8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

August 8, 2006

Date of Report (Date of earliest event reported)

EMDEON CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	0-24975	94-3236644
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

669 River Drive, Center 2
Elmwood Park, New Jersey 07407-1361

(Address of principal executive offices, including zip code)

(201) 703-3400

(Registrant’s telephone number, including area code)

(Former name or address, if changed since last report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-99.1 PRESS RELEASE DATED AUGUST 8, 2006

EX-99.2 FINANCIAL TABLES ACCOMPANYING EXHIBIT 99.1

EX-99.3 FINANCIAL GUIDANCE SUMMARY ACCOMPANYING EXHIBIT 99.1

EX-99.4 ANNEX A TO EXHIBITS 99.1 THROUGH 99.3

     All statements contained in this Current Report on Form 8-K, other than statements of historical fact, are forward-looking statements, including those regarding: guidance on our future financial results and other projections or measures of our future performance; the amount and timing of the benefits expected from acquisitions, from new products or services and from other potential sources of additional revenue; expected timing of completion of the sale of Emdeon Practice Services; and explorations of possible transactions and other alternatives involving Emdeon Business Services. These statements speak only as of the date of this press release and are based on our current plans and expectations, and they involve risks and uncertainties that could cause actual future events or results to be different than those described in or implied by such forward-looking statements. These risks and uncertainties include those relating to: market acceptance of our products and services; relationships with customers and strategic partners; difficulties in integrating acquired businesses; and changes in economic, political or regulatory conditions or other trends affecting the healthcare, Internet and information technology industries. In addition, there can be no assurance that the exploration of strategic alternatives with respect to Emdeon Business Services will result in any definitive agreement or transaction. Further information about these matters can be found in our Securities and Exchange Commission filings. We expressly disclaim any intent or obligation to update these forward-looking statements.

Item 2.02. Results of Operations and Financial Condition

     On August 8, 2006, we issued a press release announcing our results for the quarter ended June 30, 2006. A copy of the press release is attached as Exhibit 99.1 to this Current Report. Exhibit 99.2 to this Current Report contains the financial tables that accompanied the press release. Exhibit 99.4 to this Current Report contains an Annex to the press release entitled “Explanation of Non-GAAP Financial Measures.” Exhibits 99.1, 99.2 and 99.4 are being “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), nor shall any of those exhibits be deemed incorporated by reference in any filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 7.01. Regulation FD Disclosure

     Exhibit 99.3 to this Current Report includes forward-looking financial information that accompanied Exhibit 99.1 and that is expected to be discussed on the previously announced conference call with investors and analysts to be held by us at 4:45 p.m., Eastern time, today (August 8, 2006). The call can be accessed at www.emdeon.com (in the About Emdeon section) and a replay will be available at the same location. Exhibit 99.3 is being “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

2

Item 9.01. Financial Statements and Exhibits

     (c) Exhibits

          The following exhibits are furnished herewith:

99.1	Press Release, dated August 8, 2006, regarding the Registrant’s results for the quarter ended June 30, 2006
99.2	Financial Tables accompanying Exhibit 99.1
99.3	Financial Guidance Summary accompanying Exhibit 99.1
99.4	Annex A to Exhibits 99.1 through 99.3

3

SIGNATURE

     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.

	EMDEON CORPORATION
Dated: August 8, 2006	By:	/s/ Lewis H. Leicher
		Lewis H. Leicher
		Senior Vice President

4

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Press Release, dated August 8, 2006, regarding the Registrant’s results for the quarter ended June 30, 2006
99.2	Financial Tables accompanying Exhibit 99.1
99.3	Financial Guidance Summary accompanying Exhibit 99.1
99.4	Annex A to Exhibits 99.1 through 99.3

EX-99.1

EXHIBIT 99.1

Contacts:
Investors:	Media:
Risa Fisher	Jennifer Newman
rfisher@emdeon.com	jnewman@emdeon.com
201-414-2002	212-624-3912

EMDEON ANNOUNCES SECOND QUARTER RESULTS

REVENUE INCREASES 10%; ADJUSTED EBITDA INCREASES 46%, NET INCOME INCREASES 43%

ELMWOOD PARK, NJ (August 8, 2006) — Emdeon Corporation (NASDAQ: HLTH) today announced financial results for the quarter ended June 30, 2006.

