##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 Commission File Number: 1-31312
 MEDCO HEALTH SOLUTIONS, INC.
  Delaware
(State or other jurisdiction of incorporation)
    
    22-3461740
(I.R.S. Employer Identification No.)100 Parsons Pond Drive, Franklin Lakes, NJ
(Address of principal executive offices)
    
    07417-2603
(Zip Code)
  
 þ o
  Large accelerated filer þ
    
    Accelerated filer oNon-Accelerated filer o
    
    Smaller reporting company o
 o þ




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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 29, 2008 and December 29, 2007
    
    
    1Condensed Consolidated Statements of Income (Unaudited)  Fiscal Quarters Ended March 29, 2008 and March 31, 2007
    
    
    2Condensed Consolidated Statement of Stockholders Equity (Unaudited)  Fiscal Quarter Ended March 29, 2008
    
    
    3Condensed Consolidated Statements of Cash Flows (Unaudited)  Fiscal Quarters Ended March 29, 2008 and March 31, 2007
    
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4.
    
    Controls and Procedures
    
    
    39PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    40Item 1A.
    

    Risk Factors
    
    
    40Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3.
    
    Defaults Upon Senior Securities
    
    
    41Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    41Item 5.
    
    Other Information
    
    
    42Item 6.
    
    Exhibits
    
    
    43SIGNATURES
    
    
    44EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 
 MEDCO HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions, except for share data)
 March 29,
    
    
    December 29,ASSETS
    
    2008
    
    
    2007Current assets:Cash and cash equivalents
    
    $
    540.6
    
    
    $
    774.1Short-term investments
    
    
    70.4
    
    
    
    70.3Manufacturer accounts receivable, net
    
    
    1,692.4
    
    
    
    1,516.2Client accounts receivable, net
    
    
    1,443.2
    
    
    
    1,340.3Income taxes receivable
    
    
    208.1
    
    
    
    216.0Inventories, net
    
    
    1,967.0
    
    
    
    1,946.0Prepaid expenses and other current assets
    
    
    292.3
    
    
    
    285.4Deferred tax assets
    
    
    151.7
    
    
    
    154.4Total current assets
    
    
    6,365.7
    
    
    
    6,302.7Property and equipment, net
    
    
    724.0
    
    
    
    725.5Goodwill
    
    
    6,234.0
    
    
    
    6,230.2Intangible assets, net
    
    
    2,835.8
    
    
    
    2,905.0Other noncurrent assets
    
    
    75.0
    
    
    
    54.5Total assets
    
    $
    16,234.5
    
    
    $
    16,217.9LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Claims and other accounts payable
    
    $
    2,447.5
    
    
    $
    2,812.9Client rebates and guarantees payable
    
    
    1,481.9
    
    
    
    1,092.2Accrued expenses and other current liabilities
    
    
    674.5
    
    
    
    624.1Short-term debt
    
    
    600.0
    
    
    
    600.0Total current liabilities
    
    
    5,203.9
    
    
    
    5,129.2Long-term debt, net
    
    
    3,589.9
    
    
    
    2,894.4Deferred tax liabilities
    
    
    1,125.7
    
    
    
    1,167.0Other noncurrent liabilities
    
    
    140.4
    
    
    
    152.0Total liabilities
    
    
    10,059.9
    
    
    
    9,342.6Commitments and contingencies (See Note 11)Stockholders equity:Preferred stock, par value $0.01authorized: 10,000,000 shares;
issued and outstanding: 0
    
    
    
    
    
    
    Common stock, par value $0.01authorized: 1,000,000,000 shares;
issued: 649,458,369 shares at March 29, 2008 and
647,384,634 shares at December 29, 2007
    
    
    6.5
    
    
    
    6.4Accumulated other comprehensive income (loss)
    
    
    (11.1
    )
    
    
    6.4Additional paid-in capital
    
    
    7,600.3
    
    
    
    7,553.0Retained earnings
    
    
    3,096.6
    
    
    
    2,826.410,692.3
    
    
    
    10,392.2Treasury stock, at cost: 132,494,789 shares at March 29, 2008 and
111,445,348 shares at December 29, 2007
    
    
    (4,517.7
    )
    
    
    (3,516.9
    )Total stockholders equity
    
    
    6,174.6
    
    
    
    6,875.3Total liabilities and stockholders equity
    
    $
    16,234.5
    
    
    $
    16,217.9
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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##### Table of Contents



