##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
  [X]
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
  OR
 [   ]
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
   MEDCO HEALTH SOLUTIONS, INC.
 Delaware
    
    22-3461740(State or other jurisdiction of incorporation)
    
    (I.R.S. Employer Identification No.)100 Parsons Pond Drive, Franklin Lakes, NJ
    
    07417-2603(Address of principal executive offices)
    
    (Zip Code)
  
    Large accelerated filer [X]
    
    Accelerated filer [   ]Non-Accelerated filer [   ](Do not check if a smaller reporting company)
    
    Smaller reporting company [   ]




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##### 



MEDCO HEALTH SOLUTIONS, INC.
 QUARTERLY REPORT ON FORM 10-Q
 INDEX
 PART I  FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets (Unaudited)  March 28, 2009 and
December 27, 2008
    
    
    1Condensed Consolidated Statements of Income (Unaudited)  Fiscal Quarters EndedMarch 28,
2009 and March 29, 2008
    
    
    2Condensed Consolidated Statement of Stockholders Equity (Unaudited) 
Fiscal Quarter Ended March 28, 2009
    
    
    3Condensed Consolidated Statements of Cash Flows (Unaudited)  Fiscal Quarters Ended March
28, 2009 and March 29, 2008
    
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4.
    
    Controls and Procedures
    
    
    37PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    37Item 1A.
    
    Risk Factors
    
    
    37Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3.
    
    Defaults Upon Senior Securities
    
    
    38Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    38Item 5.
    
    Other Information
    
    
    38Item 6.
    
    Exhibits
    
    
    40SIGNATURES
    
    
    41EX-31.1EX-31.2EX-32.1EX-32.2




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PART I  FINANCIAL INFORMATION
 
 Item 1.   Financial Statements
 
 MEDCO HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions, except for share data)
 March 28,
    
    December 27,2009
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,799.5
    
    
    $
    938.4Short-term investments
    
    
    62.4
    
    
    
    64.0Manufacturer accounts receivable, net
    
    
    1,966.3
    
    
    
    1,858.9Client accounts receivable, net
    
    
    1,647.7
    
    
    
    1,680.5Income taxes receivable
    
    
    214.7
    
    
    
    213.4Inventories, net
    
    
    1,675.6
    
    
    
    1,856.5Prepaid expenses and other current assets
    
    
    72.3
    
    
    
    326.6Deferred tax assets
    
    
    166.7
    
    
    
    159.2Total current assets
    
    
    7,605.2
    
    
    
    7,097.5Property and equipment, net
    
    
    846.1
    
    
    
    854.1Goodwill
    
    
    6,326.9
    
    
    
    6,331.4Intangible assets, net
    
    
    2,651.9
    
    
    
    2,666.4Other noncurrent assets
    
    
    56.1
    
    
    
    61.5Total assets
    
    $
    17,486.2
    
    
    $
    17,010.9LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Claims and other accounts payable
    
    $
    2,789.7
    
    
    $
    2,878.9Client rebates and guarantees payable
    
    
    2,071.8
    
    
    
    1,658.7Accrued expenses and other current liabilities
    
    
    717.2
    
    
    
    660.4Short-term debt
    
    
    600.0
    
    
    
    600.0Total current liabilities
    
    
    6,178.7
    
    
    
    5,798.0Long-term debt, net
    
    
    4,001.2
    
    
    
    4,002.9Deferred tax liabilities
    
    
    1,050.4
    
    
    
    1,065.3Other noncurrent liabilities
    
    
    188.9
    
    
    
    186.8Total liabilities
    
    
    11,419.2
    
    
    
    11,053.0Commitments and contingencies (See Note 10)Stockholders equity:Preferred stock, par value $0.01authorized: 10,000,000 shares; 
issued and outstanding: 0
    
    
    
    
    
    
    Common stock, par value $0.01authorized: 2,000,000,000 shares at 
March 28, 2009 and December 27, 2008; issued: 654,114,083
shares at March 28, 2009 and 652,386,763 shares at December
27, 2008
    
    
    6.5
    
    
    
    6.5Accumulated other comprehensive loss
    
    
    (68.7
    )
    
    
    (63.8
    )Additional paid-in capital
    
    
    7,827.5
    
    
    
    7,788.9Retained earnings
    
    
    4,220.3
    
    
    
    3,929.311,985.6
    
    
    
    11,660.9Treasury stock, at cost: 164,373,496 shares at March 28, 2009 and 
159,061,394 shares at December 27, 2008
    
    
    (5,918.6
    )
    
    
    (5,703.0
    )Total stockholders equity
    
    
    6,067.0
    
    
    
    5,957.9Total liabilities and stockholders equity
    
    $
    17,486.2
    
    
    $
    17,010.9
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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MEDCO HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions, except for per share data)
 Quarters EndedMarch 28,
    
    March 29,2009
    
    2008Product net revenues (Includes retail co-payments of
$2,259 for 2009, and $2,102 for 2008)
    
    $
    14,616.3
    
    
    $
    12,806.9Service revenues
    
    
    217.6
    
    
    
    156.0Total net revenues
    
    
    14,833.9
    
    
    
    12,962.9Cost of operations:Cost of product net revenues (Includes retail
co-payments of $2,259 for 2009, and $2,102 for
2008)
    
    
    13,832.0
    
    
    
    12,016.8Cost of service revenues
    
    
    57.8
    
    
    
    45.9Total cost of revenues
    
    
    13,889.8
    
    
    
    12,062.7Selling, general and administrative expenses
    
    
    340.3
    
    
    
    328.4Amortization of intangibles
    
    
    75.9
    
    
    
    69.5Interest expense
    
    
    45.1
    
    
    
    50.6Interest (income) and other (income) expense, net
    
    
    (3.5
    )
    
    
    3.7Total costs and expenses
    
    
    14,347.6
    
    
    
    12,514.9Income before provision for income taxes
    
    
    486.3
    
    
    
    448.0Provision for income taxes
    
    
    195.3
    
    
    
    177.8Net income
    
    $
    291.0
    
    
    $
    270.2Basic earnings per share:Weighted average shares outstanding
    
    
    492.2
    
    
    
    526.9Earnings per share
    
    $
    0.59
    
    
    $
    0.51Diluted earnings per share:Weighted average shares outstanding
    
    
    501.2
    
    
    
    537.8Earnings per share
    
    $
    0.58
    
    
    $
    0.50
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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MEDCO HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(UNAUDITED)
(Shares in thousands; $ in millions, except for per share data)
 Shares of
    
    Shares
    
    
    
    
    
