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): March 1, 2013

CATAMARAN CORPORATION

(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:

¨ 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.

Catamaran Corporation (“Catamaran” or the “Company”) is filing this Current Report on Form 8-K for the purpose of incorporating (i) certain consolidated financial statements of Catalyst Health Solutions, Inc. (“Catalyst”) and its subsidiaries and (ii) certain unaudited pro forma condensed combined financial statements of Catamaran, in each case as described in Item 9.01 below, into the Company’s Registration Statement on Form S-3 (and the related prospectus contained therein), which Catamaran is filing today with the Securities and Exchange Commission. As previously disclosed, Catamaran completed its merger (the “Merger”) with Catalyst on July 2, 2012.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired

Set forth in Exhibit 99.1 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.

Set forth in Exhibit 99.2 and incorporated herein by reference are the unaudited consolidated financial statements of Catalyst as of June 30, 2012 and for the six months ended June 30, 2012 and 2011.

(b) Pro Forma Financial Information

Set forth in Exhibit 99.3 and incorporated herein by reference is the unaudited pro forma condensed combined statement of operations of Catamaran for the year ended December 31, 2012, giving pro forma effect to the Merger and certain financing transactions related thereto as if they had occurred on January 1, 2012. The unaudited pro forma condensed combined statement of operations is not intended to represent what Catamaran’s actual consolidated results of operations would have been had the Merger and related financing transactions occurred on January 1, 2012, nor is it necessarily indicative of Catamaran’s future consolidated results of operations.

(d) Exhibits

Exhibit No.	Description
23.1	Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm to Catalyst Health Solutions, Inc.
99.1	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
99.2	Unaudited consolidated financial statements of Catalyst Health Solutions, Inc. and its subsidiaries as of June 30, 2012 and for the six months ended June 30, 2012 and 2011
99.3	Unaudited pro forma condensed combined statement of operations of Catamaran Corporation and its subsidiaries for the year ended December 31, 2012, giving pro forma effect to the Merger and certain financing transactions related thereto as if they had occurred on January 1, 2012

2

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.

	CATAMARAN CORPORATION
Dated: March 1, 2013	By:	/s/ Jeffrey Park
	Name:	Jeffrey Park
	Title:	Executive Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm to Catalyst Health Solutions, Inc.
99.1	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
99.2	Unaudited consolidated financial statements of Catalyst Health Solutions, Inc. and its subsidiaries as of June 30, 2012 and for the six months ended June 30, 2012 and 2011
99.3	Unaudited pro forma condensed combined statement of operations of Catamaran Corporation and its subsidiaries for the year ended December 31, 2012, giving pro forma effect to the Merger and certain financing transactions related thereto as if they had occurred on January 1, 2012

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-182598, 333-182569, 333-181189, 333-174671, 333-164021, 333-159733, 333-145450, 333-145449 and 333-136402) of Catamaran Corporation of our report dated February 24, 2012 relating to the financial statements of Catalyst Health Solutions, Inc., which appears in this Current Report on Form 8-K of Catamaran Corporation dated March 1, 2013.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

March 1, 2013

EX-99.1

Exhibit 99.1

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

1

Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows 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. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/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.

13

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.

14

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.

16

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

EX-99.2

Exhibit 99.2

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

Consolidated Condensed Financial Statements (Unaudited)

For the Six Months ended June 30, 2012 and 2011

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

Second Quarter 2012

TABLE OF CONTENTS

	Page
Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets as of June 30, 2012 and December 31, 2011		1
Consolidated Condensed Statements of Operations for the Six Months Ended June 30, 2012 and 2011		2
Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011		3
Notes to Consolidated Condensed Financial Statements		4

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

	June 30,			December 31,
	2012			2011
ASSETS
Current assets:
Cash and cash equivalents	$	8,298		$	49,244
Accounts receivable, net of allowances of $4,171 and $4,311 at June 30, 2012 and December 31, 2011, respectively		328,471			419,266
Rebates receivable, net of allowances of $1,025 and $1,783 at June 30, 2012 and December 31, 2011, respectively		214,595			281,247
Inventory, net of allowances of $120 and $20 at June 30, 2012 and December 31, 2011, respectively		1,925			2,978
Income taxes receivable		24,269			16,405
Deferred income taxes		4,851			3,151
Other current assets		29,635			40,150
Total current assets		612,044			812,441
Property and equipment, net of accumulated depreciation of $35,072 and $26,134 at June 30, 2012 and December 31, 2011, respectively		86,602			62,909
Goodwill		786,808			785,385
Intangible assets, net		293,852			309,108
Restricted cash and investments		49,710			45,000
Investments, net		4,315			5,087
Other assets		32,188			10,248
Total assets	$	1,865,519		$	2,030,178
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	274,192		$	485,468
Rebates payable		177,092			247,976
Accrued expenses and other current liabilities		133,586			101,208
Current maturities of long-term debt		7,500			7,500
Total current liabilities		592,370			842,152
Long-term debt		304,375			263,125
Deferred rent expense		11,701			2,997
Deferred income taxes		38,341			35,738
Other liabilities		43,675			37,667
Total liabilities		990,462			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, 50,925 and 50,234 shares issued at June 30, 2012 and December 31, 2011, respectively		509			502
Additional paid-in capital		500,736			486,473
Treasury stock, at cost, 406 shares and 345 shares at June 30, 2012 and December 31, 2011, respectively		(15,265	)		(11,332	)
Accumulated other comprehensive loss		(30	)		(30	)
Retained earnings		390,667			369,812
Total parent Company stockholders’ equity		876,617			845,425
Non-controlling interest		(1,560	)		3,074
Total stockholders’ equity		875,057			848,499
Total liabilities and stockholders’ equity	$	1,865,519		$	2,030,178