Kevin Cameron, Chief Executive Officer of Emdeon, said: “I am very pleased with our results for the second quarter which were fueled primarily by organic growth. We achieved record revenue and Adjusted EBITDA across all of our business segments with the exception of Practice Services, which had record Adjusted EBITDA and near record revenue. Many of the strategic initiatives we have pursued are bearing fruit allowing us to increasingly focus our efforts on the creation and delivery of new and innovative products and services.”

Key Financial Highlights
Revenue for the second quarter was $354.9 million compared to $322.6 million in the prior year period, an increase of 10.0%. Earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”) for the second quarter was $66.7 million or $0.22 per share compared to $45.7 million or $0.13 per share a year ago, an increase of 46.0%. Net income for the second quarter was $23.2 million or $0.08 per share compared to net income of $16.2 million or $0.05 per share a year ago, an increase of 43.4%. Net income for the second quarter includes $13.1 million of non-cash stock compensation expense, compared to $0.7 million for the same expense a year ago, reflecting the January 1, 2006 adoption of SFAS 123R.

As of June 30, 2006, Emdeon had approximately $389 million in cash and short-term investments on a consolidated basis, including $104 million in cash and short-term investments held by WebMD Health Corp., its 85.8% owned subsidiary.

Segment Operating Results
Emdeon Business Services segment revenue was $206.9 million for the second quarter compared to $191.5 million in the prior year period, an increase of 8.1%. The increase in Emdeon Business Services revenue was attributable to strong performance in our remittance and payment, patient statement and ViPS businesses as well as the January 2006 postal rate increase. Segment Adjusted EBITDA was $49.6 million compared to $40.4 million in the prior year period, an increase of 22.7%. Operating margins increased to 24.0% compared to 21.1% a year ago primarily as a result of higher revenue and the continued achievement of operating efficiencies and cost savings.

Emdeon Practice Services segment revenue was $77.3 million for the second quarter compared to $78.6 million in the prior year period, a slight decline from last year’s record revenue. Segment Adjusted EBITDA was $12.1

million compared to $8.2 million in the prior year period, an increase of 48.1%. Operating margins increased from 10.4% in the prior year period to 15.7% as a result of changes in revenue mix and improvements in our delivery and service infrastructure.

As previously announced on August 3, 2006, WebMD segment revenue was $56.6 million for the second quarter compared to $40.5 million in the prior year period, an increase of 39.9%, driven by continued growth in online services. Segment Adjusted EBITDA was $9.6 million compared to $2.8 million in the prior year period, an increase of 244%, primarily as a result of the increase in revenues.

Porex segment revenue was $22.7 million for the second quarter compared to $20.4 million in the prior year period. Segment Adjusted EBITDA for the second quarter was $7.0 million compared to $6.1 million in the prior year period.

Sage Software to Acquire Emdeon Practice Services for $565 Million
In a separate release, Emdeon announced today that it entered into a definitive agreement with Sage Software, Inc., a wholly-owned subsidiary of The Sage Group plc, to sell its Emdeon Practice Services segment for $565 million in cash. The closing is expected to occur in September 2006 and is subject to customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Act.

Update on Evaluation of Strategic Alternatives for Emdeon Business Services
Emdeon continues to explore strategic alternatives for its Emdeon Business Services segment and expects to announce the results of this evaluation process by late August or early September.

Financial Guidance
A schedule outlining the Company’s financial guidance is attached to this press release.

Analyst and Investor Conference Call
As previously announced, Emdeon will hold a conference call with investors and analysts to discuss these results and the transaction described in this release at 4:45 pm (ET) on August 8, 2006. The call can be accessed at www.emdeon.com (in the About Emdeon section). A replay of the audio webcast will be available at the same web address.