MEDCO HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions, except for per share data)
 Quarters EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Product net revenues (Includes retail
co-payments of $2,102 for 2008, and $1,986 for
2007)
    
    $
    12,806.9
    
    
    $
    11,026.3Service revenues
    
    
    156.0
    
    
    
    133.3Total net revenues
    
    
    12,962.9
    
    
    
    11,159.6Cost of operations:Cost of product net revenues (Includes
retail co-payments of $2,102 for 2008, and
$1,986 for 2007)
    
    
    12,016.8
    
    
    
    10,349.9Cost of service revenues
    
    
    45.9
    
    
    
    36.0Total cost of revenues
    
    
    12,062.7
    
    
    
    10,385.9Selling, general and administrative expenses
    
    
    328.4
    
    
    
    248.4Amortization of intangibles
    
    
    69.5
    
    
    
    54.6Interest and other (income) expense, net
    
    
    54.3
    
    
    
    14.9Total cost of operations
    
    
    12,514.9
    
    
    
    10,703.8Income before provision for income taxes
    
    
    448.0
    
    
    
    455.8Provision for income taxes
    
    
    177.8
    
    
    
    181.0Net income
    
    $
    270.2
    
    
    $
    274.8Basic earnings per share:Weighted average shares outstanding
    
    
    526.9
    
    
    
    573.5Earnings per share
    
    $
    0.51
    
    
    $
    0.48Diluted earnings per share:Weighted average shares outstanding
    
    
    537.8
    
    
    
    582.3Earnings per share
    
    $
    0.50
    
    
    $
    0.47
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 2




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##### Table of Contents



MEDCO HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(UNAUDITED)
(Shares in thousands; $ in millions, except for per share data)
 Shares of
    
    
    
    
    
    
    $0.01
    
    
    AccumulatedCommon
    
    
    Shares of
    
    
    Par Value
    
    
    Other
    
    
    AdditionalStock
    
    
    Treasury
    
    
    Common
    
    
    Comprehensive
    
    
    Paid-in
    
    
    Retained
    
    
    TreasuryIssued
    
    
    Stock
    
    
    Stock
    
    
    Income (Loss)
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    TotalBalances at
December 29, 2007
    
    
    647,385
    
    
    
    111,445
    
    
    $
    6.4
    
    
    $
    6.4
    
    
    $
    7,553.0
    
    
    $
    2,826.4
    
    
    $
    (3,516.9
    )
    
    $
    6,875.3Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270.2
    
    
    
    
    
    
    
    270.2Other comprehensive income, net of tax:Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Unrealized loss on cash flow hedge, net of
tax of $10.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.9
    )Amortization of effective portion of cash
flow hedge, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Defined benefit plans:Amortization of prior service cost
included in net periodic benefit cost,
net of tax of $0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Net gains (losses) included in net
periodic benefit cost,
net of tax of $(0.1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17.5
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17.5
    )
    
    
    
    
    
    
    270.2
    
    
    
    
    
    
    
    252.7Issuance of common stock for options
exercised, including tax benefit
    
    
    981
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    28.5
    
    
    
    
    
    
    
    
    
    
    
    28.6Issuance of common stock under employee
stock purchase plans
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.4
    
    
    
    
    
    
    
    
    
    
    
    4.4Restricted stock and restricted stock unit
activity, including tax benefit
    
    
    1,006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Stock-based compensation related to options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.3
    
    
    
    
    
    
    
    
    
    
    
    14.3Treasury stock acquired
    
    
    
    
    
    
    21,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000.8
    )
    
    
    (1,000.8
    )Balances at
March 29, 2008
    
    
    649,458
    
    
    
    132,495
    
    
    $
    6.5
    
    
    $
    (11.1
    )
    
    $
    7,600.3
    
    
    $
    3,096.6
    
    
    $
    (4,517.7
    )
    
    $
    6,174.6
 The accompanying notes are an integral part of this condensed consolidated financial statement.
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MEDCO HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ in millions)
 Quarters EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    270.2
    
    
    $
    274.8Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    40.1
    
    
    
    41.5Amortization of intangibles
    
    
    69.5
    
    
    
    54.6Deferred income taxes
    
    
    (42.4
    )
    
    
    (35.7
    )Stock-based compensation on employee stock plans
    
    
    29.4
    
    
    
    20.2Tax benefit on employee stock plans
    
    
    40.9
    
    
    