    AccumulatedCommon
    
    of
    
    $0.01 Par Value
    
    OtherStock
    
    Treasury
    
    Common
    
    Comprehensive
    
    AdditionalIssued
    
    Stock
    
    Stock
    
    Income (Loss)
    
    Paid-in Capital
    
    Retained Earnings
    
    Treasury Stock
    
    TotalBalances at
December 27, 2008
    
    
    652,387
    
    
    
    159,061
    
    
    $
    6.5
    
    
    $
    (63.8
    )
    
    $
    7,788.9
    
    
    $
    3,929.3
    
    
    $
    (5,703.0
    )
    
    $
    5,957.9Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291.0
    
    
    
    
    
    
    
    291.0Other comprehensive income
(loss):Foreign currency
translation loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.7
    )Amortization of unrealized
loss on cash flow hedge,
net of tax of $(0.4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6Defined benefit plans, net
of tax:Amortization of prior
service cost included in
net periodic benefit
cost, net of tax $0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )Net gains included in
net periodic benefit
cost, net of tax of
$(0.5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.8Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.9
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.9
    )
    
    
    
    
    
    
    291.0
    
    
    
    
    
    
    
    286.1Issuance of common stock
under employee stock
purchase plans
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    5.1Stock option activity,
including tax benefit
    
    
    637
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35.1
    
    
    
    
    
    
    
    
    
    
    
    35.1Restricted stock unit
activity, including tax
benefit
    
    
    970
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Treasury stock acquired
    
    
    
    
    
    
    5,312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (215.6
    )
    
    
    (215.6
    )Balances at
March 28, 2009
    
    
    654,114
    
    
    
    164,373
    
    
    $
    6.5
    
    
    $
    (68.7
    )
    
    $
    7,827.5
    
    
    $
    4,220.3
    
    
    $
    (5,918.6
    )
    
    $
    6,067.0
 The accompanying notes are an integral part of this condensed consolidated financial statement.
 3




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MEDCO HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
 Quarters EndedMarch 28,
    
    March 29,2009
    
    2008Cash flows from operating activities:Net income
    
    $
    291.0
    
    
    $
    270.2Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    43.2
    
    
    
    40.1Amortization of intangibles
    
    
    75.9
    
    
    
    69.5Deferred income taxes
    
    
    (40.5
    )
    
    
    (42.4
    )Stock-based compensation on employee stock plans
    
    
    35.5
    
    
    
    29.4Tax benefit on employee stock plans
    
    
    30.5
    
    
    
    40.9Excess tax benefits from stock-based compensation arrangements
    
    
    (11.6
    )
    
    
    (24.2
    )Other
    
    
    33.5
    
    
    
    33.8Net changes in assets and liabilities:Manufacturer accounts receivable, net
    
    
    (107.4
    )
    
    
    (176.2
    )Client accounts receivable, net
    
    
    0.9
    
    
    
    (125.8
    )Inventories, net
    
    
    180.6
    
    
    
    (21.0
    )Prepaid expenses and other current assets
    
    
    254.3
    
    
    
    (5.8
    )Income taxes receivable
    
    
    (1.3
    )
    
    
    7.9Other noncurrent assets
    
    
    2.6
    
    
    
    (4.0
    )Claims and other accounts payable
    
    
    (88.3
    )
    
    
    (365.4
    )Client rebates and guarantees payable
    
    
    413.1
    
    
    
    389.7Accrued expenses and other current and noncurrent liabilities
    
    
    58.3
    
    
    
    48.8Net cash provided by operating activities
    
    
    1,170.3
    
    
    
    165.5Cash flows from investing activities:Capital expenditures
    
    
    (35.4
    )
    
    
    (39.1
    )Purchases of securities and other assets
    
    
    (105.6
    )
    
    
    (6.5
    )Proceeds from sale of securities and other investments
    
    
    44.1
    
    
    
    Net cash used by investing activities
    
    
    (96.9
    )
    
    
    (45.6
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    
    
    
    
    1,885.7Repayments on long-term debt
    
    
    
    
    
    
    (1,200.0
    )Debt issuance costs
    
    
    
    
    
    
    (10.1
    )Settlement of cash flow hedge
    
    
    
    
    
    
    (45.4
    )Purchase of treasury stock
    
    
    (215.6
    )
    
    
    (1,000.8
    )Excess tax benefits from stock-based compensation arrangements
    
    
    11.6
    
    
    
    24.2Net payments from employee stock plans
    
    
    (8.3
    )
    
    
    (7.0
    )Net cash used by financing activities
    
    
    (212.3
    )
    
    
    (353.4
    )Net increase (decrease) in cash and cash equivalents
    
    
    861.1
    
    
    
    (233.5
    )Cash and cash equivalents at beginning of period
    
    
    938.4
    
    
    
    774.1Cash and cash equivalents at end of period
    
    $
    1,799.5
    
    
    $
    540.6
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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MEDCO HEALTH SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1.
    
    BASIS OF PRESENTATION
  2.
    
    RECENTLY ADOPTED FINANCIAL ACCOUNTING STANDARDS AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Recently Adopted Financial Accounting Standards
 Emerging Issues Task Force Issue No. 08-7, Accounting for Defensive Intangible Assets.
 FASB Staff Position FAS 142-3, Determination of the Useful Life of Intangible Assets.
 SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment
of FASB Statement No. 133.
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SFAS No. 141(R), Business Combinations.
 SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements.
 Recently Issued Accounting Pronouncements
   6




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3.
    
    FAIR VALUE MEASUREMENTS
  Fair Value Hierarchy.
     Medco Fair Value Measurements at Reporting Date
 Description
    
    March 28, 2009
    
    Level 1
    
    Level 2
    
    Level 3Money market mutual funds
    
    $
    1,613.0
    (1)
    
    $
    1,613.0
    
    
    $
    
    
    
    $
    Fair value of interest rate swap agreements
    
    
    16.3
    (2)
    
    
    
    
    
    
    16.3
    
    
    
    Available-for-sale investments
    
    
    1.8
    (3)
    
    
    1.8
    
    
    
    
    
    
    
    
 
 (1)
    
    Reported in cash and cash equivalents on the consolidated balance sheet.(2)
    
    Reported in other noncurrent assets on the consolidated balance sheet.(3)
    
    Reported in short-term investments on the consolidated balance sheet. Recently Adopted Financial Accounting Standards
 4.
    
