8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 9, 2012

SXC HEALTH SOLUTIONS CORP.

(Exact name of registrant as specified in its charter)

Commission File Number: 000-52073

Yukon Territory, Canada	75-2578509
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

2441 Warrenville Road, Suite 610

Lisle, Illinois 60532-3642

(Address of principal executive offices, including zip code)

(800) 282-3232

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

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

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

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

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

Item 8.01. Other Events.

As previously disclosed, on April 18, 2012, SXC Health Solutions Corp. (“SXC”) announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Catalyst Health Solutions, Inc. (“Catalyst”), pursuant to which, upon the terms and subject to the conditions set forth in the Merger Agreement, a newly-formed indirect wholly-owned subsidiary of SXC will be merged with and into Catalyst, with Catalyst surviving as an indirect wholly-owned subsidiary of SXC (the “Merger”). Each share of Catalyst common stock outstanding immediately prior to the effective time of the Merger (other than shares owned by SXC or Catalyst or any of their respective wholly-owned subsidiaries or shares with respect to which appraisal rights have been properly exercised) will be converted in the Merger into the right to receive 0.6606 of a common share of SXC and $28.00 in cash. The Merger is expected to close in the second half of 2012, subject to the receipt of certain regulatory approvals and the satisfaction or waiver of other customary closing conditions.

SXC is filing this Current Report on Form 8-K for the purpose of incorporating certain risk factors relating to Catalyst’s business (the “Catalyst Risk Factors”), attached as Exhibit 99.1 hereto and incorporated by reference in this Item 8.01, into the prospectus supplement (the “Prospectus Supplement”) to the prospectus of SXC included in SXC’s Registration Statement on
Form S-3 (File No. 333-161237) (the “Registration Statement”), which Prospectus Supplement SXC is filing today with the Securities and Exchange Commission (the “SEC”). The Catalyst Risk Factors were originally included in Item 1A of Catalyst’s Annual Report on Form 10-K for the year ended December 31, 2011, filed by Catalyst with the SEC on February 24, 2012, and SXC is reproducing them without revision in Exhibit 99.1 to this Current Report on Form 8-K. As a result, references in the Catalyst Risk Factors to the “Company,” “we,” “us,” or “our” are references to Catalyst and its subsidiaries, except as the context otherwise requires.

In addition, SXC is filing this Current Report on Form 8-K for the purpose of incorporating (i) certain consolidated financial statements of Catalyst and its subsidiaries and (ii) certain unaudited pro forma condensed combined financial statements of SXC, in each case as described in Item 9.01 below, into the Prospectus Supplement and into the Registration Statement.

Historical Catalyst and Pro Forma Financial Information

Set forth in Exhibit 99.2 and incorporated herein by reference are the audited consolidated financial statements of Catalyst as of December 31, 2011 and 2010 and for the three-year period ended December 31, 2011, together with the report of the independent registered public accounting firm thereon and Catalyst management’s report on the effectiveness of internal control over financial reporting.

Set forth in Exhibit 99.3 and incorporated herein by reference are the unaudited consolidated financial statements of Catalyst as of March 31, 2012 and for the three months ended March 31, 2012 and 2011.

Set forth in Exhibit 99.4 and incorporated herein by reference are the unaudited pro forma condensed combined financial statements of SXC for the year ended December 31, 2011 and as of and for the three months ended March 31, 2012, in each case giving pro forma effect to the Merger and certain proposed financing transactions described therein. The pro forma financial statements are derived primarily from the historical financial statements of SXC, Catalyst, Walgreens Health Initiatives, Inc., the outstanding capital stock of which was acquired by Catalyst in June 2011, and HealthTran LLC, the outstanding equity interests of which were acquired by SXC on January 1, 2012. SXC filed certain financial statements of HealthTran LLC as exhibits to its Current Report on Form 8-K/A filed with the SEC on March 14, 2012. The pro forma financial statements are preliminary and reflect a number of assumptions, including, among others, that the Merger and the proposed financing transactions will be consummated. There can be no assurance that any of such transactions will be consummated or that the actual terms of such transactions will not differ materially from SXC’s current expectations.

* * * * * * *

SXC Forward-Looking Statements

Certain statements included in this communication constitute “forward-looking statements” within the meaning of applicable securities laws. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies. SXC cautions that such forward-looking statements involve known and unknown risks, uncertainties and other risks that may cause SXC’s actual financial results, performance, or achievements to be materially different from SXC’s estimated future results, performance or achievements expressed or implied by those forward-looking statements. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including without limitation, SXC’s dependence on and ability to retain key customers; SXC’s ability to achieve increased market acceptance for SXC’s product offerings and penetrate new markets; consolidation in the healthcare industry; the existence of undetected errors or similar problems in SXC’s software products; SXC’s ability to identify and complete acquisitions, manage SXC’s growth and integrate acquisitions; SXC’s ability to compete successfully; potential liability for the use of incorrect or incomplete data; the length of the sales cycle for SXC’s healthcare software solutions; interruption of SXC’s operations due to outside sources; maintaining SXC’s intellectual property rights and litigation involving intellectual property rights; SXC’s ability to obtain, use or successfully integrate third-party licensed technology; compliance with existing laws, regulations and industry initiatives and future change in laws or regulations in the healthcare industry; breach of SXC’s security by third parties; SXC’s dependence on the expertise of SXC’s key personnel; SXC’s access to sufficient capital to fund SXC’s future requirements; and potential write-offs of goodwill or other intangible assets. This list is not exhaustive of the factors that may affect any of SXC’s forward-looking statements. Other factors that should be considered are discussed from time to time in SXC’s filings with the SEC, including the risks and uncertainties discussed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in SXC’s 2011 Annual Report on Form 10-K and subsequent Form 10-Qs, which are available at www.sec.gov. Investors are cautioned not to put undue reliance on forward- looking statements. All subsequent written and oral forward-looking statements attributable to SXC or persons acting on SXC’s behalf are expressly qualified in their entirety by this cautionary statement. SXC disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.

Certain of the assumptions made in preparing forward-looking information and management’s expectations include: maintenance of SXC’s existing customers and contracts, SXC’s ability to market SXC’s products successfully to anticipated customers, the impact of increasing competition, the growth of prescription drug utilization rates at predicted levels, the retention of SXC’s key personnel, SXC’s customers continuing to process transactions at historical levels, that SXC’s systems will not be interrupted for any significant period of time, that SXC’s products will perform free of major errors, SXC’s ability to obtain financing on acceptable terms and that there will be no significant changes in the regulation of SXC’s business.

Catalyst Transaction Forward-Looking Statements

In addition, numerous factors could cause actual results with respect to the proposed Catalyst transaction to differ materially from those in the forward-looking statements, including without limitation, the possibility that the expected efficiencies and cost savings from the proposed transaction will not be realized, or will not be realized within the expected time period; the risk that the SXC and Catalyst businesses will not be integrated successfully; the ability to obtain governmental approvals of the proposed transaction on the proposed terms and schedule contemplated by the parties; the failure of shareholders of SXC or Catalyst to

approve the proposed transaction; disruption from the proposed transaction making it more difficult to maintain business and operational relationships; the risk of customer attrition; the possibility that the proposed transaction does not close, including, but not limited to, due to the failure to satisfy the closing conditions; and the ability to obtain the financing contemplated to fund a portion of the consideration to be paid in the proposed transaction and the terms of such financing.

Important Additional Information

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This communication is being made in respect of the proposed transaction involving Catalyst and SXC. The proposed Catalyst transaction will be submitted to the shareholders of Catalyst and the shareholders of SXC for their consideration. In connection therewith, SXC filed with the SEC on May 7, 2012 a Registration Statement on Form S-4 that included a preliminary joint proxy statement of Catalyst and SXC that also constitutes a preliminary prospectus of SXC, and each of the companies may be filing with the SEC other documents regarding the proposed transaction. At the appropriate time, Catalyst and SXC will mail the definitive proxy statement/prospectus regarding the proposed merger to their respective shareholders. BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS, INVESTORS AND SECURITY HOLDERS OF CATALYST AND/OR SXC ARE URGED TO READ THE JOINT PROXY STATEMENT/ PROSPECTUS REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS THAT WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of the proxy statement/prospectus and other documents containing important information about Catalyst and SXC, once such documents are filed with the SEC, through the website maintained by the SEC at www.sec.gov. Copies of the documents filed with the SEC by SXC will be available free of charge on SXC’s website at www.sxc.com under the heading “Investor Information” or by contacting SXC’s Investor Relations Department at 630-577-3100. Copies of the documents filed with the SEC by Catalyst will be available free of charge on Catalyst’s website at www.catalysthealthsolutions.com under the heading “Investor Information” or by contacting Catalyst’s Investor Relations Department at 301-548-2900.

SXC, Catalyst and certain of their respective directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in connection with the proposed transaction. Information about the directors and executive officers of SXC is set forth in its proxy statement for its 2012 annual meeting of stockholders, which was filed with the SEC on April 2, 2012. Information about the directors and executive officers of Catalyst is set forth in its proxy statement for its 2012 annual meeting of shareholders, which was filed with the SEC on April 26, 2012. These documents can be obtained free of charge from the sources indicated above. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.

Item 9.01. Financial Statements and Exhibits.

(d)     Exhibits:

Exhibit Number	Description of Exhibit
23.1	Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm to Catalyst Health Solutions, Inc.
99.1	Risk factors related to Catalyst Health Solutions, Inc.’s business

99.2	Audited consolidated financial statements of Catalyst Health Solutions, Inc. and its subsidiaries as of December 31, 2011 and December 31, 2010 and for the three-year period ended December 31, 2011, together with the report of the independent registered public accounting firm thereon and Catalyst management’s report on the effectiveness of internal control over financial reporting
99.3	Unaudited consolidated financial statements of Catalyst Health Solutions, Inc. and its subsidiaries as of March 31, 2012 and for the three months ended March 31, 2012 and 2011
99.4	Unaudited pro forma condensed combined financial statements of SXC Health Solutions Corp. and its subsidiaries for the year ended December 31, 2011 and as of and for the three months ended March 31, 2012, in each case giving pro forma effect to the Merger and certain proposed financing transactions described therein

SIGNATURES

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

	SXC HEALTH SOLUTIONS CORP.
Dated: May 9, 2012	By:	/s/ Jeffrey Park
		Name:  Jeffrey Park
		Title:    Executive Vice President and              Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description of Exhibit
23.1	Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm to Catalyst Health Solutions, Inc.
99.1	Risk factors related to Catalyst Health Solutions, Inc.’s business
99.2	Audited consolidated financial statements of Catalyst Health Solutions, Inc. and its subsidiaries as of December 31, 2011 and December 31, 2010 and for the three-year period ended December 31, 2011, together with the report of the independent registered public accounting firm thereon and Catalyst management’s report on the effectiveness of internal control over financial reporting
99.3	Unaudited consolidated financial statements of Catalyst Health Solutions, Inc. and its subsidiaries as of March 31, 2012 and for the three months ended March 31, 2012 and 2011
99.4	Unaudited pro forma condensed combined financial statements of SXC Health Solutions Corp. and its subsidiaries for the year ended December 31, 2011 and as of and for the three months ended March 31, 2012, in each case giving pro forma effect to the Merger and certain proposed financing transactions described therein

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-161237) and Forms S-8 (Nos. 333-174671, 333-164021, 333-159733, 333-145450, 333-145449 and 333-136402) of SXC Health Solutions Corp. of our report dated February 24, 2012 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting of Catalyst Health Solutions, Inc. as of and for the year ended December 31, 2011, which appears in this Current Report on Form 8-K of SXC Health Solutions Corp. dated May 9, 2012.

/s/ PricewaterhouseCoopers LLP

McLean, VA

May 9, 2012

EX-99.1

Exhibit 99.1

The following risk factors were originally included in Item 1A of Catalyst Health Solutions, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on February 24, 2012, and SXC Health Solutions Corp. is reproducing them without revision herein. As a result, references in this Exhibit 99.1 to “we,” “our,” “us,” or the “Company” refer to Catalyst Health Solutions, Inc. and its subsidiaries, except as the context otherwise requires.

Risk Factors Related To Catalyst Health Solutions, Inc.’s Business

The enactment and implementation of health care reforms could have a materially adverse effect on the manner in which we operate our business and affect our results of operations, financial position and cash flows.

In March 2010, the Patient Protection and Affordable Care Act, and a reconciliation measure, the Health Care and Education Reconciliation Act of 2010, were signed into law. These statutes, collectively known as the ACA, require significant changes in the manner in which health insurance coverage is administered and made available in the United States, including applicable pharmacy benefits. The ACA contains PBM transparency provisions that require PBMs like us to report a variety of financial information to the federal government, including pricing, rebate, and discount information, which will be made publicly available by the federal government. While we have historically operated our business in a transparent manner with respect to our clients, there can be no assurance that the public availability of commercial financial information from all PBMs will not adversely alter the discounts, rebates, and fees that PBMs including us can negotiate in the commercial marketplace.

Beyond the provisions directly applicable to PBMs, the ACA contains broad provisions designed to alter the structure of the market for health insurance, and changes in the health insurance market as a whole will impact the market for our pharmacy benefit management services. The ACA defines qualifying health benefits packages, including applicable prescription drug coverage, to be offered by employers or to be obtained by individuals through insurance exchanges. The ACA also contains a variety of requirements applicable to health insurers and pharmaceutical manufacturers, including the elimination of pre-existing condition exclusions and annual and lifetime maximum limits, restrictions on the extent to which policies can be rescinded, establishment of minimum medical loss ratios, the imposition of new and significant taxes on health insurers and health care benefits, rate increase disclosure and review requirements for individual and small group market coverage, and annual fees payable by pharmaceutical manufacturers on brand drugs.

Many provisions of the ACA become effective at various dates through 2014, and the impact of the ACA remains uncertain pending promulgation of applicable regulations and implementation of the ACA by health insurers, healthcare providers, pharmaceutical manufacturers, and federal and state authorities. Further, the Supreme Court is scheduled to hear challenges to the constitutionality of the ACA’s minimum essential coverage requirement (otherwise known as the “individual mandate”) and Medicaid expansion, and will also be hearing arguments on “severability” which if the individual mandate is found unconstitutional could result in other provisions of the ACA or the entire law being struck. Although we have implemented many programs to assist our clients in meeting their obligations under the ACA, there can be no assurance that the new regulations and implementation of the ACA, and the results of the pending Supreme Court decision, will not disrupt the market for our PBM services over the next several years, including through our clients reducing or delaying the purchase of PBM services, clients seeking to reduce administrative fees and expenses paid to PBMs, and manufacturers reducing rebates or reducing supplies of certain products. Such market disruptions could have a material adverse effect on our business, results of operations, financial condition, or cash flows.

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Competition in our industry is intense and could reduce or eliminate our profitability.

The PBM industry is very competitive. PBM companies compete primarily on the basis of price, service, reporting capabilities and clinical services. If we do not compete effectively, our business, results of operations, financial condition or cash flows could suffer. In addition, the competition for new clients or renewing clients could require us to reduce pricing levels, in turn significantly adversely impacting marginal profitability and overall operating margins. The industry is highly consolidated and dominated by a few large, profitable, well-established companies with significant financial and marketing resources, purchasing power and other competitive advantages that we do not have. Scale is a particularly important factor in negotiating prices with pharmacies and drug manufacturers. A limited number of large firms, particularly the combined Medco Health Solutions, Inc., and Express Scripts, Inc., if the proposed merger between those companies occurs, as well as CVS/Caremark Rx, Inc., have an aggregate market share of approximately 70% of prescription volume. Our competitors also include drug retailers, physician practice management companies, and insurance companies/health maintenance organizations. Some of our services, such as disease management services, informed decision counseling services and medical information management services, also compete with those being offered by pharmaceutical manufacturers, specialized disease management companies, and information service providers. We may also experience competition from other sources in the future.

We are dependent on a group of key customers, and if we lose key clients as a result of competitive bidding for contracts or contract renewals, consolidation of clients or otherwise, our business, profitability, and growth prospects could suffer.

We depend on a group of clients for a significant portion of our revenue. Our top twenty clients generated approximately 67% of our revenue for the year ended December 31, 2011, including approximately 16% from Independence Blue Cross and approximately 10% from Wellmark Blue Cross Blue Shield of Iowa. Our agreement with Independence Blue Cross is scheduled to terminate in 2020, and our agreement with Wellmark Blue Cross Blue Shield is scheduled to terminates in 2017, subject in both cases to the client’s right to terminate earlier for breach or if we are unable to provide competitive pricing. The State of Maryland, which constituted approximately 7% of our 2011 revenue, informed us on February 8, 2012 that it would be terminating its agreement with us effective as of May 15, 2012, which had been extended beyond its original termination date of June 30, 2011 because of a bid protest process. The clients comprising our top twenty clients may change periodically, based on volume, acquisitions, and other factors.

Substantially all of our contracts with our clients are entered into for a specific term, generally three years, and as a result, on average at any time, one-third of our revenue for the preceding twelve months is attributable to agreements that are up for renewal and re-bid over the upcoming twelve months. In addition, substantially all of our contracts with our clients are subject to early termination if either party breaches the agreement. As contracts with our clients approach their termination date, our clients either seek to extend the agreement with us for a specified period, or seek competitive bids from us and other providers for a new agreement. Competitive bidding requires costly and time-consuming efforts and, even after we have won such bidding processes, we can expend significant time and effort in proceedings or litigation contesting the adequacy or fairness of these bidding processes. Historically, we have successfully retained the business of more than 90% of our clients who had contracts scheduled to expire at the beginning of a calendar year or with whom we entered into a competitive re-bid during a calendar year. There can be no assurance, however, that we will successfully extend expiring agreements with our clients, that we will win any competitive bid to renew such agreements, or that we will be able to improve or maintain our historic retention rate of existing business. Our business, financial condition, results of operations, or cash flows could be materially adversely affected if we fail to extend or win competitive renewals with a significant number of our top clients.

In addition, over the past several years, self-funded employers, TPAs, and other managed care companies have experienced significant consolidation. Consolidations generally reduce the number of clients who may need our services, and can result in our clients being acquired by companies that may not renew, and in some instances may terminate, the acquired client’s contract with us. If a significant number of our key clients are acquired by, or acquires, companies with which we do not have contracts, or if the financial condition of a significant number of our key clients otherwise deteriorates, our business, financial condition or results of operations could be materially adversely affected.

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If we lose pharmacy network affiliations, our business, results of operations, financial condition and cash flows could suffer.

Our operations are dependent to a significant extent on our ability to obtain discounts on prescription purchases from retail pharmacies that can be utilized by our clients and their members. Our contracts with retail pharmacies, which are non-exclusive, are generally terminable by either party on short notice. If one or more of our top pharmacy chains elects to terminate its relationship with us, or if we are only able to continue our relationship on terms less favorable to us, access to retail pharmacies by our clients and their health plan members, and consequently our business, results of operations, financial condition or cash flows could suffer. In addition, several large retail pharmacy chains either own or have strategic alliances with PBMs or could attempt to acquire or enter into these kinds of relationships in the future. Ownership of, or alliances with, PBMs by retail pharmacy chains, particularly large pharmacy chains, could have material adverse effects on our relationships with those retail pharmacy chains, particularly the discounts they are willing to make available, and on our business, results of operations, financial condition and cash flows.

Our business process and technology infrastructure improvements, including associated data and/or client migrations, and information technology systems upgrades, may not be successfully or timely implemented or may fail to operate as designed and intended, causing the Company’s performance to suffer.

We rely on information technology to enhance the efficiency and effectiveness of our operations, to process, transmit, store, access and protect electronic information, to interface with our customers and suppliers, and to record and process financial transactions accurately. We have embarked on an initiative to substantially optimize and develop our information technology systems and platforms in 2012 and beyond. This initiative includes the implementation of a variety of new IT systems, upgrades to existing systems, and decommissioning of unnecessary or less efficient systems. We can offer no assurances that these IT system investments will deliver the expected benefits, that we will successfully or timely implement these systems, or that we will not experience significant disruptions to our business as we implement these IT investments. Any such failures could harm our reputation and result in the loss of customers, and the costs of implementing these IT investments may exceed current expectations. Failure to implement our anticipated IT systems investments as planned could have a material adverse impact on our business, financial condition and results of operations.

If we lose relationships with one or more key pharmaceutical manufacturers or rebate intermediaries, or if rebate payments we receive from pharmaceutical manufacturers or intermediaries decline, our business, results of operations, financial condition and cash flows could suffer.

We receive rebates from rebate intermediaries and numerous pharmaceutical manufacturers based on the use of selected drugs by members of health plans sponsored by our clients, as well as fees for other programs and services. We believe our business, results of operations, financial condition and cash flows could suffer if:

• we lose relationships with one or more key pharmaceutical manufacturers or rebate intermediaries;

• we are unable to finalize rebate contracts with one or more key pharmaceutical manufacturers for 2012 or are unable to negotiate interim arrangements;

• rebates decline due to the failure of our health plan sponsors to meet market share or other thresholds, or due to the failure of rebate intermediaries to meet thresholds imposed on them by pharmaceutical manufacturers;

• legal restrictions are imposed on the ability of pharmaceutical manufacturers or rebate intermediaries to offer rebates or purchase our programs or services;

• pharmaceutical manufacturers choose not to offer rebates or purchase our programs or services or those of rebate intermediaries with whom we have arrangements; or

• rebates decline due to contract branded products losing their patents.

Over the next few years, as patents expire covering many brand name drugs that currently have a substantial market share, generic products will be introduced that may substantially reduce the market share of these brand

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name drugs. Historically, manufacturers of generic drugs have not offered formulary rebates on their drugs. Our profitability could be adversely affected if the use of newly approved, brand name drugs added to formularies does not offset any decline in use of brand name drugs whose patents expire.

Changes in industry pricing benchmarks could adversely affect our financial performance.