ABOUT EMDEON
Emdeon (Nasdaq: HLTH) is a leading provider of business, technology and information solutions that transform both the financial and clinical aspects of healthcare delivery. At the core of Emdeon’s vision is the commitment to connect providers, payers, employers, physicians and consumers in order to simplify business processes, to provide actionable knowledge at the right time and place and to improve healthcare quality.

Emdeon Business Services provides revenue cycle management and clinical communication solutions that enable payers, providers and patients to improve healthcare business processes. Emdeon Practice Services provides physician practice management and electronic health record software and services that increase practice efficiency and enhance patient care. WebMD (Nasdaq: WBMD) provides health information services for consumers, physicians, healthcare professionals, employers and health plans through its public and private online portals and health-focused publications. Porex is a developer, manufacturer and distributor of proprietary porous plastic products and components used in healthcare, industrial and consumer applications.

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All statements contained in this press release, other than statements of historical fact, are forward-looking statements, including those regarding: guidance on our future financial results and other projections or measures of our future performance; the amount and timing of the benefits expected from acquisitions, from new products or services and from other potential sources of additional revenue; expected timing of completion of the sale of Emdeon Practice Services; and explorations of possible transactions and other alternatives involving Emdeon Business Services. These statements speak only as of the date of this press release and are based on our current plans and expectations, and they involve risks and uncertainties that could cause actual future events or results to be different than those described in or implied by such forward-looking statements. These risks and uncertainties include those relating to: market acceptance of our products and services; relationships with customers and strategic partners; difficulties in integrating acquired businesses; and changes in economic, political or regulatory conditions or other trends affecting the healthcare, Internet and information technology industries. In addition, there can be no assurance that the exploration of strategic alternatives with respect to Emdeon Business Services will result in any definitive

agreement or transaction. Further information about these matters can be found in our Securities and Exchange Commission filings. We expressly disclaim any intent or obligation to update these forward-looking statements.

*************************************

This press release, and the accompanying tables, include both financial measures in accordance with accounting principles generally accepted in the United States of America, or GAAP, as well as non-GAAP financial measures. The tables attached to this press release include reconciliations of non-GAAP financial measures to GAAP financial measures. In addition, an “Explanation of Non-GAAP Financial Measures” is attached to this press release as Annex A.

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WebMD^®, WebMD Health^®, Emdeon™, Emdeon Business Services™, Emdeon Practice Services™ and POREX^® are trademarks of Emdeon Corporation or its subsidiaries.

-Tables Follow-

EX-99.2

Exhibit 99.2

EMDEON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Revenue:
Services	$	313,766		$	282,729		$	615,346		$	549,307
Products		41,115			39,827			78,654			77,183
Total revenue		354,881			322,556			694,000			626,490
Cost of operations:
Services		177,039			161,840			354,202			316,016
Products		20,107			20,110			38,211			38,097
Total cost of operations		197,146			181,950			392,413			354,113
Development and engineering		15,283			14,457			30,197			29,097
Sales, marketing, general and administrative		90,008			83,533			178,840			165,670
Depreciation and amortization		19,381			17,541			38,309			34,045
Legal expense		275			4,283			817			8,443
Advisory expense		4,104			—			4,104			—
Loss (gain) on investments		—			(190	)		—			3,642
Loss on redemption of convertible debt		—			1,902			—			1,902
Interest income		4,435			3,936			8,854			8,257
Interest expense		4,668			3,895			9,359			8,676
Income before income tax provision and minority interest		28,451			19,121			48,815			29,159
Income tax provision		5,434			2,955			9,996			3,144
Minority interest in WebMD Health Corp., net of tax		(164	)		—			(793	)		—
Net income	$	23,181		$	16,166		$	39,612		$	26,015
Net income per common share:
Basic	$	0.08		$	0.05		$	0.14		$	0.08
Diluted	$	0.08		$	0.05		$	0.13		$	0.08
Weighted-average shares outstanding used in computing net income per common share:
Basic		285,086			337,303			286,141			331,318
Diluted		296,722			349,624			296,107			342,656

