10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2010
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                      to                     .

Commission file number: 000-52073

SXC HEALTH SOLUTIONS CORP.

(Exact name of registrant as specified in its charter)

Yukon Territory	75-2578509
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

2441 Warrenville Road, Suite 610, Lisle, IL 60532-3642
(Address of principal executive offices, zip code)

(800) 282-3232
(Registrant’s phone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 31, 2010, there were 30,402,790 of the Registrant’s common shares, no par value per share, outstanding.

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)		3
Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009		3
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009		4
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2010 and 2009		5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009		6
Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2010 and 2009		7
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3. Quantitative and Qualitative Disclosures About Market Risk		23
Item 4. Controls and Procedures		23
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		24
Item 1A. Risk Factors		24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		24
Item 3. Defaults Upon Senior Securities		24
Item 4. Reserved		24
Item 5. Other Information		24
Item 6. Exhibits		24
SIGNATURE		25
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

2

Part I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

SXC HEALTH SOLUTIONS CORP.

Consolidated Balance Sheets

(in thousands, except share data)

	June 30,		December 31,
	2010		2009
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	352,624	$	304,370
Restricted cash		14,321		14,169
Short term investments		—		4,639
Accounts receivable, net of allowance for doubtful accounts of $3,363 (2009 — $2,871)		103,938		97,330
Rebates receivable		34,931		17,630
Prepaid expenses and other assets		6,053		4,483
Inventory		8,228		7,451
Deferred income taxes		6,358		9,875
Total current assets		526,453		459,947
Property and equipment, net of accumulated depreciation of $31,655 (2009 — $27,421)		19,171		19,880
Goodwill		141,787		141,787
Other intangible assets, net of accumulated amortization of $27,804 (2009 — $23,831)		33,601		37,574
Deferred income taxes		1,294		1,641
Other assets		252		1,251
Total assets	$	722,558	$	662,080
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	8,227	$	9,916
Customer deposits		15,372		14,832
Salaries and wages payable		9,343		12,349
Accrued liabilities		23,792		30,786
Pharmacy benefit management rebates payable		59,570		46,606
Pharmacy benefit claim payments payable		72,915		61,669
Deferred revenue		10,435		7,304
Total current liabilities		199,654		183,462
Deferred income taxes		13,676		13,597
Deferred lease inducements		2,511		2,748
Deferred rent		1,336		1,337
Other liabilities		1,753		2,442
Total liabilities		218,930		203,586
Commitments and contingencies (Note 10)
Shareholders’ equity
Common shares: no par value, unlimited shares authorized; 30,402,790 shares issued and outstanding at June 30, 2010 (December 31, 2009 — 30,057,281 shares)		369,869		361,530
Additional paid-in capital		20,010		15,153
Retained earnings		113,749		81,812
Accumulated other comprehensive loss		—		(1	)
Total shareholders’ equity		503,628		458,494
Total liabilities and shareholders’ equity	$	722,558	$	662,080

See accompanying notes to the unaudited consolidated financial statements.

3

SXC HEALTH SOLUTIONS CORP.

Consolidated Statements of Operations

(in thousands, except share and per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(unaudited)						(unaudited)
Revenue:
PBM	$	451,295		$	293,906		$	878,797		$	561,686
HCIT		28,151			26,923			52,797			50,103
Total revenue		479,446			320,829			931,594			611,789
Cost of revenue:
PBM		412,681			259,376			801,847			498,374
HCIT		13,026			14,242			25,780			27,020
Total cost of revenue		425,707			273,618			827,627			525,394
Gross profit		53,739			47,211			103,967			86,395
Expenses:
Product development costs		3,021			3,027			6,094			6,190
Selling, general and administrative		21,486			21,907			42,792			42,704
Depreciation of property and equipment		1,537			1,405			3,019			2,887
Amortization of intangible assets		1,978			2,415			3,973			5,240
		28,022			28,754			55,878			57,021
Operating income		25,717			18,457			48,089			29,374
Interest income		(175	)		(225	)		(324	)		(471	)
Interest expense		318			1,204			712			2,160
Net interest expense		143			979			388			1,689
Other expense (income), net		60			283			259			(42	)
Income before income taxes		25,514			17,195			47,442			27,727
Income tax expense:
Current		7,209			4,403			12,738			6,604
Deferred		1,160			815			2,767			1,464
		8,369			5,218			15,505			8,068
Net income	$	17,145		$	11,977		$	31,937		$	19,659
Earnings per share:
Basic	$	0.56		$	0.49		$	1.06		$	0.81
Diluted	$	0.55		$	0.47		$	1.02		$	0.79
Weighted average number of shares used in computing earnings per share:
Basic		30,346,466			24,638,986			30,220,682			24,417,241
Diluted		31,389,017			25,270,639			31,200,704			25,001,382

See accompanying notes to the unaudited consolidated financial statements.

4

SXC HEALTH SOLUTIONS CORP.

Consolidated Statements of Comprehensive Income

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(unaudited)				(unaudited)
Net income	$	17,145	$	11,977	$	31,937	$	19,659
Other comprehensive income, net of tax
Unrealized gain on cash flow hedges and other (net of income tax expense of $29 for the three months ended June 30, 2009 and $1 and $38 for the six months ended June 30, 2010 and 2009, respectively)		—		47		1		76
Comprehensive income	$	17,145	$	12,024	$	31,938	$	19,735

See accompanying notes to the unaudited consolidated financial statements.

5

SXC HEALTH SOLUTIONS CORP.

Consolidated Statements of Cash Flows

(in thousands)

	Six Months Ended June 30,
	2010			2009
	(unaudited)
Cash flows from operating activities:
Net income	$	31,937		$	19,659
Items not involving cash:
Stock-based compensation		2,881			1,430
Depreciation of property and equipment		4,235			3,944
Amortization of intangible assets		3,973			5,240
Deferred lease inducements and rent		(238	)		(369	)
Deferred income taxes		2,767			1,464
Tax benefit on stock-based compensation plans		(5,588	)		(2,106	)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		(6,624	)		(374	)
Rebates receivable		(17,301	)		7,074
Restricted cash		(152	)		(1,637	)
Prepaid expenses and other assets		(1,571	)		(1,164	)
Inventory		(1,122	)		597
Income tax recoverable		7,108			2,238
Accounts payable		(1,685	)		84
Accrued liabilities		(10,696	)		(6,016	)
Pharmacy benefit claim payments payable		11,246			(9,466	)
Pharmacy benefit management rebates payable		12,964			9,530
Deferred revenue		3,107			472
Customer deposits		540			772
Other		1,020			308
Net cash provided by operating activities		36,801			31,680
Cash flows from investing activities:
Purchases of property and equipment		(3,526	)		(5,746	)
Sales of short term investments		6,828			—
Purchases of short term investments		(2,208	)		—
Acquisitions, net of cash acquired		—			(2,176	)
Net cash provided (used) by investing activities		1,094			(7,922	)
Cash flows from financing activities:
Proceeds from exercise of options		4,727			4,349
Tax benefit on stock-based compensation plans		5,588			2,106
Repayment of long-term debt		—			(1,320	)
Net cash provided by financing activities		10,315			5,135
Effect of foreign exchange on cash balances		44			26
Increase in cash and cash equivalents		48,254			28,919
Cash and cash equivalents, beginning of period		304,370			67,715
Cash and cash equivalents, end of period	$	352,624		$	96,634

See accompanying notes to unaudited consolidated financial statements.

6

SXC HEALTH SOLUTIONS CORP.

Consolidated Statements of Shareholders’ Equity

(in thousands, except share data)

	Common Shares				Additional			Retained		Accumulated Other
	Shares		Amount		Paid-in Capital			Earnings		Comprehensive Loss			Total
Balance at December 31, 2009		30,057,281	$	361,530	$	15,153		$	81,812	$	(1	)	$	458,494
Activity during the period (unaudited):
Net income		—		—		—			31,937		—			31,937
Exercise of stock options		322,780		6,719		(1,992	)		—		—			4,727
Vesting of restricted stock units		22,729		1,620		(1,620	)		—		—			-
Tax benefit on options exercised		—		—		5,588			—		—			5,588
Stock-based compensation		—		—		2,881			—		—			2,881
Other comprehensive income, net of tax		—		—		—			—		1			1
Balance at June 30, 2010 (unaudited)		30,402,790	$	369,869	$	20,010		$	113,749	$	—		$	503,628
Balance at December 31, 2008		24,103,032	$	146,988	$	11,854		$	35,751	$	(430	)	$	194,163
Activity during the period (unaudited):														—
Net income		—		—		—			19,659		—			19,659
Issuance of shares for acquisition		21		—		—			—		—			—
Exercise of stock options		533,562		6,284		(1,935	)		—		—			4,349
Vesting of restricted stock units		2,478		48		(48	)		—		—			—
Tax benefit on options exercised		—		—		2,106			—		—			2,106
Stock-based compensation		—		—		1,430			—		—			1,430
Other comprehensive income, net of tax		—		—		—			—		76			76
Balance at June 30, 2009 (unaudited)		24,639,093	$	153,320	$	13,407		$	55,410	$	(354	)	$	221,783

See accompanying notes to the unaudited consolidated financial statements.

7

SXC HEALTH SOLUTIONS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business

SXC Health Solutions Corp. (the “Company”) is a leading provider of pharmacy benefits management (“PBM”) services and healthcare information technology (“HCIT”) solutions to the healthcare benefits management industry. The Company’s product offerings and solutions combine a wide range of PBM services, software applications, application service provider (“ASP”) processing services and professional services designed for many of the largest organizations in the pharmaceutical supply chain, such as federal, provincial, and state and local governments, pharmacy benefit managers, managed care organizations, retail pharmacy chains and other healthcare intermediaries. The Company is headquartered in Lisle, Illinois with several locations in the U.S. and Canada. The Company trades on the Toronto Stock Exchange under ticker symbol “SXC” and on the Nasdaq Global Market under ticker symbol “SXCI.” For more information please visit www.sxc.com.

2. Basis of Presentation

Basis of presentation:

The unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), pursuant to the Securities and Exchange Commission’s (“SEC”) rules and regulations for reporting on Form 10-Q, and following accounting policies consistent with the Company’s audited annual consolidated financial statements for the year ended December 31, 2009. The unaudited interim consolidated financial statements of the Company include its majority-owned subsidiaries and all significant intercompany transactions and balances have been eliminated in consolidation. Amounts in the unaudited interim consolidated financial statements and notes thereto are expressed in the Company’s functional currency, U.S. dollars, except where indicated. The financial information included herein reflects all adjustments (consisting only of normal recurring adjustments), which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the three and six-month periods ended June 30, 2010 are not necessarily indicative of the results to be expected for the full year ending December 31, 2010. As of the issuance date of the Company’s financial statements, no subsequent events have occurred that would require adjustment to or disclosure in these unaudited interim consolidated financial statements in accordance with Financial Accounting Standards Board’s (“FASB”) guidance.

Pursuant to the SEC rules and regulations for reporting on Form 10-Q, certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or excluded. As a result, these unaudited interim consolidated financial statements do not contain all the disclosures required to be included in the annual consolidated financial statements and should be read in conjunction with the most recent audited annual consolidated financial statements and notes thereto for the year ended December 31, 2009.

Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP 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 revenue and expenses during the period. Significant items subject to such estimates and assumptions include revenue recognition, rebates, purchase price allocation in connection with acquisitions, valuation of property and equipment, valuation of intangible assets acquired and related amortization periods, impairment of goodwill, income tax uncertainties, contingencies and valuation allowances for receivables and income taxes. Actual results could differ from those estimates.

3. Recent Accounting Pronouncements

Recent accounting standards implemented are summarized below:

Revenue arrangements with multiple deliverables

Effective January 1, 2010, the Company adopted the amendment to revenue recognition guidance for transactions with multiple deliverables. The updated accounting guidance changes the criteria necessary for a delivered item to be considered a separate element by removing the requirement of using objective and reliable evidence of fair value in determining the amount of revenue to recognize. In place of having objective and reliable evidence of fair value for delivered and undelivered elements, a company may use its best estimate of selling price to determine the amount of revenue to recognize. The new guidance did not have a material impact on the Company’s financial results.

Revenue arrangements that include software elements

Effective January 1, 2010, the Company adopted the amended revenue recognition guidance for transactions involving tangible products that have software components. The new accounting guidance removes the non-software components and software elements of the tangible product from the scope of software revenue recognition accounting guidance. The new guidance did not have a material impact on the Company’s financial results.

8

4. Cash and Cash Equivalents

The components of cash and cash equivalents are as follows (in thousands):

	June 30, 2010			December 31, 2009
Cash on deposit	$	411,361		$	86,384
Payments in transit		(58,756	)		(87,500	)
U.S. money market funds		—			305,453
Canadian dollar deposits (June 30, 2010 — Cdn. $20 at 1.0484		19			33
December 31, 2009 — Cdn. $35 at 1.0517)	$	352,624		$	304,370

The Company determined the carrying amount reported in the consolidated balance sheets as cash and cash equivalents approximates fair value because of the short maturities of these instruments, accordingly these instruments are considered Level 1 investments in the fair value hierarchy.

5. Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets are reviewed for impairment annually or more frequently if impairment indicators arise. The Company allocates goodwill to both the PBM and HCIT segments. There were no impairments of goodwill or indefinite-lived intangible assets during the three or six months ended June 30, 2010 and 2009.

Definite-lived intangible assets are amortized over the useful lives of the related assets. The components of intangible assets were as follows (in thousands):

	June 30, 2010						December 31, 2009
	Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net
Customer relationships	$	53,760	$	21,805	$	31,955	$	53,760	$	18,116	$	35,644
Acquired software		3,765		3,145		620		3,765		2,932		833
Trademarks/Trade names		1,370		1,222		148		1,370		1,188		182
Non-compete agreements		1,510		1,488		22		1,510		1,484		26
Licenses		1,000		144		856		1,000		111		889
Total	$	61,405	$	27,804	$	33,601	$	61,405	$	23,831	$	37,574

Amortization associated with intangible assets at June 30, 2010 is estimated to be $3.9 million for the remainder of 2010, $7.1 million in 2011, $6.5 million in 2012, $5.7 million in 2013, $5.2 million in 2014, and $5.2 million in total for years after 2014.