    STOCK-BASED COMPENSATION
 Stock Option Plans.
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WeightedAverage
    
    AggregateNumber of
    
    Weighted
    
    Remaining
    
    IntrinsicShares
    
    Average
    
    Contractual
    
    Value(in thousands)
    
    Exercise Price
    
    Term
    
    (in millions)Outstanding at December 27, 2008
    
    
    27,387.3
    
    
    $
    29.55Granted
    
    
    6,152.1
    
    
    
    40.57Exercised
    
    
    (625.7
    )
    
    
    23.30Forfeited
    
    
    (194.9
    )
    
    
    32.07Outstanding at March 28, 2009
    
    
    32,718.8
    
    
    $
    31.73
    
    
    
    7.15
    
    
    $
    318.1Exercisable at March 28, 2009
    
    
    19,770.2
    
    
    $
    25.60
    
    
    
    6.05
    
    
    $
    295.4
  Restricted Stock Units.
  AggregateNumber of
    
    IntrinsicShares
    
    ValueRestricted Stock Units
    
    (in thousands)
    
    (in millions)Outstanding at December 27, 2008
    
    
    5,849.0Granted
    
    
    1,718.9Converted
    
    
    (1,593.7
    )Forfeited
    
    
    (30.0
    )Outstanding at March 28, 2009
    
    
    5,944.2
    
    
    $
    235.9Vested and deferred at March 28, 2009
    
    
    675.2
    
    
    $
    26.8
  5.
    
    EARNINGS PER SHARE (EPS)
  Quarters EndedMarch 28,
    
    March 29,2009
    
    2008Weighted average shares outstanding
    
    
    492.2
    
    
    
    526.9Dilutive common stock equivalents:Outstanding stock options, 
restricted stock units and restricted stock
    
    
    9.0
    
    
    
    10.9Diluted weighted average shares outstanding
    
    
    501.2
    
    
    
    537.8
 8




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6.
    
    ACCOUNTS RECEIVABLE
   7.
    
    GOODWILL AND INTANGIBLE ASSETS, NET
  March 28, 2009
    
    December 27, 2008Gross
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    
    
    
    
    Carrying
    
    AccumulatedValue
    
    Amortization
    
    Net
    
    Value
    
    Amortization
    
    NetGoodwill:PBM(1) (3)
    
    $
    5,223.8
    
    
    $
    813.4
    
    
    $
    4,410.4
    
    
    $
    5,228.1
    
    
    $
    813.4
    
    
    $
    4,414.7Specialty Pharmacy(2)
    
    
    1,916.5
    
    
    
    
    
    
    
    1,916.5
    
    
    
    1,916.7
    
    
    
    
    
    
    
    1,916.7Total
    
    $
    7,140.3
    
    
    $
    813.4
    
    
    $
    6,326.9
    
    
    $
    7,144.8
    
    
    $
    813.4
    
    
    $
    6,331.4Intangible assets:PBM(1) (4)
    
    $
    3,818.4
    
    
    $
    1,884.9
    
    
    $
    1,933.5
    
    
    $
    3,757.1
    
    
    $
    1,820.4
    
    
    $
    1,936.7Specialty Pharmacy(2)
    
    
    865.2
    
    
    
    146.8
    
    
    
    718.4
    
    
    
    865.1
    
    
    
    135.4
    
    
    
    729.7Total
    
    $
    4,683.6
    
    
    $
    2,031.7
    
    
    $
    2,651.9
    
    
    $
    4,622.2
    
    
    $
    1,955.8
    
    
    $
    2,666.4
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(1)
    
    Principally comprised of the push-down of the excess of acquisition costs over
the fair value of the Companys net assets from the acquisition of the Company by Merck &
Co., Inc. (Merck) in 1993, and the recorded value of Medcos client relationships at
the time of acquisition and, to a lesser extent, the Companys acquisition of a majority
interest in Europa Apotheek Venlo B.V. (Europa Apotheek) in 2008, and the Companys
acquisitions of PolyMedica in 2007 and ProVantage Health Services, Inc. in 2000.(2)
    
    Represents the Specialty Pharmacy segment, primarily reflecting the portion of
the excess of the purchase price paid by the Company to acquire Accredo Health,
Incorporated (Accredo) in 2005 over the fair value of tangible net assets acquired, and
to a significantly lesser extent, a portion of the excess of the purchase price paid by
the Company to acquire Critical Care Systems, Inc. (Critical Care) in 2007, and
Pediatric Services of America, Inc. in 2005.(3)
    
    The decrease in goodwill primarily represents a foreign currency translation
adjustment on the goodwill related to the acquisition of a majority interest in Europa
Apotheek.(4)
    
    The increase in the gross carrying value of intangible assets primarily
represents the recorded value of a diabetes patient list acquired in the first quarter of
2009.
  Fiscal Years Ending December2009 (remaining)
    
    $
    220.92010
    
    
    278.22011
    
    
    259.82012
    
    
    250.62013
    
    
    246.3Total
    
    $
    1,255.8
  8.
    
    PENSION AND OTHER POSTRETIREMENT BENEFITS
 Net Pension and Postretirement Benefit Cost.
 Quarters EndedMarch 28,
    
    March 29,2009
    
    2008Service cost
    
    $
    6.5
    
    
    $
    5.7Interest cost
    
    
    2.8
    
    
    
    2.3Expected return on plan assets
    
    
    (2.4
    )
    
    
    (3.2
    )Amortization of prior service cost
    
    
    0.1
    
    
    
    Net amortization of actuarial losses
    
    
    1.1
    
    
    
    Net pension cost
    
    $
    8.1
    
    
    $
    4.8
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Quarters EndedMarch 28, 2009
    
    March 29, 2008Service cost
    
    $
    0.3
    
    
    $
    0.2Interest cost
    
    
    0.2
    
    
    
    0.2Amortization of prior service credit
    
    
    (1.0
    )
    
    
    (1.1
    )Net amortization of actuarial losses
    
    
    0.1
    
    
    
    0.2Net postretirement benefit credit
    
    $
    (0.4
    )
    
    $
    (0.5
    )
  9.
    