    41.9Excess tax benefits from stock-based compensation arrangements
    
    
    (24.2
    )
    
    
    (27.3
    )Other
    
    
    33.8
    
    
    
    12.0Net changes in assets and liabilities:Manufacturer accounts receivable, net
    
    
    (176.2
    )
    
    
    (37.0
    )Client accounts receivable, net
    
    
    (125.8
    )
    
    
    (42.4
    )Inventories, net
    
    
    (21.0
    )
    
    
    (28.8
    )Prepaid expenses and other current assets
    
    
    (5.8
    )
    
    
    (4.6
    )Income taxes receivable
    
    
    7.9
    
    
    
    (2.9
    )Other noncurrent assets
    
    
    (4.0
    )
    
    
    4.9Claims and other accounts payable
    
    
    (365.4
    )
    
    
    (559.5
    )Client rebates and guarantees payable
    
    
    389.7
    
    
    
    274.5Accrued expenses and other current and noncurrent liabilities
    
    
    48.8
    
    
    
    114.3Net cash provided by operating activities
    
    
    165.5
    
    
    
    100.5Cash flows from investing activities:Capital expenditures
    
    
    (39.1
    )
    
    
    (25.0
    )Purchases of securities and other investments
    
    
    (6.5
    )
    
    
    (5.9
    )Proceeds from sale of securities and other investments
    
    
    
    
    
    
    2.6Net cash used by investing activities
    
    
    (45.6
    )
    
    
    (28.3
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    1,885.7
    
    
    
    Repayments on long-term debt
    
    
    (1,200.0
    )
    
    
    (18.9
    )Proceeds under accounts receivable financing facility
    
    
    
    
    
    
    275.0Debt issuance costs
    
    
    (10.1
    )
    
    
    Settlement of cash flow hedge
    
    
    (45.4
    )
    
    
    Purchase of treasury stock
    
    
    (1,000.8
    )
    
    
    (781.9
    )Excess tax benefits from stock-based compensation arrangements
    
    
    24.2
    
    
    
    27.3Net (payments) proceeds from employee stock plans
    
    
    (7.0
    )
    
    
    90.9Net cash used by financing activities
    
    
    (353.4
    )
    
    
    (407.6
    )Net decrease in cash and cash equivalents
    
    
    (233.5
    )
    
    
    (335.4
    )Cash and cash equivalents at beginning of period
    
    
    774.1
    
    
    
    818.5Cash and cash equivalents at end of period
    
    $
    540.6
    
    
    $
    483.1
 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 STANDARD
   Fair Value Hierarchy.
    5




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Medco
Fair Value Measurements at Reporting Date
 March 29,Description
    
    2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Fair value of interest rate swap agreements
    
    $
    6.6
    
    
    $
    
    
    
    $
    6.6
    
    
    $
    Available-for-sale investments
    
    
    5.9
    
    
    
    1.9
    
    
    
    4.0
    
    
    
    Money market mutual funds
    
    
    396.0
    
    
    
    396.0
    
    
    
    
    
    
    
    
  3. STOCK-BASED COMPENSATION
  Stock Option Plans.
  WeightedAverage
    
    
    AggregateNumber of
    
    
    Weighted
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Average
    
    
    Contractual
    
    
    Value(in thousands)
    
    
    Exercise Price
    
    
    Term
    
    
    (in millions)Outstanding at December 29, 2007
    
    
    26,314.2
    
    
    $
    24.64Granted
    
    
    4,686.2
    
    
    
    50.35Exercised
    
    
    (979.1
    )
    
    
    19.25Forfeited
    
    
    (226.6
    )
    
    
    30.42Outstanding at March 29, 2008
    
    
    29,794.7
    
    
    $
    28.82
    
    
    
    7.35
    
    
    $
    442.8Exercisable at March 29, 2008
    
    
    16,882.7
    
    
    $
    21.26
    
    
    
    6.39
    
    
    $
    378.6
  Restricted Stock Units and Restricted Stock Plans.
 6




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AggregateNumber of
    
    
    IntrinsicShares
    
    
    ValueRestricted Stock Units
    
    (in thousands)
    
    
    (in millions)Outstanding at December 29, 2007
    
    
    6,334.1Granted
    
    
    1,336.7Converted
    
    
    (1,626.6
    )Forfeited
    
    
    (51.6
    )Outstanding at March 29, 2008
    
    
    5,992.6
    
    
    $
    261.8Vested and deferred at March 29, 2008
    
    
    629.6
    
    
    $
    27.5
 AggregateNumber of
    
    
    IntrinsicShares
    
    
    ValueRestricted Stock
    
    (in thousands)
    