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

1

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	For the six months
	ended June 30,
	2012			2011
Revenue	$	3,000,427		$	2,355,561
Direct expenses		2,821,759			2,224,384
Selling, general and administrative expenses		150,565			75,544
Total operating expenses		2,972,324			2,299,928
Operating income		28,103			55,633
Interest and other income (loss)		(18	)		219
Interest expense		(4,182	)		(3,122	)
Income (loss) before income taxes		23,903			52,730
Income tax (benefit) expense		8,290			20,123
Net income		15,613			32,607
Less: Net loss attributable to non-controlling interest		(5,633	)		—
Net income attributable to the Company	$	21,246		$	32,607
Net income per share attributable to the Company, basic	$	0.43		$	0.71
Net income per share attributable to the Company, diluted	$	0.43		$	0.70
Weighted average shares of common stock outstanding, basic		49,221			46,182
Weighted average shares of common stock outstanding, diluted		49,653			46,745

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

2

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the six months
	ended June 30,
	2012			2011
Cash flows from operating activities:
Net income	$	15,612		$	32,607
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation expense		8,938			4,046
Amortization of intangible and other assets		22,135			10,248
Loss on equity investment		54			—
Loss on disposal of property and equipment		154			2
Allowances on receivables		(665	)		(1,024	)
Deferred income taxes		902			1,293
Equity based compensation charges		8,146			4,784
Other non-cash charges (income), net		430			(2,694	)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable		90,702			19,541
Rebates receivable		67,411			(26,416	)
Income taxes receivable		(7,837	)		(8,063	)
Inventory, net		1,053			92
Other assets		(4,290	)		(17,554	)
Accounts payable		(214,223	)		23,138
Rebates payable		(70,884	)		3,530
Accrued expenses and other liabilities		17,723			(8,287	)
Net cash (used in) provided by operating activities		(64,639	)		35,243
Cash flows from investing activities:
Purchases of property and equipment		(23,705	)		(12,821	)
Business acquisitions and related payments, net of cash acquired		4,120			(488,974	)
Business acquisitions related restricted cash		—			(40,000	)
Other investing activities		(1,432	)		(2,697	)
Net cash used in investing activities		(21,017	)		(544,492	)
Cash flows from financing activities:
Repayments of term loan		(3,750	)		(3,750	)
Borrowings under revolving credit facility		589,000			200,000
Repayments of revolving credit facility		(544,000	)		(20,000	)
Deferred financing costs		—			(5,334	)
Contingent consideration payments		(2,700	)		—
Proceeds from equity offering		—			227,592
Repayment of First Rx Specialty and Mail Services LLC arrangement		—			(8,000	)
Proceeds from exercise of stock options		1,061			915
Excess tax benefits due to option exercises and restricted stock vesting		5,802			3,881
Proceeds from shares issued under employee stock purchase plan		374			246
Purchases of treasury stock		(3,932	)		(2,607	)
Bank overdrafts		2,855			—
Net cash provided by financing activities		44,710			392,943
Net decrease in cash and cash equivalents		(40,946	)		(116,306	)
Cash and cash equivalents at the beginning of period		49,244			157,843
Cash and cash equivalents at the end of period	$	8,298		$	41,537
Supplemental disclosure:
Cash paid for interest	$	3,128		$	2,139
Cash paid for taxes	$	9,665		$	23,011

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

3

CATALYST HEALTH SOLUTIONS, INC.

and Subsidiaries

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed 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. These consolidated condensed 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. 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 condensed 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 six months ended June 30, 2012, adjustments made to the rebate receivable estimates from prior periods reduced direct expenses by $10.2 million. For the six months ended June 30, 2011, adjustments made to the rebate receivable estimates from prior periods reduced direct expenses by $4.3 million. Additionally, the portion of manufacturer or third party intermediary rebates due to clients is recorded as a reduction of revenue. For the six months ended June 30, 2012, adjustments were made to the rebate payable estimates from prior periods which reduced revenue by $2.8 million. For the six months ended June 30, 2011, adjustments were made to the rebate payable estimates from prior periods which increased revenue by $0.4 million.