    SEGMENT REPORTING
 Reportable Segments.
  Selected Segment Income and Asset Information.
 Quarter Ended March 28, 2009
    
    
    Quarter Ended March 29, 2008PBM  (1)
    
    Specialty Pharmacy
    
    
    Total  (1)
    
    
    PBM
    
    Specialty Pharmacy
    
    
    TotalProduct net revenues
    
    $
    12,352.4
    
    
    $
    2,263.9
    
    
    $
    14,616.3
    
    
    $
    10,932.4
    
    
    $
    1,874.5
    
    
    $
    12,806.9Service revenues
    
    
    195.2
    
    
    
    22.4
    
    
    
    217.6
    
    
    
    140.9
    
    
    
    15.1
    
    
    
    156.0Total net revenues
    
    
    12,547.6
    
    
    
    2,286.3
    
    
    
    14,833.9
    
    
    
    11,073.3
    
    
    
    1,889.6
    
    
    
    12,962.9Total cost of revenues
    
    
    11,781.0
    
    
    
    2,108.8
    
    
    
    13,889.8
    
    
    
    10,318.2
    
    
    
    1,744.5
    
    
    
    12,062.7Selling, general and administrative expenses
    
    
    265.5
    
    
    
    74.8
    
    
    
    340.3
    
    
    
    258.0
    
    
    
    70.4
    
    
    
    328.4Amortization of intangibles
    
    
    64.5
    
    
    
    11.4
    
    
    
    75.9
    
    
    
    58.5
    
    
    
    11.0
    
    
    
    69.5Operating income
    
    $
    436.6
    
    
    $
    91.3
    
    
    $
    527.9
    
    
    $
    438.6
    
    
    $
    63.7
    
    
    $
    502.3Reconciling items to income before provision for
income taxes:Interest expense
    
    
    
    
    
    
    
    
    
    
    45.1
    
    
    
    
    
    
    
    
    
    
    
    50.6Interest (income) and other (income) expense, net
    
    
    
    
    
    
    
    
    
    
    (3.5)
    
    
    
    
    
    
    
    
    
    
    
    3.7Income before provision for income taxes
    
    
    
    
    
    
    
    
    
    $
    486.3
    
    
    
    
    
    
    
    
    
    
    $
    448.0Capital expenditures
    
    $
    30.6
    
    
    $
    4.8
    
    
    $
    35.4
    
    
    $
    32.7
    
    
    $
    6.4
    
    
    $
    39.1
 11




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##### Table of Contents



Identifiable Assets:
    
    As of March 28, 2009
    
    
    As of December 27, 2008PBM
    
    Specialty Pharmacy
    
    
    Total
    
    
    PBM
    
    Specialty Pharmacy
    
    
    TotalTotal identifiable assets
    
    $
    13,757.3
    
    
    $
    3,728.9
    
    
    $
    17,486.2
    
    
    $
    13,267.2
    
    
    $
    3,743.7
    
    
    $
    17,010.9
 
 (1)
    
    Includes majority-owned Europa Apotheeks operating results commencing on the April 28, 2008 acquisition date. 10.
    
    COMMITMENTS AND CONTINGENCIES
 Legal Proceedings
    Government Proceedings and Requests for Information. qui tam qui tam qui tam
 qui tam qui tam qui tam qui tam
 12




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##### Table of Contents



qui tam qui tam qui tam
 ERISA and Similar Litigation . Gruer v. Merck-Medco
Managed Care, L.L.C. Gruer Gruer
 Gruer Blumenthal v. Merck-Medco Managed Care, L.L.C.,
et al.,
 Gruer Betty Jo Jones v. Merck-Medco Managed Care, L.L.C., et al., Gruer Jones Gruer United Food and Commercial Workers Local Union No. 1529 and Employers
Health and Welfare Plan Trust v. Medco Health Solutions, Inc. and Merck & Co., Inc.
 Miles v. Merck-Medco Managed Care, L.L.C., Miles
  Antitrust and Related Litigation . Brady Enterprises, Inc.,
et al. v. Medco Health Solutions, Inc., et al.
 13




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##### Table of Contents



North Jackson Pharmacy, Inc., et al. v. Medco Health
Solutions, Inc., et al.
 Mikes Medical Center Pharmacy, et al. v. Medco Health
Solutions, Inc., et al Alameda Drug Company
 Brady North Jackson, Brady, Mikes Medical Center In re Pharmacy Benefit Managers Antitrust Litigation.
 Alameda Drug Company, Inc., et al. v. Medco Health
Solutions, Inc., et al.
 14




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##### Table of Contents



Chelsea Family Pharmacy, PLLC v. Medco Health Solutions,
Inc.,
 Contract Litigation .
 Tomeldon Company, Inc. et al. v. Medco Health Solutions, Inc
 PolyMedica Shareholder Litigation. Groen v. PolyMedica Corp. et al.,
 Other Matters
   15




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##### Table of Contents



Purchase Commitments
  
 Item 2.      Managements Discussion and Analysis of Financial Condition and Results of Operations
  
    
    Competition in the PBM, specialty pharmacy and the broader healthcare industry is
intense and could impair our ability to attract and retain clients;
    
    Failure to retain key clients and their members, either as a result of economic
conditions, increased competition or other factors, could result in significantly decreased
revenues and could harm our profitability;
    
    If we do not continue to earn and retain purchase discounts and rebates from
manufacturers at current levels, our gross margins may decline;
    
    If we are unable to effectively integrate acquired businesses into ours, our operating
results may be adversely affected. Even if we are successful, the integration of these
businesses has required, and will likely continue to require, significant resources and
management attention;
    
    If we fail to comply with complex and evolving laws and regulations in the U.S. and
internationally, we could suffer penalties, or be required to pay substantial damages or
make significant changes to our operations;
    
    Government efforts to reduce healthcare costs and alter healthcare financing practices
could lead to a decreased demand for our services or to reduced profitability;
    
    Failure in continued execution of our Medicare Part D prescription drug program, and the
integration of that program into a more comprehensive retiree strategy, could adversely
impact our business and financial results;
    
    PBMs could be subject to claims under ERISA if they are found to be a fiduciary of a
health benefit plan governed by ERISA;
    
    Pending litigation could adversely impact our business practices and have a material
adverse effect on our business, financial condition, liquidity and operating results;
 16




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##### Table of Contents




    
    We are subject to corporate integrity agreements and noncompliance may impede our
ability to conduct business with the federal government;
    
    New legislative or regulatory initiatives that restrict or prohibit the PBM industrys
ability to use patient identifiable medical information could limit our ability to use
information that is critical to the operation of our business;
    
    Our Specialty Pharmacy business is highly dependent on our relationships with a limited
number of biopharmaceutical suppliers and the loss of any of these relationships could
significantly impact our ability to sustain or improve our financial performance;
    
    Our ability to grow our Specialty Pharmacy business could be limited if we do not expand
our existing base of drugs or if we lose patients;
    
    Our Specialty Pharmacy business, certain revenues from diabetes testing supplies and our
Medicare Part D offerings expose us to increased credit risk;
    
    Changes in industry pricing benchmarks could adversely affect our financial performance;
    
    The terms and covenants relating to our existing indebtedness could adversely impact our
financial performance and our liquidity;
    
    Prescription volumes may decline, and our net revenues and profitability may be
negatively impacted, if the safety risk profiles of drugs increase or if drugs are
withdrawn from the market, including as a result of manufacturing issues, or if
prescription drugs transition to over-the-counter products;
    
    We may be subject to liability claims for damages and other expenses that are not
covered by insurance;
    