    
    (in millions)Outstanding at December 29, 2007
    
    
    79.8Granted
    
    
    Converted
    
    
    Forfeited
    
    
    Outstanding at March 29, 2008
    
    
    79.8
    
    
    $
    3.5
  4. ACQUISITION OF POLYMEDICA CORPORATION (POLYMEDICA)
  Quarter EndedMarch 31,2007Pro forma total net revenues
    
    $
    11,308.9Pro forma net income
    
    $
    269.5Pro forma basic earnings per common share
    
    $
    0.47Pro forma diluted earnings per common share
    
    $
    0.46
  7




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5. EARNINGS PER SHARE (EPS)
  Quarters EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Weighted average shares outstanding
    
    
    526.9
    
    
    
    573.5Dilutive common stock equivalents:Outstanding stock options,
restricted stock units and restricted stock
    
    
    10.9
    
    
    
    8.8Weighted average shares outstanding
assuming dilution
    
    
    537.8
    
    
    
    582.3
  6. ACCOUNTS RECEIVABLE
   8




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7. GOODWILL AND INTANGIBLE ASSETS, NET
  March 29, 2008
    
    
    December 29, 2007Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedValue
    
    
    Amortization
    
    
    Net
    
    
    Value
    
    
    Amortization
    
    
    NetGoodwill:PBM(1)
    
    $
    5,131.5
    
    
    $
    813.4
    
    
    $
    4,318.1
    
    
    $
    5,131.6
    
    
    $
    813.4
    
    
    $
    4,318.2Specialty Pharmacy(2)
    
    
    1,915.9
    
    
    
    
    
    
    
    1,915.9
    
    
    
    1,912.0
    
    
    
    
    
    
    
    1,912.0Total(3)
    
    $
    7,047.4
    
    
    $
    813.4
    
    
    $
    6,234.0
    
    
    $
    7,043.6
    
    
    $
    813.4
    
    
    $
    6,230.2Intangible assets:PBM(1)
    
    $
    3,714.6
    
    
    $
    1,638.5
    
    
    $
    2,076.1
    
    
    $
    3,714.2
    
    
    $
    1,580.0
    
    
    $
    2,134.2Specialty Pharmacy(2)
    
    
    861.4
    
    
    
    101.7
    
    
    
    759.7
    
    
    
    861.5
    
    
    
    90.7
    
    
    
    770.8Total
    
    $
    4,576.0
    
    
    $
    1,740.2
    
    
    $
    2,835.8
    
    
    $
    4,575.7
    
    
    $
    1,670.7
    
    
    $
    2,905.0
 
 (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
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 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 change in goodwill for the quarter ended March 29, 2008 primarily
represents a final purchase price cash settlement with Critical Care.  Fiscal Years Ending December2008 (remaining)
    
    $
    209.12009
    
    
    263.22010
    
    
    244.12011
    
    
    233.02012
    
    
    228.4Total
    
    $
    1,177.8
  9




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8. DEBT
  March 29,
    
    
    December 29,2008
    
    
    2007Short-term debt:Accounts receivable financing facility
    
    $
    600.0
    
    
    $
    600.0Total short-term debt
    
    
    600.0
    
    
    
    600.0Long-term debt:Senior unsecured revolving credit facility
    
    
    600.0
    
    
    
    1,400.0Senior unsecured term loan
    
    
    1,000.0
    
    
    
    1,000.07.25% senior notes due 2013, net of unamortized discount
    
    
    497.5
    
    
    
    497.46.125% senior notes due 2013, net of unamortized discount
    
    
    298.3
    
    
    
    7.125% senior notes due 2018, net of unamortized discount
    
    
    1,187.5
    
    
    
    Fair value of interest rate swap agreements
    
    
    6.6
    
    
    
    (3.0
    )Total long-term debt
    
    
    3,589.9
    
    
    
    2,894.4Total debt
    
    $
    4,189.9
    
    
    $
    3,494.4
 Senior Notes .
  Swap Agreements .
 10




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##### Table of Contents



Five-Year Credit Facilities.
  Accounts Receivable Financing Facility .
 364-day Credit Facility.
 Covenants.
 11