Contracts in the prescription drug industry, including our contracts with our retail pharmacy networks and with our PBM clients, as well as our mail order pharmacy reimbursement rates, generally use certain published benchmarks to establish pricing for prescription drugs. These benchmarks include AWP, AMP, and Wholesale Acquisition Cost, or WAC. Most of our contracts utilize the AWP standard. Recent events, including First DataBank’s decision to discontinue publishing AWP, have raised uncertainties as to whether payors, pharmacy providers, PBMs and others in the prescription drug industry will continue to utilize AWP as it has previously been calculated or whether other pricing benchmarks will be adopted for establishing prices within the industry.

Additionally, CMS regulations regarding the Medicaid AMP calculation could potentially impact our ability to negotiate rebates and discounts, as well as our retail pharmacy network and mail order pricing and PBM client contracts. Because we are awaiting revised final regulations and updated guidance from CMS, we are unable to predict whether and to what extent the updated CMS AMP regulation will impact our business. Thus far, our business has not been materially adversely affected by the AMP regulations.

These matters are discussed in detail under “Business—Government Regulation – Combined Federal and State Laws, Regulations and Other Standards Affecting Our Business — Legislation and Litigation Affecting Drug Prices,” above. We believe that payors, pharmacy providers, and PBMs are in the process of evaluating other pricing benchmarks as the basis for contracting for prescription drugs and benefit management services in the future.

Due to these and other uncertainties, we can give no assurance that the long term impact of changes to industry pricing benchmarks will not have a material adverse effect on our financial performance, results of operations, financial condition or cash flows in future periods.

If our business continues to grow rapidly and we are unable to manage this growth, our business, results of operations, financial condition and cash flows could suffer.

Our business has grown rapidly since 2000, in part due to acquisitions, with total annual PBM revenue increasing from $4.9 million in 2000 to $5.3 billion in 2011. Our business strategy is to continue to seek to expand our operations, including through possible acquisitions. If we are unable to finance continued growth, manage future expansion or hire and retain the personnel needed to manage our business successfully, then our business, results of operations, financial condition and cash flows could be adversely affected. Our growth in operations has placed significant demands on our management and other resources, which is likely to continue. Our future success will depend, in part, on our ability to continue to attract, retain and motivate highly skilled and motivated employees.

If we are unable to manage potential problems and risks related to our recent acquisition of Catalyst Rx Health Initiatives, Inc. (formerly known as Walgreens Health Initiatives, Inc.) or future acquisitions, our business, results of operations, financial condition and cash flows could suffer.

Part of our growth strategy includes making acquisitions involving new markets and complementary products, services, technologies and businesses, including our recent acquisition of Catalyst Rx Health Initiatives, Inc. (“CHII”) in June 2011. We may not be able to successfully integrate CHII into our business as quickly as anticipated, or at all, and we may not realize anticipated cost savings or benefits on the expected timetable or at all. If we are unable to overcome the potential problems and inherent risks related to such acquisitions, our business, results of operations, financial condition and cash flows could suffer. Our ability to continue to expand successfully through acquisitions depends on many factors, including our ability to identify acquisition prospects and negotiate and close transactions. Even if we complete future acquisitions:

• we may not be successful in retaining customers of the acquired company;

• we could fail to successfully integrate the operations, services and products of an acquired company;

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• there could be inconsistencies in standards, controls, procedures and policies among the companies being combined or assimilated which would make it more difficult to implement and harmonize company-wide financial reporting, accounting, billing, information technology and other systems;

• we may experience difficulties maintaining the quality of products and services that acquired companies have historically provided;

• we could be required to amortize the identifiable intangible assets of an acquired business, which will reduce our net income in the years following its acquisition, and we also would be required to reduce our net income in future years if we were to experience an impairment of goodwill or other intangible assets attributable to an acquisition;

• we could be exposed to unanticipated liabilities of acquired businesses;

• our management’s attention could be diverted from other business concerns; and

• we could lose key employees or customers of the acquired business.

There are risks associated with integrating and operating newly acquired businesses. We can give no assurance that if we do acquire any new business organizations in the future, we will successfully operate and integrate them or that we will achieve the expected operating synergies or other anticipated benefits from the acquisitions. Many companies compete for acquisition opportunities in the PBM industry. Most of our competitors are companies that have significantly greater financial and management resources than we do. This may reduce the likelihood that we will be successful in completing acquisitions necessary to the future success of our business.

We will continue to incur significant transaction and integration costs in connection with the acquisition of Catalyst Rx Health Initiatives, Inc. (“CHII”)

We will continue to incur significant costs in connection with the acquisition of CHII, which was completed in June 2011. The substantial majority of these costs will be non-recurring expenses related to the acquisition, facilities, and systems consolidation costs. We may incur additional costs to maintain employee morale and to retain key employees. We will also incur substantial transaction fees and costs related to formulating integration plans. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to more than offset incremental transaction and acquisition-related costs over time, this net benefit may not be achieved in the near term, or at all.

Our level of indebtedness could adversely affect our ability to grow our business, our credit ratings and profile, and the covenants and restrictions in our credit facilities could adversely affect our business, financial condition, and results of operations.

We may incur substantial indebtedness under our credit facilities, particularly to fund future acquisitions, and our level of indebtedness could adversely affect our financial condition. In such an event, we would be required to devote a portion of our cash flows from operating activities to service our indebtedness, and such cash flows would therefore not be available for other corporate purposes. We have $140.6 million outstanding under our term loan facility and $130.0 million outstanding under our revolving credit facility. We have the ability under our credit facilities to draw up to $400.0 million on our revolver, and an additional $100.0 million of term loan or revolving loan debt if certain conditions are satisfied under our credit facilities (including the agreement of current or new lenders to extend additional credit to us). We may also seek additional debt financing to fund part of our growth strategy of making acquisitions. Our level of indebtedness may:

• adversely impact our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other general corporate purposes;

• require us to dedicate a substantial portion of our cash flow to the payment of interest on our indebtedness;

• subject us to the risk of increased sensitivity to interest rate increases based upon variable interest rates, including our borrowings (if any) under our revolving credit facility;

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• increase the possibility of an event of default under the financial and operating covenants contained in our debt instruments; and

• limit our ability to adjust to rapidly changing market conditions, reducing our ability to withstand competitive pressures and make us more vulnerable to a downturn in general economic conditions of our business than our competitors with less debt.

The operating and financial restrictions and covenants contained in the agreements governing our outstanding and future indebtedness may limit our ability to finance future operations or capital needs, borrow additional funds for development and make certain investments. For example, our credit facilities restrict our ability to, among other things: incur additional debt or issue guarantees; incur or permit certain liens to exist; make certain investments, acquisitions or other restricted payments; modify our organizational documents; dispose of assets; engage in certain types of transactions with affiliates; and merge, consolidate or transfer all or substantially all of our assets.

If we are unable to generate sufficient cash flow from operations in the future to service our debt obligations, we may be required to refinance all or a portion of our existing debt facilities, or to obtain additional financing and facilities. However, we may not be able to obtain any such refinancing or additional facilities on favorable terms or at all.

If we become subject to liability claims that are not covered by our insurance policies, we may be liable for damages and other expenses that could have a material adverse effect on our business, results of operations, financial condition or cash flows.

Various aspects of our business may subject us to litigation and liability for damages. These include, but are not limited to, the performance of PBM services, the alleged filing of false claims, the operation of our call centers and Web site, and the potential for dispensing errors in the operation of our mail order pharmacies. A successful product or professional liability or other type of claim in excess of or subject to exclusion by our insurance coverage where we are required to pay damages, incur legal costs or face negative publicity could have a material adverse effect on our business, results of operations, financial condition or cash flows, our business reputation and our ability to attract and retain clients, network pharmacies, and employees. While we intend to maintain professional and general liability insurance coverage at all times, we cannot provide assurances that we will be able to maintain insurance in the future, that insurance will be available on acceptable terms, or that insurance will be adequate to cover any or all damages associated with potential product, professional liability, or other types of claims.

We are dependent on key information technology systems provided by third parties, including our point of sale information system and transaction processing system, disruption of which could have a material adverse effect on our business, results of operations, financial condition or cash flows.

Our company utilizes a number of key information technology systems to operate including, but not limited to, our point of sale transaction processing system, our data warehouse, our benefit plan design and reporting systems, our member services support systems, and our billing and payment processing systems. Several of these applications are licensed to us by software providers and maintained directly by us, and other systems are hosted and maintained by third party providers. In particular, our operations utilize electronic networks connecting over 65,000 retail pharmacies to process third-party claims provided by two third-party adjudication vendors. Because claims are adjudicated in real time, systems availability and reliability are critical to meeting customers’ service expectations. Any interruption in real time service, either through systems availability or telecommunications disruptions, can significantly damage the quality of service we provide. Our PBM services also depend on third-party proprietary software to deliver timely and accurate plan design updates, make payments to pharmacies and vendors, deliver detailed and customized utilization reporting, support mobile applications, and provide medication therapy management tools, and facilitate a number of other key functions. We do not have redundant or back-up systems for such IT systems, and there can be no assurance that we will not experience business interruptions arising from failures in our IT systems, corruption of data, contract disputes, telecommunications failures, cyber security attacks, decisions by third party providers to limit or discontinue providing services to us, or other events disrupting our access to, or the operation of, our IT systems.

6

A cyber security incident could cause a violation of HIPAA, breach of member privacy, or other negative impacts.

A cyber-attack that bypasses our information technology, or IT, security systems causing an IT security breach, loss of protected health information, or PHI, or other data subject to privacy laws, loss of proprietary business information, or a material disruption of our IT business systems resulting in a material adverse business impact on our business and results of operations. In addition, our future results could be adversely affected due to the theft, destruction, loss, misappropriation or release of PHI, other confidential data or proprietary business information, operational or business delays resulting from the disruption of IT systems and subsequent clean-up and mitigation activities, negative publicity resulting in reputation or brand damage with clients, members, or industry peers, or regulatory action taken as a result of such incident.

The failure by our health plan clients to pay for prescription claims or a delay in payment of those claims could have a material adverse effect on our business, results of operations, financial condition or cash flows.

Our contracts with retail pharmacies which participate in our network generally obligate us to make payments for prescription claims even if we are not reimbursed by our clients. If our clients delay their reimbursement payments or fail to make payments for prescription claims, it could have a material adverse effect on our business, results of operations, financial condition or cash flows.

If we fail to comply with complex and rapidly evolving laws and regulations, we could suffer civil and/or criminal penalties, lose clients, be required to pay substantial damages and make significant changes to our operations.

During the past several years, the United States health care industry has been subject to an increase in governmental regulation at both the federal and state levels. We are subject to numerous federal and state regulations. If we fail to comply with existing or future applicable laws and regulations, we could suffer civil or criminal penalties. We must devote significant operational and managerial resources to comply with these laws and regulations. Although we believe that we substantially comply with all existing statutes and regulations applicable to our business, different interpretations and enforcement policies of these laws and regulations could subject our current practices to allegations of impropriety or illegality by various government enforcement authorities or by whistleblowers or could require us to make significant changes to our operations. In addition, we cannot predict the impact of future legislation and regulatory changes on our business or assure you that we will be able to obtain or maintain the regulatory approvals required to operate our business.

Among the legislation and government regulations that could affect us as a provider of PBM services are the regulatory matters discussed in detail in under “Business—Government Regulation,” above, specifically including Medicare Part D laws and regulation, federal laws prohibiting remuneration for referrals, federal statutes prohibiting false claims, ERISA regulation, FDA regulation, antitrust regulation, health care reform legislation, state anti-remuneration/false claims laws, state consumer protection laws, state comprehensive PBM regulation, network access legislation, state legislation affecting plan or benefit design, state regulation of financial risk plans, state discount drug card regulation, privacy and confidentiality legislation, legislation and litigation affecting drug prices, voluntary industry ethical guidelines, and future legislation or regulatory initiatives.

We are subject to potential lawsuits under ERISA and the potential liabilities associated with being found to be a fiduciary of a health plan governed by ERISA.

As a service provider to ERISA plans, we are subject to potential litigation under ERISA claims and could face potential liabilities if we are found to be acting as a fiduciary of a plan in carrying out the services for which we are under contract. While we do not believe that the general conduct of our business subjects us to the fiduciary obligations set forth by ERISA, except when we have specifically contracted with an ERISA plan sponsor to accept fiduciary responsibility and be named as a fiduciary for certain functions, recent litigation has revealed uncertainties with respect to whether, and under what circumstances, courts will find PBMs to be acting as plan fiduciaries. The potential impact of ERISA liability on our business operations is more fully described in the detailed discussion of ERISA regulation under “Business – Government Regulation-Federal Laws and Regulations Affecting Our Business - ERISA Regulation,” above.

7

Medicare Part D laws subject us to certain regulations and scrutiny, and additional requirements will apply to us if we successfully enter into a contract with the Center for Medicare and Medicaid Services, or CMS, for the delivery of Employer Group Waiver Plan services beginning in 2013.

The Medicare Part D program is continuing to evolve, and there are still many uncertainties presented by the program, which is one of the reasons we have opted not to directly sponsor a PDP. However, we do contract with Medicare Part D Plans, as described under “Business—Government Regulation,” above. In the limited capacity of a subcontractor and as a mail service provider, we are indirectly subject to certain regulatory requirements, as more fully described in the detailed discussion of Medicare Part D Laws and Regulations and its potential implications under “Business—Government Regulation,” above.

A key element of our retiree strategy is the development of a Medicare Part D Employer Group Waiver Plan, or EGWP, offering for the 2013 plan year. We have applied to the Center for Medicare and Medicaid Services, or CMS, for a contract to deliver an EGWP in 2013, but there can be no assurance that we will meet all of the regulatory requirements for obtaining a CMS contract or that CMS will enter into a contract with us that would permit us to deliver an EGWP solution to our clients. If we are not successful in obtaining the ability to deliver an EGWP offering, would experience increased attrition in our client base, and we may not be successful in winning new business. In addition, the development of an EGWP offering will require substantial investments in the personnel and technology necessary to administer the program, and there can be no assurance that we will successfully deploy or operate an EGWP solution even if we enter into the required CMS contract.

Additionally, we will become subject to complex contractual and regulatory compliance requirements associated with delivering an EGWP solution, including both Medicare Part D requirements and applicable state insurance operating, financial, and reporting requirements. We could incur substantial monetary penalties, applicable sanctions, or remediation expenses should we be determined not to have complied with any such requirements, including suspension of enrollment and marketing or debarment from participation in Medicare programs.

We face significant competition in attracting and retaining talented employees.

We believe that our ability to retain an experienced workforce and our ability to hire additional qualified employees is essential to meet current and future goals and objectives. However, there is no guarantee that we will be able to attract and retain such employees. An inability to retain existing employees or attract additional employees could have a material adverse effect on our business, results of operations, financial condition and cash flows.

8

EX-99.2

Exhibit 99.2

Consolidated financial statements of Catalyst Health Solutions, Inc.

Years Ended December 31, 2011, 2010 and 2009

With Report of Independent Registered Public Accounting Firm

		Page
(1)	Financial Statements
	Report of Independent Registered Public Accounting Firm		2
	Consolidated Balance Sheets as of December 31, 2011 and 2010		3
	Consolidated Statements of Operations for the years ended December 31, 2011, 2010, and 2009		4
	Consolidated Statements of Comprehensive Income for the years ended December 31, 2011, 2010, and 2009		5
	Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2011, 2010, and 2009		6
	Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010, and 2009		7
	Notes to Consolidated Financial Statements		8
(2)	Financial statement schedule:
	Schedule II—Valuation and Qualifying Accounts		28
	Management’s Report on Internal Control Over Financial Reporting (reproduced without revision herein from Item 9A of Catalyst Health Solutions, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011)		29

1

Report of Independent Registered Public Accounting Firm

To Board of Directors and Stockholders of Catalyst Health Solutions, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Catalyst Health Solutions, Inc. and its subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Catalyst Rx Health Initiatives, Inc. (formerly known as Walgreens Health Initiatives, Inc.) from its assessment of internal control over financial reporting as of December 31, 2011 because it was acquired by the Company in a purchase business combination during 2011. We have also excluded Catalyst Rx Health Initiatives, Inc. from our audit of internal control over financial reporting. Catalyst Rx Health Initiatives, Inc. is a wholly-owned subsidiary whose total assets and total revenue represent 35.8% and 11.3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2011.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

February 24, 2012

2

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	49,244		$	157,843
Accounts receivable, net of allowances of $4,311 and $2,599 at December 31, 2011 and 2010, respectively		419,266			205,538
Rebates receivable, net of allowances of $1,783 and $1,377 at December 31, 2011 and 2010, respectively		281,247			162,395
Inventory, net of allowances of $20 and $46 at December 31, 2011 and 2010, respectively		2,978			3,405
Income taxes receivable		16,405			3,415
Deferred income taxes		3,151			1,657
Other current assets		40,150			11,682
Total current assets		812,441			545,935
Property and equipment, net		62,909			30,759
Goodwill		785,385			396,995
Intangible assets, net		309,108			158,871
Restricted cash		45,000			—
Investments, net		5,087			889
Other assets		10,248			8,587
Total assets	$	2,030,178		$	1,142,036
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	485,468		$	187,401
Rebates payable		247,976			177,346
Accrued expenses and other current liabilities		101,208			64,942
Current maturities of long-term debt		7,500			7,500
Total current liabilities		842,152			437,189
Long-term debt		263,125			140,625
Deferred rent expense		2,997			2,440
Deferred income taxes		35,738			18,694
Other liabilities		37,667			4,965
Total liabilities		1,181,679			603,913
Commitments and contingencies (Notes 13 and 14)
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued		—			—
Common stock, $0.01 par value, 100,000 shares authorized, 50,234 and 44,980 shares issued at December 31, 2011 and 2010, respectively		502			450
Additional paid-in capital		486,473			239,699
Treasury stock, at cost, 345 and 271 shares at December 31, 2011 and 2010, respectively		(11,332	)		(7,791	)
Accumulated other comprehensive loss		(30	)		(30	)
Retained earnings		369,812			305,795
Total parent Company stockholders’ equity		845,425			538,123
Non-controlling interest		3,074			—
Total stockholders’ equity		848,499			538,123
Total liabilities and stockholders’ equity	$	2,030,178		$	1,142,036

The accompanying notes are an integral part of these consolidated financial statements.

3

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	For the years ended December 31,
	2011			2010			2009
Revenue (excludes member co-payments of $1,844,113, $1,025,306 and $810,576 in 2011, 2010 and 2009, respectively)	$	5,329,594		$	3,764,092		$	2,894,380
Direct expenses		5,021,709			3,529,843			2,708,616
Selling, general and administrative expenses		193,665			101,745			81,036
Total operating expenses		5,215,374			3,631,588			2,789,652
Operating income		114,220			132,504			104,728
Interest and other income		232			937			782
Interest expense		(7,495	)		(3,027	)		(560	)
Income before income taxes		106,957			130,414			104,950
Income tax expense		40,370			49,457			39,785
Net income		66,587			80,957			65,165
Less: Net loss attributable to non-controlling interest		(401	)		—			—
Net income attributable to the Company	$	66,988		$	80,957		$	65,165
Net income per share attributable to the Company, basic	$	1.41		$	1.85		$	1.51
Net income per share attributable to the Company, diluted	$	1.39		$	1.82		$	1.48
Weighted average shares of common stock outstanding, basic		47,569			43,855			43,128
Weighted average shares of common stock outstanding, diluted		48,107			44,536			43,942

The accompanying notes are an integral part of these consolidated financial statements.

4

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	For the years ended December 31,
	2011			2010		2009
Net income	$	66,587		$	80,957	$	65,165
Other comprehensive income, net of tax:
Unrealized gain (loss) on investments		—			690		(36	)
Comprehensive income		66,587			81,647		65,129
Less: Comprehensive loss attributable to non-controlling interest		(401	)		—		—
Comprehensive income attributable to the Company	$	66,988		$	81,647	$	65,129

The accompanying notes are an integral part of these consolidated financial statements.

5

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

	Shares Issued		Amount		Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Non- controlling Interest			Total
Balance at December 31, 2008		43,526	$	435	$	208,699		$	(4,194	)	$	(684	)	$	159,673		$	—		$	363,929
Exercise of stock options, including tax benefits		418		4		6,206			—			—			—			—			6,210
Expense related to restricted stock granted to employees		372		4		4,285			—			—			—			—			4,289
Expense related to stock and restricted stock granted in exchange for services		2		—		2,158			—			—			—			—			2,158
Tax expense of restricted stock vesting		—		—		(64	)		—			—			—			—			(64	)
Shares issued pursuant to employee stock purchase plan		13		—		339			—			—			—			—			339
Purchases of treasury stock		—		—		—			(993	)		—			—			—			(993	)
Unrealized loss on investments, net of tax		—		—		—			—			(36	)		—			—			(36	)
Net income for the year		—		—		—			—			—			65,165			—			65,165
Balance at December 31, 2009		44,331	$	443	$	221,623		$	(5,187	)	$	(720	)	$	224,838		$	—		$	440,997
Exercise of stock options, including tax benefits		415		4		8,487			—			—			—			—			8,491
Expense related to restricted stock granted to employees		223		3		5,528			—			—			—			—			5,531
Expense related to stock and restricted stock granted in exchange for services		2		—		1,645			—			—			—			—			1,645
Tax benefit of restricted stock vesting		—		—		1,076			—			—			—			—			1,076
Shares issued pursuant to employee stock purchase plan		9		—		352			—			—			—			—			352
Purchases of treasury stock		—		—		—			(2,604	)		—			—			—			(2,604	)
Warrants issued pursuant to acquisition		—		—		988			—			—			—			—			988
Unrealized gain on investments, net of tax		—		—		—			—			690			—			—			690
Net income for the year		—		—		—			—			—			80,957			—			80,957
Balance at December 31, 2010		44,980	$	450	$	239,699		$	(7,791	)	$	(30	)	$	305,795		$	—		$	538,123
Exercise of stock options, including tax benefits		291		3		7,145			—			—			—			—			7,148
Expense related to restricted stock granted to employees		451		4		10,351			—			—			—			—			10,355
Tax benefit of restricted stock vesting		—		—		1,583			—			—			—			—			1,583
Shares issued pursuant to employee stock purchase plan		12		—		646			—			—			—			—			646
Purchases of treasury stock		—		—		—			(3,541	)		—			—			—			(3,541	)
Shares issued pursuant to public offering		4,500		45		227,049			—			—			—			—			227,094
Transactions with non-controlling interest holder		—		—		—			—			—			(2,971	)		3,475			504
Net income (loss) for the year		—		—		—			—			—			66,988			(401	)		66,587
Balance at December 31, 2011		50,234	$	502	$	486,473		$	(11,332	)	$	(30	)	$	369,812		$	3,074		$	848,499

The accompanying notes are an integral part of these consolidated financial statements.