6. Shareholders’ equity

(a)	Stock incentive plans:
	Effective on March 11, 2009, the Board of Directors of the Company adopted the SXC Health Solutions Corp. Long-Term Incentive Plan (“LTIP”), which was approved by the shareholders of the Company at the Annual and Special Meeting of Shareholders on May 13, 2009. The LTIP provides for the grant of stock option awards, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other stock-based awards to eligible persons, including executive officers and directors of the Company. The purpose of the LTIP is to advance the interests of the Company by attracting and retaining high caliber employees and other key individuals who perform services for the Company, a subsidiary or an affiliate; align the interests of the Company’s shareholders and recipients of awards under the LTIP by increasing the proprietary interest of such recipients in the Company’s growth and success; and motivate award recipients to act in the best long-term interest of the Company and its shareholders. The LTIP replaced the previous stock option plan, and no further grants or awards will be issued under the previous stock option plan. The LTIP provides for a maximum of 1,070,000 common shares of the Company to be issued in addition to the common shares that remained available for issuance under the previous stock option plan.
	There were 1,261,650 stock options outstanding as of June 30, 2010 issued under the LTIP or the Company’s previous stock option plan.
(b)	Employee Stock Purchase Plan:
	The Company maintains an Employee Stock Purchase Plan (“ESPP”) which allows eligible employees to withhold annually up to a maximum of 15% of their base salary, or $25,000, subject to IRS limitations, for the purchase of the Company’s common shares. Common shares will be purchased on the last day of each offering period at a discount of 5% of the fair market value of the common shares on such date. The aggregate number of common shares that may be issued under the ESPP may not exceed 100,000 common shares.
	During the first quarter of 2009, the ESPP was amended to require the common shares available for purchase under the ESPP to be drawn from reacquired common shares purchased on behalf of the Company in the open market. During the six months ended June 30, 2010 and 2009, there were 2,043 and 3,720 shares issued under the ESPP, respectively.
	The ESPP is not considered compensatory as its purchase discount is not greater than 5%, the plan is available to substantially all employees, and the plan does not incorporate option features. Accordingly, no portion of the cost related to ESPP purchases is included in the Company’s stock-based compensation expense.

9

(c)	Outstanding shares and stock options:
	At June 30, 2010, the Company had outstanding common shares of 30,402,790 and stock options outstanding of 1,261,650. At December 31, 2009, the Company had outstanding common shares of 30,057,281 and stock options outstanding of 1,532,664. As of June 30, 2010, stock options outstanding consisted of 259,781 options at a weighted-average exercise price of Canadian $11.67 and 1,001,869 options at a weighted-average exercise price of U.S. $22.03.
(d)	Restricted stock units:
	During the six months ended June 30, 2010, the Company granted 58,860 time-based restricted stock units (“RSUs”) and 44,440 performance based RSUs to its employees and non-employee directors with a weighted average grant date fair value of $60.70 per share. At June 30, 2010, there were 177,616 time-based RSUs and 114,710 performance-based RSUs outstanding.
	Time-based RSUs vest on a straight-line basis over a range of three to four years and performance-based RSUs cliff vest based upon reaching agreed upon three-year performance conditions.

7. Stock-based compensation

During the six-month periods ended June 30, 2010 and 2009, the Company recorded stock-based compensation expense of $2.9 million and $1.4 million, respectively. The Black-Scholes option-pricing model was used to estimate the fair value of the stock options at the grant date based on the following assumptions:

	Six months ended June 30,
	2010			2009
Total stock options granted		69,340			184,107
Volatility		48.0-48.5	%		47.1-47.2	%
Risk-free interest rate		2.07-2.39	%		1.96-2.56	%
Expected life	4.5 years			4.5 years
Dividend yield		—			—
Weighted-average grant date fair value	$	25.93		$	10.67

8. Segment information

The Company reports in two operating segments: PBM and HCIT. The Company evaluates segment performance based upon revenue and gross profit. Financial information by segment is presented below (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
PBM:
Revenues	$	451,295	$	293,906	$	878,797	$	561,686
Cost of revenue		412,681		259,376		801,847		498,374
Gross profit	$	38,614	$	34,530	$	76,950	$	63,312
Total assets at June 30	$	473,046	$	300,169
HCIT:
Revenues	$	28,151	$	26,923	$	52,797	$	50,103
Cost of revenue		13,026		14,242		25,780		27,020
Gross profit	$	15,125	$	12,681	$	27,017	$	23,083
Total assets at June 30	$	249,512	$	146,466
Consolidated:
Revenues	$	479,446	$	320,829	$	931,594	$	611,789
Cost of revenue		425,707		273,618		827,627		525,394
Gross profit	$	53,739	$	47,211	$	103,967	$	86,395
Total assets at June 30	$	722,558	$	446,635

For the three and six-month periods ended June 30, 2010, no one customer accounted for 10% or more of total revenues. For the three-month period ended June 30, 2009, one customer accounted for 14.2% of total revenues. For the six-month period ended June 30, 2009, one customer accounted for 14.7% of total revenues.

At June 30, 2010 and December 31, 2009, no one customer accounted for 10% or more of the outstanding accounts receivable balance.

9. Income Taxes

The Company’s effective tax rate for the three months ended June 30, 2010 and 2009 was 32.8% and 30.3%, respectively. The Company’s effective tax rate for the six months ended June 30, 2010 and 2009 was 32.7% and 29.1%, respectively. The effective tax rate increased during the three and six months ended June 30, 2010 compared to the same periods in 2009, primarily due to the difference in the proportion of overall income among jurisdictions.

10

The Company and its subsidiaries file income tax returns in Canadian and U.S. federal jurisdictions, and various provincial, state and local jurisdictions. With a few exceptions, the Company is no longer subject to tax examinations by tax authorities for years prior to 2005.

10. Commitments and Contingencies

From time to time in connection with its operations, the Company is named as a defendant in actions for damages and costs allegedly sustained by the plaintiffs. The Company has considered these proceedings and disputes in determining the necessity of any reserves for losses that are probable and reasonably estimable. In addition, various aspects of the Company’s business may subject it to litigation and liability for damages arising from errors in the processing of prescription drug claims, failure to meet performance measures within certain contracts relating to its services, its ability to obtain certain levels of discounts for rebates on prescription purchases from retail pharmacies and drug manufacturers or other actions or omissions. The Company’s recorded reserves are based on estimates developed with consideration given to the potential merits of claims or quantification of any performance obligations. The Company takes into account its history of claims, the limitations of any insurance coverage, advice from outside counsel and management’s strategy with regard to the settlement or defense of such claims and obligations. While the ultimate outcome of those claims, lawsuits or performance obligations cannot be predicted with certainty, the Company believes, based on its understanding of the facts of these claims and performance obligations, that adequate provisions have been recorded in the consolidated financial statements where required.

The Company provides routine indemnification to its customers against liability if the Company’s products infringe on a third party’s intellectual property rights. The maximum amount of potential indemnification liability cannot be reasonably estimated due to its uncertain nature. Historically, the Company has not made payments related to these indemnification provisions.

11. Derivative Instruments and Fair Value

The Company used variable rate debt to assist in financing its acquisition of National Medical Health Card Systems, Inc. (“NMHC”) in 2008. Prior to extinguishing the variable rate debt in December 2009, the Company was subject to interest rate risk related to the variable rate debt. When interest rates increased, interest expense could increase. Conversely, when interest rates decreased, interest expense could also decrease.

In order to manage fluctuations in cash flows resulting from interest rate risk attributable to changes in the benchmark interest rates the Company entered into interest rate contracts with notional amounts equal to 50% of the borrowed amount, or $24 million, for a three-year period from the date of issue. The Company entered into a 3-year interest rate swap agreement with a notional amount of $14 million to fix the variable London Inter-Bank Offered Rate (“LIBOR”) rate on $14 million of the term loan at 4.31%, resulting in an effective rate of 7.56% after adding the 3.25% margin per the credit agreement. Under the interest rate swap, the Company receives LIBOR-based variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent to fixed-rate debt. Additionally, the Company entered into a 3-year interest rate cap with a notional amount of $10 million to effectively cap the LIBOR rate on $10 million of the term loan at 4.50%, resulting in a maximum effective rate of 7.75% after adding the 3.25% margin per the credit agreement, excluding the associated fees. These interest rate contract derivative instruments were designated as cash flow hedges during 2008. After the Company repaid all of its long-term debt in the fourth quarter of 2009, the cash flow hedge treatment was discontinued as the future transactions that the interest rate contracts were hedging were no longer probable of occurring.

As of June 30, 2010, the interest rate contract derivative instruments are “out of the money” and the Company is not currently exposed to any credit risk for amounts classified on the consolidated balance sheet should the counterparty in the agreement fail to meet its obligations under the agreement. The Company does not anticipate the instruments coming “out of the money” prior to their expiration in 2011. To manage credit risks, the Company selects counterparties based on credit assessments, limits overall exposure to any single counterparty, and monitors the market position with each counterparty. The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company does not enter into derivative instruments for any purpose other than hedging identified exposures. That is, the Company does not speculate using derivative instruments and has not designated any instruments as fair value hedges or hedges of the foreign currency exposure of a net investment in foreign operations.

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Accounting guidance for fair value measurements defines a three-level hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, with level 1 considered the most reliable. For assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets, the table below categorizes fair value measurements across the three levels as of June 30, 2010 and December 31, 2009 (in thousands):

	June 30, 2010
	Quoted Prices in		Significant Observable		Significant
	Active Markets		Inputs		Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Liabilities:
Interest Rate Contract Derivatives	$	—	$	507	$	—	$	507

	December 31, 2009
	Quoted Prices in		Significant Observable		Significant
	Active Markets		Inputs		Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Corporate debt securities	$	—	$	2,490	$	—	$	2,490
Other short term investments	$	—	$	2,149	$	—	$	2,149
Liabilities:
Interest Rate Contract Derivatives	$	—	$	695	$	—	$	695

When available and appropriate, the Company uses quoted market prices in active markets to determine fair value, and classifies such items within Level 1. Level 1 values only include instruments traded on a public exchange. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability or can be derived principally from or corroborated by observable market data. If the Company were to use one or more significant unobservable inputs for a model-derived valuation, the resulting valuation would be classified in Level 3.

The Company has classified derivative liabilities on the consolidated balance sheets within accrued liabilities at June 30, 2010, and as other noncurrent liabilities at December 31, 2009. The interest rate contract derivatives fair values are derived from calculations using observable interest rate inputs from a financial institution. The notional amounts of the interest rate contracts are noted previously in this footnote. The total fair value adjustment for the interest rate contract derivatives was insignificant for the three months ended June 30, 2010, and $0.1 million for the six months ended June 30, 2010. The fair value adjustments were recognized as other expense in the consolidated statements of operations. Prior to December 2009, the Company was still applying hedge accounting to the interest rate contract derivatives, and accordingly reclassified $0.1 and $0.2 million during the three and six months ended June 30, 2009, respectively, into interest expense from accumulated other comprehensive income for the effective portion of the loss on the interest rate contracts.

The corporate debt securities are recorded in short-term investments in the consolidated balance sheet at December 31, 2009; the Company does not hold any corporate debt securities as of June 30, 2010. The fair values of these securities were based on quoted market prices for the specific securities held based on a matrix of valuations received from several pricing sources. Other short-term investments represent certificates of deposits and treasury bills that mature in over 90 days. These are recorded in short-term investments in the consolidated balance sheet at December 31, 2009; the Company does not hold these securities as of June 30, 2010. The fair values of the other short-term investments are based on quoted market prices for the specific securities held based on a matrix of valuations received from several pricing sources. The amortized cost for the debt securities and other short-term investments was $4.6 million as of December 31, 2009.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Management’s Discussion and Analysis (“MD&A”) section of the Company’s 2009 Annual Report on Form 10-K. Results of the interim periods presented are not necessarily indicative of the results to be expected for the full year ending December 31, 2010.

Caution Concerning Forward-Looking Statements

Certain information in this MD&A, in various filings with regulators, in reports to shareholders and in other communications is forward-looking within the meaning of certain securities laws and is subject to important risks, uncertainties and assumptions. This forward-looking information includes, amongst others, information with respect to the Company’s objectives and the strategies to achieve those objectives, as well as information with respect to the Company’s beliefs, plans, expectations, anticipations, estimates and intentions. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. Such factors include, but may not be limited to, the ability of the Company to adequately address: the risks associated with further market acceptance of the Company’s products and services; its ability to manage its growth effectively; its reliance on and ability to retain key customers and key personnel; industry conditions such as consolidation of customers, competitors and acquisition targets; the Company’s ability to acquire a company and manage integration and potential dilution associated therewith; the impact of technology changes on its products/service offerings, including impact on the intellectual property rights of others; the effects of regulatory and legislative changes in the healthcare industry; and the sufficiency and fluctuations of its liquidity and capital needs.

When relying on forward-looking information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. In making the forward-looking statements contained in this MD&A, the Company does not assume any significant acquisitions, dispositions or one-time items. It does assume, however, the renewal of certain customer contracts. Every year, the Company has major customer contracts that come up for renewal. In addition, the Company also assumes new customer contracts. In this regard, the Company is pursuing large opportunities that present a very long and complex sales cycle which substantially affects its forecasting abilities. The Company has assumed certain timing for the realization of these opportunities which it thinks is reasonable but which may not be achieved. Furthermore, the pursuit of these larger opportunities does not ensure a linear progression of revenue and earnings since they may involve significant up-front costs followed by renewals and cancellations of existing contracts. The Company has assumed certain revenues which may not be realized. The Company has also assumed that the material factors referred to in the previous paragraph will not cause such forward-looking information to differ materially from actual results or events. The foregoing list of factors is not exhaustive and is subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors. For additional information with respect to certain of these and other factors, refer to the Risk Factors section contained in Item 1A of the Company’s 2009 Annual Report on Form 10-K.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS MD&A REPRESENTS THE COMPANY’S CURRENT EXPECTATIONS AND, ACCORDINGLY, IS SUBJECT TO CHANGE. HOWEVER, THE COMPANY EXPRESSLY DISCLAIMS ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING INFORMATION, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY APPLICABLE LAW.

Overview

PBM Business

The Company provides comprehensive PBM services to customers, which include managed care organizations, local governments, unions, corporations, HMOs, employers, workers’ compensation plans, third party health care plan administrators and federal and state government programs through its network of licensed pharmacies throughout the United States. The PBM services include electronic point-of-sale pharmacy claims management, retail pharmacy network management, mail service pharmacy, specialty pharmacy, Medicare Part D services, benefit design consultation, preferred drug management programs, drug review and analysis, consulting services, data access and reporting and information analysis. The Company owns a mail service pharmacy (“Mail Service”) and a specialty service pharmacy (“Specialty Service”). In addition, the Company is a national provider of drug benefits to its customers under the federal government’s Medicare Part D program.