---



##### Table of Contents



Aggregate Maturities and Interest Expense.
 Fiscal Years Ending December2008
    
    $
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    3,600.0Total
    
    $
    3,600.0
  9. PENSION AND OTHER POSTRETIREMENT BENEFITS
 Net Pension and Postretirement Benefit Cost.
 Quarters EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Service cost
    
    $
    5.7
    
    
    $
    4.4Interest cost
    
    
    2.3
    
    
    
    1.7Expected return on plan assets
    
    
    (3.2
    )
    
    
    (2.4
    )Net amortization of actuarial losses
    
    
    
    
    
    
    0.1Net pension cost
    
    $
    4.8
    
    
    $
    3.8
   Quarters EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Service cost
    
    $
    0.2
    
    
    $
    0.2Interest cost
    
    
    0.2
    
    
    
    0.2Amortization of prior service credit
    
    
    (1.1
    )
    
    
    (1.1
    )Net amortization of actuarial losses
    
    
    0.2
    
    
    
    0.2Net postretirement benefit credit
    
    $
    (0.5
    )
    
    $
    (0.5
    )
  12




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10. SEGMENT REPORTING
 Reportable Segments.
  Selected Segment Income and Asset Information.
 Quarter Ended March 29, 2008
    
    
    Quarter Ended March 31, 2007Specialty
    
    
    
    
    
    
    
    
    
    
    SpecialtyPBM(1)
    
    
    Pharmacy(2)
    
    
    Total
    
    
    PBM
    
    
    Pharmacy
    
    
    TotalProduct net revenues
    
    $
    10,932.4
    
    
    $
    1,874.5
    
    
    $
    12,806.9
    
    
    $
    9,591.3
    
    
    $
    1,435.0
    
    
    $
    11,026.3Service revenues
    
    
    140.9
    
    
    
    15.1
    
    
    
    156.0
    
    
    
    118.6
    
    
    
    14.7
    
    
    
    133.3Total net revenues
    
    
    11,073.3
    
    
    
    1,889.6
    
    
    
    12,962.9
    
    
    
    9,709.9
    
    
    
    1,449.7
    
    
    
    11,159.6Total cost of revenues
    
    
    10,318.2
    
    
    
    1,744.5
    
    
    
    12,062.7
    
    
    
    9,052.3
    
    
    
    1,333.6
    
    
    
    10,385.9Selling, general and administrative expenses
    
    
    258.0
    
    
    
    70.4
    
    
    
    328.4
    
    
    
    195.4
    
    
    
    53.0
    
    
    
    248.4Amortization of intangibles
    
    
    58.5
    
    
    
    11.0
    
    
    
    69.5
    
    
    
    45.0
    
    
    
    9.6
    
    
    
    54.6Operating income
    
    $
    438.6
    
    
    $
    63.7
    
    
    $
    502.3
    
    
    $
    417.2
    
    
    $
    53.5
    
    
    $
    470.7Reconciling item to income before provision
for income taxes:Interest and other (income) expense, net
    
    
    
    
    
    
    
    
    
    
    54.3
    
    
    
    
    
    
    
    
    
    
    
    14.9Income before provision for income taxes
    
    
    
    
    
    
    
    
    
    $
    448.0
    
    
    
    
    
    
    
    
    
    
    $
    455.8Capital expenditures
    
    $
    32.7
    
    
    $
    6.4
    
    
    $
    39.1
    
    
    $
    20.0
    
    
    $
    5.0
    
    
    $
    25.0
 Identifiable Assets
    
    As of March 29, 2008
    
    
    As of December 29, 2007Specialty
    
    
    
    
    
    
    
    
    
    
    SpecialtyPBM
    
    
    Pharmacy
    
    
    Total
    
    
    PBM
    
    
    Pharmacy
    
    
    TotalTotal identifiable assets
    
    $
    12,525.3
    
    
    $
    3,709.2
    
    
    $
    16,234.5
    
    
    $
    12,597.7
    
    
    $
    3,620.2
    
    
    $
    16,217.9
 
 (1)
    
    Includes PolyMedicas operating results commencing October 31, 2007, the date of acquisition.(2)
    
    Includes Critical Cares operating results commencing November 14, 2007, the date of acquisition. 13




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11. COMMITMENTS AND CONTINGENCIES
 Legal Proceedings
    Government Proceedings and Requests for Information. qui tam qui tam qui tam
 ERISA and Similar Litigation . Gruer v. Merck-Medco
Managed Care, L.L.C. Gruer Gruer
 14