6

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the years ended December 31,
	2011			2010			2009
Cash flows from operating activities:
Net income	$	66,587		$	80,957		$	65,165
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		8,670			6,597			4,944
Amortization of intangible and other assets		31,412			10,709			6,980
Loss (gain) on disposal of property and equipment		366			271			(64	)
Allowances on receivables		(613	)		1,512			1,394
Deferred income taxes		15,550			1,866			40
Equity based compensation charges		10,356			7,176			6,447
Other non-cash (income) charges, net		(5,033	)		(714	)		198
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable		(57,425	)		(5,481	)		18,259
Rebates receivable		(72,152	)		4,655			(25,894	)
Income tax receivable		(12,953	)		(1,097	)		1,269
Inventory, net		427			151			1,339
Other assets		(8,202	)		(8,020	)		(3,337	)
Accounts payable		103,418			(48,372	)		13,015
Rebate payable		21,403			19,208			13,280
Accrued expenses and other liabilities		(2,789	)		28,291			9,071
Net cash provided by operating activities		99,022			97,709			112,106
Cash flows from investing activities:
Purchases of property and equipment		(40,762	)		(12,324	)		(10,459	)
Proceeds from sale of property and equipment		—			—			500
Business acquisitions and related payments, net of cash acquired		(462,084	)		(239,882	)		(11,415	)
Business acquisition related restricted cash		(40,000	)		—			—
Restricted cash		(5,000	)		—			—
Sales of investments		—			11,875			225
Cash from consolidation of variable interest entity		437			—			—
Other investing activities		(3,197	)		—			(312	)
Net cash used in investing activities		(550,606	)		(240,331	)		(21,461	)
Cash flows from financing activities:
Borrowings under revolving credit facility		609,000			—			—
Repayments under revolving credit facility		(479,000	)		—			—
Proceeds from term loan		—			150,000			—
Repayments of term loan		(7,500	)		(1,875	)		—
(Repayments) proceeds from First Rx Specialty and Mail Services LLC arrangement		(8,000	)		—			1,000
Deferred financing costs		(5,422	)		(3,846	)		(415	)
Contingent consideration payments		—			(3,184	)		—
Proceeds from equity offering		227,094			—			—
Proceeds from exercise of stock options		1,937			3,602			2,863
Excess tax benefits due to option exercises and restricted stock vesting		6,758			5,965			3,637
Proceeds from shares issued under employee stock purchase plan		646			352			339
Purchases of treasury stock		(3,541	)		(2,604	)		(993	)
Other financing activities		1,013			—			—
Net cash provided by financing activities		342,985			148,410			6,431
Net (decrease) increase in cash and cash equivalents		(108,599	)		5,788			97,076
Cash and cash equivalents at the beginning of year		157,843			152,055			54,979
Cash and cash equivalents at the end of year	$	49,244		$	157,843		$	152,055
Supplemental disclosure:
Cash paid for interest	$	5,366		$	1,990		$	94
Cash paid for taxes	$	31,015		$	42,723		$	34,839

The accompanying notes are an integral part of these consolidated financial statements.

7

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. COMPANY

Catalyst Health Solutions, Inc., a Delaware corporation (the “Company,” “our,” “we” or “us”), is a full-service pharmacy benefit management (“PBM”) company. We operate primarily under the brand name Catalyst Rx. Our clients include self-insured employers, including state and local governments; managed care organizations; third-party administrators; hospices; unions; and individuals who contract with us to administer the prescription drug component of their overall health benefit programs. We provide our clients access to a contracted, non-exclusive national network of approximately 65,000 pharmacies. We provide our clients and their members with timely and accurate benefit adjudication, while controlling pharmacy spending trends through customized plan designs, clinical programs, physician orientation programs and member education. We utilize an electronic point-of-sale system for eligibility verification and plan design information and offer access to rebate arrangements for certain branded pharmaceuticals.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated financial statements include the accounts of the Company, all of our subsidiaries and our consolidated variable interest entities (“VIEs”) of which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated.

Use of estimates

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The most significant estimates included in these financial statements include accounting for: rebates earned under arrangements with pharmaceutical manufacturing companies or third-party intermediaries; the value of intangible assets acquired in business combinations and related amortization periods; impairment assessments of goodwill; and allowance for accounts receivable.

Fair value of financial instruments

At December 31, 2011 and 2010, our financial instruments included cash and cash equivalents, accounts receivable, rebates receivable, investments, accounts payable, rebates payable, accrued liabilities and long-term debt. With the exception of our investments and long-term debt, the fair values of these financial instruments approximate the carrying value due to the short-term maturities of these instruments. See Note 7 for a discussion of fair value of our investments and long-term debt.

Cash and cash equivalents

All highly liquid investments purchased with an original maturity date of three months or less when purchased are classified as cash equivalents. The Company maintains its cash and cash equivalents in financial institutions with high credit ratings; however, at times the balances may exceed federally insured amounts. The Company has not experienced any losses related to its cash or cash equivalents and believes it is not exposed to any significant credit risk on its cash or cash equivalents.

Accounts receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for accounts receivable is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on historical write-off experience by industry and economic data. We review our allowance for accounts receivable quarterly. Account balances are charged off against the allowance when we determine it is probable the receivable will not be recovered. We do not have any off-balance-sheet credit exposure related to our customers.

8

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Concentration of credit risk

Accounts receivable consists principally of amounts due from the Company’s PBM customers. In 2011, the Company’s top ten clients’ generated approximately 57% of consolidated revenue, including two customers who accounted for 16% and 10% of our consolidated revenue. In 2010, the Company’s then top ten clients generated approximately 70% of consolidated revenue, including two customers who accounted for 14% and 10% of our consolidated revenue. In 2009, the Company’s then top ten clients generated approximately 68% of our consolidated revenue, including two customers who accounted for 18% and 12% of our consolidated revenue.

The Company holds no collateral for accounts receivable. Concentration of risks with respect to receivables is mitigated based on the geographical dispersion of clients, the Company’s communications with clients, and the Company’s continuous review of outstanding receivables. Management also performs ongoing credit evaluations of its clients and provides allowances as deemed necessary. The Company has not experienced significant losses related to receivables in the past. The Company’s collection experience indicates limited loss exposure due to the nature of the benefits involved and the necessity of benefit continuity for plan sponsor employees.

Rebates receivable and payable

Rebates earned under arrangements with manufacturers or third-party intermediaries are predominately recorded as a reduction of direct expenses. The portion, which in some cases may be the full amount, of such rebates due to clients is recorded as a reduction of revenue. Manufacturer or third-party intermediary rebates are based on estimates, which are subject to final settlement with the contracted party on an on-going basis.

The Company estimates its rebates receivable and rebates payable based on the number and type of claims submitted, the rebate program terms with its clients, the Company’s rebate contracts with pharmaceutical manufacturers and third-party intermediaries, and other information that may be available. The amount of rebates actually received by the Company, and rebates paid to its clients, is impacted by a variety of factors, including the validation of claims data submitted by the Company and differences between estimated and actual rebatable products. In addition, the amount of rebates actually received by the Company, and rebates paid to its clients, in a period may result in adjustments to the estimates made in prior periods.

Inventory

Inventory consists of prescription drugs and medical supplies that are stated at the lower of weighted average cost or market.

Property and equipment

Property and equipment is stated at cost and depreciated over their estimated useful lives using the straight-line method. The estimated useful lives typically range from 3-5 years for the Company’s equipment and computer software, while leasehold improvements are amortized over the shorter of the estimated lives of the assets or the lease term.

Internally developed software

We capitalize costs associated with computer software developed or obtained for internal use in accordance with the Financial Accounting Standard Board’s (“FASB”) authoritative guidance on accounting for such costs. Capitalized internal use software development costs include only (1) external direct costs of materials and services consumed in developing and obtaining software, (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the project, and (3) interest costs incurred, when material, while developing the software. Capitalization of these costs ceases when the project is substantially complete and ready for its intended purpose. Internally developed software is reported in the “property and equipment” line on the consolidated balance sheet.

Goodwill

Our goodwill is not amortized, but it is tested for impairment at least annually. In the current year, we adopted a new Accounting Standards Updates (“ASU”) that allows for the goodwill impairment analysis to start with an

9

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the qualitative factors, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would perform a two-step impairment test.

In the first step of the impairment test, we would test for impairment of goodwill by estimating the fair values of our reporting units using a present value of future cash flows approach. Although we operate in one reportable segment, for the purposes of performing this impairment test under the accounting standards, we have identified three reporting units. If the carrying amount of the reporting unit exceeds the fair value, the second step of the goodwill impairment test would be performed to measure the amount of the impairment loss, if any. In the second step, the implied fair value of the goodwill is estimated as the fair value of the reporting unit used in the first step, less the fair values of all other net tangible and intangible assets of the reporting unit. If the carrying amount of the goodwill exceeds its implied fair market value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the goodwill. In addition, the goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value.

We performed our qualitative goodwill impairment assessment at December 31, 2011 under the new ASU guidance and concluded that it was not more-likely-than-not that goodwill impairment existed at that date. As a result, we did not need to proceed to step one for any of our reporting units. Our fiscal 2011 annual goodwill impairment analysis included an assessment of certain qualitative factors including, but not limited to, the results of the prior year fair value calculation, the movement of the company’s share price and market capitalization, overall financial performance, and macro-economic and industry conditions. We considered the qualitative factors and weighted the evidence obtained, and we determined that it is not more likely than not that the fair value of any reporting unit is less than its carrying amount. Although we believe the factors considered in the impairment analysis are reasonable, significant changes in any one of our assumptions could produce a different result. Additionally, at December 31, 2010, we performed the first step test required under the previous guidance using a present value of future cash flows approach and concluded there was no goodwill impairment at that date, as the results of that valuation indicated that each of our reporting units’ fair values were significantly higher than their carrying values.

Intangible assets

We do not have any intangible assets with indefinite lives. We do have intangible assets subject to amortization and these assets are amortized over a period of 5 months to 20 years, depending on each intangible asset’s estimated useful life. The estimated fair value and the weighted average useful life of the intangible assets are based on income and market approach valuation calculations. The remaining useful life of intangible assets is evaluated periodically and adjusted as necessary to match the period that the assets are expected to provide economic benefits. We concluded that no impairment of our intangible assets existed at December 31, 2011 and 2010.

Impairment of long-lived assets

We investigate potential impairments of our long-lived assets when evidence exists that events or changes in circumstances may have made recovery of an asset’s carrying value unlikely. Long-lived assets are considered to be potentially impaired when the sum of the expected undiscounted future net cash flows is less than the carrying amount of the asset. Any related impairment loss is calculated based upon comparison of the fair value to the carrying value of the asset. No triggering events that would require an impairment test for long-lived assets were identified during 2011 or 2010.

Contingent consideration

In connection with our acquisition of Catalyst Rx Health initiatives, Inc., formerly known as Walgreens Health Initiatives, Inc., (see Note 11), we may be required to pay up to an additional $40.0 million of cash consideration. This amount was deposited into an escrow account. As this deposit is restricted in nature, it is excluded from our cash and cash equivalents. Payment of this cash consideration is based upon the achievement of client retention milestones through March 31, 2014. In 2011, no distributions were made from the restricted cash amount. As of December 31, 2011, we have accrued $37.7 million as the fair value of the related contingent consideration in other liabilities on our consolidated balance sheet.

10

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investments

The Company’s investments consist primarily of our investments in non-controlled companies and are recorded at cost. At December 31, 2011 and 2010, there were no identified events or changes in circumstances that had a significant adverse effect on the values of these investments. If there was evidence of a decline in value, which is other than temporary, the amounts would be written down to their estimated recoverable value. Also included in investments are auction rate securities (“ARS”), which are classified as available-for-sale and are recorded at fair market value, with unrealized gains (losses), net of taxes, reported as a separate component of shareholders’ equity. Realized gains (losses) and amounts representing credit losses on these ARS’, of which there were none in 2011, 2010 and 2009, are included in other income. For purposes of determining any credit loss, the Company assesses the fair value of its ARS under the single best-estimate approach. We continue to receive timely interest payments and there have been instances of recent redemptions of our auction rate securities by issuers at par; however, our ARS investments currently lack short-term liquidity and, therefore, are classified as non-current on our balance sheet.

Variable Interest Entities

The Company qualitatively assesses the determination of the primary beneficiary of a variable interest entity (“VIE”) based on whether we (1) have the power to direct matters that most significantly impact the activities of the VIE and (2) have the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. We consolidate VIEs of which we are the primary beneficiary. The liabilities recognized as a result of consolidating a VIE do not necessarily represent additional claims on our general assets; rather, they represent claims against the specific assets of the consolidated VIE. Conversely, assets recognized as a result of consolidating a VIE do not represent additional assets that could be used to satisfy claims against our general assets. See Note 12 for a description of the VIE we consolidate.

Revenue and direct expense recognition

The Company recognizes revenue from services provided to its clients for sales of prescription drugs by either pharmacies in the Company’s nationwide network or through our mail order facilities, and related claims processing fees. Revenue is recognized when the claims are adjudicated. Pharmacy claims are adjudicated at the point-of-sale using an on-line claims processing system. When the Company has a contractual obligation to pay its network pharmacy providers for benefits provided to its clients’ members, total payments from these clients, including administration and other fees, are recorded as revenue and payments to the network pharmacy provider and the claim adjudication service costs are recorded as direct expenses. Generally, these contracts require the Company to assume the credit risk of its clients’ abilities to pay. In limited instances, when the Company administers pharmacy reimbursement contracts and does not assume credit risk, the Company records only the net revenue and the administrative or processing fees.

Rebates earned under arrangements with manufacturers or third-party intermediaries are predominately recorded as a reduction of direct expenses. The Company refines its estimates each period based on actual collection and payment experience. For the years ended December 31, 2011 and 2010, adjustments made to these rebate receivable estimates from prior periods reduced direct expenses by $4.8 million and $4.8 million, respectively. Additionally, the portion of manufacturer or third-party intermediary rebates due to clients is recorded as a reduction of revenue. For the years ended December 31, 2011 and 2010, adjustments made to rebate payable estimates from prior periods increased revenue by $2.2 million and $3.5 million, respectively. The impact of adjustments in rebates receivable and rebates payable estimates for the year ended December 31, 2009 were not material.

Under the Company’s pharmacy network contracts, the pharmacy is solely obligated to collect the co-payments from the members. Under client contracts, the Company does not assume liability for member co-payments in pharmacy transactions. As such, the Company does not include member co-payments to retail pharmacies in revenue or direct expenses.

11

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income taxes

Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income taxes reflect the net effects of timing differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Benefits from uncertain tax positions are recognized in the consolidated financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authorities having full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement.

Net income per share attributable to the Company

Basic net income per common share attributable to the Company excludes dilution, and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per common share attributable to the Company reflects the potential dilution that could occur (using the treasury stock method) if stock options, restricted stock awards and warrants to issue common stock were exercised.

The following represents a reconciliation of the number of shares used in the basic and diluted net income per share attributable to the Company computations (amounts in thousands, except per share data):

	2011		2010		2009
Net income attributable to the Company	$	66,988	$	80,957	$	65,165
Calculation of shares:
Weighted average common shares outstanding, basic		47,569		43,855		43,128
Dilutive effect of stock options, restricted stock awards and warrants		538		681		814
Weighted average common shares outstanding, diluted		48,107		44,536		43,942
Net income per common share attributable to the Company, basic	$	1.41	$	1.85	$	1.51
Net income per common share attributable to the Company, diluted	$	1.39	$	1.82	$	1.48

Potential common stock equivalents representing 141 thousand shares, 65 thousand shares and 73 thousand shares for the years ended December 31, 2011, 2010 and 2009, respectively, were not included in the computation of diluted net income per common share attributable to the Company because to do so would have been anti-dilutive.

Share-based compensation

Share-based compensation awards and awards modified, repurchased, or cancelled are accounted for using the fair value based method under FASB authoritative guidance surrounding share-based payments.

Other comprehensive income

Comprehensive income at December 31, 2011 and 2010 consists of net income plus unrealized net (gains) losses on investments held as available-for-sale.

3. NEW ACCOUNTING STANDARDS

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) on testing goodwill for impairment. The amendments in the ASU allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in

12

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

conducting the qualitative assessment. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. During the fourth quarter 2011, we elected to early adopt this ASU.

In June 2011, the FASB issued new guidance on the presentation of comprehensive income. This guidance is intended to increase the prominence of other comprehensive income in financial statements by presenting it in either a single statement or two-statement approach. This new accounting pronouncement is effective for our first quarter of 2012 and we do not expect any material impact on our financial statements from its adoption.

In January 2010, the FASB issued a final ASU that sets forth additional requirements regarding disclosures of fair value measurements. The ASU requires, among other things, the gross presentation of activity within the Level 3 fair value measurement roll forward. The requirement for these new disclosures is effective for interim and annual periods beginning after December 15, 2010, which for us meant the beginning of our 2011 fiscal year. The adoption of the new disclosure guidance did not have an impact on our financial position, results of operations or cash flows.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

	2011			2010
Computer hardware	$	23,122		$	11,347
Computer software		26,744			16,639
Furniture, fixtures and office equipment		9,006			6,094
Leasehold improvements		11,911			9,485
Transportation equipment		3,205			2,547
Assets not yet placed in service		15,055			2,132
Total property and equipment		89,043			48,244
Accumulated depreciation		(26,134	)		(17,485	)
Total property and equipment, net	$	62,909		$	30,759

Depreciation expense for the years ended December 31, 2011, 2010, and 2009 was $8.7 million, $6.6 million and $4.9 million, respectively.

5. INTANGIBLE ASSETS

The following table sets forth the components of intangible assets at December 31, 2011 and 2010 (in thousands):

	December 31, 2011							December 31, 2010
	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross  Carrying Value		Accumulated Amortization			Net Carrying Value
Customer relationships	$	328,063	$	(47,498	)	$	280,565	$	158,754	$	(22,071	)	$	136,683
Non-compete agreements		570		(174	)		396		155		(155	)		—
Trade names		18,199		(2,489	)		15,710		21,856		(1,358	)		20,498
Developed technology		13,548		(2,073	)		11,475		1,348		(411	)		937
Other PBM contracts		2,277		(1,315	)		962		7,036		(6,283	)		753
Total intangible assets	$	362,657	$	(53,549	)	$	309,108	$	189,149	$	(30,278	)	$	158,871

The weighted average amortization period of our intangible assets subject to amortization is approximately 11 years. Customer relationships intangibles represent the estimated fair value of customer relationships at the dates of acquisition and are amortized from 5 years to 20 years. The estimated fair values are based on income-method valuation calculations. Non-compete agreements, trade names and developed technology intangibles are subject to amortization from 2 years to 20 years. The other PBM contracts class of intangibles allows us to provide PBM services, and is amortized over the expected period of future cash flow, based on management’s best estimate, which range from 5 months to 20 years.

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CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In determining the useful life of the intangible assets for amortization purposes, we consider the period of expected cash flows used to measure the fair value of the intangible asset, adjusted as appropriate for entity-specific factors. The costs incurred to renew or extend the term of a recognized intangible asset are generally deferred, where practicable, to the extent recoverable from future cash flows. We did not incur costs to renew or extend the term of acquired intangible assets during the years ended December 31, 2011 and 2010.

The aggregate amount of amortization expense of intangible and other assets was $31.4 million, $10.7 million and $7.0 million for the years ended December 31, 2011, 2010 and 2009, respectively. Acquisition related intangible amortization expense of $12.9 million and $2.7 million for customer contracts related to PBM agreements has been included as an offset to revenue for the years ended December 31, 2011 and 2010, respectively.

The following table sets forth the estimated aggregate amortization expense of our existing intangible assets for each of the five succeeding years (in thousands):

Year ended December 31,
2012	$	41,096
2013		37,450
2014		35,189
2015		34,043
2016		26,347

6. GOODWILL

The changes in the carrying amounts of goodwill for the years ended December 31, 2011 and 2010 are as follows (in thousands):

	2011		2010
Balance as of January 1	$	396,995	$	273,158
Net adjustments to goodwill related to the Future Scripts acquisition (a)		16,045		—
Goodwill acquired in current acquisitions		372,345		123,837
Balance as of December 31	$	785,385	$	396,995

(a) The net adjustments to goodwill related to the FutureScripts acquisition relates primarily to measurement period adjustments recorded in 2011. We did not recast the acquisition adjustments in our 2010 consolidated financial statements as we do not consider them to be material (see Note 11).

Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses. Approximately $610.4 million and $262.7 million of the Company’s goodwill was deductible for income tax purposes in 2011 and 2010, respectively.

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CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. FAIR VALUE MEASUREMENTS

Summary of Financial Assets Measured on a Recurring Basis

The following tables detail the fair value measurements of our financial assets measured on a recurring basis as of December 31, 2011 and 2010 and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

			Fair Value Measurements at Reporting Date Using
	December 31, 2011		Quoted Prices in Active Markets Using Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Money market funds	$	154,343	$	154,343	$	—	$	—
Available for sale investments:
Auction rate securities		577		—		—		577
Total assets measured at fair value	$	154,920	$	154,343	$	—	$	577
			Fair Value Measurements at Reporting Date Using
	December 31, 2010		Quoted Prices in Active Markets Using Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds	$	144,587	$	144,587	$	—	$	—
Available for sale investments:
Auction rate securities		577		—		—		577
Total assets measured at fair value	$	145,164	$	144,587	$	—	$	577

The valuation technique used to measure fair value for our Level 1 assets is a market approach, using market prices. The valuation technique used to measure fair value for our Level 3 assets is an income approach, using a discounted cash flow model which incorporates a number of variables that reflect current market conditions.