Revenue primarily consists of sales of prescription drugs, together with any associated administrative fees, to customers and participants, either through the Company’s nationwide network of retail pharmacies, Mail Service pharmacy or Specialty Service pharmacy. Revenue related to the sale of prescription drugs is recognized when the claims are adjudicated and the prescription drugs are shipped. Claims are adjudicated at the point-of-sale using an on-line processing system. Profitability of the PBM segment is largely dependent on the volume and type of prescription drug claims adjudicated and sold. Growth in revenue and profitability of the PBM segment is dependent upon attracting new customers, retaining the Company’s current customers and providing additional services to the Company’s current customer base by offering a flexible and cost-effective alternative to traditional PBM offerings. The Company’s PBM offerings allow its customers to gain increased control of their pharmacy benefit dollars and maximize cost savings and quality of care through a full range of pharmacy spend management services, including: formulary administration, benefit plan design and management, pharmacy network management, drug utilization review, clinical services and consulting, reporting and information analysis solutions, mail services and specialty pharmacy and consumer web services.

Under the Company’s customer contracts, the pharmacy is solely obligated to collect the co-payments from the participants. As such, the Company does not include participant co-payments to retail pharmacies in revenue or cost of revenue. If these amounts were included in revenue and cost of revenue, operating income and net income would not have been affected.

The Company evaluates customer contracts to determine whether it acts as a principal or as an agent in the fulfillment of prescriptions through its retail pharmacy network. The Company acts as a principal in most of its transactions with customers and revenue is recognized at the prescription price (ingredient cost plus dispensing fee) negotiated with customers, plus an administrative fee, if applicable (“gross reporting”). Gross reporting is appropriate when the Company (i) has separate contractual relationships with customers and with pharmacies, (ii) is responsible to validate and manage a claim through the claims adjudication process, (iii) commits to set prescription prices for the pharmacy, including instructing the pharmacy as to

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how that price is to be settled (co-payment requirements), (iv) manages the overall prescription drug relationship with the patients, who are participants of customers’ plans, and (v) has credit risk for the price due from the customer. In instances where the Company merely administers a customer’s network pharmacy contract to which the Company is not a party and under which the Company does not assume pricing risk and credit risk, among other factors, the Company only records an administrative fee as revenue. For these customers, the Company earns an administrative fee for collecting payments from the customer and remitting the corresponding amount to the pharmacies in the customer’s network.  In these transactions, the Company acts as an agent for the customer.  As the Company is not the principal in these transactions, the drug ingredient cost is not included in revenue or in cost of revenue (“net reporting”). As such, there is no impact to gross profit based upon whether gross or net reporting is used.

HCIT Business

The Company is also a leading provider of HCIT solutions and services to providers, payors, and other participants in the pharmaceutical supply chain in North America. The Company’s product offerings include a wide range of software products for managing prescription drug programs and for drug prescribing and dispensing. The Company’s solutions are available on a license basis with on-going maintenance and support or on a transaction fee basis using an ASP model. The Company’s payor customers include managed care organizations, health plans, government agencies, employers and intermediaries such as pharmacy benefit managers. The solutions offered by the Company’s services assist both payors and providers in managing the complexity and reducing the cost of their prescription drug programs and dispensing activities.

Profitability of the HCIT business depends primarily on revenue derived from transaction processing services, software license sales, hardware sales, maintenance and professional services. Recurring revenue remains a cornerstone of the Company’s business model and consists of transaction processing services and maintenance. Growth in revenue from recurring sources has been driven primarily by growth in the Company’s transaction processing business in the form of claims processing for its payor customers and switching services for its provider customers. Through the Company’s transaction processing business, where the Company is generally paid based on the volume of transactions processed, the Company continues to benefit from the growth in pharmaceutical drug use in the United States. The Company believes that aging demographics and increased use of prescription drugs will continue to generate demand in the transaction processing business. In addition to benefiting from this industry growth, the Company continues to focus on increasing recurring revenue in the transaction processing area by adding new transaction processing customers to its existing customer base. The recognition of revenue in the HCIT business depends on various factors including the type of service provided, contract parameters and any undelivered elements.

Operating Expenses

The Company’s operating expenses primarily consist of cost of revenue, product development costs, selling, general and administrative (“SG&A”) costs, depreciation and amortization. Cost of revenue includes the costs of drugs dispensed and shipped as well as costs related to the products and services provided to customers in the HCIT segment and costs associated with the operation and maintenance of the transaction processing centers. These costs include salaries and related expenses for professional services personnel, transaction processing centers’ personnel, customer support personnel, any hardware or equipment sold to customers and depreciation expense related to data center operations. Product development costs consist of staffing expenses to produce enhancements and new initiatives. SG&A costs relate to selling expenses, commissions, marketing, network administration and administrative costs, including legal, accounting, investor relations and corporate development costs. Depreciation expense relates to the depreciation of property and equipment used by the Company. Amortization expense relates to definite-lived intangible assets from business acquisitions.

Industry Overview

The PBM industry is intensely competitive, generally resulting in continuous pressure on gross profit as a percentage of total revenue. In recent years, industry consolidation and dramatic growth in managed healthcare have led to increasingly aggressive pricing of PBM services. Given the pressure on all parties to reduce healthcare costs, the Company expects this competitive environment to continue for the foreseeable future. In order to remain competitive, the Company looks to continue to drive purchasing efficiencies of pharmaceuticals to improve operating margins and target the acquisition of other businesses to achieve its strategy of expanding its product offerings and customer base. The Company also looks to retain and expand its customer base by improving the quality of service provided by enhancing its solutions and lowering the total drug spend for customers.

The HCIT industry is increasingly competitive as technologies continue to advance and new products continue to emerge. This rapidly developing industry requires the Company to perpetually improve its offerings to meet customer’s rising product standards. Recent governmental stimulus initiatives to improve the country’s electronic health records should assist the growth of the industry, but it may also increase competition as more players enter the expanding market.

The complicated environment in which the Company operates presents it with opportunities, challenges, and risks. The Company’s clients are paramount to its success; the retention of existing clients and winning of new clients and members pose the greatest opportunities, and the loss thereof represents an ongoing risk. The preservation of the Company’s relationships with pharmaceutical manufacturers and retail pharmacies is very important to the execution of its business strategies. The Company’s future success will hinge on its ability to drive mail volume and increase generic dispensing rates in light of the significant brand-name drug patent expirations expected to occur over the next several years. The Company’s ability to continue to provide innovative and competitive clinical and other services to clients and patients, including the Company’s active participation in the Medicare Part D benefit and the rapidly growing specialty pharmacy industry, also plays an important part in the Company’s future success.

The frequency with which the Company’s customer contracts come up for renewal, and the potential for one of the Company’s larger customers to terminate or elect not to renew its existing contract with the Company, creates the risk that the Company’s results of operations may be volatile. The Company’s customer contracts generally do not have terms longer than three years and, in some cases, are terminable by the customer on relatively short notice. The Company’s larger customers generally seek bids from other PBM providers in advance of the expiration of their contracts.  If existing customers elect not to renew their contracts at the same service levels previously provided with the Company at the expiration of the current terms of those contracts, and in particular if one of the Company’s largest customers elects not to renew, the Company’s recurring revenue base will be reduced and results of operations will be adversely affected.

The Company operates in a competitive environment where clients and other payors seek to control the growth in the cost of providing prescription drug benefits. The Company’s business model is designed to reduce the level of drug cost. The Company helps manage drug cost primarily by its programs designed to maximize the substitution of expensive brand drugs with equivalent but much lower cost generic drugs, obtaining competitive discounts from suppliers, securing rebates from pharmaceutical manufacturers and third party rebate administrators, securing discounts from retail pharmacies, applying the Company’s sophisticated clinical programs and efficiently administering prescriptions dispensed through the Company’s Mail Service and Specialty Service pharmacies.

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Various aspects of the Company’s business are governed by federal and state laws and regulations, and because sanctions may be imposed for violations of these laws, compliance is a significant operational requirement. The Company believes it is in substantial compliance with all existing legal requirements material to the operation of its business. There are, however, significant uncertainties involving the application of many of these legal requirements to its business.

The U.S. health care reform legislation enacted in March 2010 could provide drug coverage for millions of people in the form of expanded Medicaid coverage. The Company is active in this market and believes that expansion could create growth opportunities for the Company. In addition, the reform bill provides a pathway for follow-on biologic development, giving more cost effective generic options to clients and the potential opportunity for margin expansion for the Company. As many aspects of the reform bill do not go into effect for several years, the Company cannot predict the overall impact the legislation will have on the Company’s financial results. In addition, there are numerous proposed health care laws and regulations at the federal and state levels, many of which could adversely affect the Company’s business, results of operations and financial condition. The Company is unable to predict what additional federal or state legislation or regulatory initiatives may be enacted in the future relating to its business or the health care industry in general, or what effect any such legislation or regulations might have on it. The Company also cannot provide any assurance that federal or state governments will not impose additional restrictions or adopt interpretations of existing laws or regulations that could have a material adverse effect on its business or financial performance.

Competitive Strengths

The Company has demonstrated its ability to serve a broad range of clients from large managed care organizations and state governments to employer groups with fewer than a thousand members. The Company believes its principal competitive strengths are:

Flexible, customized and independent services: The Company believes a key differentiator between itself and its competitors is not only the Company’s ability to provide innovative PBM services, but also to deliver these services on an à la carte basis. The informedRx suite offers the flexibility of broad product choice along the entire PBM continuum, enabling enhanced customer control, solutions tailored to the customers’ specific requirements, and flexible pricing. The market for the Company’s products is divided between large customers that have the sophisticated technology infrastructure and staff required to operate a 24-hour data center and other customers that are not able or willing to operate these sophisticated systems.

The Company’s business model allows its large customers to license the Company’s products and operate the Company’s systems themselves (with or without taking advantage of the Company’s significant customization, consulting and systems implementation services) and allows its other customers to utilize the Company’s systems’ capabilities on a fee-per-transaction or subscription basis through ASP processing from the Company’s data center.

Leading technology and platform: The Company’s technology is robust, scaleable and web-enabled. The Company’s payor offerings efficiently supported over 400 million transactions in 2009. The platform is able to instantly cross-check multiple processes, such as reviewing claim eligibility and adverse drug reaction and properly calculating member, pharmacy and payor payments. The Company’s technology is built on flexible, database-driven rule sets and broad functionality applicable for most any type of business. The Company believes it has one of the most comprehensive claims processing platforms in the market.

The Company’s technology platform allows it to provide more comprehensive PBM services through informedRx by offering customers a selection of services to choose from to meet their unique needs versus requiring them to accept a one-size-fits-all solution. The Company believes this à la carte offering is a key differentiator from its competitors.

Measurable cost savings for customers:  The Company provides its customers with increased control over prescription drug costs and drug benefit programs. The Company’s pricing model and flexible product offerings are designed to deliver measurable cost savings to the Company’s customers. The Company believes its pricing model is a key differentiator from its competitors for the Company’s customers who want to gain control of their prescription drug costs. For example, the Company’s pharmacy network contracts and manufacturer rebate agreements are made available by the Company to each customer. For customers who select the Company’s pharmacy network and manufacturer rebate services on a fixed fee per transaction basis, there is clarity to the rebates and other fees payable to the client. The Company believes that its pricing model together with the flexibility to select from a broad range of customizable services helps customers realize measurable results and cost savings.

Selected financial highlights for the three and six months ended June 30, 2010 compared to the same periods in 2009

Selected financial highlights for the three months ended June 30, 2010 and 2009 are noted below:

• Total revenue in the three months ended June 30, 2010 was $479.4 million as compared to $320.8 million for the same period in 2009. The increase is largely attributable to an increase in PBM revenue of $157.4 million compared to the same period in 2009. PBM revenues increased primarily due to growth in the customer base throughout 2010 and the second half of 2009. The increased customer base was complemented by additional services sold to existing customers.

• Operating income increased $7.2 million, or 39.3%, in the second quarter of 2010 to $25.7 million as compared to $18.5 million for the same period in 2009. This increase was driven by increased gross profits from operations coupled with a decrease in operating expenses as compared to the same period in 2009.

• The Company reported net income of $17.1 million, or $0.55 per share (fully-diluted), for the three months ended June 30, 2010, compared to $12.0 million, or $0.47 per share (fully-diluted), for the same period in 2009. The increase is driven by higher gross profit attributable to an increase in PBM revenues, operating cost savings from synergies obtained after the successful integration of NMHC, and lower interest expense due to extinguishing the Company’s long-term debt in December 2009. These increases are partially offset by an increase in income taxes.

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Selected financial highlights for the six months ended June 30, 2010 and 2009 are noted below:

• Total revenue in the six months ended June 30, 2010 was $931.6 million as compared to $611.8 million for the same period in 2009. The increase is largely attributable to an increase in PBM revenue of $317.1 million compared to the same period in 2009. PBM revenues increased primarily due to growth in the customer base throughout 2010 and the second half of 2009. The increased customer base was complemented by additional services sold to existing customers.

• Operating income increased $18.7 million, or 63.7%, for the six months ended June 30, 2010 to $48.1 million as compared to $29.4 million for the same period in 2009. This increase was driven by increased gross profits from operations coupled with a decrease in operating expenses as compared to the same period in 2009.

• The Company reported net income of $31.9 million, or $1.02 per share (fully-diluted), for the six months ended June 30, 2010, compared to $19.7 million, or $0.79 per share (fully-diluted), for the same period in 2009. The increase is driven by higher gross profit attributable to an increase in PBM revenues, operating cost savings from synergies obtained after the successful integration of NMHC, and lower interest expense due to extinguishing the Company’s long-term debt in December 2009. These increases are partially offset by an increase in income taxes.

• The Company generated $36.8 million in cash from operations for the six months ended June 30, 2010, an increase of $5.1 million from the same period in 2009, driven by an increase in net income.

• On March 4, 2010, the Company announced a new agreement with HealthSpring Inc. pursuant to which the Company’s informedRx subsidiary will provide HealthSpring with its full suite of PBM services, and therefore manage significant drug spend.  The initial term of the agreement is three years with provisions for two additional one-year extensions.  HealthSpring will deploy mail and specialty pharmacy services beginning in mid-2010, with implementation of the full PBM services on January 1, 2011.  For financial statement reporting purposes with respect to the agreement, the Company expects that margins related to this agreement will be materially lower than historical margins because of the volume related to this agreement.