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. (formerly known as Walgreens 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 June 30, 2012, we have accrued $38.8 million as the fair value of the related contingent consideration, of which $19.0 million is in other current liabilities and $19.8 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.

4

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 was 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

The following tables detail the fair value measurements of our financial assets as of June 30, 2012 and December 31, 2011 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
	June  30, 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	$	138,711	$	138,711		—		—
Auction rate securities		577		—		—		577
Restricted investments		4,710		—		4,710		—
Other long-term investments		3,738		—		3,738		—
Total assets measured at fair value	$	147,736	$	138,711	$	8,448	$	577
			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.

5

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 six months ended
	June 30,
	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 June 30, 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		3,738		—		—		3,738
Total investments	$	9,025		—	$	48	$	9,073
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 June 30, 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, prior to March 2012, were all recorded at cost. In May 2012, we made an additional investment which resulted in our accounting for that investment under the equity method. All other long-term investments in non-controlled companies are recorded at cost. There were no identified events or changes in circumstances that had a significant adverse effect on the value of these cost 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.

6

Summary of contractual maturities

The contractual maturities of our available-for-sale ARS and our held-to-maturity restricted investments at June 30, 2012 are as follows (in thousands):

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	2	$	2
Due after one year		5,333		5,285
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 June 30, 2012 and December 31, 2011. We estimate fair market value for these liabilities based on their market value.

4. BUSINESS COMBINATIONS

Acquisition of Regence Rx

On May 1, 2012, we completed the acquisition of Regence Rx, the PBM administrative operations of Cambia Health Solutions, Inc., for $2.3 million in cash. Regence Rx includes employees, fixed assets, certain liabilities and certain vendor contracts. The purchase price of Regence Rx was determined largely on the basis of management’s expectations of future earnings and cash flows, resulting in the recognition of goodwill. The goodwill recognized is primarily attributable to the acquired workforce. Management’s preliminary allocation of the purchase price to the net assets acquired resulted in goodwill of $1.5 million, fixed assets of $1.9 million, and accrued liabilities of $1.1 million. Transaction costs related to the Regence Rx 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, and accordingly, the results of Regence Rx 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 Regence Rx business combination.

In addition to the acquisition purchase agreement, the Company entered into a pharmacy benefit management (PBM) services agreement that established Catalyst as the exclusive provider of PBM services for Regence Rx.

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

7

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.

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 six months ended June 30, 2012, there was a $0.4 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

8

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 six months ended June 30, 2011
Revenue	$	3,011,089
Net income attributable to the Company	$	30,392
Net income per share attributable to the Company, basic	$	0.62
Net income per share attributable to the Company, diluted	$	0.62
Weighted average shares, basic		48,718
Weighted average shares, diluted		49,281

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.

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 , 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. Conversely, beginning in April 2016, the Company has the right to require ScriptRelief to redeem the Company’s ownership interest in ScriptRelief at the original cost plus a defined preferred return. 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.

9

The change in equity for the six months ended June 30, 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 December 31, 2011	$	848,499		$	845,425		$	3,074
Adjustment in investments from cost to equity method		(148	)		(148	)		—
Adjusted balance as of January 1, 2012		848,351			845,277			3,074
Net income (loss)		16,087			21,720			(5,633	)
Exercise of stock options, including tax benefits		4,653			4,653			—
Expense related to restricted stock, including tax benefits		10,356			10,356			—
Shares issued pursuant to employee stock purchase plan		374			374			—
Purchase of treasury stock		(3,932	)		(3,932	)		—
Purchase of additional ownership interest from non-controlling interest		—			(1,114	)		1,114
Non-controlling interest purchase accounting adjustments		(115	)		—			(115	)
Balance as of June 30, 2012	$	875,774		$	877,334		$	(1,560	)

6. GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill for the six months ended June 30, 2012 are as follows (in thousands):

	2012
Balance as of January 1, 2012	$	785,385
Net adjustments to goodwill related to Script Relief		(115	)
Goodwill acquired in current acquisitions		1,538
Balance as of June 30, 2012	$	786,808

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.