EMDEON CORPORATION
CONSOLIDATED SEGMENT INFORMATION
(In thousands, except per share data, unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Revenue
Emdeon Business Services	$	206,943		$	191,514		$	408,097		$	377,247
Emdeon Practice Services		77,272			78,596			152,978			151,614
WebMD		56,612			40,465			106,663			74,040
Porex		22,659			20,397			43,246			40,253
Inter-segment eliminations		(8,605	)		(8,416	)		(16,984	)		(16,664	)
	$	354,881		$	322,556		$	694,000		$	626,490
Earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”)
Emdeon Business Services	$	49,598		$	40,420		$	92,791		$	78,673
Emdeon Practice Services		12,119			8,183			22,292			12,580
WebMD (a)		9,599			2,793			16,126			6,023
Porex		7,045			6,064			12,599			11,461
Corporate (a)		(11,628	)		(11,742	)		(22,902	)		(23,747	)
	$	66,733		$	45,718		$	120,906		$	84,990
Adjusted EBITDA per diluted common share (b)	$	0.22		$	0.13		$	0.41		$	0.25
Interest, taxes, non-cash and other items (c)
Depreciation and amortization	$	(19,381	)	$	(17,541	)	$	(38,309	)	$	(34,045	)
Non-cash stock-based compensation (d)		(13,100	)		(716	)		(25,562	)		(2,367	)
Non-cash advertising		(1,189	)		(2,386	)		(2,794	)		(5,013	)
Legal expense		(275	)		(4,283	)		(817	)		(8,443	)
Advisory expense		(4,104	)		—			(4,104	)		—
(Loss) gain on investments		—			190			—			(3,642	)
Loss on redemption of convertible debt		—			(1,902	)		—			(1,902	)
Interest income		4,435			3,936			8,854			8,257
Interest expense		(4,668	)		(3,895	)		(9,359	)		(8,676	)
Income tax provision		(5,434	)		(2,955	)		(9,996	)		(3,144	)
Minority interest in WebMD Health Corp., net of tax		164			—			793			—
Net income	$	23,181		$	16,166		$	39,612		$	26,015
Net income per common share:
Basic	$	0.08		$	0.05		$	0.14		$	0.08
Diluted	$	0.08		$	0.05		$	0.13		$	0.08
Weighted-average shares outstanding used in computing net income per common share:
Basic		285,086			337,303			286,141			331,318
Diluted		296,722			349,624			296,107			342,656

(a)	Adjusted EBITDA during prior periods, for the Corporate and WebMD segments, has been reclassified to conform to the current period presentation.
(b)	Adjusted EBITDA per diluted common share is based on the weighted-average shares outstanding used in computing diluted net income per common share.
(c)	Reconciliation of Adjusted EBITDA to net income (see Annex A — Explanation of Non-GAAP Financial Measures).
(d)	Reflects the adoption of SFAS 123R effective January 1, 2006.

EMDEON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

	June 30,		December 31,
	2006		2005
	(Unaudited)
Assets
Cash and cash equivalents	$	92,210	$	159,510
Short-term investments		296,750		267,387
Accounts receivable, net		239,024		233,070
Inventory		14,486		14,251
Prepaid expenses and other current assets		36,079		34,615
Total current assets		678,549		708,833
Marketable equity securities		2,944		4,481
Property and equipment, net		126,376		116,032
Goodwill		1,110,521		1,075,549
Intangible assets, net		238,213		240,510
Other assets		47,837		50,278
Total Assets	$	2,204,440	$	2,195,683
Liabilities and Stockholders’ Equity
Accounts payable	$	15,135	$	11,611
Accrued expenses		158,249		186,381
Deferred revenue		125,811		115,840
Total current liabilities		299,195		313,832
Convertible notes		650,000		650,000
Other long-term liabilities		15,946		15,353
Minority interest in WebMD Health Corp.		53,811		43,229
Convertible redeemable exchangeable preferred stock		98,650		98,533
Stockholders’ equity		1,086,838		1,074,736
Total Liabilities and Stockholders’ Equity	$	2,204,440	$	2,195,683