Results of Operations

Three months ended June 30, 2010 as compared to the three months ended June 30, 2009

	Three months ended June 30,
In thousands, except per share data	2010		2009
Revenue	$	479,446	$	320,829
Cost of revenue		425,707		273,618
Gross profit		53,739		47,211
Product development costs		3,021		3,027
SG&A		21,486		21,907
Depreciation of property and equipment		1,537		1,405
Amortization of intangible assets		1,978		2,415
Operating income		25,717		18,457
Net interest expense		143		979
Other expense (income), net		60		283
Income before income taxes		25,514		17,195
Income tax expense		8,369		5,218
Net income	$	17,145	$	11,977
Diluted earnings per share	$	0.55	$	0.47

Revenue

Revenue increased $158.6 million to $479.4 million for the three months ended June 30, 2010, primarily due to new customer starts as of January 1, 2010, as well as other customers added during 2009. Revenues have also increased as compared to the same period in 2009 due to an increase in new PBM services sold to several existing HCIT customers during 2010 and the second half of 2009. Overall, these changes are a result of synergies between the HCIT and PBM segments which have allowed the Company to focus on offering a broader array of products and services to the Company’s customers.

Cost of Revenue

Cost of revenue increased $152.1 million to $425.7 million for the three months ended June 30, 2010, primarily due to increased PBM transaction volumes in 2010 driven by the increased customer base. Cost of revenue in the PBM segment substantially relates to the actual cost of the prescription drugs sold, plus any applicable shipping costs. Costs of revenue have increased in line with the increase in PBM revenues which are driven by the cost of prescription drugs sold.

Gross Profit

Gross profit increased $6.5 million to $53.7 million for the three months ended June 30, 2010, mostly due to increased margins earned from incremental PBM revenues as compared to the same period in 2009. Gross margin as a percentage of revenue has decreased from 14.7% of revenue to 11.2% of revenue as a result of the PBM business producing a greater percentage of the Company’s total gross profit. PBM revenues carry a lower margin percentage as compared to HCIT revenues. As PBM revenues grow as a percentage of the Company’s total revenues and costs, gross margin as a percentage of revenue may decrease.

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Product Development Costs

Product development costs were $3.0 million for the three months ended June 30, 2010 and 2009, respectively. Product development continues to be a key focus of the Company as it continues to pursue enhancements of existing products, as well as the development of new offerings, to support its market expansion.

SG&A Costs

SG&A costs for the three months ended June 30, 2010 were $21.5 million compared to $21.9 million for the three months ended June 30, 2009. SG&A costs consist primarily of employee costs in addition to professional services costs, facilities and costs not related to cost of revenue. SG&A costs also include stock-based compensation cost of $1.3 million and $0.6 million for the three months ended June 30, 2010 and 2009, respectively. Due to the Company’s increased focus on controlling its costs throughout 2009 and into 2010, the Company was able to reduce SG&A costs during the current period as compared to the same period in 2009. The increase in stock-based compensation during the three months ended June 30, 2010 as compared to the same period in 2009 is due to additional awards granted to the Company’s employees, and an increase in the value of those awards. The increase in the stock-based compensation valuations is directly attributable to the increase in the market value of the Company’s common shares as compared to the value at, and prior to, June 30, 2009.

Depreciation

Depreciation expense relates to property and equipment used in all areas of the Company except for those depreciable assets directly related to the generation of revenue, which is included in cost of revenue in the consolidated statements of operations. Depreciation expense was $1.5 million and $1.4 million for the three-month periods ended June 30, 2010 and 2009, respectively. The expense increased due to new asset purchases in 2010 and 2009 to expand the Company’s data centers and information technology network capacity.

Amortization

Amortization expense for the three months ended June 30, 2010 and 2009 was $2.0 million and $2.4 million, respectively. Amortization expense has decreased due to the amortization methodology for the intangible assets attained from the NMHC acquisition. These intangible assets are amortized in line with their estimated future economic benefits, which for certain assets is greater at the beginning of their life versus the end. Accordingly, over time amortization will decrease. Amortization expense on all the Company’s intangible assets is expected to be approximately $3.9 million for the remainder of 2010. Refer to Note 5-Goodwill and Other Intangible Assets in the notes to the unaudited consolidated financial statements for more information on amortization expected in future years.

Interest Income and Expense

Interest income decreased $0.1 million for the three months ended June 30, 2010 as compared to the same period in 2009, due primarily to lower interest rates. Interest expense decreased to $0.3 million for the three months ended June 30, 2010 from $1.2 million in the same period in 2009, primarily due to the Company extinguishing its long-term debt in December 2009.

Income Taxes

The Company recognized income tax expense of $8.4 million for the three months ended June 30, 2010, representing an effective tax rate of 32.8%, compared to a $5.2 million income tax expense, representing an effective tax rate of 30.3%, for the same period in 2009. The effective tax rate increased during the three months ended June 30, 2010 compared to the same period in 2009, primarily due to the difference in the proportion of overall income among jurisdictions.

Segment Analysis

The Company reports in two operating segments: PBM and HCIT. The Company evaluates segment performance based on revenue and gross profit. A reconciliation of the Company’s business segments to the unaudited consolidated financial statements for the three months ended June 30, 2010 and 2009 is as follows (in thousands):

	PBM						HCIT						Consolidated
	2010			2009			2010			2009			2010			2009
Revenue	$	451,295		$	293,906		$	28,151		$	26,923		$	479,446		$	320,829
Cost of revenue		412,681			259,376			13,026			14,242			425,707			273,618
Gross profit	$	38,614		$	34,530		$	15,125		$	12,681		$	53,739		$	47,211
Gross profit %		8.6	%		11.7	%		53.7	%		47.1	%		11.2	%		14.7	%

PBM

Revenue was $451.3 million for the three months ended June 30, 2010, an increase of $157.4 million compared to the same period in 2009. The increase in revenue is primarily due to new customer starts as of January 1, 2010, as well as other customers added during 2009. Revenues have also increased as compared to the same period in 2009 due to an increase in new PBM services sold to several existing HCIT customers during 2010 and the second half of 2009. Due to the type of the additional services provided, revenue from these customers’ contracts has moved from the HCIT segment to the PBM segment. Overall, these changes are a result of synergies between the HCIT and PBM segments which have allowed the Company to focus on offering a broader array of products and services to the Company’s customers.

For the three months ended June 30, 2010 and 2009, there were $4.9 million and $2.8 million of co-payments, respectively, included in revenue related to prescriptions filled at the Company’s Mail and Specialty Service pharmacies. Co-payments retained by retail pharmacies on prescriptions filled for participants are not included in revenue for the respective periods. Under customer contracts, the pharmacy is solely obligated to collect the co-payments from the participants and as such, the Company does not assume liability for participant co-payments in retail pharmacy transactions. Therefore, the Company does not include participant co-payments to retail pharmacies in revenue or cost of revenue.

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Cost of revenue was $412.7 million for the three months ended June 30, 2010 compared to $259.4 million for the same period in 2009. Cost of revenue has increased in line with the increase in PBM revenues, and is predominantly comprised of the cost of prescription drugs. As a percentage of revenue, cost of revenue was 91.4% and 88.3% for the three months ended June 30, 2010 and 2009, respectively. The increase in the cost of revenue as a percentage of revenue was due to lower margins earned on new customer additions in 2010 and the second half of 2009. Generally, new customer additions come in at lower margins due to costs incurred to bring in the new business. This was partially offset by the increased use of lower cost generic drugs. Generic drug usage continues to be a focus of the industry and the Company to help drive down health care costs. The Company will continue to seek opportunities for increased generic prescription drug usage to help reduce overall prescription drug costs to its customers and the Company.

Gross profit was $38.6 million for the three months ended June 30, 2010 compared to $34.5 million for the same period in 2009. Gross profit increased due to the larger customer base in the second quarter of 2010 versus the same period in 2009. Gross profit margin percentage was 8.6% and 11.7% for the three months ended June 30, 2010 and 2009, respectively. Gross profit margin percentage has decreased in the three months ended June 30, 2010 as compared to the same period in 2009 due to newer business being added at lower margins. As noted above, new customer additions come in at lower margins due to costs incurred to bring in the new business.

HCIT

HCIT revenue consists of transaction processing, professional services, system sales and maintenance contracts on system sales. Total HCIT revenue increased $1.3 million to $28.2 million for the three months ended June 30, 2010 as compared to $26.9 million for the same period in 2009, primarily due to an increase in transaction processing revenue, as well as $2.8 million earned for meeting certain contractual performance conditions. These increases were offset by decreases in professional services and system sales.

Transaction processing revenue consists of claims processing and generally increases as a result of the launch of new contracts as well as increased volumes of services provided to existing customers. The increase in transaction processing revenue from new contracts and increased volumes of services provided to existing customers was offset by a decrease in revenue generated from contracts with HCIT customers which converted to the PBM segment in 2010 and the second half of 2009. As discussed previously, the revenues earned from the contracts with these customers have moved to the PBM segment due to the type of additional services provided.

Professional services revenue is derived from providing support projects for both system sales and transaction processing clients, on an as-needed basis. This revenue is dependent on customers initiating new projects and system enhancements which require the Company to assist them on both a fixed bid and time and materials basis.

System sales are derived from license upgrades and additional applications for existing and new clients, as well as software and hardware sales to pharmacies that purchase the Company’s pharmacy system. Maintenance revenue is generated from maintenance services provided on related system or license sales. These revenue streams are dependent on the Company acquiring new customers or selling license upgrades or additional applications to existing customers and such revenue streams will fluctuate accordingly as new customers are added, or license upgrades and additional applications are sold to existing customers.

Cost of revenue was $13.0 million and $14.2 million for the three months ended June 30, 2010 and 2009. Cost of revenue includes the direct support costs for the HCIT business as well as depreciation expense of $0.6 million for the three months ended June 30, 2010 and 2009. Cost of revenue decreased during 2010 versus 2009 mainly due to the conversion of some HCIT customers’ revenue contracts into the PBM segment which moved the associated costs to support these customers to the PBM segment. Refer to the PBM revenue discussion for further analysis on the contracts that have moved from HCIT to PBM.

Gross profit margin percentage was 53.7% for the three months ended June 30, 2010 compared to 47.1% for the three months ended June 30, 2009, increasing gross profit by $2.4 million to $15.1 million for the three months ended June 30, 2010 as compared to $12.7 million for the same period in 2009. Gross profit margin, and the gross profit margin percentage, increased for the three months ended June 30, 2010, compared to the same period in 2009, due to the increasing transaction processing revenues that are able to leverage a fixed cost base, as well as due to additional revenues earned for meeting certain contractual performance conditions. These increases were offset by decreases in revenues earned from professional services and system sales. The additional revenue and margin earned for meeting the contractual performance conditions is not expected to recur during the remainder of this year.

Six months ended June 30, 2010 as compared to the six months ended June 30, 2009

	Six months ended June 30,
In thousands, except per share data	2010		2009
Revenue	$	931,594	$	611,789
Cost of revenue		827,627		525,394
Gross profit		103,967		86,395
Product development costs		6,094		6,190
SG&A		42,792		42,704
Depreciation of property and equipment		3,019		2,887
Amortization of intangible assets		3,973		5,240
Operating income		48,089		29,374
Net interest expense		388		1,689
Other expense (income), net		259		(42	)
Income before income taxes		47,442		27,727
Income tax expense		15,505		8,068
Net income	$	31,937	$	19,659
Diluted earnings per share	$	1.02	$	0.79

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Revenue

Revenue increased $319.8 million to $931.6 million for the six months ended June 30, 2010, from $611.8 million in the same period of 2009, primarily due to new customer starts as of January 1, 2010, as well as other customers added during the second half of 2009. Revenues have also increased as compared to the same period in 2009 due to an increase in new PBM services sold to several existing HCIT customers during 2010 and the second half of 2009. Overall, these changes are a result of synergies between the HCIT and PBM segments which have allowed the Company to focus on offering a broader array of products and services to the Company’s customers.

Cost of Revenue

Cost of revenue increased $302.2 million to $827.6 million for the six months ended June 30, 2010, primarily due to increased PBM transaction volumes in 2010 driven by the increased customer base. Cost of revenue in the PBM segment substantially relates to the actual cost of the prescription drugs sold, plus any applicable shipping costs. Costs of revenue have increased in line with the increase in PBM revenues, which are driven by the cost of prescription drugs sold.

Gross Profit

Gross profit increased $17.6 million to $104.0 million for the six months ended June 30, 2010, mostly due to increased margins earned from incremental PBM revenues as compared to the same period in 2009. Gross margin as a percentage of revenue has decreased from 14.1% of revenue to 11.2% of revenue for the six months ended June 30, 2010 and 2009, respectively, as a result of the PBM business producing a greater percentage of the Company’s total gross profit. PBM revenues carry a lower margin percentage as compared to HCIT revenues. As PBM revenues grow as a percentage of the Company’s total revenues and gross profit, gross margin as a percentage of revenue may decrease.

Product Development Costs

Product development costs for the six months ended June 30, 2010 were $6.1 million compared to $6.2 million for the six months ended June 30, 2009. Product development continues to be a key focus of the Company as it continues to pursue enhancements of existing products, as well as the development of new offerings, to support its market expansion.

SG&A Costs

SG&A costs for the six months ended June 30, 2010 were $42.8 million compared to $42.7 million for the six months ended June 30, 2009. SG&A costs consist primarily of employee costs in addition to professional services costs, facilities and costs not related to cost of revenue. SG&A costs also include stock-based compensation cost of $2.4 million and $1.1 million for the six months ended June 30, 2010 and 2009, respectively. Although stock-based compensation costs have increased during the six months ended June 30, 2010 as compared to the same period in 2009, the Company’s focus on controlling its costs throughout 2009 and into 2010 enabled it to contain SG&A costs during the current period as compared to the same period in 2009. The increase in stock-based compensation during the six months ended June 30, 2010 as compared to the same period in 2009 is due to additional awards granted to the Company’s employees, and an increase in the value of those awards. The increase in the stock-based compensation valuations are driven by the increase in the market value of the Company’s common shares as compared to the value at, and prior to, June 30, 2009.

Depreciation

Depreciation expense relates to property and equipment used in all areas of the Company except for those depreciable assets directly related to the generation of revenue, which is included in the cost of revenue in the consolidated statements of operations. Depreciation expense was $3.0 million and $2.9 million for the six-month periods ended June 30, 2010 and 2009, respectively. The expense remained consistent as a result of new asset purchases in 2010 and 2009 to expand the Company’s data centers and information technology network capacity, which were offset by assets that reached full depreciation at the end of 2009 and the beginning of 2010.