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

	June 30, 2012							December 31, 2011
	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Customer relationships	$	328,063	$	(65,527	)	$	262,536	$	328,063	$	(47,498	)	$	280,565
Non-compete agreements		570		(269	)		301		570		(174	)		396
Trade names		16,799		(1,509	)		15,290		18,199		(2,489	)		15,710
Developed technology		13,548		(3,373	)		10,175		13,548		(2,073	)		11,475
Other PBM contracts		1,945		(867	)		1,078		2,277		(1,315	)		962
Insurance operating licenses		4,472		—			4,472		—		—			—
Total intangible assets	$	365,397	$	(71,545	)	$	293,852	$	362,657	$	(53,549	)	$	309,108

The weighted average amortization period of our intangible assets subject to amortization is 10.3 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 six months ended June 30, 2012.

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Acquisition-related intangible amortization expense for PBM customer contracts have been included as an offset to revenue in the amounts of $8.4 million and $4.9 million for the six months ended June 30, 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)	$	20,804
2013	$	37,881
2014	$	35,125
2015	$	33,829
2016	$	26,349

7. FINANCING

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

	June 30,			December 31,
	2012			2011
Senior secured term loan facility due August 4, 2015 with an average interest rate of 2.25% and 2.00% at June 30, 2012 and December 31, 2011, respectively	$	136,875		$	140,625
Revolving credit facility due August 4, 2015 with an average interest rate of 2.25% and 2.29% at June 30, 2012 and December 31, 2011, respectively		175,000			130,000
Total debt		311,875			270,625
Less current maturities		(7,500	)		(7,500	)
Long-term debt	$	304,375		$	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 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 $589.0 million and repayments of $544.0 million under the revolving credit facility during the six months ended June 30, 2012. At June 30, 2012 and December 31, 2011, there was $175.0 million and $130.0 million outstanding under our revolving credit facility, respectively.

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 Rate 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.

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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 June 30, 2012 and December 31, 2011, we were in compliance with all covenants associated with our credit facilities.

At June 30, 2012, net deferred financing costs of $6.4 million related to the issuance of the credit facilities are being amortized over an average weighted period of 3.1 years and are reflected in other assets in the accompanying consolidated balance sheet.

In connection with the subsequent event disclosed in Note 13, the senior secured term loan facility and the revolving credit facility were paid in full on July 2, 2012 and terminated at that time.

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 six months ended June 30, 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		(171	)		6.17
Forfeited or expired		—			—
Outstanding at June 30, 2012		4		$	10.34
Exercisable at June 30, 2012		4		$	10.34

The aggregate intrinsic value of exercisable stock options at June 30, 2012 was approximately $0.3 million with a weighted average remaining life of 1.6 years. The total intrinsic value of stock options exercised during the six months ended June 30, 2012 and 2011 were approximately $10.8 million and $6.6 million, respectively.

Restricted Stock Awards

A summary of our restricted share activity for the six months ended June 30, 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		550			72.33
Vested		(201	)		35.22
Forfeited		(36	)		43.07
Non-vested shares outstanding at June 30, 2012		1,175		$	57.81

Included in the balance of non-vested shares outstanding at June 30, 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

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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 $0.9 million for the six months ended June 30, 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 June 30, 2012, the total remaining unrecognized compensation cost related to all non-vested restricted shares was approximately $50.4 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 June 30, 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 June 30, 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 5,500 and 61,000 shares were purchased at a cost of approximately $3.9 million for the six months ended June 30, 2012.

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.

9. INCOME TAXES

The income tax rates reflect a tax expense of 37.3% and 38.2% during the six months ended June 30, 2012 and 2011, respectively. These rates represent the effective rates, prior to the recognition of any discrete tax items.

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.

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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):

	Six months ended June 30,
	2012		2011
Net income attributable to the Company	$	21,245	$	32,607
Calculation of shares:
Weighted average common shares outstanding, basic		49,221		46,182
Dilutive effect of stock options, restricted stock awards and warrants		432		563
Weighted average common shares outstanding, diluted		49,653		46,745
Net income per common share attributable to the Company, basic	$	0.43	$	0.71
Net income per common share, attributable to the Company diluted	$	0.43	$	0.70

Potential common stock equivalents representing approximately 273,000 shares and 78,000 shares for the six months ended June 30, 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 proceedings 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.

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 Condensed Financial Statements.

13. SUBSEQUENT EVENTS

On July 2, 2012, a wholly-owned subsidiary of SXC Health Solutions Corp., a corporation organized under the laws of the Yukon Territory, Canada (“SXC”), was merged (the “Merger”) with and into the Company pursuant to an Agreement and Plan of Merger, dated as of April 17, 2012, as amended on June 29, 2012 (the “Merger Agreement”), among SXC, SXC Health Solutions, Inc., a Texas corporation and wholly-owned subsidiary of SXC (“US Corp.”), Catamaran I Corp., a Delaware corporation and a direct wholly-owned subsidiary of US Corp. (“Merger Sub”), Catamaran II LLC, a Delaware limited liability company and wholly-owned subsidiary of US Corp. (“Merger LLC”), and the Company. As a result of the Merger, the Company became an indirect, wholly-owned subsidiary of SXC. Following the Merger, the Company merged with and into Merger LLC, with Merger LLC continuing as the surviving company under the name Catamaran Health Solutions, LLC.