The following table reflects the roll forward of activity for our major classes of assets measured at fair value using Level 3 inputs (in thousands):

	2011		2010
Beginning Balance	$	577	$	11,343
Redemptions and sales during the period		—		(11,875	)
Changes in unrealized gain included in accumulated other comprehensive income		—		1,109
Ending Balance	$	577	$	577

Investments

The following is a summary of our investments (in thousands):

As of December 31, 2011:

	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Amortized Cost
Auction rate securities	$	577	$	—	$	48	$	625
Other long-term investments		4,510		—		—		4,510
Total investments	$	5,087	$	—	$	48	$	5,135

As of December 31, 2010:

	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Amortized Cost
Auction rate securities	$	577	$	—	$	48	$	625
Other long-term investments		312		—		—		312
Total investments	$	889	$	—	$	48	$	937

Auction rate securities

We currently have remaining $0.6 million at par value in investments related to our auction rate securities (“ARS”). Although we continue to receive timely interest payments, our ARS investments currently lack short-term liquidity and are, therefore, classified as non-current on our balance sheet. For each of our ARS, we evaluate the risks related to the structure, collateral and liquidity and estimate the fair value of the securities using a discounted

15

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

cash flow model based on (a) the underlying structure of each security; (b) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions; and (c) considerations of the probabilities of redemption or auction success for each period.

Other long-term investments

Other long-term investments represent our investments in non-controlled companies and are recorded at cost. There were no identified events or changes in circumstances that had a significant adverse effect on the values of these investments. If there was evidence of a decline in value, which is other than temporary, the amounts would be written down to their estimated recoverable value.

Summary of Contractual Maturities

The contractual maturities of our available-for-sale ARS at December 31, 2011 are as follows (in thousands):

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	—	$	—
Due after one year		577		625
Total	$	577	$	625

Fair Value of Financial Liabilities

The interest rates on our long-term debt obligations are variable based on current LIBOR and applicable margins over LIBOR (See “Note 8 – Financing”). As a result, the carrying amounts of our revolving credit facility and term loan approximate fair value as of December 31, 2011 and 2010. We estimate fair market value for these liabilities based on their market value.

8. FINANCING

The following table sets forth the components of our long-term debt (in thousands):

	December 31,
	2011			2010
Senior secured term loan facility due August 4, 2015 with an average interest rate of 2.30% and 2.02% at December 31, 2011 and 2010, respectively	$	140,625		$	148,125
Revolving credit facility due August 4, 2015 with an average interest rate of 2.29% at December 31, 2011		130,000			—
Total debt		270,625			148,125
Less current maturities		(7,500	)		(7,500	)
Long-term debt	$	263,125		$	140,625

On April 14, 2011, we amended and restated our existing senior credit facilities which were originally entered into on August 4, 2010, consisting of a revolving credit facility and term loan facility. The original term loan facility had a principal amount of $150.0 million and remains unchanged subsequent to the amendment. The original revolving credit facility had an aggregate revolving commitment of $200.0 million, and was subsequently amended to increase that commitment to $400.0 million. Each of our revolving credit facility and our term loan facility matures on August 4, 2015. In addition to the revolving credit facility and term loan facility, our senior credit facilities permit us to incur up to $100.0 million in total principal amount of additional term loan or revolving loan indebtedness under the senior credit facilities. Our obligations under our senior credit facilities are fully and unconditionally guaranteed jointly and severally by us and certain of our U.S. subsidiaries currently existing or that we may create or acquire, with certain exceptions as set forth in our amended credit agreement, pursuant to the terms of a separate guarantee and collateral agreement.

There were draw-downs of $609.0 million and repayments of $479.0 million under the revolving credit facility during the year ended December 31, 2011. At December 31, 2011, there was $130.0 million outstanding under our revolving credit facility.

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CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The term loan facility amortizes in nominal quarterly installments of $1.875 million on the last day of each calendar quarter, with such payments having commenced on December 31, 2010 until maturity, whereby the final installment of the term loan facility will be paid on the maturity date in an amount equal to the aggregate unpaid principal amount.

Our borrowings under our amended senior credit facilities bear interest at a rate equal to the applicable margin plus, at our option, either: (i) a base rate determined by reference to the higher of (a) the rate announced by the Administrative Agent as its prime rate, (b) the federal funds rate plus 0.5%, and (c) the Adjusted LIBO Rate determined on a daily basis for an interest period of one month, plus 1.0% per annum; or (ii) a LIBO Rate on deposits in U.S. dollars for one-, two-, three- or six-month periods. The applicable margin on loans under our new senior credit facilities is 2.0% for LIBO Rates loans and 1.0% for base rate loans. The applicable margin is subject to change depending on our total senior secured leverage ratio. We also pay the lenders a commitment fee on the unused commitments under our revolving credit facility, which is payable quarterly in arrears. The commitment fee is subject to change depending on our leverage ratio.

Our amended senior credit facilities contain negative and affirmative covenants affecting us and our existing and future subsidiaries, with certain exceptions set forth in our amended credit agreement. Negative covenants and restrictions include: restrictions on liens, debt, dividends and other restricted payments, redemptions and stock repurchases, consolidations and mergers, acquisitions, investments, loans, advances, restrictive agreements with subsidiaries, speculative hedging agreements and a leverage ratio of consolidated total debt to consolidated EBITDA. At December 31, 2011, we were in compliance with all covenants associated with our credit facilities.

At December 31, 2011, net deferred financing costs of $7.5 million related to the issuance of the credit facilities are being amortized over a remaining average weighted period of 3.6 years and are reflected in other assets in the accompanying consolidated balance sheet.

9. INCOME TAXES

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Our federal income tax returns for 2008 through 2011 are open tax years. State jurisdictions that remain subject to examinations range from 2007 to 2011.

The accounting guidance for uncertain tax positions prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of December 31, 2011 and 2010, the Company had no accrued liabilities on the consolidated balance sheet related to uncertain federal or state income tax matters.

From time to time, we may be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. Our policy is that we recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The components of income tax expense (benefit) at December 31, 2011, 2010 and 2009 are as follows (in thousands):

	2011		2010		2009
Current:     Federal	$	22,643	$	41,788	$	34,929
State		2,157		5,783		4,796
Foreign		20		20		20
Total		24,820		47,591		39,745
Deferred:   Federal		13,336		1,566		234
State		2,214		300		(194	)
Total		15,550		1,866		40
Total:         Federal		35,979		43,354		35,163
State		4,371		6,083		4,602
Foreign		20		20		20
Total	$	40,370	$	49,457	$	39,785

17

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of the components of deferred income taxes at December 31, 2011 and 2010 is as follows (in thousands):

	2011			2010
Deferred tax assets:
Allowance for doubtful accounts	$	2,427		$	1,266
Equity based compensation		3,686			2,664
Deferred rent		474			1,074
Federal and state net operating loss carryforwards		1,527			1,453
Capital loss		770			770
Transaction related costs		3,226			936
Other		908			141
Total deferred tax assets		13,018			8,304
Valuation allowance		(770	)		(770	)
Total deferred tax assets net of valuation allowance		12,248			7,534
Deferred tax liabilities:
Goodwill		(22,356	)		(13,252	)
Deferred charges		(68	)		(81	)
Property and equipment		(14,560	)		(5,065	)
Customer-based and other intangibles		(7,851	)		(6,173	)
Total deferred tax liability		(44,835	)		(24,571	)
Net deferred tax liability	$	(32,587	)	$	(17,037	)

The Company had net operating loss carryforwards of $14.9 million at December 31, 2011 and 2010, respectively, which were available to offset future state taxable income and will expire beginning 2024 through 2030. Additionally, we had net operating loss carryforwards of $3.0 million at December 31, 2011 and 2010, respectively, which were available to offset future federal taxable income and will expire beginning 2028 through 2031.

We have determined that a $0.8 million valuation allowance is needed against a deferred tax asset related to the capital loss that the Company realized during 2008 because there is not enough positive evidence to meet the “more likely than not” threshold for recognition.

The effective tax rate varies from the U.S. Federal Statutory tax rate principally due to the following:

	2011			2010			2009
U.S. Federal Statutory tax rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefits		2.7			3.0			2.8
Non-deductible expenses		0.3			0.1			0.1
Other		(0.3	)		(0.2	)		—
Effective tax rate		37.7	%		37.9	%		37.9	%

10. STOCKHOLDERS’ EQUITY

Equity Plans

In 1999, the Company established the Catalyst Health Solutions, Inc. 1999 Stock Option Plan (“1999 SOP”). The 1999 SOP provides for a maximum of 4,000,000 common shares of the Company to be issued as option grants. A Committee of the Board of Directors determines award amounts, option prices and vesting periods, subject to the provisions of the 1999 SOP. All option grants expire in ten years. All officers, employees and independent contractors of the Company are eligible to receive option awards at the discretion of the Committee.

In 2000, the shareholders approved and the Company adopted the Catalyst Health Solutions, Inc. 2000 Stock Option Plan (“2000 SOP”). The 2000 SOP provides for a maximum of 1,000,000 common shares of the Company to be issued as option grants. A Committee of the Board of Directors determines award amounts, option prices and vesting periods, subject to the provisions of the 2000 SOP. All option grants expire in ten years. All officers, employees and independent contractors of the Company are eligible to receive option awards at the discretion of the Committee.

18

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In 2000, the shareholders approved and the Company adopted the Catalyst Health Solutions, Inc. Directors’ Stock Option Plan (“Directors’ SOP”). The Directors’ SOP, as subsequently amended, provided for a maximum of 400,000 common shares of the Company to be issued as option grants. The Board of Directors determines award amounts, option prices and vesting periods, subject to the provisions of the Directors’ SOP. All option grants expire in ten years. All non-employee Directors of the Company are eligible to receive option awards at the discretion of the Board of Directors.

In 2003, the shareholders approved and the Company adopted the Catalyst Health Solutions, Inc. 2003 Equity Incentive Plan (“2003 EIP”). The 2003 EIP provides for a maximum of 1,500,000 common shares of the Company to be issued as option grants or restricted shares. A Committee of the Board of Directors determines award amounts, option prices, vesting periods, and restrictions, subject to the provisions of the 2003 EIP. All grants expire in ten years. All officers, employees and independent contractors of the Company are eligible to receive option and restricted stock awards at the discretion of the Committee.

In 2004, the shareholders approved and the Company adopted the Catalyst Health Solutions, Inc. 2004 Employee Stock Purchase Plan (“ESPP”). The ESPP, as subsequently amended, provides eligible employees of the Company with opportunities to purchase shares of the Company common stock. 200,000 shares have been approved for this purpose. The ESPP is intended to qualify as an “employee stock purchase plan” as defined in Section 423 of the Internal Revenue Code of 1986, as amended.

In 2006, the shareholders approved and the Company adopted the Catalyst Health Solutions, Inc. 2006 Stock Incentive Plan (“2006 SIP”). The 2006 SIP, as subsequently amended, provides for a maximum of 3,000,000 common shares of the Company to be issued as option grants or restricted shares. A Committee of the Board of Directors determines award amounts, option prices, vesting periods, and restrictions, subject to the provisions of the 2006 SIP. All grants expire in ten years. All employees, outside directors and independent contractors of the Company are eligible to receive option and restricted stock awards at the discretion of the Committee.

On April 13, 2011, we consummated a public offering of 6,325,000 shares of our common stock, par value $0.01 per share, of which 4,500,000 shares were sold by the Company and 1,825,000 shares were sold by one of our stockholders, Principal Holding Company, LLC (“Principal”), at a public offering price of $53.00 per share. Total proceeds to the Company, net of underwriting fees and direct offering costs of $11.4 million, were $227.1 million.

Stock Options

A summary of our stock option activity for the year ended December 31, 2011 is as follows (in thousands, except price per share and weighted-average exercise price):

	Number of Options			Price Per Share		Weighted - Average Exercise Price
Outstanding at December 31, 2010		466		$	3.56 -14.21	$	6.51
Granted		—			—		—
Exercised		(291	)		3.56 –10.34		6.67
Forfeited or expired		—			—		—
Outstanding at December 31, 2011		175		$	4.00 –14.21	$	6.25
Exercisable at December 31, 2011		175		$	4.00 -14.21	$	6.25

The aggregate intrinsic value of exercisable stock options at December 31, 2011 and 2010 was approximately $8.0 million and $18.6 million, respectively, with a weighted average remaining life of 0.6 years at December 31, 2011. The total intrinsic value of stock options exercised during the years ended December 31, 2011, 2010 and 2009 was $13.6 million, $13.0 million and $9.1 million, respectively.

19

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restricted Stock Awards

A summary of our restricted share activity for the year ended December 31, 2011 is as follows (in thousands, except for weighted-average fair value per share):

	Shares			Weighted- Average Fair Value Per Share
Non-vested shares outstanding at December 31, 2010		650		$	31.52
Granted		501			51.46
Vested		(237	)		31.34
Forfeited		(52	)		39.81
Non-vested shares outstanding at December 31, 2011		862		$	42.66

Included in the 2011 grants are 150,000 performance-based awards issued to our Chief Executive Officer. These awards, which cliff vest in December 2014, may be subject to adjustment based on the achievement of certain financial and quality-based performance goals over the performance period. For the market-based component of these performance awards, compensation expense was determined using a lattice equity-pricing model which incorporates all probabilities of outcome and is recognized on a straight-line basis over the performance period. For the performance component of these performance awards, the compensation expense is estimated using the most probable outcome of the performance goals and adjusted as the expected outcome changes during the performance period. The expense related to these performance-based awards for 2011 is not material to our consolidated financial statements.

The fair value of our non-performance restricted shares, which is based on our stock price at the date of grant, is expensed over the vesting period. As of December 31, 2011 and 2010, the total remaining unrecognized compensation cost related to all non-vested restricted shares was approximately $26.6 million and $15.2 million, respectively, with a weighted average period over which it is expected to be recognized of 2.8 years.

Common Stock Warrants

Pursuant to an acquisition in 2010, we issued 100,000 common stock warrants. These warrants, which expire on August 2013, had an exercise price of $44.73 per share and were valued at approximately $1.0 million using the Black-Scholes equity-pricing model. The warrants remained issued and outstanding at December 31, 2011. The key assumptions used by us in valuing these warrants were:

Expected volatility	40	%
Expected dividend yield	0	%
Risk-free interest rate	0.77	%
Expected term	3 years

Pursuant to an acquisition in 2004, we issued 255,000 common stock warrants at an exercise price of $15.45 per share. These warrants, which expire June 2014, were valued at approximately $2.5 million using the Black-Scholes equity-pricing model. These warrants remain issued and outstanding at December 31, 2011.

Treasury Stock

Recipients of restricted stock grants are provided the opportunity to sell a portion of those shares to the Company at the time the shares vest, in order to pay their withholding tax obligations. We account for these share purchases as treasury stock transactions using the cost method. For the years ended December 31, 2011, 2010 and 2009, 74,000, 67,000 and 46,000 shares, respectively, were used for this purpose at a value of approximately $3.5 million, $2.6 million and $1.0 million, respectively.

Employee Stock Purchase Plan

The employee stock purchase plan (“ESPP”) allows eligible employees to purchase shares of the Company’s common stock each quarter at 95% of the market value on the last day of the quarter. The ESPP is not considered compensatory and, therefore, no portion of the costs related to ESPP purchases is included in our stock-based compensation expense for any periods presented.

20

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. BUSINESS COMBINATIONS

Catalyst Rx Health Initiatives, Inc. (formerly known as Walgreens Health Initiative, Inc.)

On June 13, 2011, we completed our acquisition of Catalyst Rx Health Initiatives, Inc. (“CHII”), formerly known as Walgreens Health Initiatives, Inc. (“WHI”), which was the PBM subsidiary of Walgreen Co. (“Walgreens”). The purchase price was $485.0 million in cash, subsequently adjusted by $48.6 million for net working capital adjustments, and up to $40.0 million in additional cash consideration payable upon the achievement of certain client retention milestones through March 31, 2014. The fair value of the contingent consideration at the acquisition date was approximately $36.7 million. The cash payment for this acquisition was funded from a combination of cash on hand and amounts drawn under our revolving credit facility. For the year ended December 30, 2011, we incurred approximately $12.2 million of transaction related costs, which were included in selling, general and administrative expenses in our consolidated statements of operations.

The purchase price of CHII was largely determined on the basis of management’s expectations of future earnings and cash flows, resulting in the recognition of goodwill. Management’s allocation of the purchase price to the net assets acquired resulted in goodwill of $366.5 million, acquired technology of $11.3 million with an estimated useful life of 5.5 years, customer relationship intangibles of $133.0 million with an estimated useful life of 13 years, and other contract intangibles related to an administrative support services agreement with the seller of $44.9 million with an estimated useful life of 8 years. Goodwill related to this acquisition is deductible for tax purposes. The goodwill recognized is primarily attributable to the workforce of the acquired business and the operating synergies expected to be realized after our acquisition of CHII.

The value of identified intangibles reflect that we entered into a 10-year contract with Walgreens to provide PBM services for Walgreens’ 244,000 employees and retirees, as well as 10-year agreements to administer the Walgreens Prescription Savings Club, which has approximately 2.4 million members, and to provide certain administrative support services to on-going Walgreens businesses.

We determined the fair value of the contingent consideration using probability assessments of the expected future cash flows over the period in which the obligation is expected to be settled, and applied a discount rate that appropriately captures a market participant’s view of the risk associated with the obligation. Subsequent changes to the valuation are recorded through earnings. For the year ended December 31, 2011, there was a $1.0 million increase in the fair value of contingent consideration subsequent to acquisition which was recorded in selling, general and administrative expenses in the consolidated statements of operations.

The following table summarizes the consideration transferred to acquire CHII and the amounts of identified assets acquired and liabilities assumed at the date of acquisition. The acquisition was accounted for as a purchase, and accordingly, the results of CHII operations are included in our consolidated financial statements since the date of acquisition. Amounts are in thousands.

Fair value of consideration:	At June. 13, 2011
Cash	$	485,000
Net working capital adjustments		(48,623	)
Contingent consideration		36,676
Total consideration		473,053
Valuation of identifiable assets acquired and liabilities assumed:
Current assets (primarily accounts receivable and rebates receivable)		206,868
Intangible assets		189,200
Property, plant and equipment		127
Other long-term assets		261
Liabilities assumed (primarily trade payable and rebates payable)		(289,858	)
Total identified net assets		106,598
Goodwill	$	366,455

The acquired business contributed revenue of $604.3 million and net income of $1.7 million to us for the period from June 14, 2011 to December 31, 2011. The following table sets forth certain unaudited pro forma financial data assuming the acquisition of WHI had been completed as of the beginning of the earliest period presented, after

21

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

giving effect to purchase accounting adjustments. The pro forma financial information is not necessarily indicative of the results of operations if the transaction had been in effect as of the beginning of the periods presented, nor is it necessarily an indication of trends in future results. Amounts are in thousands, except for per share data.

	For the year ended December 31,
	2011		2010
	(Unaudited)
Revenue	$	5,985,122	$	5,034,878
Net income attributable to Company	$	65,082	$	51,316
Net income per share attributable to Company, basic	$	1.33	$	1.06
Net income per share attributable to Company, diluted	$	1.32	$	1.05
Weighted average shares, basic		48,827		48,355
Weighted average shares, diluted		49,365		49,036

Acquisition of NLBP, LLC

On January 25, 2011, we acquired NLBP, LLC (“NLBP”), an Arizona limited liability company which has developed an electronic clinical messaging platform, for $6.2 million in cash.

The purchase price of NLBP was largely determined on the basis of management’s expectations of future earnings and cash flows, resulting in the recognition of goodwill. Management’s final allocation of the purchase price to the net assets acquired resulted in goodwill of $4.5 million, trade name intangibles of $0.2 million with an estimated useful life of 20 years, non-compete agreements of $0.6 million with an estimated life of 3 years, and acquired technology of $0.9 million with an estimated useful life of 5 years.

The acquisition was accounted for as a purchase, and accordingly, the results of NLBP operations are included in our consolidated financial statements since the date of acquisition. Goodwill related to this acquisition is deductible for tax purposes. Revenue and expenses since acquisition and unaudited pro forma financial information have not been included herein because of the immateriality of the NLBP business combination.

Acquisition of FutureScripts, LLC

On September 13, 2010, we completed the acquisition of FutureScripts, LLC and FutureScripts Secure LLC (collectively, “FutureScripts”). FutureScripts, formed in 2006, was the PBM subsidiary of Independence Blue Cross (“IBC”). FutureScripts provides pharmacy benefit management services to approximately 1 million lives and manages over 14 million prescriptions annually. We manage these pharmacy benefits under the terms of a 10-year contract. Under the terms of the acquisition agreement, we maintain the FutureScripts brand and provide IBC a full complement of services, including: claims adjudication, member services, network administration, formulary management and rebate contracting, mail and specialty drug management, clinical services, data reporting and analytics, as well as client service and sales support.

Total consideration for the acquisition of FutureScripts consisted of cash payments on September 13, 2010 of $225.5 million. The purchase price of FutureScripts was largely determined on the basis of management’s expectations of future earnings and cash flows, resulting in the recognition of goodwill. The purchase price was funded from our cash on hand. In June 2011, we received approximately $1.0 million in cash as required for certain closing date net working capital adjustments. We incurred $1.5 million of acquisition related costs, which were included in selling, general and administrative expenses in our consolidated statement of operations for the year ended December 31, 2010.

At December 31, 2010, we had provisionally estimated fair values for the assets acquired and liabilities assumed at the date of acquisition. The amounts reported were considered provisional as we were completing the valuation work required to allocate the purchase price and finalize the working capital adjustments. During the second quarter of 2011, we completed the analysis and consider purchase accounting to be final. We have recast previously presented information below as if all adjustments to purchase price allocation had occurred at September 13, 2010, the date of acquisition. (Amounts are in thousands).