Amortization

Amortization expense for the six months ended June 30, 2010 and 2009 was $4.0 million and $5.2 million, respectively. Amortization expense has decreased due to the amortization methodology for the intangible assets attained from the NMHC acquisition. These intangible assets are amortized in line with their estimated future economic benefits, which for certain assets is greater at the beginning of their life versus the end. Accordingly, over time amortization will decrease. Amortization expense on all the Company’s intangible assets is expected to be approximately $3.9 million for the remainder of 2010. Refer to Note 5-Goodwill and Other Intangible Assets in the notes to the unaudited consolidated financial statements for more information on amortization expected in future years.

Interest Income and Expense

Interest income decreased $0.1 million for the six months ended June 30, 2010 as compared to the same period in 2009, due primarily to lower interest rates. Interest expense decreased to $0.7 million for the six months ended June 30, 2010 from $2.2 million in the same period in 2009, primarily due to the Company extinguishing its long-term debt in December 2009.

Income Taxes

The Company recognized income tax expense of $15.5 million for the six months ended June 30, 2010, representing an effective tax rate of 32.7%, compared to an $8.1 million income tax expense, representing an effective tax rate of 29.1%, for the same period in 2009. The effective tax rate increased during the six months ended June 30, 2010 compared to the same period in 2009, primarily due to the difference in the proportion of overall income among jurisdictions.

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Segment Analysis

The Company reports in two operating segments: PBM and HCIT. The Company evaluates segment performance based on revenue and gross profit. A reconciliation of the Company’s business segments to the consolidated financial statements for the six months ended June 30, 2010 and 2009 is as follows (in thousands):

	PBM						HCIT						Consolidated
	2010			2009			2010			2009			2010			2009
Revenue	$	878,797		$	561,686		$	52,797		$	50,103		$	931,594		$	611,789
Cost of revenue		801,847			498,374			25,780			27,020			827,627			525,394
Gross profit	$	76,950		$	63,312		$	27,017		$	23,083		$	103,967		$	86,395
Gross profit %		8.8	%		11.3	%		51.2	%		46.1	%		11.2	%		14.1	%

PBM

Revenue was $878.8 million for the six months ended June 30, 2010, an increase of $317.1 million from $561.7 million in the same period in 2009. The increase in revenue is primarily due to new customer starts as of January 1, 2010, as well as other customers added during 2009. Revenues have also increased as compared to the same period in 2009 due to an increase in PBM services sold to several HCIT customers during 2010 and the second half of 2009. Due to the additional type of services provided, these customers moved from the HCIT segment to the PBM segment.

For the six months ended June 30, 2010 and 2009, there were $9.7 million and $5.7 million of co-payments, respectively, included in revenue related to prescriptions filled at the Company’s Mail and Specialty Service pharmacies. Co-payments retained by retail pharmacies on prescriptions filled for participants are not included in revenue for the respective periods. Under customer contracts, the pharmacy is solely obligated to collect the co-payments from the participants and as such, the Company does not assume liability for participant co-payments in retail pharmacy transactions. Therefore, the Company does not include participant co-payments to retail pharmacies in revenue or cost of revenue.

Cost of revenue was $801.8 million for the six months ended June 30, 2010 compared to $498.4 million for the same period in 2009. Cost of revenue has increased in line with the increase in PBM revenues, and is predominantly comprised of the cost of prescription drugs. As a percentage of revenue, cost of revenue was 91.2% and 88.7% for the six months ended June 30, 2010 and 2009, respectively. The increase in the cost of revenue as a percentage of revenue was due to lower margins earned on new customer additions in 2010 and the second half of 2009. Generally, new customer additions come in at lower margins due to costs incurred to bring in the new business. This was partially offset by the increased use of lower cost generic drugs. Generic drug usage continues to be a focus of the industry, and the Company, to help drive down health care costs. The Company will continue to seek opportunities for increased generic prescription drug usage to help reduce overall prescription drug costs to its customers and the Company.

Gross profit was $77.0 million for the six months ended June 30, 2010 compared to $63.3 million for the same period in 2009. Gross profit increased due to growth in the customer base in 2010 compared to the same period in 2009. Gross profit margin percentage was 8.8% and 11.3% for the six months ended June 30, 2010 and 2009, respectively. Gross profit margin percentage has decreased in the six months ended June 30, 2010 as compared to the same period in 2009 due to newer business being added at lower margins. As noted above, new customer additions come in at lower margins due to costs incurred to bring on new business.

HCIT

HCIT revenue consists of transaction processing, professional services, system sales and maintenance contracts on system sales. Total HCIT revenue increased $2.7 million for the six months ended June 30, 2010 as compared to the same period in 2009, primarily due to an increase in transaction processing revenue, as well as $2.8 million earned for meeting certain contractual performance conditions. These increases were offset by decreases in professional services and system sales.

Transaction processing revenue consists of claims processing and generally increases due to the launch of new contracts as well as increased volumes of services provided to existing customers. The increase in transaction processing revenue from new contracts and increased volumes of services provided to existing customers were offset by a decrease in revenue generated from contracts with HCIT customers which converted to the PBM segment in 2010 and the second half of 2009. As discussed previously, the revenues earned from the contracts with these customers have moved to the PBM segment due to the type of additional services provided.

Professional services revenue is derived from providing support projects for both system sales and transaction processing clients, on an as-needed basis. This revenue is dependent on customers initiating new projects and system enhancements which require the Company to assist them on both a fixed bid and time and materials basis.

System sales are derived from license upgrades and additional applications for existing and new clients, as well as software and hardware sales to pharmacies that purchase the Company’s pharmacy system. Maintenance revenue is generated from maintenance services provided on related system or license sales. These revenue streams are dependent on the Company acquiring new customers or selling license upgrades or additional applications to existing customers and such revenue streams will fluctuate accordingly as new customers are added, or license upgrades and additional applications are sold to existing customers.

Cost of revenue was $25.8 million and $27.0 million for the six months ended June 30, 2010 and 2009, respectively. Cost of revenue includes the direct support costs for the HCIT business, as well as depreciation expense of $1.2 million for the six months ended June 30, 2010 and $1.1 million for the same period in 2009. Cost of revenue decreased during 2010 versus 2009 mainly due to the conversion of some HCIT customers’ revenue contracts into the PBM segment, which moved the associated costs to support these customers to the PBM segment. Refer to the PBM revenue discussion for further analysis on the customer contracts which have moved from HCIT to PBM.

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Gross profit margin percentage was 51.2% for the six months ended June 30, 2010 compared to 46.1% for the six months ended June 30, 2009, and overall gross profit margin increased $3.9 million to $27.0 million for the six months ended June 30, 2010 as compared to $23.1 million for the same period in 2009. Gross profit margin and gross profit margin percentage increased for the six months ended June 30, 2010, compared to the same period in 2009, due to the increasing transaction processing revenues that are able to leverage a fixed cost base, as well as due to additional revenues earned for meeting certain contractual performance conditions discussed earlier. These increases were offset by decreases in revenue earned from professional services and system sales. The additional revenue and margin earned for meeting the contractual performance conditions is not expected to recur during the remainder of this year.

Liquidity and Capital Resources

The Company’s sources of liquidity have primarily been cash provided by operating activities, proceeds from its public offerings, and proceeds from credit facilities. The Company’s principal uses of cash have been to fund working capital, finance capital expenditures, satisfy contractual obligations and to meet acquisition and investment needs. The Company anticipates that these uses will continue to be the principal demands on cash in the future.

At June 30, 2010 and December 31, 2009, the Company had cash and cash equivalents totalling $352.6 million and $304.4 million, respectively. The Company believes that its cash on hand, together with cash generated from operating activities will be sufficient to support planned operations for the foreseeable future. At June 30, 2010, cash and cash equivalents consist of cash on hand, deposits in banks, and bank term deposits with original maturities of 90 days or less. During the first quarter of 2010, the Company repositioned its funds previously placed in money market funds and moved the funds into cash on deposit accounts. The Company assessed that it would earn a greater return from cash on deposit accounts due to the historically low rates currently paid on the U.S. money market funds. Further, the Company reduced expenses by moving the funds to cash on deposit accounts as the fees charged for those accounts are lower than the U.S. money market fund accounts.

As of June 30, 2010, all of the Company’s cash and cash equivalents were exposed to market risks, primarily changes in U.S. interest rates. Declines in interest rates over time would reduce interest income related to these balances.

Consolidated Balance Sheets

Selected balance sheet highlights at June 30, 2010 are as follows:

• Cash and cash-equivalents totaled $352.6 million, up $48.3 million from $304.4 million at December 31, 2009. The increase was primarly driven by profitable operations of the Company. The Company’s cash is primarily held in deposit accounts with major financial institutions with high credit ratings.

• Accounts receivable are made up of trade accounts receivable from both the PBM and HCIT segment customers. Accounts receivable increased $6.6 million to $103.9 million at June 30, 2010 from $97.3 million at December 31, 2009, driven by increases in revenue during the six month-period ended June 30, 2010. The accounts receivable balance is impacted by changes in revenues, as well as timing of collections, and is continually monitored by the Company to ensure timely collections and to assess the need for any changes to the allowance for doubtful accounts.

• Rebates receivable of $34.9 million relate to billed and unbilled PBM receivables from pharmaceutical manufacturers and third party administrators in connection with the administration of the rebate program where the Company is the principal contracting party. The receivable and related payables are based on estimates, which are subject to final settlement. Rebates receivable increased $17.3 million from $17.6 million at December 31, 2009, due primarily to increased rebate volumes driven by increased prescription drug sales transactions, as well as an increase in the amount paid per rebate transaction due to renegotiated contract terms with pharmaceutical manufacturers and third party administrators.

• The Company’s inventory balance of $8.2 million consists predominantly of prescription drugs and medical supplies at its Mail Service and Specialty Service pharmacies. Changes in the inventory balance from period to period are caused by some seasonality in certain products, taking advantage of buying opportunities and changing inventory levels to properly support new customers.

• Pharmacy benefit management rebates payable represents amounts owed to customers for rebates from pharmaceutical manufacturers and third party administrators where the Company administers the rebate program on the customer’s behalf, and the Company is the principal contracting party. The payables are based on estimates, which are subject to final settlement. Pharmacy benefit management rebates payable increased $13.0 million to $59.6 million from $46.6 million at December 31, 2009 due to increased rebate volumes driven by increased prescription drug sales transactions. The rebate amounts payable are also higher due to an increase in the amount of rebates received per rebate transaction as a result of renegotiated contract terms with pharmaceutical manufacturers and third party administrators. As the amount of rebates receivable increases, the amounts due to customers will also increase.

• Pharmacy benefit claim payments payable of $72.9 million predominantly relates to amounts owed to retail pharmacies for prescription drug costs and dispensing fees in connection with prescriptions dispensed by the retail pharmacies to the Company’s customers when the Company is the principal contracting party with the pharmacy.

• Deferred revenue increased $3.1 million to $10.4 million from $7.3 million as of December 31, 2009, due to an increase of payments received in advance of services provided. Deferred revenues mostly relate to payments secured in advance for professional services, ASP processing, or annual software maintenance. Deferred revenues are released to income once professional services have been performed or as ASP and maintenance services are provided.

• Accrued liabilities decreased $7.0 million to $23.8 million at June 30, 2010 from $30.8 million at December 31, 2009 due primarily to the timing of payments made to customers in relation to contract performance guarantees and payments made related to assumed liabilities from the NMHC acquisition.

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• Salaries and wages payable decreased $3.0 million to $9.3 million at June 30, 2010 as compared to $12.3 million at December 31, 2009 due to timing of payroll payments relative to the period end. Salaries and wages payable will fluctuate based on the timing of the period end relative to the Company’s payment period. Payment periods that fall closer to the end of a period will cause the salaries and wages payable account to decrease; whereas, when the payment period falls further from the period end, the balance will be higher.

Cash flows from operating activities:

For the six months ended June 30, 2010, the Company generated $36.8 million of cash through its operations, an increase of $5.1 million as compared to the same period in 2009. Cash provided by operating activities has increased mainly due to increased net income, offset by an increase in rebates receivable due to the higher rebate volumes. Cash from operations consisted of net income of $31.9 million adjusted for $8.2 million in depreciation and amortization, $2.9 million in stock-based compensation expense, an increase in deferred revenue of $3.1 million driven by up-front payments for professional services contracts, an increase in rebates payable of $13.0 million and an increase in pharmacy claims payable of $11.2 million. These were offset by an increase in rebates receivable of $17.3 million, an increase of accounts receivable in $6.6 million, a reduction in accrued liabilities of $10.7 million, a decrease in accounts payable of $1.7 million, and a $5.6 million tax benefit from option exercises.

Changes in the Company’s cash from operations results primarily from increased gross profits and the timing of payments on accounts receivable, rebates receivable, and the payment or processing of its various accounts payable and accrued liabilities. The Company continually monitors its balance of trade accounts receivable and devotes ample resources to collection efforts on those balances. Rebates receivable and the related payable are primarily estimates based on claims submitted. Rebates are typically paid to customers on a quarterly basis upon receipt of the billed funds from the third-party rebate administrators and pharmaceutical manufacturers. The timing of the rebate payments to customers and collections of rebates from third-party rebate administrators and pharmaceutical manufacturers causes fluctuations on the balance sheet, as well as in the Company’s cash from operating activities.

Changes in non-cash items such as depreciation and amortization are caused by the purchase and acquisition of capital and intangible assets. In addition, as assets become fully depreciated or amortized, the related expenses will decrease.

Changes in operating assets and liabilities, as well as non-cash items related to income taxes, will fluctuate based on working capital requirements and the tax provision, which is determined by examining taxes actually paid or owed, as well as amounts expected to be paid or owed in the future.

For the six months ended June 30, 2009, the Company generated $31.7 million of cash through its operations. Cash from operations consisted of net income of $19.7 million adjusted for $9.2 million in depreciation and amortization, $1.4 million in stock-based compensation expense, a reduction in rebates receivable of $7.1 million, an increase in deferred revenue of $0.5 million, an increase in rebates payable of $9.5 million and an increase in customer deposits of $0.8 million. These were partially offset by a reduction in accrued liabilities of $6.0 million, an increase in prepaid expenses of $1.2 million and an increase in restricted cash of $1.6 million.

Cash flows from investing activities

For the six months ended June 30, 2010, the Company generated $1.1 million of cash from investing activities, which consisted primarily of $6.8 million from the sale of short-term investments, offset by $2.2 million in purchases of short-term investments. The Company sold all the short-term investments it held during the first quarter of 2010 and moved those funds into cash on deposit accounts. The Company also used $3.5 million for purchases of property and equipment to support the increase in business.

As the Company grows, it continues to purchase capital assets to support increases in network capacity and personnel. The Company monitors and budgets these costs to ensure that the expenditures aid in its strategic growth plan.

