Credit
Facility and the elimination of historical interest expense of API and
PCS. These adjustments are as follows:
<TABLE>
<CAPTION>
March 31, 2000 September 30, 2000
-------------- ------------------
<S> <C> <C>
Revolver, $70,000,000 @ 9.8% $ 6,860,000 $ 3,430,000
Term Note A, $150,000,000 @ 9.8% 14,700,000 7,350,000
Term Note B, $400,000,000 @ 10.3% 41,200,000 20,600,000
Senior Subordinate Notes, $200,000,000 @ 11% 22,000,000 11,000,000
Deferred financing costs (amortized over 5-7 years) 2,616,667 1,309,000
Less API historical interest expense (3,943,000) (2,136,000)
Less PCS historical interest expense (1,612,000) (270,000)
-------------- --------------
Pro forma adjustment $ 81,821,667 $ 41,283,000
============== ==============
</TABLE>
(E) The tax effects of pro forma adjustments were calculated using statutory
rates in effect during the year ended March 31, 2000, and for the six
months ended September 30, 2000. The amortization of goodwill and
intangible assets are not deductible for income tax purposes. In
addition, a portion of the acquisition costs are nondeductible.
F-11
<PAGE> 13
(F) Reflects the issuance of 4,207,000 shares of common stock and 3,293,000
shares of convertible Preferred Stock to JLL and 6,250,000 of
Convertible Preferred Stock to Rite Aid.
(G) The convertible preferred stock accrues dividends at 11% per annum of
the issue price. However, dividends do not accrue for the first 120 days
following issuance or subsequent to shareholder approval of Class B
common stock. These pro forma adjustments assume that the Class B common
stock will be approved prior to 120 days from issuance. Thus no
preferred dividends are reflected in the adjustments. The issuance of
Class B common stock was approved by the shareholders on December 7,
2000.
(H) 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.
SUPPLEMENTAL INFORMATION
API will consolidate certain operations of PCS and API which is expected to
result in costs to exit activities during the third quarter of the fiscal year
ended March 31, 2001. The consolidation is expected to include a facility
closure and other synergistic activities. These events are expected to result
in a pretax charge of approximately $18 million to operations.
F-12
<PAGE> 14
ADVANCEPCS AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Purchase
Historical Historical Pro Forma API
API(A) PCS(A) Adjustments Pro Forma
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 66,452,000 $ 3,050,000 $ 20,600,000(B) $ 90,102,000
Accounts receivable, net 221,800,000 680,144,000 -- 901,944,000
Due from Rite Aid -- 239,956,000 (239,956,000)(C) --
Inventories 4,781,000 30,348,000 -- 35,129,000
Prepaid expenses and other 4,014,000 4,623,000 -- 8,637,000
Deferred income tax asset -- -- -- --
--------------- --------------- --------------- ---------------
Total current assets 297,047,000 958,121,000 (219,356,000) 1,035,812,000
PROPERTY AND EQUIPMENT, net 42,764,000 86,587,000 (86,587,000)(C) 42,764,000
INTANGIBLE ASSETS, net 895,000 591,696,000 (118,696,000)(D) 473,895,000
GOODWILL 98,316,000 1,232,356,000 (21,267,000)(E) 1,309,405,000
OTHER ASSETS 8,122,000 -- 15,700,000(F) 23,822,000
--------------- --------------- --------------- ---------------
Total assets $ 447,144,000 $ 2,868,760,000 $ (430,206,000) $ 2,885,698,000
=============== =============== =============== ===============
CURRENT LIABILITIES:
Accounts payable $ 272,134,000 $ 987,082,000 $ -- $ 1,259,216,000
Accrued salaries and benefits 4,140,000 -- -- 4,140,000
Other accrued expenses 6,330,000 86,972,000 12,700,000(H) 106,002,000
--------------- --------------- --------------- ---------------
Total current liabilities 282,604,000 1,074,054,000 12,700,000 1,369,358,000
NONCURRENT LIABILITIES:
Long-term debt 50,000,000 (50,000,000)(G) --
Revolver -- -- 70,000,000(G) 70,000,000
Term note -- -- 550,000,000(G) 550,000,000
Senior subordinate debt -- -- 200,000,000(G) 200,000,000
Deferred income taxes 2,187,000 222,658,000 67,342,000(I) 292,187,000
Other noncurrent liabilities 4,599,000 18,800,000 -- 23,399,000
--------------- --------------- --------------- ---------------
Total liabilities 339,390,000 1,315,512,000 850,042,000 2,504,944,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock -- -- 191,000,000(J) 191,000,000
Common stock 251,000 1,000 41,000(J) 293,000
Additional paid-in-capital 60,320,000 1,518,472,000 (1,436,514,000)(J) 142,278,000
Retained earnings (deficit) 47,183,000 34,775,000 (34,775,000)(J) 47,183,000
--------------- --------------- --------------- ---------------
107,754,000 1,553,248,000 (1,280,248,000) 380,754,000
Less- Treasury stock -- -- -- --
--------------- --------------- --------------- ---------------
Total stockholders' equity 107,754,000 1,553,248,000 (1,280,248,000) 380,754,000
--------------- --------------- --------------- ---------------
Total liabilities and
stockholders' equity $ 447,144,000 $ 2,868,760,000 $ (430,206,000) $ 2,885,698,000
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
financial statement.