    The success of our business depends on maintaining a well-secured pharmacy operation and
technology infrastructure and failure to execute could adversely impact our business;
    
    We could be required to record a material non-cash charge to income if our recorded
intangible assets or goodwill are impaired, or if we shorten intangible asset useful lives;
    
    Changes in reimbursement rates, including competitive bidding for durable medical
equipment suppliers, could negatively affect our Accredo and PolyMedica revenues and
profits; and
    
    Anti-takeover provisions of the Delaware General Corporation Law (DGCL), our
certificate of incorporation and our bylaws could delay or deter a change in control and
make it more difficult to remove incumbent officers and directors.
  Overview
 ®
 17




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Key Indicators Reviewed by Management
 
 Financial Performance Summary for the Quarter Ended March 28, 2009
  18




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19




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##### Table of Contents



Key Financial Statement Components
 Consolidated Statements of Income
      20




---



##### Table of Contents



21




---



##### Table of Contents



Consolidated Balance Sheets
      22




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##### Table of Contents



Consolidated Statements of Cash Flows
    Client-Related Information
  Segment Discussion
  23




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##### Table of Contents



Consolidated Results of Operations
  Quarter
    
    
    
    
    
    
    
    
    
    QuarterEnded
    
    
    
    
    
    
    
    
    
    EndedMarch 28,
    
    Increase
    
    March 29,2009(1)
    
    (Decrease)
    
    2008Net RevenuesRetail product(2)
    
    $
    9,124.6
    
    
    $
    1,709.0
    
    
    
    23.0
    %
    
    $
    7,415.6Mail-order product
    
    
    5,491.7
    
    
    
    100.4
    
    
    
    1.9
    %
    
    
    5,391.3Total product(2)
    
    $
    14,616.3
    
    
    $
    1,809.4
    
    
    
    14.1
    %
    
    $
    12,806.9Client and other service
    
    
    175.8
    
    
    
    61.0
    
    
    
    53.1
    %
    
    
    114.8Manufacturer service
    
    
    41.8
    
    
    
    0.6
    
    
    
    1.5
    %
    
    
    41.2Total service
    
    $
    217.6
    
    
    $
    61.6
    
    
    
    39.5
    %
    
    $
    156.0Total net revenues(2)
    
    $
    14,833.9
    
    
    $
    1,871.0
    
    
    
    14.4
    %
    
    $
    12,962.9Cost of RevenuesProduct(2)
    
    $
    13,832.0
    
    
    $
    1,815.2
    
    
    
    15.1
    %
    
    $
    12,016.8Service
    
    
    57.8
    
    
    
    11.9
    
    
    
    25.9
    %
    
    
    45.9Total cost of revenues(2)
    
    $
    13,889.8
    
    
    $
    1,827.1
    
    
    
    15.1
    %
    
    $
    12,062.7Gross Margin(3)Product
    
    $
    784.3
    
    
    $
    (5.8
    )
    
    
    (0.7
    )%
    
    $
    790.1Product gross margin percentage
    
    
    5.4
    %
    
    
    (0.8
    )%
    
    
    
    
    
    
    6.2
    %Service
    
    $
    159.8
    
    
    $
    49.7
    
    
    
    45.1
    %
    
    $
    110.1Service gross margin percentage
    
    
    73.4
    %
    
    
    2.8
    %
    
    
    
    
    
    
    70.6
    %Total gross margin
    
    $
    944.1
    
    
    $
    43.9
    
    
    
    4.9
    %
    
    $
    900.2Gross margin percentage
    
    
    6.4
    %
    
    
    (0.5
    )%
    
    
    
    
    
    
    6.9
    %Volume InformationRetail prescriptions
    
    
    149.4
    
    
    
    22.2
    
    
    
    17.5
    %
    
    
    127.2Mail-order prescriptions
    
    
    25.7
    
    
    
    (0.9
    )
    
    
    (3.4
    )%
    
    
    26.6Total prescriptions
    
    
    175.1
    
    
    
    21.3
    
    
    
    13.8
    %
    
    
    153.8Adjusted prescriptions(4)
    
    
    226.1
    
    
    
    19.4
    
    
    
    9.4
    %
    
    
    206.7Adjusted mail-order penetration(5)
    
    
    34.0
    %
    
    
    (4.4
    )%
    
    
    
    
    
    
    38.4
    %Other volume(6)
    
    
    1.7
    
    
    
    0.5
    
    
    
    41.7
    %
    
    
    1.2
 24




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Generic Dispensing Rate InformationRetail generic dispensing rate
    
    
    68.5
    %
    
    
    3.2
    %
    
    
    
    
    
    
    65.3
    %Mail-order generic dispensing rate
    
    
    57.2
    %
    
    
    3.6
    %
    
    
    
    
    
    
    53.6
    %Overall generic dispensing rate
    
    
    66.8
    %
    
    
    3.5
    %
    
    
    
    
    
    
    63.3
    %
 (1)
    
    Includes majority-owned Europa Apotheeks operating results commencing on the April 28, 2008 acquisition date.(2)
    
    Includes retail co-payments of $2,259 million for the first quarter of 2009 and $2,102 million for the first
quarter of 2008.(3)
    
    Defined as net revenues minus cost of revenues.(4)
    
    Adjusted prescription volume equals substantially all mail-order prescriptions multiplied by three, plus
retail prescriptions. These mail-order prescriptions are multiplied by three to adjust for the fact that they
include approximately three times the amount of product days supplied compared with retail prescriptions.(5)
    
    The percentage of adjusted mail-order prescriptions to total adjusted prescriptions.(6)
    
    Represents over-the-counter drugs, as well as diabetes supplies primarily dispensed by PolyMedica.
 Net Revenues
 Retail.
 Mail-Order.
   Gross Margin
   25




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##### Table of Contents



Quarter
    
    
    
    
    
    
    
    
    
    QuarterEnded
    
    
    
    
    
    
    
    
    
    EndedMarch 28,
    
    Increase
    
    March 29,2009(1)
    
    (Decrease)
    
    2008Gross margin(2).
    