For the six months ended June 30, 2009, the Company used $7.9 million of cash for investing activities, which consisted primarily of purchases of property and equipment to support the business. In addition, the Company used $2.0 million to purchase the assets of a small pharmacy system in June 2009.

Cash flows from financing activities

For the six months ended June 30, 2010, the Company generated $10.3 million of cash from financing activities, which mainly consisted of proceeds from the exercise of stock options of $4.7 million and a $5.6 million tax benefit from stock-based compensation plans.

Cash flows from financing activities generally fluctuate based on the timing of option exercises by the Company’s employees, which are affected by market prices, vesting dates and expiration dates.

For the six months ended June 30, 2009, the Company generated $5.1 million of cash from financing activities, which consisted of proceeds from the exercise of stock options of $4.3 million and a $2.1 million tax benefit on the exercise of stock options, partially offset by repayments of long-term debt of $1.3 million.

Future Capital Requirements

The Company’s future capital requirements depend on many factors, including its product development programs and data center operations. The Company expects to fund its operating and working capital needs and business growth requirements through cash flow from operations and its cash and cash equivalents on hand. The Company expects that purchases of property and equipment will remain consistent with prior years. The Company cannot provide assurance that its actual cash requirements will not be greater than expected as of the date of this report. In order to meet business growth goals, the Company will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services and technologies, which might impact liquidity requirements or cause the issuance of additional equity or debt securities. Any issuance of additional equity securities or convertible debt securities may result in dilution to shareholders, and the Company cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to the Company, or at all.

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If sources of liquidity are not available or if it cannot generate sufficient cash flow from operations during the next twelve months, the Company might be required to obtain additional funds through operating improvements, capital markets transactions, asset sales or financing from third parties or a combination thereof. The Company cannot provide assurance that these additional sources of funds will be available or, if available, will be available on terms acceptable to the Company.

If adequate funds are not available, the Company may have to substantially reduce or eliminate expenditures for marketing, research and development, and testing of proposed products, or obtain funds through arrangements with partners that require the Company to relinquish rights to certain of its technologies or products. There can be no assurance that the Company will be able to raise additional capital if its capital resources are exhausted. A lack of liquidity and an inability to raise capital when needed may have a material adverse impact on the Company’s ability to continue its operations or expand its business.

Contingencies

From time to time in connection with its operations, the Company is named as a defendant in actions for damages and costs allegedly sustained by the plaintiffs. The Company has considered these proceedings and disputes in determining the necessity of any reserves for losses that are probable and reasonably estimable. In addition, various aspects of the Company’s business may subject it to litigation and liability for damages arising from errors in processing prescription drug claims, failure to meet performance measures within certain contracts relating to its services or its ability to obtain certain levels of discounts or rebates on prescription purchases from retail pharmacies and drug manufacturers or other actions or omissions. The Company’s recorded reserves are based on estimates developed with consideration given to the potential merits of claims or quantification of any performance obligations. The Company takes into account its history of claims, the limitations of any insurance coverage, advice from outside counsel, and management’s strategy with regard to the settlement or defense of such claims and obligations. While the ultimate outcome of those claims, lawsuits or performance obligations cannot be predicted with certainty, the Company believes, based on its understanding of the facts of these claims and performance obligations, that adequate provisions have been recorded in the accounts where required.

The Company provides routine indemnification to its customers against liability if the Company’s products infringe on a third party’s intellectual property rights. The maximum amount of potential indemnification liability cannot be reasonably estimated due to its uncertain nature. Historically, the Company has not made payments related to these indemnification provisions.

During the routine course of securing new clients, the Company is sometimes required to provide payment and performance bonds to cover client transaction fees and any funds and pharmacy benefit claim payments provided by the client in the event that the Company does not perform its duties under the contract. The terms of these payment and performance bonds are typically one year in duration.

Contractual Obligations

For the six months ended June 30, 2010, there have been no significant changes to the Company’s contractual obligations as disclosed in its 2009 Annual Report on Form 10-K.

Outstanding Securities

As of July 31, 2010, the Company had 30,402,790 common shares outstanding, 1,261,650 options outstanding and 292,326 restricted stock units outstanding. The options are exercisable on a one-for-one basis into common shares and, upon vesting, the restricted stock units convert into common shares on a one-for-one basis.

Critical Accounting Estimates

See Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates in the 2009 Annual Report on Form 10-K for a discussion of the Company’s critical accounting estimates.

Recent Accounting Standards

See Note 3 – Recent Accounting Pronouncements in the notes to the unaudited consolidated financial statements for information on recent accounting pronouncements. The Company is currently assessing the impact on its financial condition and future operating results of recently issued accounting guidance, and does not currently expect the recently issued guidance to have a significant impact on the Company’s financial condition or future results of operations.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk in the normal course of its business operations, including the risk of loss arising from adverse changes in interest rates and foreign exchange rates with Canada.

There has been no material change in the Company’s exposure to market risk during the three months ended June 30, 2010.

ITEM 4. Controls and Procedures

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation”).

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In designing and evaluating the disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Based on the Evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective at the reasonable assurance level to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in United States Securities and Exchange Commission rules and forms, and were effective to ensure that the information required to be disclosed in the reports filed or submitted by the Company under the Exchange Act, was accumulated and communicated to management, including to the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal controls over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f)) during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time we become subject to legal proceedings and claims in the ordinary course of business. Such claims, even if without merit, could result in the significant expenditure of our financial and managerial resources. It is possible that future results of operations or cash flows for any particular quarterly or annual period could be materially affected by an unfavorable resolution of such a claim. We are not aware of any legal proceedings or claims that we believe will, individually or in the aggregate, materially harm our business, results of operations, financial condition or cash flows.

ITEM 1A. Risk Factors

In the second quarter of 2010, there have been no material changes from the risk factors previously disclosed in Item 1A of the Company’s 2009 Annual Report on Form 10-K.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Reserved

None.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

Exhibit
Number		Description of Document	Reference
10.1	†	Employment Agreement, effective as of June 22, 2010, among SXC Health Solutions Inc., and Joel Saban.	Filed herewith
31.1		Rule 13a-14(a)/15d-14(a) Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act	Filed herewith
31.2		Rule 13a-14(a)/15d-14(a) Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act	Filed herewith
32.1		Section 1350 Certification of CEO as adopted by Section 906 of the Sarbanes-Oxley Act	Filed herewith
32.2		Section 1350 Certification of CFO as adopted by Section 906 of the Sarbanes-Oxley Act	Filed herewith

† Indicates management contract or compensatory plan.

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SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SXC Health Solutions Corp.
August 5, 2010	By:	/s/ Jeffrey Park
		Jeffrey Park
		Chief Financial Officer (on behalf of the registrant and as Chief Accounting Officer)

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EXHIBIT INDEX

Exhibit
Number		Description of Document	Reference
10.1	†	Employment Agreement, effective as of June 22, 2010, among SXC Health Solutions Inc., and Joel Saban.	Filed herewith
31.1		Rule 13a-14(a)/15d-14(a) Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act	Filed herewith
31.2		Rule 13a-14(a)/15d-14(a) Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act	Filed herewith
32.1		Section 1350 Certification of CEO as adopted by Section 906 of the Sarbanes-Oxley Act	Filed herewith
32.2		Section 1350 Certification of CFO as adopted by Section 906 of the Sarbanes-Oxley Act	Filed herewith

† Indicates management contract or compensatory plan.

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”), effective as of June 22, 2010, is entered into by and between Joel Saban (“Employee”) and SXC Health Solutions, Inc., (collectively, the “Company”).

RECITALS

A. The Company wishes to employ Employee, and Employee wishes to be employed by the Company, as its Executive Vice President, Pharmacy Operations, and Employee desires to accept employment with the Company under the terms and conditions set forth in this Agreement.

B. This Agreement supersedes the Employment Agreement previously entered into between Company and Employee on April 30, 2010, which was terminated following the entry of a Temporary Restraining Order on May 12, 2010 in the action titled Joel Saban v. Caremark Rx, LLC, et al., No. 10 C 2428, now pending in the United States District Court for the Northern District of Illinois.

C. In order to induce the Employee to enter into this Agreement, and to incentivize and reward Employee’s continued effort, loyalty and commitment to the Company, concurrent with the execution and delivery of this Agreement the Company expresses its intention to grant to the Employee stock options to purchase 16,800 shares of SXC Health Solutions Corp., the Company’s parent, and 4,900 restricted stock units (“RSUs”) issuable in common stock of SXC Health Solutions Corp. and 4,900 Performance Based Restricted Stock Units (“PBRSUs”), issuable in common stock of SXC Health Solutions Corp. The Option and RSU grants are contingent upon approval by SXC Health Solutions Corp.’s Board of Directors and are subject to the terms of the Company’s insider trading policy and the Company’s Long Term Incentive Plan.

D. Employee acknowledges that as a member of the Company’s senior management team, Employee is one of the persons charged with responsibility for the implementation of the Company’s business plans, and that Employee is one of only a few employees who will have regular access to various confidential and/or proprietary information relating to the Company. Further, Employee acknowledges that Employee’s covenants to the Company hereinafter set forth, are being made in partial consideration of the Company’s willingness to employ Employee under the terms and conditions set forth in this Agreement. As a condition of that employment, the Company requires that this Agreement be entered into pursuant to which Employee furnishes the Company with, among other things, certain covenants of Employee, including: Employee’s covenants not to disclose the Company’s confidential and proprietary information, non-competition, and non-solicitation of employees and customers for a reasonable amount of time. Employee acknowledges that Employee’s covenants to the Company hereinafter set forth, are being made in partial consideration to the Company’s agreeing to employ and to have him serve as the Executive Vice President, Pharmacy Operations, the compensation set forth within, the Company’s grant of stock options to purchase shares of common stock of SXC Health Solutions Corp. and restricted stock units (“RSUs”) issuable in common stock of SXC Health Solutions Corp.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals, and the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereby agree as follows:

ARTICLE I
EMPLOYMENT RELATIONSHIP

1.1 Employment. Subject to the terms and conditions of this Agreement, the Company hereby agrees to employ Employee to serve its as Executive Vice President, Pharmacy Operations, and Employee hereby accepts such employment, and agrees to perform his duties and responsibilities to the best of Employee’s abilities in a diligent, trustworthy, businesslike and efficient manner.

1.2 Duties. The Employee shall be the Company’s Executive Vice President, Pharmacy Operations. Employee shall be responsible for the operation of the Company’s mail order and specialty pharmacies, including developing and directing policies, objectives, and initiatives for Pharmacy Operations, and such other duties as may be reasonably requested by the Company. Employee shall report to the Company’s CEO and President.

1.3 Exclusive Employment. While employed by the Company hereunder, Employee covenants to the Company that he/she will devote his/her entire business time, energy, attention and skill to the Company (except for permitted Paid Time Off (PTO) periods and reasonable periods of illness or other incapacity), and use his/her good faith best efforts to promote the interests of the Company. The foregoing shall not be construed as prohibiting Employee from spending such time as may be reasonably necessary to attend to Employee’s personal affairs and investments so long as such activities do not conflict or interfere with Employee’s obligations and/or timely performance of his/her duties to the Company.

1.4 Employee Representations and Warranties as to Employability. Employee hereby represents and warrants to the Company that:

(a) Employee is not a party to or bound by any employment agreement, non-competition agreement or confidentiality agreement with any other person or entity (or if a party to such an agreement, Employee has provided a copy of such agreement to the Company prior to execution of this Agreement and the Company acknowledges receipt of such a copy);

(b) The Company has not requested or received, directly or indirectly, expressly or implicitly, that Employee use or disclose the trade secrets or other confidential information of any prior employer or other third party, and Employee warrants that he will not use or disclose such information;

(c) Upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Employee, enforceable in accordance with its terms; and

(d) Employee hereby acknowledges and represents that he/she has been given the opportunity to consult with independent legal counsel regarding Employee’s rights and obligations under this Agreement and that he/she fully understands the terms and conditions contained herein.

ARTICLE II
PERIOD OF EMPLOYMENT

2.1 Employment Period. Employee’s employment hereunder shall commence on April 30, 2010, or as otherwise agreed upon by you and Mr. Thierer, and shall continue hereunder until the date fixed by the provisions of Section 2.2 hereof, subject to the early termination provisions of Article V hereof (the “Employment Period”).

2.2 Initial Term of Employment Period and Extension Terms. The Employment Period shall initially continue for a term commencing on the date set forth in Section 2.1, above, and end on December 31, 2010 (the “Initial Term”). The Employment Period shall be automatically extended for successive one (1) calendar year periods following the expiration of the Initial Term (each period being hereinafter referred to as an “Extension Term”) upon the same terms and conditions provided for herein unless either party provides the other party with advance written notice of its or Employee’s intention not to extend the Employment Period; provided, however, that such notice must be delivered by the non-extending party to the other party not later than sixty (60) days prior to the expiration of the Initial Term or any Extension Term, as the case may be. If the Employment Period is not extended as a result of notice to Employee by the Company, and Employee’s employment with the Company terminates as a result thereof, then Employee’s termination shall be a treated as a Termination by the Company Without Cause for the purposes of Section 5.2 hereof.

ARTICLE III
COMPENSATION

3.1 Annual Base Compensation. During the Employment Period the Company shall pay to Employee an annual base salary (the “Annual Base Compensation”) in the amount of three hundred thousand dollars ($300,000). The Annual Base Compensation shall be paid in regular installments in accordance with the Company’s regular payroll practices, and shall be subject to all required federal, state and local withholding taxes. Employee’s Annual Base Compensation shall be reviewed annually by the Company’s CEO and President and the Compensation Committee of the Company’s Board of Directors. Any modifications to the Annual Base Compensation are subject to approval by the Company’s Board of Directors, and any such modified amount shall become the Annual Base Compensation hereunder.

3.15 Signing Bonus. Employee shall be paid a signing bonus of twenty-five thousand dollars ($25,000), less required deductions, on Employee’s first SXC paycheck. If Employee resigns prior to completing one year of employment with the Company, Employee shall repay SXC the full amount of the signing bonus and SXC may deduct such bonus amount from other compensation owing to Employee to satisfy the repayment obligation.