22

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair value of consideration:	At Sept. 13, 2010
Cash paid at acquisition date	$	225,488
Cash received for net working capital adjustments		(966	)
Total cash consideration	$	224,522

Recognized amounts of assets acquired and liabilities assumed:	Provisional Amounts Recognized at Acquisition Date (a)			Measurement Period Adjustments			Amounts Recognized at Acquisition Date
Cash and cash equivalents	$	1,986		$	—		$	1,986
Current assets (primarily accounts receivable and rebates receivable) (b)		66,751			(4,743	)		62,008
Property, plant and equipment		160			—			160
Intangible assets (b)		110,000			(12,448	)		97,552
Goodwill		111,228			16,045			127,273
Liabilities assumed (primarily trade payable and rebates payable) (b)		(64,637	)		180			(64,457	)
Total net assets acquired	$	225,488		$	(966	)	$	224,522

(a) As previously reported in our 2010 Annual Report on Form 10-K.

(b) These measurement period adjustments were recorded to reflect changes in the estimated fair value of the associated assets and liabilities and better reflect market participant assumptions about the facts and circumstances existing as of the acquisition date. The measurement period adjustments did not result from events after the acquisition date. We have not recast the acquisition adjustments to the 2010 consolidated financial statements as we do not consider them to be material.

Management’s allocation of the purchase price to the net assets acquired resulted in goodwill of $127.3 million, trade name intangibles of $16.2 million with an estimated useful life of 20 years, and customer contract intangibles of $81.4 million with an estimated useful life of 10 years. Goodwill related to this acquisition is deductible for tax purposes. The goodwill recognized is primarily attributable to the workforce of the acquired business and the operating synergies expected to be realized after our acquisition of FutureScripts.

The acquisition was accounted for as a purchase, and accordingly, the results of FutureScripts operations are included in our consolidated financial statements since the date of acquisition. The acquired business contributed revenue of $247.2 million and net income of $0.9 million to us for the period from September 13, 2010 to December 31, 2010.

The following table sets forth certain unaudited pro forma financial data assuming the acquisition of FutureScripts had been completed as of the beginning of the period presented, after giving effect to purchase accounting adjustments. The pro forma financial information is not necessarily indicative of the results of operations if the transaction had been in effect as of the beginning of the period presented, nor is it necessarily an indication of trends in future results. Amounts are in thousands, except for per share data.

	For the year ended December 31, 2010
	(Unaudited)
Revenue	$	4,390,067
Net income	$	79,746
Net income per share, basic	$	1.82
Net income per share, diluted	$	1.79
Weighted average shares, basic		43,855
Weighted average shares, diluted		44,536

Acquisition of inPharmative, Inc.

On August 25, 2010, we acquired inPharmative, Inc. for a cash payment of $16.5 million and 100,000 common stock warrants valued at approximately $1.0 million using the Black-Scholes option pricing model. In March 2011, we paid an additional $0.7 million as required for certain closing date net working capital adjustments. InPharmative, which is based in Kansas City, MO, is a provider of rebate administration technology tools to PBMs, health plans, state Medicaid programs and group purchasing organizations.

23

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We incurred approximately $0.4 million of acquisition-related costs, which were included in selling, general and administrative expenses in our consolidated statements of operations for the year ended December 31, 2010.

The purchase price of inPharmative was largely determined on the basis of management’s expectations of future earnings and cash flows, resulting in the recognition of goodwill. Management’s final allocation of the purchase price to the net assets acquired resulted in goodwill of $12.6 million, customer relationships of $3.2 million with an estimated useful life of 12 years, technology software of $0.7 million with an estimated useful life of 3 years, and trade name intangibles of $0.5 million with an estimated useful life of 20 years. Goodwill related to this acquisition is deductible for tax purposes.

The acquisition was accounted for as a purchase, and accordingly, the results of inPharmative operations are included in our consolidated financial statements since the date of acquisition. Revenue and expenses since acquisition and unaudited pro forma financial information have not been disclosed herein because of the immateriality of the inPharmative business combination.

The following table summarizes the final consideration transferred to acquire inPharmative and the amounts of identified assets acquired and liabilities assumed at the date of acquisition. Amounts are in thousands.

Fair value of consideration transferred:	At August 25, 2010
Cash	$	17,240
Warrants		988
Total consideration		18,228
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash		120
Current assets (primarily accounts receivable)		966
Intangible assets		4,342
Property, plant and equipment		217
Liabilities assumed (primarily accrued expenses)		(26	)
Total identified net assets		5,619
Goodwill	$	12,609

Acquisition of Total Script, LLC

In July 2009, we purchased Total Script, LLC, a pharmacy benefit management company with a strategic focus on the small- to mid-sized employer group markets. Total consideration for the acquisition of Total Script consisted of cash payments of $13.5 million. Additionally, the purchase agreement included contingent consideration payable over a three-year period based on the achievement of certain milestones and net new business contracted. The fair value of the net contingent consideration recognized on the acquisition date, which was determined using expected present value techniques, was approximately $13.4 million. During 2010, we made contingent consideration payments of $3.2 million based on the achievement of certain milestones and net new business acquired. Also, during 2011 and 2010, there were decreases of $3.0 million and $1.1 million, respectively, in the fair value of recognized amounts for the contingent consideration, primarily due to revised assumptions regarding net new business contracted. On December 15, 2011, we entered into an agreement with Total Script whereby we will pay $2.7 million in connection with full and final settlement of the remaining contingent consideration owed. Such cash payment was made on January 3, 2012. The adjustments to the fair value of recognized amounts for contingent consideration, including a $3.4 million adjustment at settlement, were included in selling, general and administrative expenses in the consolidated statements of operation for the respective periods.

Other acquisitions

To support our geographic expansion and growth, we have periodically completed various insignificant business acquisitions to secure local operating assets, new pharmacy network contracts and local market executive offices. None of these transactions has had any significant impact on our reported revenues, assets or results of operations.

24

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. VARIABLE INTEREST ENTITY

The Company entered into a purchase agreement on December 16, 2011, whereby we made an initial capital contribution of $5.0 million to Script Relief LLC, a Delaware corporation, in exchange for a 19.9% ownership interest. Script Relief operates a direct to consumer pharmacy benefit business including discount card offerings and associated activities. We have evaluated this transaction and have determined that Script Relief is a variable interest entity and that we are the primary beneficiary because our underlying PBM and pharmacy contracts represent its key business operations and we have the power to direct these activities. As a result, we consolidate Script Relief in our consolidated financial statements and separately disclose the amounts attributable to our non-controlling interests, which were recorded at fair value as of the date of the purchase agreement. The carrying amount of the assets and liabilities, and the impact of the operating results of this consolidated variable interest entity were not material to our consolidated financial statements for the year ended December 31, 2011. Under the purchase agreement, upon the achievement of certain milestones, we may be required to make an additional $5.0 million capital contribution within twelve months in exchange for additional ownership interests. Additionally, beginning December 2012 and through April 2016, we have the right to purchase all of the outstanding interests owned by the other equity member. The purchase of the outstanding interests is at our sole discretion and is subject to a contractually-defined purchase price. If we elect to exercise this call option, it does contain a minimum purchase price of $50.0 million which could be increased based on operating performance. There are no other terms that would require us to provide additional financial support to the variable interest entity. Under the accounting guidance, subsequent changes in our ownership interest while maintaining control will be accounted for as an equity transaction.

13. LEASE COMMITMENTS

The Company maintains non-cancelable lease agreements for office space in its 17 main operating locations. These agreements provide for annual escalations and payment by the Company of its proportionate share of the increase in the costs of operating the buildings. The Company also leases certain office equipment. The Company recognizes rent expense on a straight-line basis over the terms of the leases.

The future minimum payments due under non-cancelable leases are as follows (in thousands):

2012	$	9,090
2013		9,381
2014		10,345
2015		8,944
2016		7,684
Thereafter		35,100
	$	80,544

Rent expense for the years ended December 31, 2011, 2010 and 2009 was $6.9 million, $5.6 million and $5.6 million, respectively.

14. COMMITMENTS AND CONTINGENCIES

The outcome of any current or future litigation or governmental or internal investigations cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be successfully sought by federal or state regulatory authorities. We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding current or future litigation, or penalties, fines or other sanctions because the inherently unpredictable nature of legal proceeding and sanctions may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate: (ii) discovery is not complete: (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes. Nevertheless, it is possible that the outcome of legal matters or sanctions may have a material adverse effect on our results of operations, financial position, and cash flows.

25

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In the ordinary course of our business, we are sometimes required to provide financial guarantees related to certain customer contracts. These financial guarantees may include performance bonds, standby letters of credit or other performance guarantees. These financial guarantees represent obligations to make payments to customers if we fail to fulfill an obligation under a contractual arrangement with that customer. We have had no history of significant claims, nor are we aware of circumstances that would require us to perform under these arrangements. We believe that the resolution of any claim that might arise in the future, either individually or in the aggregate, would not have a material adverse effect on our financial condition, results of operations or cash flows.

In connection with First Rx Specialty and Mail Services, LLC, an entity that we formed in 2008, we received $7.0 million in cash in 2008 and $1.0 million in cash in 2009. We had considered the accounting for the arrangement and had recorded a liability in our consolidated balance sheet. Also, as a part of this arrangement, we recognized expense of approximately $0.3 million during each of the years ended December 31, 2011, 2010 and 2009, associated with the accretion of the liability to its ultimate redemption value of $9.0 million. In accordance with the terms of the arrangement, we have repaid this total liability in 2011.

15. SEGMENT REPORTING

We have determined that we operate in only one segment – the PBM segment. Accordingly, no segment disclosures have been included in the notes to the consolidated financial statements.

16. 401(k) SAVINGS PLAN

We offer a 401(k) Savings Plan (the “Plan”) to all Company employees, subject to certain service requirements. The Company matches the first $1,000 of the employee’s contribution to the Plan and 50% thereafter, up to a discretionary pre-defined limit, on the first ten percent of the employee’s pre-tax deferral subject to statutory limits. The Company’s matching contribution vests ratably over 5 years for each employee. For the years ended December 31, 2011, 2010, and 2009, we incurred expense of $2.1 million, $1.2 million and $1.0 million respectively, under the Plan.

17. SUPPLEMENTAL DISCLOSURE OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Quarterly results of operations for the years ended December 31, 2011 and 2010 (in thousands, except per share amounts):

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2011 Quarterly Operating Results (1)
Revenue (excludes member co-payments of $320,909, $350,605, $598,035, and $574,564 for the four quarterly periods ended March 31, June 30, September 30, and December 31, 2011)	$	1,121,733	$	1,233,828	$	1,429,377	$	1,544,656
Gross profit		61,589		69,588		84,083		92,625
Operating income		34,071		21,562		26,299		32,288
Income before income taxes		32,948		19,782		23,875		30,352
Net income		20,296		12,311		15,242		18,738
Less: Net loss attributable to non-controlling interest		—		—		—		(401	)
Net income attributable to the Company		20,296		12,311		15,242		19,139
Net income per common share attributable to the Company, basic	$	0.46	$	0.26	$	0.31	$	0.39
Net income per common share attributable to the Company, diluted	$	0.45	$	0.25	$	0.31	$	0.39

26

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2010 Quarterly Operating Results (2)
Revenue (excludes member co-payments of $254,203, $231,174, $251,412, and $288,517 for the four quarterly periods ended March 31, June 30, September 30, and December 31, 2010)	$	832,312	$	890,107	$	925,056	$	1,116,617
Gross profit		50,647		55,724		61,743		66,135
Operating income		28,438		31,641		35,004		37,421
Income before income taxes		28,281		31,524		34,413		36,196
Net income		17,421		19,479		21,505		22,552
Net income per common share, basic	$	0.40	$	0.44	$	0.49	$	0.51
Net income per common share, diluted	$	0.39	$	0.44	$	0.48	$	0.51

(1) – Includes the acquisition of CHII effective June 13, 2011.

(2) – Includes the acquisition of FutureScripts effective September 13, 2010.

27

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CATALYST HEALTH SOLUTIONS, INC.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

Description	Balance Beginning of Period		Additions/ (Reductions) Charged to Costs and Expense			Additions/ (Reductions) Due to Acquisitions		Deductions			Balance End of Period
Deduction from asset account:
Allowance for accounts receivable:
Year ended December 31, 2011	$	2,599	$	518		$	1,538	$	(344	)	$	4,311
Year ended December 31, 2010		1,533		1,430			—		(364	)		2,599
Year ended December 31, 2009		1,064		811			18		(360	)		1,533
Allowance for rebates receivable:
Year ended December 31, 2011	$	1,377	$	(1,280	)	$	4,427	$	(2,741	)	$	1,783
Year ended December 31, 2010		998		342			37		—			1,377
Year ended December 31, 2009		404		583			11		—			998

28

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Our management has excluded Catalyst Rx Health Initiatives, Inc. (“CHII”), formerly known as Walgreen Health Initiatives, Inc., from our assessment of internal controls over financial reporting in 2011, because it was acquired by us in a purchase business combination during 2011. CHII is a wholly-owned subsidiary whose total assets and total revenue represent 35.8% and 11.3% of the related consolidated financial statement amounts as of and for the year ended December 31, 2011.

Based on its assessment, management has concluded that as of December 31, 2011, our internal control over financial reporting was effective based on those criteria. Our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

29

EX-99.3

Exhibit 99.3

Consolidated financial statements of Catalyst Health Solutions, Inc. (Unaudited)

Three Months Ended March 31, 2012 and 2011

	Page
Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011		2
Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011		3
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011		4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011		5
Notes to Consolidated Financial Statements		6

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

	March 31, 2012			December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	51,223		$	49,244
Accounts receivable, net of allowances of $3,847 and $4,311 at March 31, 2012 and December 31, 2011, respectively		444,629			419,266
Rebates receivable, net of allowances of $1,151 and $1,783 at March 31, 2012 and December 31, 2011, respectively		230,386			281,247
Inventory, net of allowances of $74 and $20 at March 31, 2012 and December 31, 2011, respectively		2,605			2,978
Income taxes receivable		12,515			16,405
Deferred income taxes		2,605			3,151
Other current assets		22,143			40,150
Total current assets		766,106			812,441
Property and equipment, net of accumulated depreciation of $29,945 and $26,134 at March 31, 2012 and December 31, 2011, respectively		71,762			62,909
Goodwill		785,270			785,385
Intangible assets, net		303,870			309,108
Restricted cash and investments		49,710			45,000
Investments, net		3,087			5,087
Other assets		38,590			10,248
Total assets	$	2,018,395		$	2,030,178
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	405,758		$	485,468
Rebates payable		247,819			247,976
Accrued expenses and other current liabilities		137,052			101,208
Current maturities of long-term debt		7,500			7,500
Total current liabilities		798,129			842,152
Long-term debt		261,250			263,125
Deferred rent expense		10,989			2,997
Deferred income taxes		37,126			35,738
Other liabilities		42,381			37,667
Total liabilities		1,149,875			1,181,679
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued		—			—
Common stock, $0.01 par value, 100,000 shares authorized, 50,560 and 50,234 shares issued at March 31, 2012 and December 31, 2011, respectively		506			502
Additional paid-in capital		493,103			486,473
Treasury stock, at cost, 400 shares and 345 shares at March 31, 2012 and December 31, 2011, respectively		(14,779	)		(11,332	)
Accumulated other comprehensive loss		(30	)		(30	)
Retained earnings		389,045			369,812
Total parent Company stockholders’ equity		867,845			845,425
Non-controlling interest		675			3,074
Total stockholders’ equity		868,520			848,499
Total liabilities and stockholders’ equity	$	2,018,395		$	2,030,178

The accompanying notes are an integral part of these consolidated financial statements.

2

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	For the three months ended March 31,
	2012			2011
Revenue (excludes member co-payments of $360,763 and $320,909 for the three months ended March 31, 2012 and 2011, respectively)	$	1,454,805		$	1,121,733
Direct expenses		1,359,472			1,060,144
Selling, general and administrative expenses		67,723			27,518
Total operating expenses		1,427,195			1,087,662
Operating income		27,610			34,071
Interest and other income		3			65
Interest expense		(2,155	)		(1,188	)
Income before income taxes		25,458			32,948
Income tax expense		9,623			12,652
Net income		15,835			20,296
Less: Net loss attributable to non-controlling interest		(3,398	)		—
Net income attributable to the Company	$	19,233		$	20,296
Net income per share attributable to the Company, basic	$	0.39		$	0.46
Net income per share attributable to the Company, diluted	$	0.39		$	0.45
Weighted average shares of common stock outstanding, basic		49,144			44,152
Weighted average shares of common stock outstanding, diluted		49,592			44,724

The accompanying notes are an integral part of these consolidated financial statements.

3

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	For the three months ended March 31,
	2012			2011
Net income	$	15,835		$	20,296
Other comprehensive income, net of tax:
Unrealized gain on investments		—			—
Comprehensive income		15,835			20,296
Less: Comprehensive loss attributable to non-controlling interest		(3,398	)		—
Comprehensive income attributable to the Company	$	19,233		$	20,296

The accompanying notes are an integral part of these consolidated financial statements.

4

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the three months ended March 31,
	2012			2011
Cash flows from operating activities:
Net income	$	15,835		$	20,296
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		3,811			1,959
Amortization of intangible and other assets		11,185			3,983
Loss on disposal of property and equipment		154			—
Allowances on receivables		(630	)		(925	)
Deferred income taxes		1,935			2,694
Equity based compensation charges		3,393			2,240
Other non-cash charges (income), net		214			(1,343	)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable		(25,365	)		(35,374	)
Rebates receivable		51,493			(11,769	)
Income taxes receivable		3,917			7,577
Inventory, net		373			279
Other assets		2,452			(2,869	)
Accounts payable		(82,985	)		39,547
Rebates payable		(157	)		9,676
Accrued expenses and other liabilities		19,225			365
Net cash provided by operating activities		4,850			36,336
Cash flows from investing activities:
Purchases of property and equipment		(8,828	)		(3,270	)
Business acquisitions and related payments, net of cash acquired		6,440			(4,940	)
Other investing activities		—			(1,438	)
Net cash used in investing activities		(2,388	)		(9,648	)
Cash flows from financing activities:
Repayments of term loan		(1,875	)		(1,875	)
Borrowings under revolving credit facility		269,000			—
Repayments of revolving credit facility		(269,000	)		—
Deferred financing costs		—			(8	)
Contingent consideration payments		(2,700	)		—
Proceeds from exercise of stock options		662			431
Excess tax benefits due to option exercises and restricted stock vesting		3,517			1,964
Proceeds from shares issued under employee stock purchase plan		176			108
Purchases of treasury stock		(3,446	)		(2,278	)
Bank overdrafts		3,183			—
Net cash used in by financing activities		(483	)		(1,658	)
Net increase in cash and cash equivalents		1,979			25,030
Cash and cash equivalents at the beginning of period		49,244			157,843
Cash and cash equivalents at the end of period	$	51,223		$	182,873
Supplemental disclosure:
Cash paid for interest	$	1,626		$	897
Cash paid for taxes	$	254		$	417

The accompanying notes are an integral part of these consolidated financial statements.

5

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared by Catalyst Health Solutions, Inc., a Delaware corporation (the “Company,” “our,” “we” or “us”), in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. These consolidated financial statements are unaudited and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair statement of the consolidated balance sheets, statements of operations, statements of comprehensive income and statements of cash flows for the periods presented. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date but does not include all of the disclosures required by accounting principles generally accepted in the United States. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on February 24, 2012.

Rebates payable and receivable

Rebates earned under arrangements with manufacturers or third-party intermediaries are recorded predominately as a reduction of direct expenses. The Company refines its estimates each period based on actual collection and payment experience. For the three months ended March 31, 2012 and 2011, adjustments made to the rebate receivable estimates from prior periods reduced direct expense by $8.6 million and $3.3 million, respectively. Additionally, the portion of manufacturer or third-party intermediary rebates due to clients is recorded as a reduction of revenue. For the three months ended March 31, 2012 and 2011, adjustments made to the rebate payable estimates from prior periods reduced revenue by approximately $3.3 million and $0.7 million, respectively.

Receivable/liability for Ceded Life and Annuity Contracts

As described in Note 4 – Business Combinations, on February 17, 2012, we acquired Molina Healthcare Insurance Company. The transaction resulted in our acquiring non-current receivable and liability for ceded life and annuity contracts. We report 100% ceded reinsurance arrangements for life insurance policies written and held by this acquired entity by recording a non-current receivable from the reinsurer with a corresponding non-current liability for ceded life and annuity contracts.

Contingent consideration

In connection with our acquisition of Catalyst Rx Health Initiatives, Inc. in June 2011, we may be required to pay up to $40.0 million of additional cash consideration. This amount has been deposited into an escrow account. As this deposit is restricted in nature, it is excluded from our cash and cash equivalents. Payment of this cash consideration is based upon the achievement of client retention milestones through March 31, 2014. No distributions have been made from the restricted cash amount. As of March 31, 2012, we have accrued $37.9 million as the fair value of the related contingent consideration, of which $18.9 million is in other current liabilities and $19.0 million is in other long-term liabilities on our consolidated balance sheet. As of December 31, 2011, we had accrued $37.7 million as the fair value of the related contingent consideration in other long-term liabilities on our consolidated balance sheet.

In July 2009, we purchased Total Script, LLC (“Total Script”). The purchase agreement included contingent consideration payable over a three-year period based on the achievement of certain milestones and net new business contracted. On December 15, 2011, we entered into an agreement with Total Script whereby we agreed to pay $2.7 million in connection with full and final settlement of the remaining contingent consideration owed. Such cash payment was made on January 3, 2012. The adjustments to the fair value of recognized amounts for contingent consideration, including a $3.4 million adjustment at settlement, which decreased expense, were included in selling, general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2011.

6

2. NEW ACCOUNTING STANDARDS

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) on testing goodwill for impairment. The amendments in the ASU will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. We early adopted the provisions of this ASU for our goodwill impairment test performed as of December 31, 2011. The ASU update did not have an impact on our financial position.