EMDEON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

	Six Months Ended
	June 30,
	2006			2005
Cash flows from operating activities:
Net income	$	39,612		$	26,015
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		38,309			34,045
Minority interest in WebMD Health Corp., net of tax		(793	)		—
Amortization of debt issuance costs		1,461			1,333
Non-cash advertising		2,794			5,013
Non-cash stock-based compensation		25,562			2,367
Bad debt expense		1,645			3,722
Loss on investments		—			3,642
Loss on redemption of convertible debt		—			1,902
Reversal of income tax valuation allowance applied to goodwill		5,215			2,146
Changes in operating assets and liabilities:
Accounts receivable		(4,719	)		(18,350	)
Inventory		(179	)		186
Prepaid expenses and other, net		(3,659	)		1,655
Accounts payable		3,479			(5,881	)
Accrued expenses and other long-term liabilities		222			(4,596	)
Deferred revenue		6,272			9,501
Net cash provided by operating activities		115,221			62,700
Cash flows from investing activities:
Proceeds from maturities and sales of available-for-sale securities		398,870			190,673
Purchases of available-for-sale securities		(426,470	)		(94,350	)
Purchases of property and equipment		(28,971	)		(38,717	)
Proceeds received from sale of property and equipment		—			400
Cash paid in business combinations, net of cash acquired		(84,846	)		(74,110	)
Net cash used in investing activities		(141,417	)		(16,104	)
Cash flows from financing activities:
Proceeds from issuance of common stock		30,433			31,437
Purchases of treasury stock		(71,843	)		—
Redemption of convertible debt		—			(86,694	)
Payments of notes payable and other		(173	)		(304	)
Net cash used in financing activities		(41,583	)		(55,561	)
Effect of exchange rates on cash		479			(1,124	)
Net decrease in cash and cash equivalents		(67,300	)		(10,089	)
Cash and cash equivalents at beginning of period		159,510			46,019
Cash and cash equivalents at end of period	$	92,210		$	35,930

EX-99.3

Exhibit 99.3

2006 Consolidated Financial Guidance Summary

(in millions, except per share amounts)

							Quarterly Mix
	Range						Q1			Q2			Q3			Q4
Revenue	$	1,430		$	1,450			23	%		25	%		25	%		27	%
Earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”)(a)	$	251		$	264			21	%		26	%		25	%		28	%
Interest income, net		(0.4	)		(0.7	)
Depreciation and amortization		80.2			81.9			23	%		24	%		26	%		27	%
Non-cash stock-based compensation		48.2			49.2			26	%		27	%		26	%		21	%
Non-cash advertising		7.4			7.6			22	%		16	%		23	%		39	%
Income tax provision		22.3			23.3			20	%		24	%		26	%		30	%
Legal expense		0.8			0.8
Advisory expenses		4.1			4.1
Minority interest in WebMD Health Corp., net of tax		(0.6	)		(0.2	)
Net income	$	89.0		$	98.0			18	%		25	%		24	%		33	%
Adjusted EBITDA per diluted share	$	0.84		$	0.88
Net income per diluted share	$	0.30		$	0.33

(a) See Annex A — Explanation of Non-GAAP Financial Measures

Operating Segments

Revenue:

* Emdeon Business Services — Approximately 57% of consolidated revenue in Q3 decreasing to 56% in Q4.

* Emdeon Practice Services — Approximately 22% of consolidated revenue in Q3 decreasing to 21% in Q4.

* WebMD — Approximately 18% of consolidated revenue in Q3 increasing to 19% in Q4.

* Porex — Approximately 6% of consolidated revenue for the remainder of the year.

* Inter-segment eliminations — Approximately 2.5% of consolidated revenue.

Adjusted EBITDA:

* Emdeon Business Services — Approximately 22% of segment revenue for the remainder of the year.

* Emdeon Practice Services — Approximately 15% of segment revenue for the remainder of the year.

* WebMD — Approximately 21% of segment revenue in Q3 increasing to 26% in Q4.

* Porex — Approximately 27-28% of segment revenue for the remainder of the year.

* Corporate — Approximately 3.2% of consolidated revenue.