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Pursuant to the Merger Agreement, each share of common stock, par value $0.01 per share, of the Company outstanding immediately prior to the merger (other than shares of Company common stock owned by the Company, SXC, US Corp., Merger Sub, Merger LLC or any of their respective wholly-owned subsidiaries) was converted into the right to receive (i) $28.00 in cash without interest and (ii) 1.3212 of a share of SXC common stock (or 0.6606 prior to SXC’s October 2012 two-for-one stock split). The total purchase price translates to approximately $4.7 billion in cash and stock Merger consideration payable to Catalyst security holders.

The issuance of SXC common stock in connection with the merger, as described above, was registered under the Securities Act of 1933, as amended, pursuant to the registration statement on Form S-4 (File No. 333- 181189), filed with the Securities and Exchange Commission and declared effective on June 1, 2012.

Each stock option and one series of warrants to acquire Catalyst common stock existing at the effective time of the Merger was assumed by Catamaran (each, a “continuing award”)and converted into an award to acquire shares of Catamaran common stock, on the same terms and conditions as were applicable to the award prior to the Merger. For each stock option, the share underlying the stock option award was multiplied by a ratio (the “option exchange ratio”) equal to the sum of 1.3212 (or 0.6606 prior to SXC’s October 2012 two-for-one stock split) plus the fraction obtained by dividing $28.00 by the average per share daily closing price of Catamaran common stock over the five trading days preceding the closing date of the Merger and the exercise price was be divided by the same ratio. For each warrant, the number of shares of Catamaran common stock is determined by multiplying the number of shares of Catalyst common stock the warrant converts into times the option exchange ratio.

Additionally, each share of restricted stock granted under a Company stock plan and outstanding immediately prior to the merger became fully vested and at the merger was cancelled in exchange for the right to receive the merger consideration. Also, certain unexpired and unexercised Company warrants issued pursuant to a stock purchase agreement were assumed by SXC and became a warrant to purchase the number of shares of SXC common stock.

In July, 2012, subsequent to the close of the Merger, the combined company of SXC and Catalyst changed its name from SXC to Catamaran Corporation.

On July 2, 2012, the Company notified Nasdaq Stock Market of its intent to remove its common stock from listing. On July 2, 2012, NASDAQ filed a delisting application on Form 25 with the SEC to delist and deregister the Company common stock and subsequently the Company filed a Form 15 to suspend its reporting obligations under Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended.

The Company has performed an evaluation of subsequent events through August 27, 2012.

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EX-99.3

Exhibit 99.3

CATAMARAN CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED

INCOME STATEMENT

The unaudited pro forma condensed combined income statement for the year ended December 31, 2012 gives effect to the merger (the “Merger”) between a wholly owned subsidiary of Catamaran Corporation (“Catamaran” or the “Company”) and Catalyst Health Solutions (“Catalyst”) as if it had occurred on January 1, 2012 (the “pro forma income statement”).

The historical consolidated financial information has been adjusted to give effect to pro forma events that are (i) directly attributable to the Merger, (ii) factually supportable, and (iii) expected to have a continuing impact on the combined results. The adjustments to the pro forma income statement have been made solely for the purpose of developing the pro forma income statement necessary to comply with the applicable disclosure and reporting requirements of the SEC. The pro forma income statement is not intended to represent what Catamaran’s actual consolidated results of operations would have been had the Merger occurred on the date assumed, nor is it necessarily indicative of Catamaran’s future consolidated results of operations. The actual results reported in periods following the closing of the Merger may differ significantly from the pro forma income statement for a number of reasons including, but not limited to: differences in the ordinary conduct of the business following the Merger; differences between the assumptions used to prepare these pro forma income statement 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 recording thereof to the assets acquired and liabilities assumed, based on preliminary estimates of fair value. Catamaran believes 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 still in process at the time this pro forma income statement was prepared, and information may become available within the measurement period which indicates a potential change to these valuations utilized to record the assets acquired and liabilities assumed, the initial amounts recorded may be subject to adjustment. Furthermore, the pro forma income statement does not reflect any cost savings from operating efficiencies, synergies or other costs that could result from the Merger. The pro forma income statement is based on the historical financial statements of Catamaran and Catalyst, as adjusted for the pro forma effect of the Merger. The pro forma income statement should be read in conjunction with the historical financial statements and the accompanying notes of Catamaran included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on March 1, 2013, and the historical financial statements and the accompanying notes of Catalyst for the six months ended June 30, 2012 and 2011 included as Exhibit 99.2 filed herewith.