In June 2011, the FASB issued new guidance on the presentation of comprehensive income. This guidance is intended to increase the prominence of other comprehensive income in financial statements by presenting it in either a single statement or two-statement approach. This new accounting pronouncement is effective for our first quarter of 2012 and there was no material impact on our financial statements from its adoption.

3. FAIR VALUE MEASUREMENTS

Summary of Financial Assets Measured on a Recurring Basis

The following tables detail the fair value measurements of our financial assets measured on a recurring basis as of March 31, 2012 and December 31, 2011 and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

		00000000		00000000		00000000		00000000
			Fair Value Measurements at Reporting Date Using
	March 31, 2012		Quoted Prices in Active Markets Using Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Money market funds	$	99,957	$	99,957	$	—	$	—
Auction rate securities		577		—		—		577
Restricted investments		4,710		—		4,710		—
Other long-term investments		2,510		—		2,510		—
Total assets measured at fair value	$	107,754	$	99,957	$	7,220	$	577

		00000000		00000000		00000000		00000000
			Fair Value Measurements at Reporting Date Using
	December 31, 2011		Quoted Prices in Active Markets Using Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Money market funds	$	154,343	$	154,343	$	—	$	—
Auction rate securities		577		—		—		577
Other long-term investments		4,510		—		4,510		—
Total assets measured at fair value	$	159,430	$	154,343	$	4,510	$	577

The valuation technique used to measure fair value for our Level 1 and 2 assets is a market approach, with Level 1 using market prices and Level 2 using other relevant information generated by market transactions involving identical or comparable assets. The valuation technique used to measure fair value for our Level 3 assets is an income approach, using a discounted cash flow model which incorporates a number of variables that reflect current market conditions.

7

The following table reflects the roll forward of activity for our major classes of assets measured at fair value using Level 3 inputs (in thousands):

	For the three months ended March 31,
	2012		2011
Beginning Balance	$	577	$	577
Redemptions and sales during the period		—		—
Changes in unrealized gain included in accumulated other comprehensive income		—		—
Ending Balance	$	577	$	577

Investments

The following is a summary of our investments as of the dates indicated (in thousands):

As of March 31, 2012:	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Amortized Cost
Auction rate securities	$	577	$	—	$	48	$	625
Restricted investments		4,710		—		—		4,710
Other long-term investments		2,510		—		—		2,510
Total investments	$	7,797	$	—	$	48	$	7,845

As of December 31, 2011:	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Amortized Cost
Auction rate securities	$	577	$	—	$	48	$	625
Other long-term investments		4,510		—		—		4,510
Total investments	$	5,087	$	—	$	48	$	5,135

Auction rate securities

We currently have remaining $0.6 million at par value in investments related to our auction rate securities (“ARS”). Although we continue to receive timely interest payments, our ARS investments currently lack short-term liquidity and are therefore classified as non-current on our balance sheet. For each of our ARS, we evaluate the risks related to the structure, collateral and liquidity and estimate the fair value of the securities using a discounted cash flow model based on (a) the underlying structure of each security; (b) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions; and (c) considerations of the probabilities of redemption or auction success for each period.

Restricted investments

Pursuant to regulations governing our recently acquired insurance subsidiary (see Note 4 – Business Combinations), we maintain statutory deposits and deposits required by state Medicaid authorities of $4.7 million at March 31, 2012. These restricted investments consist primarily of U.S. Treasury notes and are designated as held-to-maturity and are carried at amortized cost, which approximates fair value. The use of these funds is limited to specific purposes as required by each state, or as protection against the insolvency of capitated providers. We have the ability to hold these restricted investments until maturity and, as a result, we would not expect the value of these investments to decline significantly due to sudden change in market interest rates.

Other long-term investments

Other long-term investments represent our investments in non-controlled companies and are recorded at cost. There were no identified events or changes in circumstances that had a significant adverse effect on the value of these investments. If there were evidence of a decline in value, which is other than temporary, the amounts would be written down to their estimated recoverable value.

8

Summary of contractual maturities

The contractual maturities of our available-for-sale ARS and our held-to-maturity restricted investments at March 31, 2012 are as follows (in thousands):

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	5	$	5
Due after one year		5,330		5,282
Total	$	5,335	$	5,287

Fair Value of Financial Liabilities

Our long-term debt obligations (See “Note 7 – Financing”) are Level 2 financial liabilities. The interest rates on our long-term debt obligations are variable based on current LIBOR and applicable margins over LIBOR. As a result, the carrying amounts of our revolving credit facility and term loan approximate fair value as of March 31, 2012 and December 31, 2011. We estimate fair market value for these liabilities based on their market value.

4. BUSINESS COMBINATIONS

Acquisition of Molina Healthcare Insurance Company

On February 17, 2012, we acquired Molina Healthcare Insurance Company (“MHIC”) for $13.3 million in cash. MHIC is a shell insurance company, previously owned by Molina Healthcare, Inc., a California-based health plan. MHIC is licensed to sell life, annuity and accident health insurance products in all fifty states, except Maine and New York. All of the MHIC’s legacy business is ceded to Protective Life Insurance Company (“Protective”), an unrelated third-party, through a 100% coinsurance agreement. Protective assumes all obligations from MHIC to pay claims and administer the life and annuity block of business.

The purchase price of MHIC was largely determined based on the estimated fair value of net assets acquired. Management’s preliminary allocation of the purchase price to the net assets acquired resulted in cash of $4.2 million, restricted investments of $4.7 million, reinsurance receivable of $23.4 million, insurance contract liabilities of $23.4 million, and acquired state licenses of $4.4 million which have an indefinite life. Transaction costs related to the MHIC acquisition are included in selling, general and administrative expense in our consolidated statements of operations and were not material.

The acquisition was accounted for as a purchase. The results of MHIC operations for the period subsequent to the date of acquisition are not material to our consolidated financial statements. Unaudited pro forma financial information has not been included herein because of the immateriality of the MHIC business combination.

Acquisition of Catalyst Rx Health Initiatives, Inc.

On June 13, 2011, we completed our acquisition of Catalyst Rx Health Initiatives, Inc. (“CHII”), formerly known as Walgreens Health Initiatives, Inc. (“WHI”), which was the pharmacy benefit management (“PBM”) subsidiary of Walgreen Co. (“Walgreens”). The purchase price was $485.0 million in cash, subsequently adjusted by $48.6 million for net working capital adjustments, and up to $40.0 million in additional cash consideration payable upon the achievement of certain client retention milestones through March 31, 2014. The fair value of the contingent consideration at the acquisition date was approximately $36.7 million. The cash payment for this acquisition was funded by a combination of cash on hand and amounts drawn under our revolving credit facility. In the first quarter of 2012, we received $15.6 million in cash from Walgreens as final settlement for the net working capital adjustments.

The purchase price of CHII was determined largely on the basis of management’s expectations of future earnings and cash flows, resulting in the recognition of goodwill. Management’s allocation of the purchase price to the net assets acquired resulted in goodwill of $366.5 million, acquired technology of $11.3 million with an estimated useful life of 5.5 years, customer relationship intangibles of $133.0 million with an estimated useful life of 13 years, and other contract intangibles related to an administrative support services agreement with the seller of $44.9 million with an estimated useful life of 8 years. Goodwill related to this acquisition is deductible for tax purposes. The goodwill recognized is primarily attributable to the workforce of the acquired business and the operating synergies expected to be realized after our acquisition of CHII.

9

The value of identified intangibles reflect that we entered into a 10-year contract with Walgreens to provide PBM services for Walgreens’ 244,000 employees and retirees, as well as 10-year agreements to administer the Walgreens Prescription Savings Club, which has approximately 2.4 million members, and to provide certain administrative support services to on-going Walgreens businesses.

We determined the fair value of the contingent consideration using probability assessments of the expected future cash flows over the period in which the obligation is expected to be settled, and applied a discount rate that appropriately captures a market participant’s view of the risk associated with the obligation. Subsequent changes to the valuation are recorded through earnings. For the three months ended March 31, 2012, there was a $0.2 million increase in the fair value of contingent consideration subsequent to acquisition which was recorded in selling, general and administrative expenses in the consolidated statements of operations.

The following table summarizes the consideration transferred to acquire CHII and the amounts of identified assets acquired and liabilities assumed at the date of acquisition. The acquisition was accounted for as a purchase, and accordingly, the results of CHII operations are included in our consolidated financial statements since the date of acquisition. Amounts are in thousands.

	At June 13, 2011
Fair value of consideration:
Cash	$	485,000
Net working capital adjustments		(48,623	)
Contingent consideration		36,676
Total consideration		473,053
Valuation of identifiable assets acquired and liabilities assumed:
Current assets (primarily accounts receivable and rebates receivable)		206,868
Intangible assets		189,200
Property, plant and equipment		127
Other long-term assets		261
Liabilities assumed (primarily trade payable and rebates payable)		(289,858	)
Total identified net assets		106,598
Goodwill	$	366,455

The following table sets forth certain unaudited pro forma financial data assuming the acquisition of CHII had been completed as of the beginning of the earliest period presented, after giving effect to purchase accounting adjustments. The pro forma financial information is not necessarily indicative of the results of operations if the transaction had been in effect as of the beginning of the periods presented, nor is it necessarily an indication of trends in future results. Amounts are in thousands, except for per share data.

	For the three  months ended March 31, 2011
Revenue	$	1,472,149
Net income attributable to the Company	$	18,379
Net income per share attributable to the Company, basic	$	0.38
Net income per share attributable to the Company, diluted	$	0.37
Weighted average shares, basic		48,652
Weighted average shares, diluted		49,224

Acquisition of NLBP, LLC

On January 25, 2011, we acquired NLBP, LLC (“NLBP”), an Arizona limited liability company which has developed an electronic clinical messaging platform, for $6.2 million in cash.

The purchase price of NLBP was determined largely on the basis of management’s expectations of future earnings and cash flows, resulting in the recognition of goodwill. Management’s final allocation of the purchase price to the net assets acquired resulted in goodwill of $4.5 million, trade name intangibles of $0.2 million with an estimated useful life of 20 years, non-compete agreements of $0.6 million with an estimated life of 3 years, and acquired technology of $0.9 million with an estimated useful life of 5 years.

The acquisition was accounted for as a purchase, and accordingly, the results of NLBP operations are included in our consolidated financial statements since the date of acquisition. Goodwill related to this acquisition is deductible for tax purposes. Revenue and expenses since acquisition and unaudited pro forma financial information have not been included herein because of the immateriality of the NLBP business combination.

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5. VARIABLE INTEREST ENTITY

We entered into a purchase agreement on December 16, 2011, whereby we made an initial capital contribution of $5.0 million to Script Relief LLC, a Delaware corporation, in exchange for a 19.9% ownership interest. On March 1, 2012 we made an additional $5.0 million capital contribution to Script Relief due to their achievement of certain milestones, thereby increasing our ownership interest to 47.0%. Script Relief operates a direct to consumer pharmacy benefit business including discount card offerings and associated activities. We have evaluated this transaction and have determined that Script Relief is a variable interest entity and that we are the primary beneficiary because our underlying PBM and pharmacy contracts represent its key business operations and we have the power to direct these activities. As a result, we consolidate Script Relief in our consolidated financial statements and separately disclose the amounts attributable to our non-controlling interests, which were recorded at fair value as of the date of the purchase agreement. The carrying amount of the assets and liabilities, and the impact of the operating results of this consolidated variable interest entity are not material to our consolidated financial statements.

Beginning December 2012 and through April 2016, we have the right to purchase all of the outstanding interests owned by the other equity member. The purchase of the outstanding interests is at our sole discretion and is subject to a contractually-defined purchase price. If we elect to exercise this call option, it does contain a minimum purchase price of $50.0 million which could be increased based on operating performance. There are no other terms that would require us to provide additional financial support to the variable interest entity. Under the accounting guidance, subsequent changes in our ownership interest while maintaining control will be accounted for as an equity transaction.

The change in equity for the three months ended March 31, 2012 attributable to the non-controlling interest, as well as equity attributable to the parent and total equity, is as follows (in thousands):

	Total Equity			Parent Company Equity			Non-controlling Interest Equity
Balance as of January 1, 2012	$	848,499		$	845,425		$	3,074
Net income (loss)		15,835			19,233			(3,398	)
Exercise of stock options, including tax benefits		2,392			2,392			—
Expense related to restricted stock, including tax benefits		5,179			5,179			—
Shares issued pursuant to employee stock purchase plan		176			176			—
Purchase of treasury stock		(3,446	)		(3,446	)		—
Purchase of additional ownership interest from non-controlling interest		—			(1,114	)		1,114
Non-controlling interest purchase accounting adjustments		(115	)		—			(115	)
Balance as of March 31, 2012	$	868,520		$	867,845		$	675

6. GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill for the three months ended March 31, 2012 are as follows (in thousands):

	2012
Balance as of January 1, 2012	$	785,385
Net adjustments to goodwill related to Script Relief		(115	)
Balance as of March 31, 2012	$	785,270

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets of acquired businesses. We performed our annual goodwill impairment testing at December 31, 2011 and concluded that no impairment of goodwill existed.

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The following table sets forth the components of our intangible assets (in thousands):

	March 31, 2012							December 31, 2011
	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Customer relationships	$	328,063	$	(56,512	)	$	271,551	$	328,063	$	(47,498	)	$	280,565
Non-compete agreements		570		(222	)		348		570		(174	)		396
Trade names		16,799		(1,299	)		15,500		18,199		(2,489	)		15,710
Developed technology		13,548		(2,723	)		10,825		13,548		(2,073	)		11,475
Other PBM contracts		1,916		(742	)		1,174		2,277		(1,315	)		962
Insurance operating licenses		4,472		—			4,472		—		—			—
Total intangible assets	$	365,368	$	(61,498	)	$	303,870	$	362,657	$	(53,549	)	$	309,108

The weighted average amortization period of our intangible assets subject to amortization is 10.5 years. Customer relationships intangibles represent the estimated fair value of customer relationships at the dates of acquisition and are amortized from 5 years to 20 years. The estimated fair values are based on income-method valuation calculations. Non-compete agreements, trade names and developed technology intangibles are subject to amortization from 3 years to 20 years. The other PBM contracts class of intangibles allows us to provide PBM services, and is amortized over the expected period of future cash flow, based on management’s best estimate, which range from 5 months to 20 years. Insurance operating licenses are indefinite lived intangible assets.

In determining the useful life of the intangible assets for amortization purposes, we consider the period of expected cash flows used to measure the fair value of the intangible asset, adjusted as appropriate for entity-specific factors. The costs incurred to renew or extend the term of a recognized intangible asset are generally deferred, where practicable, to the extent recoverable from future cash flows. We did not incur costs to renew or extend the term of acquired intangible assets during the three ended March 31, 2012.

Acquisition-related intangible amortization expense for PBM customer contracts have been included as an offset to revenue in the amounts of $4.2 million and $1.8 million, for three months ended March 31, 2012 and 2011, respectively.

The following table sets forth the estimated aggregate amortization expense of our existing intangible assets for each of the five succeeding years (in thousands):

Year ended December 31,
2012 (remaining)	$	31,378
2013	$	38,061
2014	$	35,314
2015	$	34,018
2016	$	26,349

7. FINANCING

The following table sets forth the components of our long-term debt (in thousands):

	March 31, 2012			December 31, 2011
Senior secured term loan facility due August 4, 2015 with an average interest rate of 2.25% and 2.00% at March 31, 2012 and December 31, 2011, respectively	$	138,750		$	140,625
Revolving credit facility due August 4, 2015 with an average interest rate of 2.63% and 2.29% at March 31, 2012 and December 31, 2011, respectively		130,000			130,000
Total debt		268,750			270,625
Less current maturities		(7,500	)		(7,500	)
Long-term debt	$	261,250		$	263,125

On April 14, 2011, we amended and restated our existing senior credit facilities which were originally entered into on August 4, 2010 and consist of a revolving credit facility and term loan facility. The original term loan facility had a principal amount of $150.0 million and remains unchanged subsequent to the amendment. The original revolving credit

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facility had an aggregate revolving commitment of $200.0 million, and was subsequently amended to increase that commitment to $400.0 million. Each of our revolving credit facility and our term loan facility matures on August 4, 2015. In addition to the revolving credit facility and term loan facility, our senior credit facilities permit us to incur up to $100.0 million in total principal amount of additional term loan or revolving loan indebtedness under the senior credit facilities. Our obligations under our senior credit facilities are fully and unconditionally guaranteed jointly and severally by us and certain of our U.S. subsidiaries currently existing, or that we may create or acquire, with certain exceptions as set forth in our amended credit agreement, pursuant to the terms of a separate guarantee and collateral agreement.

There were draw-downs of $269.0 million and repayments of $269.0 million under the revolving credit facility during the three months ended March 31, 2012. At March 31, 2012 and December 31, 2011, there was $130.0 million outstanding under our revolving credit facility.

The term loan facility amortizes in nominal quarterly installments of $1.875 million on the last day of each calendar quarter, with such payments having commenced on December 31, 2010 until maturity, whereby the final installment of the term loan facility will be paid on the maturity date in an amount equal to the aggregate unpaid principal amount.

Our borrowings under our amended senior credit facilities bear interest at a rate equal to the applicable margin plus, at our option, either: (i) a base rate determined by reference to the higher of (a) the rate announced by the Administrative Agent as its prime rate, (b) the federal funds rate plus 0.5%, and (c) the Adjusted LIBO Rate determined on a daily basis for an interest period of one month, plus 1.0% per annum; or (ii) a LIBO Rate on deposits in U.S. dollars for one-, two-, three- or six-month periods. The applicable margin on loans under our new senior credit facilities is 2.0% for LIBO Rates loans and 1.0% for base rate loans. The applicable margin is subject to change depending on our total senior secured leverage ratio. We also pay the lenders a commitment fee on the unused commitments under our revolving credit facility, which is payable quarterly in arrears. The commitment fee is subject to change depending on our leverage ratio.

Our amended senior credit facilities contain negative and affirmative covenants affecting us and our existing and future subsidiaries, with certain exceptions set forth in our amended credit agreement. Negative covenants and restrictions include: restrictions on liens, debt, dividends and other restricted payments, redemptions and stock repurchases, consolidations and mergers, acquisitions, investments, loans, advances, restrictive agreements with subsidiaries, speculative hedging agreements and a leverage ratio of consolidated total debt to consolidated EBITDA. At March 31, 2012 and December 31, 2011, we were in compliance with all covenants associated with our credit facilities.

At March 31, 2012, net deferred financing costs of $6.9 million related to the issuance of the credit facilities are being amortized over an average weighted period of 3.3 years and are reflected in other assets in the accompanying consolidated balance sheet.

8. STOCKHOLDERS’ EQUITY

On April 13, 2011, we consummated a public offering of 6,325,000 shares of our common stock, par value $0.01 per share, of which 4,500,000 shares were sold by the Company and 1,825,000 shares were sold by one of our stockholders, Principal Holding Company, LLC (“Principal”), at a public offering price of $53.00 per share. Total proceeds to the Company, net of underwriting fees and direct offering costs of $11.4 million, were $227.1 million.

Stock Options

A summary of our stock option activity for the three months ended March 31, 2012 is as follows (in thousands, except for weighted-average exercise price):

	Options			Weighted-Average Exercise Price
Outstanding at December 31, 2011		175		$	6.25
Granted		—			—
Exercised		(110	)		6.01
Forfeited or expired		—			—
Outstanding at March 31, 2012		65		$	6.67
Exercisable at March 31, 2012		65		$	6.67

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The aggregate intrinsic value of exercisable stock options at March 31, 2012 was approximately $3.7 million with a weighted average remaining life of 0.4 years. The total intrinsic value of stock options exercised during the three months ended March 31, 2012 and 2011 were approximately $5.9 million and $2.5 million, respectively.

Restricted Stock Awards

A summary of our restricted share activity for the three months ended March 31, 2012 is as follows (in thousands, except for weighted-average fair value per share):

	Shares			Weighted-Average Fair Value Per Share
Non-vested shares outstanding at December 31, 2011		862		$	42.66
Granted		249			60.82
Vested		(173	)		33.08
Forfeited		(36	)		43.07
Non-vested shares outstanding at March 31, 2012		902		$	49.48

Included in the balance of non-vested shares outstanding at March 31, 2012 are 150,000 performance-based awards issued to our Chief Executive Officer that were granted in the fourth quarter of 2011. These awards, which cliff vest in December 2014, may be subject to adjustment based on the achievement of certain financial and quality-based performance goals over the performance period. For the market-based component of these performance awards, compensation expense was determined using a lattice equity-pricing model which incorporates all probabilities of outcome and is recognized on a straight-line basis over the performance period. For the performance component of these performance awards, the compensation expense is estimated using the most probable outcome of the performance goals and adjusted as the expected outcome changes during the performance period. The expense related to these awards was approximately $0.4 million for the three months ended March 31, 2012.

The fair value of non-performance restricted shares, which is based on our stock price at the date of grant, is expensed over the vesting period. As of March 31, 2012, the total remaining unrecognized compensation cost related to all non-vested restricted shares was approximately $37.5 million with a weighted average period over which it is expected to be recognized of 3.1 years.

Common Stock Warrants

Pursuant to an acquisition in 2010, we issued 100,000 common stock warrants. These warrants, which expire on August 2013, had an exercise price of $44.73 per share and were valued at approximately $1.0 million using the Black-Scholes equity-pricing model. The warrants remained issued and outstanding at March 31, 2012.

Pursuant to an acquisition in 2004, we issued 255,000 common stock warrants at an exercise price of $15.45 per share. These warrants, which expire June 2014, were valued at approximately $2.5 million using the Black-Scholes equity-pricing model. These warrants remain issued and outstanding at March 31, 2012.

Treasury Stock

Recipients of restricted stock grants are provided the opportunity to sell a portion of those shares to the Company at the time the shares vest, in order to pay their withholding tax obligations. We account for these share purchases as treasury stock transactions using the cost method. Approximately 55,500 shares were purchased at a cost of approximately $3.4 million for the three months ended March 31, 2012, respectively.