    $
    944.1
    
    
    $
    43.9
    
    
    
    4.9
    %
    
    $
    900.2Selling, general and 
administrative expenses
    
    
    340.3
    
    
    
    11.9
    
    
    
    3.6
    %
    
    
    328.4Amortization of intangibles
    
    
    75.9
    
    
    
    6.4
    
    
    
    9.2
    %
    
    
    69.5Interest expense
    
    
    45.1
    
    
    
    (5.5
    )
    
    
    (10.9
    )%
    
    
    50.6Interest (income) and other
(income) expense, net
    
    
    (3.5
    )
    
    
    (7.2
    )
    
    
    (194.6
    )%
    
    
    3.7Income before provision for 
income taxes
    
    
    486.3
    
    
    
    38.3
    
    
    
    8.5
    %
    
    
    448.0Provision for income taxes
    
    
    195.3
    
    
    
    17.5
    
    
    
    9.8
    %
    
    
    177.8Net income
    
    $
    291.0
    
    
    $
    20.8
    
    
    
    7.7
    %
    
    $
    270.2
 (1)
    
    Includes majority-owned Europa Apotheeks operating results
commencing on the April 28, 2008 acquisition date.(2)
    
    Defined as net revenues minus cost of revenues.
 Selling, General and Administrative Expenses
  Amortization of Intangibles
  Interest Expense
   26




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Interest (Income) and Other (Income) Expense, Net
  Provision for Income Taxes
  Net Income and Earnings per Share
   Segment Results of Operations
 PBM Segment
  Quarter
    
    
    
    
    
    
    
    
    
    QuarterEnded
    
    
    
    
    
    
    
    
    
    EndedMarch 28,
    
    Increase
    
    
    March 29,2009(1)
    
    (Decrease)
    
    
    2008Product net revenues
    
    $
    12,352.4
    
    
    $
    1,420.0
    
    
    
    13.0
    %
    
    $
    10,932.4Total service revenues
    
    
    195.2
    
    
    
    54.3
    
    
    
    38.5
    %
    
    
    140.9Total net revenues
    
    
    12,547.6
    
    
    
    1,474.3
    
    
    
    13.3
    %
    
    
    11,073.3Total cost of revenues
    
    
    11,781.0
    
    
    
    1,462.8
    
    
    
    14.2
    %
    
    
    10,318.2Total gross margin(2)
    
    $
    766.6
    
    
    $
    11.5
    
    
    
    1.5
    %
    
    $
    755.1Gross margin percentage
    
    
    6.1
    %
    
    
    (0.7
    )%
    
    
    
    
    
    
    6.8
    %Selling, general and administrative expenses
    
    
    265.5
    
    
    
    7.5
    
    
    
    2.9
    %
    
    
    258.0Amortization of intangibles
    
    
    64.5
    
    
    
    6.0
    
    
    
    10.3
    %
    
    
    58.5Operating income
    
    $
    436.6
    
    
    $
    (2.0
    )
    
    
    (0.5
    )%
    
    $
    438.6
 
 (1)
    
    Includes majority-owned Europa Apotheeks operating results commencing on the April 28, 2008 acquisition date.(2)
    
    Defined as net revenues minus cost of revenues. 27




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Specialty Pharmacy Segment
  Quarter
    
    
    
    
    
    
    
    
    
    QuarterEnded
    
    
    
    
    
    
    
    
    
    EndedMarch 28,
    
    Increase
    
    
    March 29,2009
    
    (Decrease)
    
    
    2008Product net revenues
    
    $
    2,263.9
    
    
    $
    389.4
    
    
    
    20.8
    %
    
    $
    1,874.5Total service revenues
    
    
    22.4
    
    
    
    7.3
    
    
    
    48.3
    %
    
    
    15.1Total net revenues
    
    
    2,286.3
    
    
    
    396.7
    
    
    
    21.0
    %
    
    
    1,889.6Total cost of revenues
    
    
    2,108.8
    
    
    
    364.3
    
    
    
    20.9
    %
    
    
    1,744.5Total gross margin (1)
    
    $
    177.5
    
    
    $
    32.4
    
    
    
    22.3
    %
    
    $
    145.1Gross margin percentage
    
    
    7.8
    %
    
    
    0.1
    %
    
    
    
    
    
    
    7.7
    %Selling, general and administrative expenses
    
    
    74.8
    
    
    
    4.4
    
    
    
    6.3
    %
    
    
    70.4Amortization of intangibles
    
    
    11.4
    
    
    
    0.4
    
    
    
    3.6
    %
    
    
    11.0Operating income
    
    $
    91.3
    
    
    $
    27.6
    
    
    
    43.3
    %
    
    $
    63.7
 
 (1)
    
    Defined as net revenues minus cost of revenues.  28




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Liquidity and Capital Resources
 Cash Flows
  Quarter
    
    
    
    
    
    QuarterEnded
    
    
    
    
    
    EndedMarch 28
    
    
    
    
    
    March 29,2009(1)
    
    Variance
    
    2008Net cash provided by operating activities
    
    $
    1,170.3
    
    
    $
    1,004.8
    
    
    $
    165.5Net cash used by investing activities
    
    
    (96.9
    )
    
    
    (51.3
    )
    
    
    (45.6
    )Net cash used by financing activities
    
    
    (212.3
    )
    
    
    141.1
    
    
    
    (353.4
    )Net increase (decrease) in cash and cash equivalents
    
    
    861.1
    
    
    
    1,094.6
    
    
    
    (233.5
    )Cash and cash equivalents at beginning of period
    
    
    938.4
    
    
    
    164.3
    
    
    
    774.1Cash and cash equivalents at end of period
    
    $
    1,799.5
    
    
    $
    1,258.9
    
    
    $
    540.6
 
 (1)
    
    Includes majority-owned Europa Apotheeks operating results
commencing on the April 28, 2008 acquisition date.
 Operating Activities.
 Investing Activities.
 29




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##### Table of Contents



Financing Activities.
   Looking Forward
    30




---



##### Table of Contents



Financing Facilities
 Five-Year Credit Facilities
   Accounts Receivable Financing Facility
  Interest Rates
  Swap Agreements
  31




---



##### Table of Contents



Covenants
  Debt Ratings
  EBITDA
   32




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##### Table of Contents



Quarters EndedMarch 28, 2009(1)
    
    March 29, 2008Net income
    
    $
    291.0
    
    
    $
    270.2Add:Interest expense
    
    
    45.1
    
    
    
    50.6Interest (income) and other (income) expense, net
    
    
    (3.5
    )
    
    
    3.7
    (2)Provision for income taxes
    
    
    195.3
    
    
    
    177.8Depreciation expense
    
    
    43.2
    
    
    
    40.1Amortization expense
    
    
    75.9
    
    
    
    69.5EBITDA
    
    $
    647.0
    
    
    $
    611.9Adjusted prescriptions(3)
    
    
    226.1
    
    
    
    206.7EBITDA per adjusted prescription
    
    $
    2.86
    
    
    $
    2.96
 
 (1)
    
    Includes majority-owned Europa Apotheeks operating results commencing on the April 28, 2008 acquisition date.(2)
    
    Includes a $9.8 million charge for the ineffective portion of the forward-starting interest rate swap
agreements associated with the March 2008 issuance of senior notes as discussed above in Liquidity and
Capital ResourcesSwap Agreements.(3)
    