Other Assumptions

* The 2006 Guidance includes expenses for the first six months of 2006, but does not reflect any projected expenses related to either the on-going Department of Justice Investigation or advisory expense associated with the evaluation of strategic alternatives for the Emdeon Business Services and Emdeon Practice Services segments.

* Adjusted EBITDA per diluted share and net income per diluted share are both calculated on an assumed share count of approximately 299 million.

* Non-cash stock-based compensation expense considers the January 1, 2006 adoption of SFAS 123R.

* Additional details on WebMD’s guidance can be found in the press release issued by WebMD on August 3, 2006.

EX-99.4

Exhibit 99.4

ANNEX A

Explanation of Non-GAAP Financial Measures

     The accompanying press release includes both financial measures in accordance with U.S. generally accepted accounting principles, or GAAP, as well as non-GAAP financial measures. The non-GAAP financial measures represent earnings before interest, taxes, non-cash and other items (which we refer to as “Adjusted EBITDA”) and related per share amounts. Adjusted EBITDA should be viewed as supplemental to, and not as an alternative for, “net income” calculated in accordance with GAAP. The tables attached to the accompanying press release include a reconciliation of historical non-GAAP financial measures to historical GAAP financial measures. The guidance summary being furnished as an exhibit to a Current Report on Form 8-K that Emdeon is filing with the SEC today includes a reconciliation of forward-looking non-GAAP information to forward-looking GAAP financial information.

     Adjusted EBITDA is used by Emdeon’s management as an additional measure of Emdeon’s overall performance and its reporting segments’ performance for purposes of business decision-making, including developing budgets, managing expenditures, and evaluating potential acquisitions or divestitures. Period-to-period comparisons of Adjusted EBITDA help Emdeon’s management identify additional trends in Emdeon’s and its reporting segments’ financial results that may not be shown solely by period-to-period comparisons of net income. In addition, Emdeon uses Adjusted EBITDA in the incentive compensation programs applicable to many of its employees in order to evaluate Emdeon’s performance. Emdeon management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items, particularly those items that are recurring in nature. In order to compensate for those limitations, management also reviews the specific items that are excluded from Adjusted EBITDA, but included in net income, as well as trends in those items. The amounts of those items are set forth, for the applicable periods, in the reconciliations of Adjusted EBITDA to net income that Emdeon provides when it presents Adjusted EBITDA.

     Emdeon believes that the presentation of Adjusted EBITDA is useful to investors in their analysis of Emdeon’s results for reasons similar to the reasons why Emdeon’s management finds it useful, and because it helps facilitate investor understanding of decisions made by Emdeon’s management in light of the performance metrics used in making those decisions. In addition, as more fully described below, Emdeon believes that providing Adjusted EBITDA, together with a reconciliation of Adjusted EBITDA to net income, helps investors make comparisons between Emdeon and other companies that may have different capital structures, different effective income tax rates and tax attributes, different capitalized asset values and/or different forms of employee compensation. However, Adjusted EBITDA is intended to provide a supplemental way of comparing Emdeon with other public companies and is not intended as a substitute for comparisons based on “net income” calculated in accordance with GAAP. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and net income provided by each company under applicable SEC rules.

     The following is an explanation of the items excluded by Emdeon from Adjusted EBITDA but included in net income:

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• Depreciation and Amortization. Depreciation and amortization expense is a non-cash expense relating to capital expenditures and intangible assets arising from acquisitions each of which are expensed on a straight-line basis over the estimated useful life of the related assets. Emdeon excludes depreciation and amortization expense from Adjusted EBITDA because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of Emdeon’s business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Accordingly, Emdeon believes this exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors should note that use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expenses will recur in future periods.

• Stock-Based Compensation Expense. Prior to January 1, 2006, Emdeon accounted for stock-based compensation based upon Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”). In accordance with APB 25, stock-based compensation was determined using the intrinsic value method. As of January 1, 2006, Emdeon adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”) and accounts for stock-based compensation under the fair value method. Emdeon utilized the modified prospective transition method under SFAS 123R and, accordingly, prior period results have not been restated. Emdeon believes that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in its operating performance that are not impacted by the adoption of SFAS 123R. Additionally, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when adopting SFAS 123R, Emdeon believes that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between Emdeon’s operating performance and the operating performance of other companies. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future.