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##### Table of Contents



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.
 North Jackson Pharmacy, Inc., et al. v. Medco Health
Solutions, Inc., et al.
 15




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##### Table of Contents



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.
 Chelsea Family Pharmacy, PLLC v. Medco Health Solutions,
Inc.,
 Contract Litigation . Group Hospitalization and Medical
Services v. Merck-Medco Managed Care, L.L.C., et al.
 16




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##### Table of Contents



Bankruptcy Preference Litigation. Berman
v. Paid Prescriptions, LLC (In re HNRC Dissolution Co.)
 Accredo .
  PolyMedica Shareholder Litigation. Groen v. PolyMedica Corp. et al.,
  Other Matters
  17




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##### Table of Contents



Purchase Obligations
   12. RECENT ACCOUNTING PRONOUNCEMENTS
     18




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13. SUBSEQUENT EVENT
 Acquisition of a Majority Interest in Europa Apotheek Venlo B.V.
  
 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 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;
    
    Our acquisition activity has increased recently and 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 rapidly evolving laws and regulations, 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 to execute our Medicare Part D prescription drug benefits 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;
    
    We are subject to corporate integrity agreements and noncompliance may impede our
ability to conduct business with the federal government;
 19




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##### Table of Contents




    
    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 increase our revenues;
    
    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, Medicare Part D offerings and certain revenues from
diabetes testing supplies 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;
 
    
    Prescription volumes may decline, and our net revenues and profitability may be
negatively impacted, if products are withdrawn from the market, if prescription drugs
transition to over-the-counter products, or if increased safety risk profiles of specific
drugs result in utilization decreases;
    
    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 PolyMedica diabetes testing supplies
revenues and profits under our Liberty brand; 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
 ®
 20




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##### Table of Contents



Key Indicators Reviewed by Management
 
 Financial Performance Summary for the Quarter Ended March 29, 2008
 Plavix ® Plavix
   21




---



##### Table of Contents



Plavix
   ,  
  Key Financial Statement Components
 Consolidated Statements of Income
   22




---



##### Table of Contents



23




---



##### Table of Contents



Consolidated Balance Sheets
   24




---



##### Table of Contents



Consolidated Statements of Cash Flows
   25




---



##### Table of Contents



Client-Related Information
  Segment Discussion
     26




---



##### Table of Contents



Consolidated Results of Operations
  Quarter
    
    
    
    
    
    
    
    
    
    
    QuarterEnded
    
    
    
    
    
    
    
    
    
    
    EndedMarch 29,
    
    
    Increase
    
    
    March 31,2008(1)
    
    
    (Decrease)
    
    
    2007Net RevenuesRetail product(2)
    
    $
    7,415.6
    
    
    $
    703.3
    
    
    
    10.5
    %
    
    $
    6,712.3Mail-order product
    
    
    5,391.3
    
    
    
    1,077.3
    
    
    
    25.0
    %
    
    
    4,314.0Total product(2)
    
    $
    12,806.9
    
    
    $
    1,780.6
    
    
    
    16.1
    %
    
    $
    11,026.3Client and other service
    
    
    114.8
    
    
    
    18.0
    
    
    
    18.6
    %
    
    
    96.8Manufacturer service
    
    
    41.2
    
    
    
    4.7
    
    
    
    12.9
    %
    
    
    36.5Total service
    
    $
    156.0
    
    
    $
    22.7
    
    
    
    17.0
    %
    
    $
    133.3Total net revenues(2)
    
    $
    12,962.9
    
    
    $
    1,803.3
    
    
    
    16.2
    %
    
    $
    11,159.6Cost of RevenuesProduct(2)
    
    $
    12,016.8
    
    
    $
    1,666.9
    
    
    
    16.1
    %
    
    $
    10,349.9Service
    
    
    45.9
    
    
    
    9.9
    
    
    
    27.5
    %
    
    
    36.0Total cost of revenues(2)
    
    $
    12,062.7
    
    
    $
    1,676.8
    
    
    
    16.1
    %
    
    $
    10,385.9Gross Margin(3)Product
    
    $
    790.1
    
    
    $
    113.7
    
    
    
    16.8
    %
    
    $
    676.4Product gross margin percentage
    
    
    6.2
    %
    
    
    0.1
    %
    
    
    
    
    