Employee Stock Purchase Plan

The employee stock purchase plan (“ESPP”) allows eligible employees to purchase shares of the Company’s common stock each quarter at 95% of the market value on the last day of the quarter. The ESPP is not considered compensatory and therefore no portion of the costs related to ESPP purchases is included in our stock-based compensation expense for any periods presented.

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9. INCOME TAXES

The income tax rates were 37.8% and 38.4% during the three months ended March 31, 2012 and 2011, respectively. These rates represent the percentage relationship of the provision for income taxes to the income before provision for income taxes. The effective tax rate in the first quarter of 2012 was lower than in the comparable period in 2011 primarily due to the tax impact of Script Relief and a reduction in our state effective rate due to changes in the overall apportionment factors as a result of the CHII acquisition.

10. NET INCOME PER SHARE ATTRIBUTABLE TO THE COMPANY

Basic net income per common share attributable to the Company excludes dilution, and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per common share attributable to the Company reflects the potential dilution that could occur (using the treasury stock method) if stock options, restricted stock awards and warrants to issue common stock were exercised.

The following represents a reconciliation of the number of shares used in the basic and diluted net income per share attributable to the Company computations (amounts in thousands, except per share data):

	Three months ended March 31,
	2012		2011
Net income attributable to the Company	$	19,233	$	20,296
Calculation of shares:
Weighted average common shares outstanding, basic		49,144		44,152
Dilutive effect of stock options, restricted stock awards and warrants		448		572
Weighted average common shares outstanding, diluted		49,592		44,724
Net income per common share attributable to the Company, basic	$	0.39	$	0.46
Net income per common share, attributable to the Company diluted	$	0.39	$	0.45

Potential common stock equivalents representing 146,000 shares and 111,000 shares for the three months ended March 31, 2012 and 2011, respectively, were not included in the computation of diluted net income per common share attributable to the Company because to do so would have been anti-dilutive.

11. COMMITMENTS AND CONTINGENCIES

The outcome of any current or future litigation or governmental or internal investigations cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be successfully sought by federal or state regulatory authorities. We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding current or future litigation, or penalties, fines or other sanctions because the inherently unpredictable nature of legal proceeding and sanctions may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate: (ii) discovery is not complete: (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes. Nevertheless, it is possible that the outcome of legal matters or sanctions may have a material adverse effect on our results of operations, financial position, and cash flows.

In the ordinary course of our business, we are sometimes required to provide financial guarantees related to certain customer contracts. These financial guarantees may include performance bonds, standby letters of credit or other performance guarantees. These financial guarantees represent obligations to make payments to customers if we fail to fulfill an obligation under a contractual arrangement with that customer. We have had no history of significant claims, nor are we aware of circumstances that would require us to perform under these arrangements. We believe that the resolution of any claim that might arise in the future, either individually or in the aggregate, would not have a material adverse effect on our financial condition, results of operations or cash flows.

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12. SEGMENT REPORTING

We have determined that we operate in only one segment – the PBM segment. Accordingly, no segment disclosures have been included in these Notes to Consolidated Financial Statements.

13. SUBSEQUENT EVENTS

Acquisition of Regence Rx

On May 1, 2012, we completed the acquisition of Regence Rx, the PBM administrative operations of Cambia Health Solutions, Inc. (“Cambia”) for $2.6 million in cash. Regence Rx includes employees, fixed assets, and certain vendor contracts.

Pending transactions under the Merger Agreement with SXC Health Solutions Corp.

On April 17, 2012, SXC Health Solutions Corp., a corporation organized under the laws of the Yukon Territory, Canada (“SXC”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Catalyst; SXC Health Solutions, Inc., a Texas corporation and a direct wholly-owned subsidiary of SXC (“US Corp.”); Catamaran I Corp., a Delaware corporation and a newly formed direct wholly-owned subsidiary of US Corp. (“Merger Sub”); and Catamaran II LLC, a Delaware limited liability company and a newly formed direct wholly-owned subsidiary of US Corp. (“Merger LLC”). The Merger Agreement provides, among other things, that, upon the terms and subject to the conditions set forth therein, (i) Merger Sub will merge with and into Catalyst, with Catalyst surviving as a wholly-owned subsidiary of US Corp. (the “Merger”), and (ii) subject to the receipt of certain tax opinions on or prior to the closing date regarding the status of the Merger and the Subsequent Merger, taken together, as a reorganization and the tax-free status thereof, immediately following the completion of the Merger, the surviving corporation from the Merger will merge with and into Merger LLC (the “Subsequent Merger”), with Merger LLC surviving the Subsequent Merger and continuing as a wholly-owned subsidiary of US Corp.

Subject to the terms and conditions of the Merger Agreement, which have been approved and adopted by the boards of directors of each of SXC and Catalyst, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.01 per share, of Catalyst (“Catalyst Common Stock”) outstanding immediately prior to the Effective Time (other than shares owned by SXC or Catalyst or any of their wholly-owned subsidiaries or shares with respect to which appraisal rights have been properly exercised) will convert into the right to receive 0.6606 of a common share, no par value per share, of SXC (“SXC Common Stock”), and $28.00 in cash (the “Merger Consideration”). No fractional shares of SXC Common Stock will be issued in the Merger, and holders of Catalyst Common Stock will receive cash in lieu of any fractional shares of SXC Common Stock.

The completion of the Merger is subject to certain conditions, including, among others, (i) approval and adoption by Catalyst stockholders of the Merger Agreement, (ii) approval by SXC stockholders of the issuance of SXC Common Stock in connection with the Merger, (iii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and the receipt of certain governmental approvals, (iv) no court order prohibiting the transactions contemplated by the Merger Agreement, (v) no exercise of appraisal rights by more than 10% of Catalyst stockholders, (vi) the approval for listing of shares of SXC Common Stock to be issued in the Merger on the Nasdaq Stock Market and the Toronto Stock Exchange, and (vii) subject to materiality exceptions, the accuracy of the representations and warranties made by SXC, US Corp., Merger Sub and Merger LLC, on the one hand, and Catalyst, on the other hand, and compliance by SXC, US Corp., Merger Sub, Merger LLC and Catalyst with their respective obligations under the Merger Agreement. The completion of the Merger is not subject to a financing condition.

The Merger Agreement contains specified termination rights for both SXC and Catalyst. If the Merger Agreement is terminated under certain specified circumstances, Catalyst must pay SXC a termination fee of $134.5 million. If the Merger Agreement is terminated under certain other specified circumstances, SXC must pay Catalyst a termination fee of $134.5 million or, if the Merger Agreement is terminated under certain specified circumstances relating to SXC’s failure to obtain the requisite financing for the Merger, a termination fee of $281.5 million.

On or about April 20, 2012, Hillary Coyne, an alleged Catalyst stockholder, filed a complaint in the Court of Chancery of the State of Delaware against Catalyst, Catalyst’s directors, SXC and certain wholly-owned subsidiaries of SXC (collectively the “defendants”). The complaint purports to be brought on behalf of a class of all Catalyst stockholders and alleges that the Catalyst directors violated their fiduciary duties, in connection with their negotiation of and agreement to the merger agreement and the merger by, among other things, agreeing to allegedly inadequate consideration and preclusive terms. The SXC defendants are alleged to have aided and abetted the Catalyst directors’ alleged breaches of fiduciary duty. The complaint seeks a preliminary and permanent injunction against the merger and, in the alternative, damages. On April 23, 2012, Colleen Witmer, an alleged Catalyst stockholder, filed a second complaint in the Court of Chancery of the State of Delaware against the same defendants, alleging substantially the same facts and seeking relief similar to that sought in the Coyne action.

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EX-99.4

Exhibit 99.4

Unaudited pro forma condensed combined financial statements of SXC and Catalyst

The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2012 and for the twelve months ended December 31, 2011 give effect to the Catalyst Merger and related financing transactions, including the offering of our common shares contemplated by our preliminary prospectus supplement dated May 9, 2012, which we refer to as the offering, as if each had occurred on January 1, 2011. The unaudited pro forma condensed combined balance sheet as of March 31, 2012 gives effect to the Catalyst Merger and related financing transactions, including the offering, as if each had occurred on March 31, 2012 (together with the unaudited pro forma condensed combined statement of operations, the “pro forma financial statements”). Additionally, the unaudited pro forma condensed combined statement of operations for the twelve months ended December 31, 2011 gives effect to (i) our acquisition of HealthTran LLC, as more fully described in our Current Report on Form 8-K/A filed with the SEC on March 14, 2012, which was completed on January 1, 2012, as if it had occurred on January 1, 2011, and (ii) Catalyst’s acquisition of Walgreens Health Initiatives, Inc., which we refer to as WHI, as more fully described in Catalyst’s Annual Report on Form 10-K for the year ended December 31, 2011 and Current Report on Form 8-K/A filed with the SEC on August 19, 2011, which was completed on June 13, 2011, as if it had occurred on January 1, 2011.

Effective immediately prior to the completion of the HealthTran acquisition, HealthTran sold, assigned, transferred, conveyed and delivered to Innovante Benefit Administrators, LLC (“Innovante”), a wholly-owned subsidiary of HealthTrans Data Services, LLC, a former significant equity interest holder of HealthTran, all of HealthTran’s right, title and interest in and to all assets exclusively used in the operation of its business of providing third party administration (“TPA”) services (the “TPA Business”) for both medical and prescription drug claim processing and adjudication and general benefit plan administration, in consideration for the payment of $1 and the assumption by Innovante of all of the liabilities of the TPA Business. The pro forma financial statements exclude the assets, liabilities and results of operations of the TPA Business, as the TPA Business was not acquired by us.

The historical consolidated financial information has been adjusted to give effect to pro forma events that are (i) directly attributable to the Catalyst Merger and related financing transactions, including the offering, and the acquisitions of HealthTran and WHI, (ii) factually supportable, and (iii) with respect to the statement of operations, expected to have a continuing impact on the combined results. The adjustments to the pro forma financial statements are preliminary and have been made solely for the purpose of developing the pro forma financial statements necessary to comply with the applicable disclosure and reporting requirements of the SEC. The pro forma financial statements are not intended to represent what our actual consolidated results of operations or consolidated financial position would have been had the Catalyst Merger, the related financing transactions, including the offering, and the acquisitions occurred on the dates assumed, nor are they necessarily indicative of our future consolidated results of operations or consolidated financial position. The actual results reported in periods following the closing of the Catalyst Merger, the related financing transactions, including the offering, and the acquisitions may differ significantly from the pro forma financial statements for a number of reasons including, but not limited to: differences in the ordinary conduct of the business following the Catalyst Merger and acquisitions; differences between the assumptions used to prepare these pro forma financial statements and actual amounts; cost savings from operating efficiencies; changes to pharmacy network and rebate contracting; potential synergies; and the impact of the incremental costs incurred in integrating the companies.

The pro forma adjustments and related assumptions are described in the accompanying notes. The pro forma adjustments are based on assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed, based on preliminary estimates of fair value. We believe that the assumptions used to derive the pro forma adjustments are reasonable given the information available; however, as the valuations of acquired assets and liabilities assumed are in process and are not expected to be finalized until after the Catalyst Merger is completed, and information may become available within the measurement period which indicates a potential change to these valuations, the purchase price allocation may be subject to adjustment.

Furthermore, the pro forma financial statements do not reflect any cost savings from potential operating efficiencies, any other potential synergies or any incremental costs that could result from integrating Catalyst, WHI or HealthTran. The pro forma financial statements are based on our historical financial statements and the

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historical financial statements of Catalyst, HealthTran, and WHI, as adjusted for the pro forma effect of the Catalyst Merger, related financing transactions, including the offering, and the acquisitions of HealthTran and WHI. The pro forma financial statements should be read in connection with our historical financial statements and the accompanying notes included in our Quarterly Report on Form 10-Q filed with the SEC on May 4, 2012 and our Annual Report on Form 10-K filed with the SEC on February 24, 2012, the historical financial statements and the accompanying notes of Catalyst included as Exhibits 99.2 and 99.3 to this Current Report on Form 8-K and the historical financial statements and the accompanying notes of HealthTran included in Exhibits 99.2 and 99.3 of our Current Report on Form 8-K/A filed with the SEC on March 14, 2012.

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SXC Health Solutions Corp.

Unaudited Pro Forma Condensed Combined Balance Sheet

March 31, 2012

(in thousands)

	SXC (actual)		Catalyst (actual)			Catalyst Merger Pro Forma Adjustments (Note 4-C)			Total Pro Forma Combined
ASSETS
Current assets
Cash and cash equivalents	$	272,119	$	51,223		$	(37,139	)	$	286,203
Accounts receivable, net		292,471		444,629			(1,943	)		735,157
Rebates receivable		46,970		230,386			—			277,356
Other current assets		37,760		39,868			—			77,628
Total current assets		649,320		766,106			(39,082	)		1,376,344
Property and equipment, net		27,531		71,762			(3,160	)		96,133
Goodwill		464,902		785,270			3,129,631			4,379,803
Other intangible assets, net		136,589		303,870			1,033,430			1,473,889
Other assets		5,789		91,387			2,745			99,921
Total assets	$	1,284,131	$	2,018,395		$	4,123,564		$	7,426,090
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Pharmacy benefit claim payments payable	$	263,353	$	402,053		$	—		$	665,406
Pharmacy benefit management rebates payable		69,223		247,819			—			317,042
Accounts payable		16,758		3,705			(1,943	)		18,520
Accrued expenses and other current liabilities		95,755		137,052			55,000			287,807
Current portion of long-term debt		—		7,500			33,000			40,500
Total current liabilities		445,089		798,129			86,057			1,329,275
Long-term debt		100,000		261,250			997,961			1,359,211
Other liabilities		7,331		53,370			(10,989	)		49,712
Deferred income taxes		20,419		37,126			476,174			533,719
Total liabilities		572,839		1,149,875			1,549,203			3,271,917
Shareholders’ equity
Common shares		411,826		506			3,440,032			3,852,364
Additional paid-in capital		34,791		493,103			(466,435	)		61,459
Retained earnings/members deficit		264,675		389,045			(414,045	)		239,675
Treasury stock		—		(14,779	)		14,779			—
Accumulated other comprehensive loss		—		(30	)		30			—
Total shareholders’ equity		711,292		867,845			2,574,360			4,153,497
Non-controlling interest		—		675			—			675
Total liabilities and shareholders’ equity	$	1,284,131	$	2,018,395		$	4,123,564		$	7,426,090

See the accompanying notes to the unaudited pro forma financial statements

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SXC Health Solutions Corp.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the three months ended March 31, 2012

(in thousands, except per share data)

	SXC (actual)		Catalyst (actual)			Catalyst Merger Pro Forma Adjustments (Note 4-C)			Total Pro Forma Combined
Revenue	$	1,717,097	$	1,454,805		$	(545	)	$	3,171,357
Cost of revenue		1,606,708		1,359,472			(4,745	)		2,961,435
Gross profit		110,389		95,333			4,200			209,922
Expenses:
Selling, general and administrative		56,714		58,160			(570	)		114,304
Depreciation and amortization		12,674		9,563			38,179			60,416
Total operating expenses		69,388		67,723			37,609			174,720
Operating income (loss)		41,001		27,610			(33,409	)		35,202
Interest and other expense, net		1,240		2,152			11,802			15,194
Income (loss) before income taxes		39,761		25,458			(45,211	)		20,008
Income tax expense (benefit):		13,419		9,623			(17,631	)		5,411
Net income (loss)		26,342		15,835			(27,580	)		14,597
Noncontrolling interest net loss		—		(3,398	)		—			(3,398	)
Net income attributable to the company	$	26,342	$	19,233		$	(27,580	)	$	17,995
Earnings per share:
Basic	$	0.42	$	0.39			—		$	0.18
Diluted	$	0.42	$	0.39			—		$	0.18
Weighted average shares outstanding:
Basic		62,529		49,144			4,340			99,333
Diluted		63,284		49,592			4,340			100,385

See the accompanying notes to the unaudited pro forma financial statements

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SXC Health Solutions Corp.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the year ended December 31, 2011

(in thousands, except per share data)

	SXC (actual)		HealthTran (actual)			HealthTran Pro Forma Adjustments (Note 4-A)			SXC- HealthTran Pro Forma Combined		Catalyst (actual)			WHI (actual)			WHI Pro Forma Adjustments (Note 4-B)			Catalyst- WHI Pro Forma Combined			Catalyst Merger Pro Forma Adjustments (Note 4-C)			Total Pro Forma Combined
Revenue	$	4,975,496	$	253,044		$	(23,505	)	$	5,205,035	$	5,329,594		$	57,741		$	597,787		$	5,985,122		$	4,615		$	11,194,772
Cost of revenue		4,666,008		199,796			(23,505	)		4,842,299		5,021,709			—			604,624			5,626,333			(10,885	)		10,457,747
Gross profit		309,488		53,248			—			362,736		307,885			57,741			(6,837	)		358,789			15,500			737,025
Expenses:
Selling, general and administrative		145,788		44,478			(9,605	)		180,661		166,483			57,507			(16,003	)		207,987			—			388,648
Depreciation and amortization		23,129		6,093			15,100			44,322		27,182			6,354			1,606			35,142			157,155			236,619
Settlement expense		—		3,150			—			3,150		—			—			—			—			—			3,150
Total operating expenses		168,917		53,721			5,495			228,133		193,665			63,861			(14,397	)		243,129			157,155			628,417
Operating income (loss)		140,571		(473	)		(5,495	)		134,603		114,220			(6,120	)		7,560			115,660			(141,655	)		108,608
Interest and other expense, net		2,277		9,793			(6,874	)		5,196		7,263			(1,290	)		2,772			8,745			46,245			60,186
Dividends on Class C preferred units		—		4,463			(4,463	)		—		—			—			—			—			—			—
Accretion of Class C preferred units discount		—		902			(902	)		—		—			—			—			—			—			—
Income (loss) before income taxes		138,294		(15,631	)		6,744			129,407		106,957			(4,830	)		4,788			106,915			(187,900	)		48,422
Income tax expense (benefit)		46,508		—			(8,964	)		37,544		40,370			20			1,843			42,233			(62,410	)		17,367
Net income (loss)		91,786		(15,631	)		15,708			91,863		66,587			(4,850	)		2,945			64,682			(125,490	)		31,055
Noncontrolling interest net loss		—		—			—			—		(401	)		—			—			(401	)		—			(401	)
Net income attributable to the company	$	91,786	$	(15,631	)	$	15,708		$	91,863	$	66,988		$	(4,850	)	$	2,945		$	65,083		$	(125,490	)	$	31,456
Earnings per share:
Basic	$	1.48		—			—		$	1.48	$	1.41			—			—		$	1.33			—		$	0.32
Diluted	$	1.46		—			—		$	1.46	$	1.39			—			—		$	1.32			—		$	0.31
Weighted average shares outstanding:
Basic		62,127		—			—			62,127		47,569			—			—			48,827			4,340			98,722
Diluted		62,952		—			—			62,952		48,107			—			—			49,365			4,340			99,902

See the accompanying notes to the unaudited pro forma financial statements

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1. Description of Transaction

On April 18, 2012, we announced that we had entered into an Agreement and Plan of Merger (the “Catalyst Merger Agreement”) with Catalyst Health Solutions, Inc. (“Catalyst”), SXC Health Solutions, Inc., a direct wholly-owned subsidiary of SXC (“US Corp.”), Catamaran I Corp., a newly formed direct wholly-owned subsidiary of US Corp. (“Merger Sub”), and Catamaran II LLC, a newly formed direct wholly-owned subsidiary of US Corp. (“Merger LLC”). The Catalyst Merger Agreement provides, among other things, that, upon the terms and subject to the conditions set forth therein, (i) Merger Sub will merge with and into Catalyst, with Catalyst surviving as a wholly-owned subsidiary of US Corp. (the “Catalyst Merger”), and (ii) provided that certain tax opinions are received on or prior to the closing date regarding, among other things, the status of the Catalyst Merger and the Subsequent Merger, taken together, as a “reorganization” under Section 368(a) of the Code, immediately following the completion of the Catalyst Merger, Catalyst, as the surviving corporation from the Catalyst Merger, will merge with and into Merger LLC (the “Subsequent Merger”), with Merger LLC surviving the Subsequent Merger and continuing as a wholly-owned subsidiary of US Corp.

Concurrently, and in connection with entering into the Catalyst Merger Agreement, we entered into a commitment letter (the “Debt Commitment Letter”) with J.P. Morgan Securities LLC (“J.P. Morgan”) and JPMorgan Chase Bank, N.A. (“JPMCB”). We, J.P. Morgan and JPMCB subsequently entered into accession agreements to the Debt Commitment Letter, which we refer to as the accession agreements, with Bank of America, N.A., which we refer to as Bank of America, Barclays Bank PLC, and SunTrust Bank, which we refer to as SunTrust. Pursuant to the Debt Commitment Letter and the accession agreements and subject to the conditions set forth therein, JPMCB, Bank of America, Barclays Bank PLC and SunTrust committed to provide senior secured credit facilities in an aggregate amount of $1.8 billion, consisting of (i) a five-year senior secured term loan A facility in the amount of $650,000,000 (the “Term A Facility”), (ii) a seven-year senior secured term loan B facility in the amount of $800,000,000 (the “Term B Facility” and, together with the Term A Facility, the “Term Facilities”) and (iii) a five-year senior secured revolving credit facility in the amount of $350,000,000 (the “Revolving Facility,” and, together with the Term A Facility and Term B Facility, the “Credit Facilities”).

Each stock option and one series of warrants to acquire Catalyst common stock existing at the effective time of the Catalyst Merger will be assumed by us (each, a “continuing award”). At the closing of the Catalyst Merger, each continuing award will be converted into an award to acquire shares of our common shares, on the same terms and conditions as were applicable to the award prior to the Catalyst Merger. For each stock option, the share underlying the stock option award will be multiplied by a ratio equal to the sum of 0.6606 plus the fraction obtained by dividing $28.00 by the average per share daily closing price of our common shares over the five trading days preceding the closing date of the Catalyst Merger and the exercise price will be divided by the same ratio.