Catamaran Corporation

Unaudited Pro Forma Condensed Combined Income Statement

For the year ended December 31, 2012

(in thousands, except per share data)

	Catamaran *		Catalyst #			Pro-Forma     Adjustments			Pro-Forma     Combined
Revenue	$	9,940,120	$	3,000,427		$	(1,872	)(a)	$	12,938,675
Cost of revenue		9,206,744		2,821,759			(10,272	)(a)		12,018,231
Gross profit		733,376		178,668			8,400			920,444
Expenses:
Selling, general and administrative		369,492		127,892			(39,900	)(b)		457,484
Depreciation of property and equipment		16,749		8,938			(2,798	)(c)		22,889
Amortization of intangible assets		130,116		13,735			72,240	(c)		216,091
Total operating expenses		516,357		150,565			29,542			696,464
Operating income (loss)		217,019		28,103			(21,142	)		223,980
Interest and other expense, net		26,682		4,200			16,586	(d)		47,468
Income (loss) before income taxes		190,337		23,903			(37,728	)		176,512
Income tax expense (benefit):		69,316		8,290			(39,097	)(e)		38,509
Net income (loss)		121,021		15,613			1,369			138,003
Non-controlling interest		4,363		(5,633	)		—			(1,270	)
Net income attributable to the Company	$	116,658	$	21,246		$	1,369		$	139,273
Earnings per share: (f)
Basic	$	0.70	$	0.43			—		$	0.68
Diluted	$	0.70	$	0.43			—		$	0.68
Weighted average shares outstanding:
Basic		166,766		49,221			37,875	(f)		204,641
Diluted		167,830		49,653			37,875	(f)		205,705

*-Actual results for the year ended December 31,2012

#-Actual results for the six-months ended June 30, 2012

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

CATAMARAN CORPORATION

NOTES TO THE UNAUDITED PRO FORMA INCOME STATEMENT

1. Description of Transaction

On April 18, 2012, Catamaran announced that it had entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Catalyst, a full-service pharmacy benefits manager (“PBM”) serving more than 18 million lives in the United States and Puerto Rico, pursuant to which, upon the terms and subject to the conditions set forth in the Merger Agreement, a newly-formed wholly-owned subsidiary of Catamaran was merged with and into Catalyst, with Catalyst surviving as a wholly-owned subsidiary of Catamaran (the “Merger”). Each share of Catalyst common stock outstanding immediately prior to the effective time of the Merger (other than shares owned by Catamaran or Catalyst or any of their respective wholly-owned subsidiaries) were converted in the Merger into the right to receive 1.3212 shares of Catamaran common stock (0.6606 of a share prior to Catamaran’s two-for-one stock split in October 2012) and $28.00 in cash. The Merger was completed on July 2, 2012.

In connection with the Merger, Catamaran entered into a new credit agreement (the “Credit Agreement”) with a syndicate of lenders led by JPMorgan Chase Bank, N.A. (“JPMCB”). Pursuant to the Credit Agreement, the lenders committed to provide senior secured credit facilities to Catamaran in an aggregate amount of $1.8 billion, comprised of a $1.1 billion term loan and a $700 million revolving credit facility. On the Merger closing date, Catamaran borrowed $1.4 billion under the credit facility to partially fund the cash consideration of the Merger and other Merger related costs and transactions.

Each stock option and one series of warrants to acquire Catalyst common stock existing at the effective time of the Merger was assumed by Catamaran (each, a “continuing award”) and converted into an award to acquire shares of Catamaran common stock, on the same terms and conditions as were applicable to the award prior to the Merger. For each stock option, the share underlying the stock option award was multiplied by a ratio (the “option exchange ratio”) equal to the sum of 1.3212 plus the fraction obtained by dividing $28.00 by the average per share daily closing price of Catamaran common stock over the five trading days preceding the closing date of the Merger and the exercise price was be divided by the same ratio. For each warrant, the number of shares of Catamaran common stock was determined by multiplying the number of shares of Catalyst common stock the warrant converted into times the option exchange ratio.

2. Basis of Presentation

The unaudited pro forma income statement has been prepared using the acquisition method of accounting, with Catamaran being the accounting acquirer, and is based on the historical financial statements of Catamaran and Catalyst. Certain reclassifications have been made to the historical financial statements of Catalyst to conform to the financial statement presentation of Catamaran.