F-13
<PAGE> 15
ADVANCEPCS AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DETERMINATION AND ALLOCATION OF PCS PURCHASE PRICE
At the date of the PCS acquisition, all of the equity of PCS will be purchased
for $1 billion. The PCS acquisition will be accounted for using the purchase
method of accounting for business combinations. The preliminary allocation of
the pro forma purchase price is as follows:
<TABLE>
<S> <C>
PCS purchase price $ 1,000,000,000
Transaction cost 8,700,000
----------------
Pro forma purchase price 1,008,700,000
Net liabilities assumed (the liabilities assumed
exceeded the net identifiable assets acquired) 374,689,000
----------------
Excess purchase price $ 1,383,389,000
================
Allocation of excess purchase price:
Goodwill $ 1,211,089,000
Intangible assets 473,000,000
Deferred income tax liabilities (290,000,000)
Accrued liabilities (10,700,000)
----------------
Excess purchase price $ 1,383,389,000
================
</TABLE>
(A) Reflects the unaudited historical consolidated balance sheet of API as
of September 30, 2000, and the unaudited historical consolidated balance
sheet of PCS as of September 23, 2000.
(B) Reflects the cash proceeds received in excess of cash used to acquire
the equity of PCS. The excess cash is attributable to amounts drawn on
the revolver portion of the Senior Secured Credit Facilities. The excess
cash will primarily be utilized in operations.
(C) Reflects the elimination of a receivable from Rite Aid and land and a
building that was not acquired by API.
F-14
<PAGE> 16
(D) Reflects the pro forma adjustment to eliminate the certain historical
PCS identifiable intangible assets and to record the purchase price,
based on a preliminary allocation, to identified intangible assets, as
follows:
<TABLE>
<S> <C>
Elimination of PCS historical intangible assets $ (591,696,000)
Preliminary allocation of the purchase price to
identifiable intangible assets 473,000,000
---------------
Pro forma adjustment $ (118,696,000)
===============
</TABLE>
(E) Reflects the pro forma adjustment to eliminate historical goodwill of
PCS and to allocate the remaining excess purchase price to goodwill.
<TABLE>
<S> <C>
Excess purchase price (See page F-14) $ 1,383,389,000
Allocation of excess purchase price-
Identifiable intangible assets (473,000,000)
Deferred income tax liabilities 290,000,000
Accrued liabilities 10,700,000
Elimination of historical goodwill of PCS (1,232,356,000)
----------------
Pro forma adjustment $ (21,267,000)
================
</TABLE>
(F) Reflects the pro forma adjustment to recognize $15,700,000 of deferred
financing costs related to the new Senior Secured Credit Facility. These
assets will be amortized over five to seven years.
(G) Reflects the pro forma adjustment to recognize the API obligations under
the Senior Secured Credit Facility, and the Senior Subordinated Notes
issued to Rite Aid and to eliminate the API historical debt refinanced
in conjunction with the Senior Secured Credit Facility. The Senior
Subordinated Notes have been recorded based upon a preliminary estimate
of their fair value.
(H) Reflects the recording of accrued acquisition costs and equity issuance
costs related to the PCS and JLL transactions. In addition, API has
determined that certain operations of PCS will be discontinued and
personnel will be relocated. The pro forma adjustment includes an
estimated accrual for these events. The adjustments are as follows:
<TABLE>
<S> <C>
Accrued acquisition cost $ 8,700,000
JLL transaction cost 2,000,000
Accrued PCS costs 2,000,000
------------
$ 12,700,000
============
</TABLE>
F-15
<PAGE> 17
(I) Reflects the elimination of PCS deferred income tax liabilities and the
establishment of an API deferred tax liability associated with
recognizing the identifiable intangible assets as follows:
<TABLE>
<S> <C>
Elimination of PCS deferred income tax liability $ (222,658,000)
Recognition of PCS deferred income tax liability 290,000,000
--------------
Total adjustment $ 67,342,000
==============
</TABLE>
(J) Pro forma adjustment to eliminate the net equity of PCS and to record the
following:
<TABLE>
<CAPTION>
Additional Retained
Preferred Common Paid-In Earnings
Stock Stock Capital Deficit
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Elimination of PCS equity $ -- $ (1,000) $(1,518,472,000) $ (34,775,000)
Issuance of convertible
preferred stock to JLL
and Rite Aid 191,000,000 -- -- --
Issuance of common stock
to JLL -- 42,000 83,958,000 --
JLL transaction cost -- -- (2,000,000) --
--------------- --------------- --------------- ---------------
Total adjustment $ 191,000,000 $ 41,000 $(1,436,514,000) $ (34,775,000)
=============== =============== =============== ===============
</TABLE>
F-16