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3.2 Employee Performance Bonus. In respect of each calendar year falling within the Employment Period, Employee shall be eligible to earn an incentive compensation bonus, depending upon the achievement of the Company’s and Employee’s performance objectives (the “Incentive Compensation Bonus”). The amount of the Incentive Compensation Bonus shall be targeted at sixty-five percent (65%) of the Employee’s Annual Base Compensation, with the specific percentage determined by the Company’s Board of Directors after the close of the Company’s fiscal year (December 31). The Incentive Compensation Bonus, if any, shall be paid to Employee at the same time other members of the Senior Executive Team are paid their respective incentive compensation bonuses, but no later than March 15 following the close of the Company’s fiscal year. The Incentive Compensation Bonus for the performance year 2010, payable in March 2011, will be equal to at least one hundred (100%) of the Incentive Compensation Bonus target, provided you are employed by Company on the payment date. For all subsequent performance years, if the Employee’s employment terminates during the calendar year due to Termination without Cause (5.4.(d)) or a Termination Arising Out of a Change of Control (5.4.(e)), the Employee shall receive a pro rata amount of the Incentive Compensation Bonus that Employee would have received if Employee remained employed throughout the calendar year. If Employee employment terminates during the calendar year for any other reason, then no Incentive Compensation Bonus shall be paid to Employee for the calendar year in which the termination occurred. To the extent practicable, the Company will notify Employee of Employee’s performance objectives for the year in January of that year.

3.3 Expenses. During the Employment Period, Employee shall be entitled to reimbursement of all business expenses reasonably incurred in the performance of Employee’s duties for the Company, including reasonable travel-related expenses, upon submission of all receipts and accounts with respect thereto, and approval by the Company thereof, in accordance with the then current business expense reimbursement policies of the Company.

3.4 Paid Time Off. Employee shall be entitled to accrue 21 days (6.46 hours per pay period) over the course of the calendar year Paid Time Off in accordance with the Company’s then current Paid Time Off policy. Future accruals will be subject to the Paid Time-Off Policy.

3.5 Insurance. During the Employment Period Employee shall be eligible to participate in the Company’s insurance programs on terms and conditions no less favorable than those made available generally to other similarly situated Employees, as such programs may be revised from time to time. Employee shall be provided with life insurance in the amount of 2.5 times Employee’s annual base compensation up to a maximum of five hundred thousand dollars ($500,000), contingent on insurance company approval, commencing the first day of the month following your first day of employment. Employee shall also be provided with additional executive group life insurance in the amount of five hundred thousand dollars ($500,000), contingent on insurance company approval, commencing on the first day of the month following your first day of employment.

3.6 Retirement Plan. Employee shall be eligible to participate in the Company’s retirement plans, including its 401(k) plans, deferred compensation, executive supplemental long term disability, and any other plans made available to comparably situated employees, subject to the terms and provisions in the respective Plan Documents of such Plans.

3.7 Grant of Stock Options / Restricted Stock Units

3.71 (a) Grant Of Stock Options

Upon the commencement of the Initial Term, Employee shall be granted options (“Options”) to purchase 16,800 shares of common stock of SXC Health Solutions Corp. The grants of Options provided by Section 3.71(a) are contingent upon approval by SXC Health Solutions Corp.’s Board of Directors. The Options shall be subject to the Company’s current Stock Option Plan. The options shall vest in one-fourth increments annually, commencing on the anniversary date of the grant.

b.	Except as otherwise provided in Section 5.2(e) of this Agreement, once vested, the Options shall have a five (5) year life.
c.	Upon a Change of Control (defined below), all of the Options shall vest.

3.72 Grant of Restricted Stock Units

Employee shall be granted 4,900 restricted stock units (“RSUs”) issuable in common stock of SXC Health Solutions Corp. The grants of RSUs provided by Section 3.72 are contingent upon approval by SXC Health Solutions Corporation’s Board of Directors. The RSUs shall be subject to the Company’s current Long Term Incentive Plan. The RSUs shall vest in one-fourth increments annually, commencing on the anniversary date of the grant.”

3.73 Grant of Performance Based Restricted Stock Units

Employee is eligible for 4,900 Performance Based Restricted Stock Units (“PBRSUs”), issuable in common stock of SXC Health Solutions Corp. These PBRSUs are contingent upon meeting performance metrics for employee’s business unit as determined by CEO. The grants of PBRSUs provided by Section 3.73 are contingent upon approval by SXC Health Solutions Corporation’s Board of Directors. The PBRSUs shall be subject to the Company’s current Long Term Incentive Plan.

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3.8 Long Term Incentive Plan. Employee shall be permitted to participate in the Company’s Long Term Incentive Plan in the same manner as the Company’s other Executive Vice Presidents, with future annual grants based on Employee’s performance as determined by the Company’s Chief Executive Officer and approved by the Company’s Board of Directors.

3.9 Other Fringe Benefits. During the Employment Period, Employee shall be entitled to receive such of the Company’s other fringe benefits as are being provided to other employees of the Company on the Senior Executive Team.

3.10 Vehicle Allowance. Employee shall receive a monthly payment of Five Hundred and 00/100 dollars ($500.00) for Employee’s use of a personal automobile for business use (“Vehicle Allowance”). The Vehicle Allowance shall be subject to all required federal, state, and local withholding.

3.10 Fees for Employment Counsel. Company shall pay half of the legal fees charged by employment counsel representing Employee in negotiating this Employment Agreement, up to a maximum payment by the Company of two thousand five hundred dollars ($2,500). Employee shall be fully responsible for the payment of any fees to such counsel above five thousand dollars ($5,000).

ARTICLE IV
COVENANTS OF EMPLOYEE

4.1 Covenants Regarding Developments. Employee agrees as follows with regard to any developments that relate to the Company’s business or Confidential and Proprietary Information (defined below), or that Employee conceives, makes, develops or acquires, including, but not limited to, any trade secrets, discoveries, inventions, improvements, ideas, programs, formulas, diagrams, designs, plans and drawings, whether or not reduced to writing, patented, copyrighted or trademarked (“Developments”):

(a) Employee shall promptly and fully disclose all Developments to the Company, and shall prepare, maintain, and make available to the Company adequate and current written records of such Developments and all modifications, research, and studies made or undertaken by Employee with respect thereto.

(b) All Developments and related records shall become and remain the exclusive property of the Company and, to the extent Employee has any rights thereto, Employee hereby assigns all such rights, title, and interest to the Company.

(c) Upon request by the Company, Employee, at any time, whether during or after Employee’s employment by the Company, shall execute, acknowledge and deliver to the Company all assignments and other documents which the Company deems necessary or desirable to: (i) vest the Company with full and exclusive right, title, and interest to such Developments, and (ii) enable the Company to file and prosecute an application for, or acquire, maintain or enforce, all letters of patent, trademark registrations, and copyrights covering such Developments.

(d) Section 4.1 does not apply to any Developments for which no equipment, supplies, facility or trade secret information of the Company was used, and which were developed entirely on Employee’s own time, unless the Developments: (i) relate to the Company’s business or to its actual or demonstrably anticipated research or development, or (ii) result from any work performed by Employee for the Company.

4.2 Ownership and Covenant to Return Documents, etc. Employee agrees that all Company work product and all documents or other tangible materials (whether originals, copies or abstracts), including without limitation, price lists, quotation guides, outstanding quotations, books, records, manuals, files, sales literature, training materials, customer records, correspondence, computer disks or print-out documents, contracts, orders, messages, phone and address lists, invoices and receipts, and all objects associated therewith, which in any way relate to the business or affairs of the Company either furnished to Employee by the Company or are prepared, compiled or otherwise acquired by Employee during the Employment Period, shall be the sole and exclusive property of the Company. Employee shall not, except for the use of the Company, use, copy or duplicate any of the aforementioned documents or objects, nor remove them from the facilities of the Company, nor use any information concerning them except for the benefit of the Company, either during the Employment Period or thereafter. Employee agrees that Employee will deliver all of the aforementioned documents and objects that may be in Employee’s possession to the Company on the termination of Employee’s employment with the Company, or at any other time upon the Company’s request.

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4.3 Nondisclosure Covenant. Employee recognizes that by virtue of Employee’s employment with the Company, Employee will be granted otherwise prohibited access to trade secrets and other confidential and proprietary information that is not known to its competitors or within the industry generally, that was developed by the Company over a long period of time and/or at substantial expense, and which is confidential in nature or otherwise of great competitive value to the Company. This information (“Confidential and Proprietary Information”) includes, but is not limited to, the Company’s trade secrets; information relating to the Company’s production practices and methods of doing business; sales, marketing, and service strategies, programs, and procedures; contract expiration dates, customers and prospective customers, including, but not limited to, their particularized requirements and preferences, and the identity, authority, and responsibilities of their key contact persons; payment methods; service and product costs; pricing structures and incentive plans; vendors; financial position and business plans; computer programs and databases; research projects; new product and service developments; and any other information of the Company or any of its vendors or customers that the Company informs Employee, or which Employee should know by virtue of Employee’s position or the circumstances in which Employee learned it, is to be kept confidential. Confidential and Proprietary Information does not include information that is (i) in the public domain (except as a result of a breach of this Agreement or Employee’s obligations under a statutory or common law obligation) or (ii) obtained by Employee from a third party subsequent to the termination of Employee’s employment with the Company (except where the third party obtains the information in violation of a contractual obligation, a statutory or common law obligation). Employee agrees that during the Employment Period and at all times thereafter (a) Employee will not disclose, use or permit others to use any Confidential and Proprietary Information, or otherwise make use of any of it for Employee’s own purposes or the purposes of another, except as required in the course of Employee’s employment for the benefit of the Company or as required by law, and (b) Employee will take all reasonable measures, in accordance with the Company’s policies, procedures, and instructions, to protect the Confidential and Proprietary Information from any accidental or unauthorized disclosure or use.

4.4 Noninterference Covenant. Employee agrees that during the Employment Period and for the Restricted Period, Employee will not, for any reason, directly or indirectly solicit, hire, or otherwise do any act or thing which may induce any other employee of the Company (who is employed by the Company at the end of the Employee’s employment with the Company) to leave the employ of the Company. “Restricted Period” means (i) the Employment Period and (ii) the one (1) year period following the termination of Employee’s employment.

4.5 Covenant of Nonsolicitation of Customers. Employee acknowledges the Company’s legitimate interest in protecting its customers for a reasonable period of time following the termination of Employee’s employment. Accordingly, Employee agrees that during the Restricted Period, Employee will not: (a) directly or indirectly, solicit or accept business from, any Customer, where such business, products or services would be competitive with the Company’s business, products or services, as described in Section 4.6, or (b) do any act or thing which may interfere with or adversely affect the relationship (contractual or otherwise) of the Company with any Customer or vendor of the Company or induce any such Customer or vendor to cease doing business with the Company. For purposes of this paragraph, the term “Customer” means (i) a customer of the Company to which Employee sold or provided the Company’s products or services at any time during the two (2) year period immediately preceding the termination of Employee’s employment, (ii) any entity for which Employee orchestrated, developed, supervised, coordinated or participated in marketing strategy, marketing plans and marketing campaigns on behalf of the Company at any time during the two (2) year period immediately preceding the termination of Employee’s employment, or (iii) any entity as to which Employee acquired Confidential and Proprietary Information at any time during Employee’s employment with the Company.

4.6 Covenant Not to Compete. Employee expressly acknowledges that (i) the Company is and will be engaged in the business of providing pharmacy benefit management services, healthcare transaction processing services, and information technology solutions to the pharmaceutical industry, including without limitation: (x) pharmacy benefit services and analytics software and related ASP services, including claims processing, pharmacy networks, data warehousing and information analysis, rebate contracting and formulary management, clinical initiatives, mail order pharmacy services, and consumer web services; (y) pharmacy practice management and point of sale (POS) systems for retail pharmacy (independents and chains), institutional/nursing home pharmacy, and high-volume mail order pharmacy; and (z) specialty pharmacy products and services; (ii) Employee is one of a limited number of persons who has extensive knowledge and expertise relevant to the businesses of the Company; (iii) Employee’s performance of his services for the Company hereunder will afford Employee full and complete access to and cause Employee to become highly knowledgeable about the Company’s Confidential and Proprietary Information; (iv) the agreements and covenants contained in this section 4.6 are essential to protect the business and goodwill of the Company, because, if Employee enters into any activities competitive with the business of the Company, Employee will cause substantial harm to the Company; (v) Employee will be exposed to the Company’s largest customers; (vi) the business territory of the Company at the time this Agreement was entered into constitutes the United States and Canada (“Business Territory”); and (vii) Employee’s covenants to the Company set forth in this section 4.6 are being made in consideration of the Company’s willingness to employ him. Accordingly, Employee herby agrees that during the Restricted Period, Employee shall not, within the Business Territory, directly or indirectly own any interest in, invest in, lend to, borrow from, manage, control, participate in, consult with, become employed by, render services to, or in any other manner whatsoever engage in any business which is competitive with any business actively being engaged in by the Company or actively (and demonstrably) being considered by the Company for entry into on the date of the termination of Employee’s employment with the Company. The preceding to the contrary notwithstanding, Employee shall be free to make investments in the publicly traded securities of any corporation, provided that such investments do not amount to more than 1% of the outstanding securities of any class of such corporation.

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4.7. Remedies for Breach. Employee recognizes that the rights and privileges granted to Employee by this Agreement, and Employee’s corresponding covenants to the Company, are of a special, unique, and extraordinary character, the loss of which cannot reasonably or adequately be compensated for in damages in any action at law or through the offset or withholding of any monies to which Employee might be entitled from the Company. Accordingly, Employee understands and agrees that the Company shall be entitled to equitable relief, including a temporary restraining order and preliminary and permanent injunctive relief, to prevent or enjoin a breach of this Agreement. Employee also understands and agrees that any such equitable relief shall be in addition to, and not in substitution for, any other relief to which the Company may be entitled.

ARTICLE V
TERMINATION

5.1 Termination and Triggering Events. Notwithstanding anything to the contrary elsewhere contained in this Agreement, the Employment Period shall terminate at the expiration of the Initial Term or any Extension Term upon notice as provided in Section 2.2, or prior to the expiration of the Initial Term or any Extension Term upon the occurrence of any of the following events (individually referred to as a “Triggering Event”): (a) Employee’s death; (b) Employee’s Total Disability; (c) Employee’s Resignation; (d) Termination by the Company for Cause; (e) Termination by the Company Without Cause; or (f) Termination Arising Out of a Change of Control.

5.2 Rights Upon Occurrence of a Triggering Event. Subject to the provisions of Section 5.3 hereof, the rights of the parties upon the occurrence of a Triggering Event prior to the expiration of the Initial Term or any Extension Term shall be as follows:

(a) Death, Total Disability, Resignation, and Termination by the Company for Cause. If the Triggering Event was Employee’s Death, Total Disability (defined below), Resignation, or a Termination by the Company for Cause (defined below), then Employee shall be entitled to receive Employee’s Annual Base Compensation and accrued but unused vacation time through the date of the Triggering Event, and to continue to participate in the Company’s employee welfare plans and programs (including, without limitations, health insurance plans) through the date of the Triggering Event and, thereafter, only to the extent permitted under the terms of such plans and programs.