The unaudited pro forma income statement for the year ended December 31, 2012 combines the historical consolidated statement of operations of Catamaran for the year then ended with the historical statement of operations of Catalyst for the six months ended June 30, 2012 to give effect to the Merger as if it had occurred on January 1, 2012. The historical information excludes two days of results of Catalyst between the end of its June 30, 2012 reporting period and the Merger closing date of July 2, 2012 because the results for this period only include results from normal operations that are not deemed material and expenses of Catalyst incurred as a result of the Merger.

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 Merger. The transaction fees for the Merger are expensed as incurred and are included in selling, general and administrative expenses in Catamaran’s and Catalyst’s results.

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 based on preliminary estimates of fair value. Catamaran 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 information may become available within the measurement period which indicates a potential change to these valuations, the initial amounts recorded may be subject to adjustment. The pro forma income statement does 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.

The pro forma income statement is provided for illustrative purposes only and is not intended to represent what Catamaran’s actual results of operations would have been had the Merger occurred on January 1, 2012, nor are they necessarily indicative of Catamaran’s future consolidated results of operations.

CATAMARAN CORPORATION

NOTES TO THE UNAUDITED PRO FORMA INCOME STATEMENT

3. Preliminary Purchase Price Calculation and Accounting

Catalyst Merger

On July 2, 2012, the Company completed its previously announced Merger with Catalyst, a full-service PBM. Each share of Catalyst common stock outstanding immediately prior to the effective time of the Merger (other than shares owned by the Company or Catalyst or any of their respective wholly-owned subsidiaries) was converted in the Merger into the right to receive 1.3212 (0.6606 prior to split adjustment) of a Company common share and $28.00 in cash. This resulted in the Company issuing approximately 66.8 million common shares, issuing 0.5 million warrants, and paying $1.4 billion in cash to Catalyst stockholders to complete the Merger. The results of Catalyst have been included in the Company’s results since July 2, 2012. Catamaran’s historical consolidated statement of operations for the year ended December 31, 2012 includes Catalyst’s total revenues of approximately $3.2 billion following consummation of the Merger.

The Merger was accounted for under the acquisition method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration paid by the Company to complete the acquisition has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition. The carrying values for current assets and liabilities were deemed to approximate their fair values due to the short-term nature of their maturities. The fair value for the acquired customer relationships intangible asset was valued using an excess earnings model based on expected future revenues derived from the customers acquired. The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill.

Goodwill is non-amortizing for financial statement purposes and $525 million related to the Catalyst Merger is tax deductible. The goodwill recognized by the Company represents many of the synergies and business growth opportunities that the Company anticipates may be realized from the Merger. The synergies include improved pricing from the Company’s suppliers due to the increased volume of prescription drug purchases, pull through opportunities of the combined companies’ mail and specialty service offerings, and a more efficient leveraging of resources to achieve operating profits.

The purchase price of the acquired Catalyst operations was comprised of the following (in thousands):

Cash paid to Catalyst shareholders	$	1,415,276
Fair value of common shares issued (a)		3,238,141
Fair value of warrants and stock options issued (b)		19,824
Total purchase price	$	4,673,241

(a) Valued based on the number of outstanding shares issued in the Merger multiplied by the closing market price of Catamaran shares on July 2, 2012.

(b) The Black-Scholes option-pricing model was used to calculate the fair value of the replacement warrants and stock options issued.

The following summarizes the preliminary fair values assigned to the assets acquired and liabilities assumed at the acquisition date and are subject to change as the valuation processes are not complete. Final determination of the fair values may result in further adjustments to the amounts presented below (in thousands):

	Initial Amounts Recognized at Acquisition Date (a)			Measurement Period Adjustments (b)			Current Amounts Recognized at Acquisition Date
Cash and cash equivalents	$	93,775		$	(315	)	$	93,460
Other current assets		695,888			5,202			701,090
Total current assets		789,663			4,887			794,550
Goodwill		4,010,235			8,492			4,018,727
Customer relationships intangible		1,184,800			—			1,184,800
Other long-term assets		87,174			1,547			88,721
Total assets acquired		6,071,872			14,926			6,086,798
Accounts payable		338,819			—			338,819
Pharmacy benefit management rebates payable		176,202			2,935			179,137
Accrued expenses and other current liabilities		187,851			1,348			189,199
Long-term debt		311,994			—			311,994
Other long-term liabilities		385,375			10,643			396,018
Total liabilities assumed		1,400,241			14,926			1,415,167
Non-controlling interest		(1,610	)		—			(1,610	)
Net assets acquired	$	4,673,241		$	—		$	4,673,241

(a) As previously reported in the Company’s Form 10-Q for the period ended September 30, 2012.

(b) These measurement period adjustments were recorded to reflect changes in the estimated fair values of the associated assets acquired and liabilities assumed based on factors existing as of the acquisition date.