    Adjusted prescription volume equals substantially all mail-order prescriptions multiplied by three, plus
retail prescriptions. These mail-order prescriptions are multiplied by three to adjust for the fact that they
include approximately three times the amount of product days supplied compared with retail prescriptions.  Commitments and Contractual Obligations
  Payments Due By Period
 Total
    
    
    Remainder of 2009
    
    
    2010-2011
    
    
    2012-2013
    
    
    ThereafterLong-term debt obligations(1)
    
    $
    4,000.0
    
    
    $
    
    
    
    $
    
    
    
    $
    2,800.0
    
    
    $
    1,200.0Interest payments on long-term debt obligations(2)
    
    
    1,060.6
    
    
    
    120.5
    
    
    
    321.3
    
    
    
    259.0
    
    
    
    359.8Operating lease obligations(3)
    
    
    146.3
    
    
    
    35.0
    
    
    
    82.8
    
    
    
    21.2
    
    
    
    7.3Purchase commitments(4)
    
    
    221.8
    
    
    
    130.4
    
    
    
    91.4
    
    
    
    
    
    
    
    Other(5)
    
    
    25.5
    
    
    
    
    
    
    
    
    
    
    
    25.5
    
    
    
    Total
    
    $
    5,454.2
    
    
    $
    285.9
    
    
    $
    495.5
    
    
    $
    3,105.7
    
    
    $
    1,567.1
 33




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##### Table of Contents



(1)
    
    Long-term debt obligations exclude $15.1 million in total unamortized discounts on our 7.25%, 6.125% and
7.125% senior notes and the fair value of interest rate swap agreements of $16.3 million on $200 million of
the $500 million in 7.25% senior notes.(2)
    
    The variable component of interest expense for the senior unsecured credit facility is based on the LIBOR at
March 28, 2009. The LIBOR fluctuates and may result in differences in the presented interest expense on
long-term debt obligations.(3)
    
    Primarily reflects contractual operating lease commitments to lease pharmacy and call center pharmacy
facilities, offices and warehouse space throughout the United States, as well as pill dispensing and
counting devices and other operating equipment for use in our mail-order pharmacies and computer equipment
for use in our data centers and corporate headquarters.(4)
    
    Represents purchase commitments, primarily for diabetes supplies and technology-related agreements of $139.6
million. It also includes contractual commitments to purchase inventory from certain biopharmaceutical
manufacturers associated with Accredos Specialty Pharmacy business, consisting of a firm commitment for the
second quarter of 2009 of $15.0 million, with an additional variable commitment through mid-2011 based on
patient usage, and a firm commitment for the remainder of 2009 of $67.2 million, with an additional
commitment through 2011 with a variable price component.(5)
    
    As part of the acquisition of a majority interest in Europa Apotheek, we have a purchase obligation of $25.5
million anticipated to be settled in 2012, which is included in other noncurrent liabilities on the
consolidated balance sheet as of March 28, 2009.
      Off-Balance Sheet Arrangements
  Share Repurchase Program
  34




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##### Table of Contents



Recently Adopted Financial Accounting Standards
 Emerging Issues Task Force Issue No. 08-7, Accounting for Defensive Intangible Assets.
 FASB Staff Position FAS 142-3, Determination of the Useful Life of Intangible Assets.
 SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment
of FASB Statement No. 133.
  SFAS No. 141(R), Business Combinations.
 35




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##### Table of Contents



SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements.
 Recently Issued Accounting Pronouncements
   
 Item 3.    Quantitative and Qualitative Disclosures About Market Risk
   36




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##### Table of Contents



Item 4.    Controls and Procedures
   
 PART II - OTHER INFORMATION
 
 Item 1.    Legal Proceedings
  
 Item 1A.  Risk Factors
  
 Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
   Issuer Purchases of Equity Securities (1)
 Total number of
    
    
    Approximateshares purchased
    
    
    dollar value ofas part of a
    
    
    sharespublicly
    
    
    that may yet beTotal number of
    
    
    Average
    
    
    announced
    
    
    purchased undershares
    
    
    price paid
    
    
    program since
    
    
    the program(4)Fiscal Period
    
    purchased
    
    
    per share(2)
    
    
    inception(3)
    
    
    (in thousands)Balances at December 27, 2008
    
    
    
    
    
    
    
    
    
    
    5,152,000
    
    
    $
    2,800,004Fiscal January 2009
    
    
    2,095,702
    
    
    $
    41.77
    
    
    
    2,095,702
    
    
    $
    2,712,469Fiscal February 2009
    
    
    692,200
    
    
    $
    42.12
    
    
    
    692,200
    
    
    $
    2,683,312Fiscal March 2009
    
    
    2,523,916
    
    
    $
    39.19
    
    
    
    2,523,916
    
    
    $
    2,584,402First quarter 2009 totals
    
    
    5,311,818
    
    
    $
    40.59
    
    
    
    5,311,818
 (1)
    
    All information set forth in the table above relates to the Companys 2008 Plan. The 2008 Plan
was announced in November 2008 and pursuant to the 2008 Plan, the Company is authorized to
repurchase up to $3 billion of its common stock through November 2010.
 37




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##### Table of Contents



(2)
    
    Dollar amounts include transaction costs. The total average price paid per share in the table
above represents the average price paid per share for repurchases settled during the three
months ended March 28, 2009. The average price paid per share for repurchases under the 2008
Plan from inception through March 28, 2009 is $39.72.(3)
    
    The Company repurchased all of the above-referenced shares of its common stock through its
publicly announced 2008 Plan.(4)
    
    The balances at March 28, 2009 reflect the remaining authorized repurchases under the 2008 Plan.
 
 Item 3.    Defaults Upon Senior Securities
  
 Item 4.    Submission of Matters to a Vote of Security Holders
  
 Item 5.    Other Information
 (a) Rule 10b5-1 Sales Plans.
   38




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##### Table of Contents



(1)
 Number ofNumber of
    
    
    
    
    
    
    
    
    
    
    
    Shares Sold
    
    
    
    
    
    Projected
    
    
    
    ProjectedShares to be Sold
    
    
    
    
    
    
    
    
    
    
    
    Under the
    
    
    
    
    
    Beneficial
    
    
    
    AggregateName and Position
    
    
    
    
    
    Under the Plan(2)
    
    
    
    
    
    Timing of Sales Under the Plan
    
    
    
    
    
    Plan(3)
    
    
    
    
    
    
    Ownership(4)
    
    
    
    Holdings(5)Robert S. Epstein Senior Vice
President, Medical 
and Analytical
Affairs and Chief
Medical Officer
    
    
    
    
    
    
    37,766
    
    
    
    
    
    Option exercise of 26,000
shall trigger if stock
reaches specific price; sale
of 11,766 previously acquired
shares shall trigger if stock
reaches a specific price; and
sale of 19,752 previously
acquired shares occurred upon
stock reaching a specific
price.
    