2. Basis of Presentation

The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting, with SXC being the accounting acquirer, and is based on our historical financial statements and the historical financial statements of Catalyst, HealthTran LLC (“HealthTran”) and Walgreens Health Initiatives, Inc. (“WHI”). Certain reclassifications have been made to the historical financial statements of Catalyst to conform to the financial statement presentation to be adopted by us.

The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2012 combines our consolidated statements of operations with those of Catalyst for the period then ended to give effect to the Catalyst Merger and the related financing transactions, including the offering, as if they had occurred on January 1, 2011. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 combines our consolidated statements of operations with those of Catalyst for the year then ended to give effect to the Catalyst Merger and related financing transactions, including the offering, as if they had occurred on January 1, 2011, the unaudited statement of operations of HealthTran for the twelve months ended November 30, 2011 to give effect to the HealthTran acquisition as if it had occurred on

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January 1, 2011, and adds the unaudited results of WHI (now known as CatalystRx Health Initiatives) for the six-month period ended May 31, 2011, to give effect to the WHI acquisition as if it had occurred on January 1, 2011. The unaudited statement of operations of HealthTran for the twelve months ended November 30, 2011 was prepared by taking the audited HealthTran statement of operations for the twelve months ended May 31, 2011, less the results from the unaudited statement of operations of HealthTran for the six months ended November 30, 2010, plus the results from the unaudited statement of operations of HealthTran for the six months ended November 30, 2011. The HealthTran unaudited statement of operations for the year ended November 30, 2011 excludes the results of the TPA business line of HealthTran, which we did not acquire. The WHI pro forma adjustments include an adjustment to reduce WHI’s unaudited six-month results due to actual results already included in Catalyst’s results for the second half of June 2011.

The unaudited pro forma condensed combined balance sheet as of March 31, 2012, combines our consolidated balance sheets with those of Catalyst as of March 31, 2012 to give effect to the Catalyst Merger and the related financing transactions, including this offering, as if they had occurred on March 31, 2012.

The pro forma adjustments include the application of the acquisition method of accounting under purchase accounting guidance. Purchase accounting guidance requires, among other things, that identifiable assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date, which is presumed to be the closing of the Catalyst Merger. The transaction fees for the Catalyst Merger, the related financing transactions, including the offering, and acquisitions are expensed as incurred and are included in selling, general and administrative expenses in our results and Catalyst’s results for the three months ended March 31, 2012 and the year ended December 31, 2011. Catalyst incurred approximately $12 million in transaction expenses during 2011 for its acquisition of WHI. We incurred approximately $0.9 million in transaction expenses during 2011 for our acquisition of HealthTran. We incurred approximately $0.3 million of transaction expenses and Catalyst incurred approximately $0.3 million of transaction expenses related to the Catalyst Merger during the three months ended March 31, 2012, and we and Catalyst each incurred an insignificant amount of transaction expenses related to the Catalyst Merger during 2011.

The pro forma adjustments described herein have been developed based on management’s judgment, including estimates relating to the allocations of purchase price to the assets acquired and liabilities assumed of Catalyst, WHI, and HealthTran based on preliminary estimates of fair value. Our management believes that the assumptions used to derive the pro forma adjustments are reasonable given the information available; however, as the valuations of assets acquired and liabilities assumed are in process and are not expected to be finalized until subsequent to the Catalyst Merger’s completion later in 2012, and information may become available within the measurement period which indicates a potential change to these valuations, the purchase price allocations may be subject to adjustment. The pro forma financial statements do not reflect any cost savings from potential operating efficiencies, any other potential synergies or any incremental costs which may be incurred in connection with integrating Catalyst, WHI or HealthTran.

The pro forma financial statements are provided for illustrative purposes only and are not intended to represent what our actual consolidated results of operations or consolidated financial position would have been had the Catalyst Merger, the related financing transactions, including the offering, or acquisitions occurred on the dates assumed, nor are they necessarily indicative of our future consolidated results of operations or consolidated financial position.

3. Preliminary Purchase Price Calculation and Allocation

We will allocate the purchase price in the Catalyst Merger to the fair value of the Catalyst assets acquired and liabilities assumed. The pro forma purchase price allocation below has been developed based on preliminary estimates of fair value using the historical financial statements of Catalyst as of March 31, 2012. In addition, the allocation of the purchase price to acquired intangible assets is based on preliminary fair value estimates and is subject to final management analysis, with the assistance of third party valuation advisers, at the completion of

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the Catalyst Merger. The estimated intangible asset values and their useful lives could be impacted by a variety of factors that may become known to us only upon access to additional information and/or by changes in such factors that may occur prior to the effective time of the Catalyst Merger. The estimated intangible assets are comprised of customer contracts with an estimated useful life of 8 years and trade names with an estimated useful life of 1 year. Additional intangible asset classes may be identified as the valuation process continues, however such items are currently not expected to be material to the overall purchase price allocation. The residual amount of the purchase price after preliminary allocation to identifiable net assets represents goodwill. Below is a preliminary purchase price calculation as well as a preliminary purchase price allocation.

Purchase price calculation	Amount (in thousands)
Cash payment	$	1,432,536
SXC shares issued		3,066,458
Options and warrants assumed		26,667
Total purchase price	$	4,525,661

The preliminary purchase price calculation was based on the number of outstanding shares of Catalyst common stock, stock options, restricted stock units (“RSU”) and warrants as of March 31, 2012, disclosed in Catalyst’s Quarterly Report on Form 10-Q filed with the SEC on May 4, 2012. All RSUs and 100,000 Catalyst common stock warrants issued in connection with a 2010 acquisition were treated as shares outstanding for the purchase price calculation. The cash component of the purchase price was a product of the shares of Catalyst common stock assumed to be outstanding multiplied by $28.00 per share. The value for our common shares to be exchanged for Catalyst common stock was calculated by applying the conversion factor of 0.6606 of a common share for each share of Catalyst common stock outstanding, multiplied by the closing price of our common shares on NASDAQ of $90.73 at market close on May 8, 2012. Outstanding Catalyst stock options and the remaining 255,000 Catalyst common stock warrants were valued using a Black Scholes model, utilizing the closing price of our common shares on NASDAQ of $90.73 at market close on May 8, 2012, a volatility rate of 49%, a risk free interest rate of 0.83%, an expected life of 0.3 years for the stock options and 3 years for the Catalyst common stock warrants and a dividend yield of 0%, after converting the number of outstanding stock options and warrants and their associated exercise price based on the defined conversion ratio in the Catalyst Merger Agreement.

The estimated consideration expected to be transferred reflected in the unaudited pro forma condensed combined financial information does not purport to represent what the actual consideration transferred will be when the Catalyst Merger is consummated. In accordance with purchase accounting guidance, the fair value of equity securities issued as part of the consideration transferred will be measured on the closing date of the Catalyst Merger at the then-current market price. This requirement will likely result in a per share equity component different from the amount assumed in the unaudited pro forma condensed combined financial information and that difference may be material. We believe that a price volatility of as much as 50% in our common share price on the closing date of the Catalyst Merger from the common share price assumed in the unaudited pro forma condensed combined financial information is reasonably possible based upon the recent history of the price of our common shares. A change of this magnitude would increase or decrease the consideration expected to be transferred by approximately $1.5 billion, which would be reflected in these unaudited pro forma condensed combined financial statements as an increase or decrease to goodwill.

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Below is the preliminary purchase price allocation for the Catalyst Merger:

Preliminary purchase price allocation	Amount (in thousands)
Current assets	$	766,106
Goodwill		3,914,901
Other intangible assets		1,337,300
Other assets		153,089
Total assets acquired		6,171,396
Current liabilities-excluding debt		820,628
Long term liabilities-excluding debt		556,356
Debt assumed		268,750
Total liabilities assumed		1,645,734
Net assets acquired	$	4,525,661

4. Unaudited Pro Forma Adjustments

A. SXC-HealthTran Acquisition Pro Forma Adjustments

Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2012

There are no adjustments to the unaudited pro forma condensed combined balance sheet for our acquisition of HealthTran since the accounts of HealthTran were included in our consolidated balance sheet as of March 31, 2012.

Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2011

Revenue and cost of revenue

For transactions at our participating pharmacies, under the terms of the customer contracts, the pharmacy is solely obligated to collect the co-payments from the participants. We do not assume liability for participant co-payments in non-SXC owned pharmacy transactions, and therefore we do not include participant co-payments in revenue or cost of revenue. If these amounts were included in our operating results, our operating income and net income would not have been affected. HealthTran included in revenue and cost of revenues co-payments collected by participating pharmacies. Accordingly, these adjustments remove from revenue and cost of revenue HealthTran’s co-payments that were collected by participating pharmacies.

Selling, general and administrative expenses

The adjustment to selling, general and administrative expenses (“SG&A”) relates to the reversal of $9.6 million in stock-compensation charges recorded by HealthTran related to its class B units as a result of our acquisition of HealthTran.

Depreciation and amortization

The adjustment to depreciation and amortization is the result of adjusting the historical expense to include the additional depreciation and amortization from the estimated first year amortization of the intangible assets.

Interest

Interest income was adjusted to reflect the reduction of interest due to using cash on hand to finance the acquisition. Interest expense was adjusted to remove interest expense from HealthTran’s previous debt that was not assumed by us, and adding $2.7 million for estimated interest expense related to our draw on our revolving credit facility to finance a portion of the purchase price for the HealthTran acquisition.

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HealthTran preferred unit expenses

These adjustments remove the associated expenses of HealthTran related to class C preferred units that were not assumed by us.

Income taxes

The adjustment reflects the effect of applying the estimated pro forma combined effective income tax rate of 29.0% for the year ended December 31, 2011. In determining the estimated pro forma combined effective income tax rate, the pro forma adjustments were tax affected based on applicable federal and state statutory tax rates and our and HealthTran’s combined results.

B. Catalyst-WHI Acquisition Pro Forma Adjustments

Unaudited Pro Forma Condensed Combined Balance Sheet

There are no adjustments to the unaudited pro forma condensed combined balance sheet for Catalyst’s acquisition of WHI since the accounts of WHI were included in Catalyst’s consolidated balance sheet as of March 31, 2012.

Unaudited Pro Forma Condensed Combined Statements of Operations for the Year Ended December 31, 2011

Revenue and cost of revenue

Based on WHI’s former owner’s (Walgreen Co.) revenue recognition policies, WHI historical revenue is primarily presented net of pharmacy reimbursement costs, primarily as a result of WHI acting as an agent in administering pharmacy reimbursement contracts. Subsequent to the acquisition, Catalyst assumed the credit risk for certain transactions due to the operational nature of Catalyst’s business, and accordingly these revenue streams are presented on a gross basis. This is consistent with our revenue recognition policy and is the expected outcome for this revenue stream subsequent to the Catalyst Merger completion. Although this adjustment results in a higher revenue contribution from such contracts, there is no impact on client-level or overall gross profit. In addition to the adjustment to record revenue and cost of revenue on a gross basis, Catalyst had a portion of its acquired intangibles of WHI amortized as a revenue reduction. An incremental $2.6 million was recorded as a revenue reduction to reflect additional amortization related to the WHI acquisition, and $4.2 million was recorded to reduce revenue to adjust for Catalyst having a partial-period of WHI actual results already included in revenue.

Selling, general and administrative expenses

The adjustment to SG&A reflects the reversal of Catalyst’s expenses incurred to complete the WHI acquisition of $12 million, as well as $4 million to reduce SG&A charges for a partial month due to Catalyst’s actual results already including a partial period of WHI results.

Depreciation and amortization

Adjustments have been included to record the estimated net increase in amortization expense for intangible assets. The incremental amortization expense was calculated using estimated lives of 13 years for the customer relationship intangibles, with an estimated value of $133.0 million; 8 years for the customer contract intangibles, with an estimated value of $44.9 million; and 6 years for the acquired technology, with an estimated value of $11.3 million. The incremental amortization expense recorded related to the WHI acquisition was $7.9 million. This was offset by removing $6.3 million in historical depreciation and amortization expense of WHI.

Interest

Interest income was adjusted to reflect the reduction in investment earnings for the cash consideration paid to fund the purchase price.

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Interest expense was adjusted to reflect the increased interest expense attributable to an amount of $180.0 million drawn down under the revolving credit facility to partly finance the acquisition consideration for WHI. The interest rate, immediately after the draw down, was approximately 2.0%. Additionally, the interest expense has also been adjusted to reflect the amortization of the financing costs related to Catalyst’s amended revolving credit facility.

Income taxes

The adjustments reflect the income tax effect of the pro forma combined income tax provision of 39.5%. The pro forma adjustments were tax affected based on applicable federal and state statutory tax rates.

Basic and diluted shares

This adjustment reflects the change to the weighted average number of shares outstanding as a result of the issuance of 4.5 million shares of Catalyst common stock on April 13, 2011, the proceeds of which were used to finance a portion of the purchase price for the acquisition of WHI by Catalyst.

C. SXC-Catalyst Merger and Equity Offering Pro Forma Adjustments

Unaudited Pro Forma Condensed Combined Balance Sheet

Cash and cash equivalents

The adjustment to cash and cash equivalents reflects the net inflows from new senior secured term loans and revolving credit facility borrowings to finance the Catalyst Merger and from the offering, in each case as if it occurred on March 31, 2012, offset by the aggregate cash outflows related to the payment of merger consideration of $28.00 per share of Catalyst common stock to complete the Catalyst Merger and refinancing and repayment of our and Catalyst’s existing debt.

Adjustment	Amount (in thousands)
Net proceeds from new SXC borrowings	$	1,390,667
Net proceeds from the offering		374,080
Cash Merger consideration payable to Catalyst stockholders		(1,432,536	)
Repayment of outstanding Catalyst debt		(268,750	)
Repayment of SXC debt		(100,000	)
Total adjustment	$	(37,139	)

Accounts receivable and accounts payable

The adjustment to accounts receivable and accounts payable relates to the amount due to us from Catalyst for services provided.

Property and equipment, net

This adjustment decreases Catalyst’s property and equipment by $3.2 million based on the preliminary valuation of property and equipment.

Goodwill and other intangible assets

The adjustments to goodwill and intangible assets represent the net amounts for goodwill and other intangible assets recognized from the Catalyst Merger’s preliminary purchase price allocation less the amounts of goodwill and intangible assets of Catalyst as of March 31, 2012. The preliminary goodwill recognized in connection with the Catalyst combination is $3.9 billion. To the extent the computed purchase price varies

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resulting from the fluctuation in our stock price, goodwill will also vary. The preliminary value of other intangible assets is $1.3 billion. The customer relationships intangible asset was valued using an excess earnings model based on expected future revenues derived from the customers acquired. Trademarks/Tradenames were valued using a royalty savings model based on future projected revenues of Catalyst. See below for detail of the other intangible assets acquired. The additions of these assets were offset by the reduction to the historical Catalyst balances of goodwill of $785 million, and of other intangible assets of $304 million, which related to Catalyst’s past acquisitions.

The other identified intangible assets acquired consist of the following:

	Fair Value (in thousands)		Useful Life
Customer relationships	$	1,333,100		8 years
Trademarks/Tradenames		4,200		1 year
	$	1,337,300

Other assets

The adjustment to other assets reflects $9.6 million in unamortized deferred financing costs related to our new revolving credit facility, less the elimination of Catalyst’s deferred financing charges of $6.9 million in connection with repaying Catalyst’s outstanding debt.

Accrued expenses and other liabilities

This adjustment records an estimated $55 million in transaction costs to be incurred by us and Catalyst to complete the Catalyst Merger and related transactions. These costs are not reflected in the unaudited pro forma condensed combined statement of operations due to their non-recurring nature.

Debt

In conjunction with financing the Catalyst Merger, we expect, subject to the terms and conditions of the Debt Commitment Letter, to enter into a $1.8 billion senior secured credit agreement contemplated by such Debt Commitment Letter. The $1.4 billion of debt we expect to incur, net of an assumed 2.0% discount on the $800 million term loan and other direct lender transaction costs, has been reflected as outstanding as of March 31, 2012, in the unaudited pro forma condensed combined balance sheet. Additionally, the outstanding debt of each company will be settled upon the closing of the Catalyst Merger, and accordingly has been reflected as extinguished in the unaudited pro forma condensed combined balance sheet. The table below lists the adjustments made to reach the pro forma adjustment for debt:

Adjustment	Amount (in thousands)
Debt incurred related to the Catalyst Merger-long term	$	1,359.211
Debt incurred related to the Catalyst Merger-short term		40,500
Settlement of outstanding SXC debt		(100,000	)
Settlement of outstanding Catalyst debt-long term		(261,250	)
Settlement of outstanding Catalyst debt-short term		(7,500	)
Total debt adjustments	$	1,030,961
Net current portion of long-term debt adjustment	$	33,000
Net long-term debt adjustment	$	997,961

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Other liabilities

The adjustment to other liabilities removes Catalyst’s deferred rent liability as of March 31, 2012.

Deferred taxes

Deferred taxes of $508 million were recorded to reflect the deferred tax liability related to the other intangible assets generated from the Catalyst Merger, calculated using an estimated statutory tax rate of 38%. This adjustment is offset by reducing deferred tax liabilities of $32 million related to deferred tax liabilities recorded in connection with Catalyst’s prior acquisitions.

Shareholders’ equity

Shareholders’ equity was adjusted to remove all of Catalyst’s equity account balances, except for the non-controlling interest and add the value of our common shares, as well as replacement options and warrants, issued as part of the merger consideration based on the conversion ratios defined in the Catalyst Merger Agreement. The value of the shares issued was based on our share price of $90.73 at market close on May 8, 2012. Additionally, $25 million was recorded as a reduction to shareholders’ equity to reflect the anticipated transaction costs to be incurred by us to complete the Catalyst Merger and related transactions.

Shareholders’ equity also reflects an additional 4.3 million shares related to the offering as if they were issued on March 31, 2012. The value of the shares issued was based on our share price of $90.73 at market close on May 8, 2012, net of an estimated $19.7 million in issuance costs.

Unaudited Pro Forma Condensed Combined Statement of Operations for the Three Months Ended March 31, 2012

Revenue and cost of revenue

Revenue and cost of revenue were adjusted to remove the effect of transactions between SXC and Catalyst. Revenue and cost of revenue were each reduced by $4.8 million, reflecting the amount earned and billed by us to Catalyst during three months ended March 31, 2012. Additionally, revenue was increased by $4.2 million to reverse amortization expense recorded by Catalyst related to other intangibles from its prior acquisitions. Customer contract intangible assets acquired by Catalyst in its WHI acquisition were amortized as revenue reductions due to Catalyst’s contract it entered into with WHI’s former parent, Walgreens, in conjunction with the WHI acquisition.

Depreciation and amortization

The adjustment to depreciation and amortization is principally the result of the preliminary estimation of amortization expense of intangible assets acquired of $43.9 million. This amount is offset by a reduction of $5.8 million of amortization expense recorded by Catalyst from its intangible assets.

Interest

Interest expense was adjusted to remove $2.2 million of interest expense from Catalyst’s previous debt and $1.2 million from our previous debt, to reflect its repayment in connection with the Catalyst Merger. Interest expense was increased by $15.2 million to reflect the estimated interest expense related to new debt that we will incur to finance the Catalyst Merger, utilizing an estimated effective rate of 4.3% based on terms of the Debt Commitment Letter and current market rates that our Debt Commitment Letter is subject to. A deviation of 0.1% in the interest rate would cause interest expense to increase or decrease by $0.4 million for the three-month period, or $1.5 million on an annual basis.

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Income taxes

The adjustment reflects the income tax effect of the pro forma combined effective income tax rate of 26.4% for the three months ended March 31, 2012. The pro forma adjustments were tax effected based on applicable federal and state statutory rates.

Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2011

Revenue and cost of revenue

Revenue and cost of revenue were adjusted to remove the effect of transactions between us and Catalyst. Revenue and cost of revenue were each reduced by $10.9 million, reflecting the amount earned and billed by us to Catalyst during 2011. Additionally, revenue was increased by $15.5 million to reverse amortization expense recorded by Catalyst related to other intangibles from its prior acquisitions. Customer contract intangible assets acquired by Catalyst in its WHI acquisition were amortized as revenue reductions due to Catalyst’s contract it entered into with WHI’s former parent, Walgreens, in connection with the WHI acquisition.

Depreciation and amortization

The adjustment to depreciation and amortization is driven by the preliminary estimate of first year amortization expense of intangible assets acquired of $183.7 million. This amount is offset by a reduction of $26.5 million of amortization expense recorded by Catalyst from its intangible assets. Amortization expense of intangible assets acquired, based on preliminary estimates, is expected to be $175.7 million, $171.9 million, $168.3 million and $164.6 million for years two through five, respectively, following completion of the Catalyst Merger. A 10% change in the amount allocated to other intangible assets would increase or decrease annual amortization expense by approximately $17 million.

Interest

Interest expense was adjusted to remove $10.2 million of interest expense from Catalyst’s previous debt and $5.5 million from our previous debt, to reflect its repayment in connection with the Catalyst Merger. Interest expense was increased by $62.0 million to reflect the estimated interest expense related to new debt that we will incur to finance the cash portion of the merger consideration for the Catalyst Merger, utilizing an estimated effective rate of 4.3% based on terms of our Debt Commitment Letter and the current market rates to which we are subject to under the Debt Commitment Letter. A deviation of 0.1% in the interest rate would cause interest expense to increase or decrease by $1.5 million for the year.

Income taxes

The adjustment reflects the income tax effect of the pro forma combined effective income tax rate of 35.8% for the year ended December 31, 2011. The pro forma adjustments were tax effected based on applicable federal and state statutory rates.

Basic and diluted shares

The unaudited pro forma condensed combined basic and diluted earnings per share calculations are based on the estimated combined basic and diluted weighted-average shares outstanding. The historical basic and diluted weighted average shares of Catalyst are assumed to be replaced by the shares expected to be issued by us at an exchange ratio of 0.6606 of a share of our common shares per share of Catalyst common stock.

Additionally, the basic and diluted earnings per share calculations also reflect an additional 4.3 million shares related to the offering as if they were issued on January 1, 2011.

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