CATAMARAN CORPORATION

NOTES TO THE UNAUDITED PRO FORMA INCOME STATEMENT

During the year ended December 31, 2012, the Company recognized $86.0 million of amortization expense from intangible assets acquired in the Catalyst Merger. Amortization associated with the Catalyst Merger in 2013 is expected to be $166.1 million. The estimated fair value of the customer relationships intangible asset is $1.2 billion with a useful life of 9 years. The intangible asset acquired will not have any residual value at the end of the amortization period. There were no in-process research and development assets acquired.

Separate Transactions and Preexisting Relationships

During the year ended December 31, 2012, the Company incurred transaction and integration expenses related to the Merger, exclusive of debt financing costs, totaling $27.2 million, which includes transaction expenses of $22.8 million. These costs are included in selling, general and administrative (“SG&A”) expenses. Additionally, during the year ended December 31, 2012, the Company recorded $17.0 million in charges to SG&A expenses due to transactions related to the Merger recognized separately from the acquisition of assets and assumptions of liabilities from the Merger. The charges recorded related to $3.5 million in contract settlements and terminations made by Catalyst prior to the acquisition that had future benefit to the Company, $3.1 million for payments made to Catalyst employees based on contractual arrangements which had future benefit to the Company, and $10.4 million in severance charges incurred subsequent to the close of the Merger.

Due to the previous contractual relationship between the Company and Catalyst, there were pre-existing transactions between the entities which resulted in approximately $4.1 million in accounts receivable due to the Company from Catalyst at the time of the Merger, mainly for HCIT transaction processing services provided. No gain or loss was generated from the subsequent settlement of these pre-existing balances.

4. Pro Forma Adjustments

Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2012

(a) Revenue and cost of revenue

Revenue and cost of revenue were adjusted to remove the effect of transactions between Catamaran and Catalyst. Revenue and cost of revenue were each reduced by $10.3 million for the year ended December 31, 2012, reflecting the amount earned and billed by Catamaran to Catalyst. Additionally, revenue was increased by $8.4 million for the year ended December 31, 2012, to reverse amortization expense recorded by Catalyst related to other intangibles from its prior acquisitions.

(b) Selling, general and administrative

The adjustment to expenses removes transaction expenses of $22.8 million incurred to close the Merger, $10.4 million in one time severance charges incurred related to the Merger and $6.6 million of expenses recorded in the Company’s 2012 actual results that were also recorded in Catalyst’s six-month results due to transactions recognized separately from the acquisition of assets and assumptions of liabilities from the Merger. The $6.6 million of duplicate expenses related to $3.5 million in contract settlements and terminations made by Catalyst prior to the acquisition that had future benefit to the Company and $3.1 million for payments made to Catalyst employees based on contractual arrangements which had future benefit to the Company.

(c) Depreciation and amortization

The adjustment to amortization reflects the addition of six months of amortization expense totaling $86.0 million to reflect a full year of amortization expense for intangible assets acquired in the Merger, offset by a $13.8 million reduction of historical amortization expense recorded by Catalyst from its intangible assets for the period prior to the Merger. Depreciation expense was decreased by $2.8 million to reflect the adjusted fair value of the property and equipment acquired by Catamaran.

(d) Interest

Interest expense was increased by $20.6 million to reflect a full year of interest expense related to Catamaran’s new debt incurred to finance the Merger, utilizing its current effective rate of 2.25%, plus the impact of the amortization of deferred financing fees and debt discounts. This amount was reduced by $4.0 million to remove Catalyst’s 2012 interest expense prior to the Merger due to the termination and repayment of Catalyst’s existing indebtness upon closing of the Merger.

(e) Income taxes

The adjustment reflects the income tax effect of the pro forma combined adjustments based on applicable federal and state statutory rates, plus the tax impact from the Company’s cross-jurisdictional financing arrangement implemented as a result of the Merger.

CATAMARAN CORPORATION

NOTES TO THE UNAUDITED PRO FORMA INCOME STATEMENT

(f) Basic and diluted shares

The unaudited pro forma combined basic and diluted earnings per share calculations are based on the combined basic and diluted weighted-average shares outstanding. The historical basic and diluted weighted-average shares of Catalyst replaced by the shares issued by Catamaran at an exchange ratio of 1.3212 shares of Catamaran common stock per share of Catalyst common stock (0.6606 prior to the two-for-one stock split in October 2012), and assumed outstanding since January 1, 2012.

Additionally, the basic and diluted earnings per share calculations reflect the shares issued in May 2012 from the Company’s public offering as if they were issued on January 1, 2012.

Catamaran’s actual and the pro forma combined share and per share data have been adjusted to reflect Catamaran’s two-for-one stock split completed in October 2012.