    
    
    
    
    
    19,752
    
    
    
    
    
    
    149,872
    
    
    
    416,772Kenneth O. Klepper President and Chief
Operating Officer
    
    
    
    
    
    
    192,733
    
    
    
    
    
    Option exercise in tranches
of 53,333 and 99,400 shall
trigger if stock reaches
specific prices; sale of
previously acquired shares in
two tranches of 20,000 shares
each shall trigger if stock
reaches specific prices.
    
    
    
    
    
    
    0
    
    
    
    
    
    
    371,324
    
    
    
    773,657Jack A. Smith Senior Vice
President,
Marketing
    
    
    
    
    
    
    78,600
    
    
    
    
    
    Option exercise in tranches
of 15,000, 15,000 and 12,600
shares shall trigger if stock
reaches specific prices; sale
of previously acquired shares
shall trigger in three
tranches of 12,000 each if
stock reaches specific
prices.
    
    
    
    
    
    
    0
    
    
    
    
    
    
    136,504
    
    
    
    284,006Timothy C. Wentworth Group President,
Employer Accounts
    
    
    
    
    
    
    51,672
    
    
    
    
    
    Option exercise in tranches
of 22,320 and 29,352 shall
trigger if stock reaches
specific prices; sale of
16,528 previously acquired
shares triggered when stock
reached a specific price.
    
    
    
    
    
    
    16,528
    
    
    
    
    
    
    86,213
    
    
    
    358,486
 
 (1)
    
    This table does not include any trading plans entered into by any executive
officer that have been terminated or expired by their terms or have been fully executed
through April 1, 2009.(2)
    
    This column reflects the number of shares remaining to be sold as of April 1, 2009.(3)
    
    This column reflects the number of shares sold under the plan through April 1, 2009.(4)
    
    This column reflects an estimate of the number of whole shares each identified
executive officer will beneficially own following the sale of all shares under the Rule
10b5-1 sales plans currently in effect. This information reflects the beneficial ownership
of our common stock as of April 1, 2009, and includes shares of our common stock subject to
options or restricted stock units that were then vested or exercisable and unvested options
and restricted stock units that are included in a current trading plan for sales periods
that begin after the applicable vesting date. Options cannot be exercised and restricted
stock units cannot be converted prior to vesting. The estimates reflect option exercises
and sales under the plan, but do not reflect any changes to beneficial ownership that may
have occurred since April 1, 2009 outside of the plan.(5)
    
    This column reflects an estimate of the total aggregate number of whole shares
each identified executive officer will have an interest in following the sale of all shares
under the Rule 10b5-1 sales plans currently in effect. This information reflects the
beneficial ownership of our common stock as of April 1, 2009, and includes shares of our
common stock subject to options (whether or not currently exercisable) or restricted stock
units (whether or not vested). Options cannot be exercised and restricted stock units
cannot be converted prior to vesting. The estimates reflect option exercises and sales
under the plan, but do not reflect any changes to beneficial ownership that may have
occurred since April 1, 2009 outside of the plan.
 (b) Director Nomination Procedures.
 39




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##### Table of Contents




    
    clarify that the advance notice provisions of the Amended and Restated Bylaws are the
exclusive means for a stockholder to make a director nomination or submit other business
before a meeting of stockholders (other than matters properly brought under Rule 14a-8 of
the federal proxy rules, which contains its own procedural requirements);
    
    require that stockholders who put forward proposals and their affiliates disclose, in
addition to direct ownership interests, a description of any agreement, arrangement or
understanding (including any derivative or short positions, profit interests, options,
hedging transactions, and borrowed or loaned shares) that has been entered into by, or on
behalf of, the stockholder or any of its affiliates or associates, the effect or intent of
which is to mitigate loss to, manage risk or benefit of share price changes for, or
increase or decrease the voting power of the stockholder or any of its affiliates or
associates with respect to shares of stock of the Company;
    
    provide that if a stockholder (or designated representative) does not appear to present
a stockholder proposal at the stockholder meeting, the proposal will not formally be
submitted to a vote of stockholders; and
    
    clarify the applicable voting standards in an election of directors.
 (c) Additional Information www.medcohealth.com/investor
 
 Item 6.    Exhibits
 Number
    
    Description
    
    Method of Filing3.1
    
    Third Amended and Restated
Articles of Incorporation
of Medco Health Solutions,
Inc. (incorporated by
reference to Exhibit 3.1 to
the Registrants Current
Report on Form 8-K filed
May 23, 2008).
    
    Incorporated by reference.3.2
    
    Amended and Restated Bylaws
of Medco Health Solutions,
Inc. as of December 10,
2008 (incorporated by
reference to Exhibit 3.1 to
the Registrants Current
Report on Form 8-K filed
December 11, 2008).
    
    Incorporated by reference.31.1
    
    Certification of Chief
Executive Officer pursuant
to Exchange Act Rules
13a-14(a) and 15d-14(a), as
adopted pursuant to Section
302 of the Sarbanes-Oxley
Act of 2002.
    
    Filed with this document.31.2
    
    Certification of Chief
Financial Officer pursuant
to Exchange Act Rules
13a-14(a) and 15d-14(a), as
adopted pursuant to Section
302 of the Sarbanes-Oxley
Act of 2002.
    
    Filed with this document.32.1
    
    Certification of Chief
Executive Officer pursuant
to 18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this document.32.2
    
    Certification of Chief
Financial Officer pursuant
to 18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this document.
 40




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##### Table of Contents



Signatures
  MEDCO HEALTH SOLUTIONS, INC.(Registrant)Date: April 29, 2009
    By:
    /s/ David B. Snow, Jr.Name:
    David B. Snow, Jr.Title:
    Chairman and
Chief Executive OfficerDate: April 29, 2009
    By:
    /s/ Richard J. Rubino, C.P.A.Name:
    Richard J. Rubino, C.P.A.Title:
    Senior Vice President, Finance and
Chief Financial Officer 41




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##### Table of Contents



Index to Exhibits
 Number
    
    Description3.1
    
    Third Amended and Restated Articles of Incorporation of Medco
Health Solutions, Inc. (incorporated by reference to Exhibit 3.1 to
the Registrants Current Report on Form 8-K filed May 23, 2008).3.2
    
    Amended and Restated Bylaws of Medco Health Solutions, Inc. as of
December 10, 2008 (incorporated by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K filed December 11, 2008).31.1
    
    Certification of Chief Executive Officer pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.