(b) Termination by Company Without Cause. If the Triggering Event was a Termination by the Company Without Cause, then Employee shall be entitled to receive (i) Employee’s Annual Base Compensation and accrued but unpaid vacation through the date thereof; (ii) payment of Employee’s Incentive Compensation Bonus, if any, pro rated to the Employee’s date of termination (payable at the same time other members of the Senior Executive Team are paid their respective incentive compensation bonuses which shall be in no event later than March 15 following the close of the Company’s fiscal year); and (iii) the Severance Benefit. “Severance Benefit” means a payment equal to the Employee’s Annual Base Compensation as of the date of termination, payable according the Company’s regular payroll schedule, less required tax withholding, commencing within thirty (30) days from the date Company receives the Separation Agreement and General Release executed by Employee. For purposes of this subsection 5.2(b), any payment or benefit that the Employee receives shall be treated as a “separate payment” for the application of Section 409A of the Internal Revenue Code (“Code”). Employee’s entitlement to the benefits provided in subsections 5.2(b) (ii) and (iii) are contingent on Employee signing a Separation Agreement and General Release provided by the Company. The Company intends to rely on the involuntary separation from service exception of Treasury regulation §1.409A-1(b)(9)(iii) if the Employee receives any payment or benefit due to his Termination by the Company Without Cause.

(c) Termination Arising Out of a Change of Control. If the Triggering Event was a Termination Arising Out of a Change of Control (defined below), then Employee shall be entitled to receive (i) Employee’s Annual Base Compensation and accrued but unpaid vacation through the date thereof; (ii) payment of a Employee’s Incentive Compensation Bonus, if any, pro rated to Employee’s date of termination (payable at the same time other members of the Senior Executive Team are paid their respective incentive compensation bonuses which shall be in no event later than March 15 following the close of the Company’s fiscal year); and (iii) the Change of Control Severance Benefit. Employee’s entitlement to the benefits provided in subsections 5.2(c) (ii) and (iii) is contingent on Employee signing a Separation Agreement and General Release provided by the Company within a reasonable period of time following the date the Separation Agreement and General Release is provided to Employee. “Change of Control Severance Benefit” means a lump-sum payment, less required tax withholding, equal to two (2) times the Employee’s Annual Base Compensation at the time of termination, plus one (1) times the Incentive Compensation Target at the time of termination. The Change of Control Severance Benefit shall be paid within thirty days from the date the executed Separation Agreement and General Release is received by the Company. Notwithstanding the foregoing to the contrary, if the Compensation Committee determines that the Employee is a Specified Employee then his Change of Control Severance Benefit due under this paragraph (c) shall be made no earlier than the six (6) month anniversary of the Triggering Event or upon the death of the Employee, if earlier, pursuant to Section 409A of the Code. Notwithstanding anything to the contrary contained in this Agreement, if and to the extent that any payments and rights provided under this Agreement would cause Employee to be subject to excise tax under Section 280G or Section 4999 of the Code, if the corresponding section(s) of any future federal tax law, then the amount of the payments shall be reduced to the extent necessary to avoid imposition of any such excise tax.

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(d) Cessation of Entitlements and Company Right of Offset. Except as otherwise expressly provided herein, all of Employee’s rights to salary, employee benefits, fringe benefits and bonuses hereunder (if any) which would otherwise accrue after the termination of the Employment Period shall cease upon the date of such termination. The Company may offset any loans, cash advances or fixed amounts which Employee owes the Company against any amounts it owes Employee under this Agreement.

(e) Treatment of Options. Employee may be required to exercise any vested options within ninety (90) days from date of the termination of his employment.

5.3 Survival of Certain Obligations. The provisions of Articles IV and VI shall survive any termination of the Employment Period, whether by reason of the occurrence of a Triggering Event or the expiration of the Initial Term or any Extension Term.

5.4 Definitions. For purposes of Article V, the following definitions apply:

(a) “Resignation” means a voluntary termination of Employee’s employment with the Company, including Employee’s declining of continued employment in the same or comparable position with the Company following a Change of Control.

(b) “Specified Employee” means an employee who, as of the date of the employee’s Triggering Event, is a Key Employee of the Company. For purposes herein, an employee is a “Key Employee” if he or she satisfies the requirements of Sections 416(i)(1)(A)(i), (ii), or (iii) of the Code (applied in accordance with applicable Treasury regulations and disregarding Section 416(i)(5) of the Code) at any time during the 12-month period ending on any specified employee identification date.

(c) “Termination by the Company for Cause” means termination by the Company of Employee’s employment for:

(i) The failure of Employee to comply with any of the material provisions of this Agreement, other than an isolated, insubstantial or inadvertent action not taken in bad faith and which is remedied by Employee within thirty (30) days after receipt of written notice thereof given by the Company;

(ii) A conviction of Employee by a court of competent jurisdiction of a felony;

(iii) The refusal, failure or neglect of Employee to perform his duties under his employment agreement in a manner that is materially detrimental to the business or reputation of the Company unless remedied by Employee within thirty (30) days after receipt of written notice thereof given by the Company;

(iv) The engagement by the Employee in illegal, unethical or other wrongful conduct that is materially detrimental to the business or reputation of SXC; or

(v) The pursuit by Employee of interests that are materially adverse to SXC unless remedied by Employee within thirty (30) days after receipt of written notice thereof given by the Company;

(d) “Termination by the Company Without Cause” means a termination of Employee’s employment by the Company which is not a Termination by the Company for Cause, provided that the termination of the Employment Period on account of the failure of the Company to extend the Employment Period in accordance with the provisions of Section 2.2 hereof shall constitute a Termination by the Company Without Cause.

(e) A “Termination Arising Out of a Change of Control” means, following a Change of Control (defined below), Employee is not offered or retained in his current or a comparable position with comparable compensation. A “Change of Control” shall be defined under this Agreement to mean any of the following occurrences:

(i) Any person, other than SXC Health Solutions Corp. or an employee benefit plan of SXC Health Solutions Corp. or the Company, acquires directly or indirectly the Beneficial Ownership (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended) of any voting security of SXC Health Solutions Corp. and becomes, immediately after and as a result of such acquisition, directly or indirectly, the Beneficial Owner of voting securities representing 50% or more of the total voting power of all of the then-outstanding voting securities of SXC Health Solutions Corp.

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(ii) The shareholders of SXC Health Solutions Corp. approve a merger, and such merger is completed, consolidation, recapitalization, or reorganization of SXC Health Solutions Corp. or the Company, a reverse stock split of outstanding voting securities, or consummation of any such transaction if shareholder approval is not sought or obtained, other than any such transaction that would result in at least 75% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after, and as a result of such transaction, being Beneficially Owned by at least 75% of the holders of outstanding voting securities of SXC Health Solutions Corp. immediately prior to the transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction; or

(iii) The shareholders of SXC Health Solutions Corp. approve a plan of complete liquidation of SXC Health Solutions Corp. or the Company or an agreement for the sale or disposition by SXC Health Solutions Corp. of all or a substantial portion of assets (i.e., 50% or more) of the total assets of SXC Health Solutions Corp. or the Company.

(f) “Total Disability” means the Employee (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan which covers the Employee. Subject to the provisions of Section 409A and the Treasury regulations issued thereunder, any determination of whether the Employee satisfies the definition of “Total Disability” shall be made by the Compensation Committee, based upon the medical evidence from a physician selected by the Compensation Committee. Any determination of whether the Employee satisfies the definition of “Total Disability” for purposes of this Agreement shall not be construed as a determination for any other purpose.

5.5 Section 409A Compliance. For purposes of this Agreement, all references to Employee’s termination of employment means the date Employee ceases to be an employee of the Employer or an Affiliate (defined below). Notwithstanding the preceding sentence, Employee must incur a “separation from service” as that term is defined in Section 409A of the Internal Revenue Code of 1986, as amended (“Code”) and the Treasury regulations issued thereunder, to terminate employment under this Agreement. Hence, Employee shall not be deemed to terminate employment in the case of any departure or change in employment status if the Employer (or an Affiliate) and Employee anticipate that Employee will continue to provide services to the Employer or an Affiliate (as an employee or independent contractor) at a level in excess of 20% of the level of services being provided by Employee prior to such departure or change in status, as measured over the past three (3) years (or shorter period of actual employment.) Further, an employee who becomes an independent contractor to the Employer or an Affiliate and who does not incur a “separation from service” upon becoming an independent contractor, shall not be deemed to terminate employment until the contractor relationship is completely terminated with no expectation by the Employer (or an Affiliate) and the employee of any further service relationship. The term “Affiliate” means (a) each other corporation, if any, which is a member of the same “controlled group of corporations” as the Employer as determined under Code Section 414(b) (which incorporates the rules of Section 1563(a) of the Code), provided that in applying Code Section 1563(a)(1), (a)(2) and (a)(3) for this purpose, the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears, and (b) each other trade or business (whether or not incorporated), if any, which is under “common control” (as such term is described in Section 414(c) of the Code) with the Employer, provided that in applying Treasury regulation §1.414(c)-2 for this purpose, the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears. Notwithstanding the foregoing, the provisions of Treasury regulation §1.414(c)-5 shall also apply for determining whether a corporation, trade or business is affiliated with the Employer. Any payment or benefit that Employee receives shall be treated as a “separate payment” for the application of Section 409A of the Code.

ARTICLE VI
GENERAL

6.1 Governing Law. This Agreement shall be subject to and governed by the laws of the State of Illinois without regard to any choice of law or conflicts of law rules or provisions (whether of the State of Illinois or any other jurisdiction), irrespective of the fact that Employee may become a resident of a different state.

6.2 Binding Effect. The Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and Employee and Employee’s executors, administrators, personal representatives and heirs.

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6.3 Assignment. Employee expressly agrees for Employee and on behalf of Employee’s executors, administrators and heirs, that this Agreement and Employee’s obligations, rights, interests and benefits hereunder shall not be assigned, transferred, pledged or hypothecated in any way by Employee, Employee’s executors, administrators or heirs, and shall not be subject to execution, attachment or similar process. Any attempt to assign, transfer, pledge, hypothecate or otherwise dispose of this Agreement or any such rights, interests and benefits there under contrary to the foregoing provisions, or the levy of any attachment or similar process thereupon shall be null and void and without effect and shall relieve the Company of any and all liability hereunder. This Agreement shall be assignable and transferable by the Company (but the Company shall not be required to assign or transfer this Agreement) to any successor in interest without the consent of Employee.

6.4 Complete Understanding. This Agreement and its exhibits constitutes the complete understanding among the parties hereto with regard to the subject matter hereof, and supersedes any and all prior agreements and understandings relating to the employment of Employee by the Company, including without limitation any prior compensation plans or compensation agreements entered into between Employee and the Company.

6.5 Amendments. No change, modification or amendment of any provision of this Agreement shall be valid unless made in writing and signed by all of the parties hereto.

6.6 Waiver. The waiver by the Company of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent breach by Employee. The waiver by Employee of a breach of any provision of this Agreement by the Company shall not operate as a waiver of any subsequent breach by the Company.

6.7 Venue, Jurisdiction, Etc. Employee hereby agrees that any suit, action or proceeding relating in any way to this Agreement shall be brought and enforced in the Eighteenth Judicial Circuit, DuPage County, State of Illinois or in the District Court of the United States of America for the Northern District of Illinois, Eastern Division, and in either case Employee hereby submits to the jurisdiction of each such court. Employee hereby waives and agrees not to assert, by way of motion or otherwise, in any such suit, action or proceeding, any right of removal, any claim that Employee is not personally subject to the jurisdiction of the above-named courts, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Employee consents and agrees to service of process or other legal summons for purpose of any such suit, action or proceeding by registered mail addressed to Employee at Employee’s address listed in the business records of the Company. Employee and the Company do each hereby waive any right to trial by jury that Employee or it may have concerning any matter relating to this Agreement.

6.8 Indemnification of Employee. Employee is hereby entitled to indemnification for Employee’s acts or omissions in Employee’s capacity as an Employee or officer of the Company to the same extent as the Company’s other senior Employees and in the manner provided by the Company’s bylaws.

6.9 Directors and Officers Liability Insurance. The Company shall maintain adequate Directors and Officers liability insurance coverage, which shall include Employee in Employee’s capacity as an Officer. The adequacy of the Directors and Officers liability insurance coverage shall be determined annually by the Board of Directors at its reasonable discretion.

6.10 Severability. If any portion of this Agreement shall be for any reason, invalid or unenforceable, the remaining portion or portions shall nevertheless be valid, enforceable and carried into effect.

6.11 Headings. The headings of this Agreement are inserted for convenience only and are not to be considered in the construction of the provisions hereof.

6.12 Notices. All notices under this Agreement shall be in writing and shall be deemed properly sent, (i) when delivered, if by personal service or reputable overnight courier service, or (ii) when received, if sent by certified or registered mail, postage prepaid, return receipt requested to the recipient at the address indicated below or otherwise subsequently provided by one party to the other party:

Notices to Employee:

Mr. Joel Saban
2205 Avalon Drive
Buffalo Grove, IL 60089

Notices to Company:

SXC Health Solutions, Inc.
Attn: Chief Executive Officer
2441 Warrenville Road Suite 610
Lisle, IL 60532-3642

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6.13 Counterparts. This Agreement may be executed in one or more counterparts, all of which, taken together, shall constitute one and the same agreement.

COMPANY:	EMPLOYEE:
SXC HEALTH SOLUTIONS, INC.

By:
	Date	Joel Saban          Date
	Its:

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Mark Thierer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of SXC Health Solutions Corp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 5, 2010
By:	/s/ Mark Thierer
	Mark Thierer
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jeffrey Park, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of SXC Health Solutions Corp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 5, 2010
By:	/s/ Jeffrey Park
	Jeffrey Park
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark Thierer, the chief executive officer of SXC Health Solutions Corp., certify that (i) the Quarterly Report on Form 10-Q of SXC Health Solutions Corp. for the quarter ended June 30, 2010 (the “Form 10-Q”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of SXC Health Solutions Corp.

/s/ Mark Thierer  

Mark Thierer 

Chief Executive Officer

August 5, 2010 

EX-32.2

Exhibit 32.2

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey Park, the chief financial officer of SXC Health Solutions Corp., certify that (i) the Quarterly Report on Form 10-Q of SXC Health Solutions Corp. for the quarter ended June 30, 2010 (the “Form 10-Q”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of SXC Health Solutions Corp.

/s/ Jeffrey Park  

Jeffrey Park 

Chief Financial Officer

August 5, 2010