• Non-Cash Advertising Expense. This expense relates to the usage of non-cash advertising obtained from News Corporation (“Newscorp”) in exchange for equity securities issued by Emdeon in 2000. The advertising is available only on various Newscorp properties, primarily its television network and cable channels without any cash cost to Emdeon. The amount of advertising that can be used in any year is subject to annual contractual limitation and expires in 2010. Emdeon does not incur any other cash expenses related to airing of television advertising. Emdeon excludes this expense from Adjusted EBITDA because (i) it is a non-cash expense, (ii) it is incremental to other non-television cash advertising expense that Emdeon otherwise incurs, (iii) Emdeon has not and believes it will not incur cash expenses relating to television advertising in the future and (iv) it assists management and investors in comparing its operating results over multiple periods. Investors should note that it is likely that Emdeon derives some benefit from such advertising and that such expenses will recur in the future.

• Interest Income and Expense. Interest income is associated with the level of marketable debt securities and other interest bearing accounts in which Emdeon invests, as well as with interest expenses arising from the capital structure of Emdeon. Interest income and expense vary over

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	time due to a variety of financing transactions that Emdeon has entered into or may enter into in the future. Emdeon has, in recent periods, issued convertible debentures and preferred stock, repurchased shares in a $549 million cash tender offer and through other repurchase transactions and conducted an initial public offering of equity in its WebMD subsidiary. Emdeon excludes interest income and interest expense from Adjusted EBITDA (i) because these items are not directly attributable to the performance of Emdeon’s business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different capital structures. Investors should note that interest income and expense will recur in future periods.
•	Income Tax Provision. Emdeon has net operating loss (NOL) carryforwards of approximately $2 billion. Due to a limited history of generating taxable income, Emdeon maintains a full valuation allowance on these NOL carryforwards. As Emdeon uses these NOL carryforwards, the related valuation allowances are either reversed through the income statement or reversed to goodwill, to the extent those tax benefits were acquired through business combinations. The timing of such reversals is not consistent and as a result, Emdeon’s income tax expense can fluctuate significantly from period to period in a manner not directly related to Emdeon’s operating performance. Emdeon excludes the income tax provision from Adjusted EBITDA (i) because it believes that the income tax provision is not directly attributable to the underlying performance of Emdeon’s business operations and, accordingly, its exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different tax attributes. Investors should note that the income tax provision will recur in future periods.
•	Minority Interest in WebMD Health Corp. This represents the minority stockholders’ proportionate share of net income or net loss of Emdeon’s majority-owned WebMD subsidiary. The size of this Minority Interest is related to Emdeon’s percentage ownership of WebMD. Changes in that percentage ownership may result from changes in WebMD’s capital structure, including as a result of sales of WebMD equity securities by WebMD or Emdeon or as a result of exercise of WebMD employee stock options. Emdeon excludes Minority Interest from Adjusted EBITDA (i) because it believes that the size of the Minority Interest can vary for reasons not attributable to the underlying performance of Emdeon’s business operations and, accordingly, its exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different capital structures. Investors should note that Minority Interest in WebMD Health Corp. will recur in future periods.
•	Other Items. Emdeon engages in other activities and transactions that can impact Emdeon’s overall net income or net loss. These other items include, but are not limited to, (i) “Legal Expense,” which relates to the on-going Department of Justice investigation, (ii) “Gain/(Loss) on Investments” and “Loss on Redemption of Convertible Notes” which relate to Emdeon’s investing and financing activities and (iii) “Advisory Expense,” which relates to the evaluation by Emdeon’s Board of Directors of strategic alternatives for Emdeon’s Business Services and Practice Services segments. Emdeon excludes these other items from Adjusted EBITDA because it believes these activities or transactions are not directly attributable to the performance of Emdeon’s business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors should note that these other items are expected to recur in future periods.

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