    
    6.1
    %Service
    
    $
    110.1
    
    
    $
    12.8
    
    
    
    13.2
    %
    
    $
    97.3Service gross margin percentage
    
    
    70.6
    %
    
    
    (2.4
    )%
    
    
    
    
    
    
    73.0
    %Total gross margin
    
    $
    900.2
    
    
    $
    126.5
    
    
    
    16.4
    %
    
    $
    773.7Gross margin percentage
    
    
    6.9
    %
    
    
    
    
    
    
    
    
    
    
    6.9
    %Volume InformationRetail prescriptions
    
    
    127.2
    
    
    
    7.7
    
    
    
    6.4
    %
    
    
    119.5Mail-order prescriptions
    
    
    26.6
    
    
    
    3.2
    
    
    
    13.7
    %
    
    
    23.4Total prescriptions
    
    
    153.8
    
    
    
    10.9
    
    
    
    7.6
    %
    
    
    142.9Adjusted prescriptions(4)
    
    
    206.7
    
    
    
    17.2
    
    
    
    9.1
    %
    
    
    189.5Adjusted mail-order penetration(5)
    
    
    38.4
    %
    
    
    1.5
    %
    
    
    
    
    
    
    36.9
    %Other volume(6)
    
    
    1.2
    
    
    
    1.2
    
    
    
    N/M
    *
    
    
    Generic Dispensing Rate InformationRetail generic dispensing rate
    
    
    65.3
    %
    
    
    5.1
    %
    
    
    
    
    
    
    60.2
    %Mail-order generic dispensing rate
    
    
    53.6
    %
    
    
    5.2
    %
    
    
    
    
    
    
    48.4
    %Overall generic dispensing rate
    
    
    63.3
    %
    
    
    5.1
    %
    
    
    
    
    
    
    58.2
    %
 
 *
    
    Not meaningful.(1)
    
    Includes PolyMedicas and Critical Cares operating results commencing October 31, 2007 and
November 14, 2007, the dates of acquisition, respectively.(2)
    
    Includes retail co-payments of $2,102 million for the first quarter of 2008 and $1,986 million
for the first quarter of 2007.(3)
    
    Defined as net revenues minus cost of revenues.(4)
    
    Adjusted prescription volume equals the majority of mail-order prescriptions multiplied by 3,
plus retail prescriptions. These mail-order prescriptions are multiplied by 3 to adjust for the
fact that they include approximately 3 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 diabetic supplies primarily dispensed by PolyMedica. 27




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Net Revenues
 Retail.
 Mail.
    Gross Margin
 Plavix
   28




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##### Table of Contents



Quarter
    
    
    
    
    
    
    
    
    
    
    QuarterEnded
    
    
    
    
    
    
    
    
    
    
    EndedMarch 29,
    
    
    Increase
    
    
    March 31,2008(1)
    
    
    (Decrease)
    
    
    2007Gross margin(2)
    
    $
    900.2
    
    
    $
    126.5
    
    
    
    16.4
    %
    
    $
    773.7Selling, general and
administrative expenses
    
    
    328.4
    
    
    
    80.0
    
    
    
    32.2
    %
    
    
    248.4Amortization of intangibles
    
    
    69.5
    
    
    
    14.9
    
    
    
    27.3
    %
    
    
    54.6Interest and other
(income) expense, net
    
    
    54.3
    
    
    
    39.4
    
    
    
    264.4
    %
    
    
    14.9Income before provision for
income taxes
    
    
    448.0
    
    
    
    (7.8
    )
    
    
    (1.7
    )%
    
    
    455.8Provision for income taxes
    
    
    177.8
    
    
    
    (3.2
    )
    
    
    (1.8
    )%
    
    
    181.0Net income
    
    $
    270.2
    
    
    $
    (4.6
    )
    
    
    (1.7
    )%
    
    $
    274.8
 
 (1)
    
    Includes PolyMedicas and Critical Cares operating results commencing October
31, 2007 and November 14, 2007, the dates of acquisition, respectively.(2)
    
    Defined as net revenues minus cost of revenues. Selling, General and Administrative Expenses
  Amortization of Intangibles
  Interest and Other (Income) Expense, Net
  
  Provision for Income Taxes
  29




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##### Table of Contents



Net Income and Earnings per Share
   Segment Results of Operations
 PBM Segment
  Quarter
    
    
    
    
    
    
    
    
    
    
    QuarterEnded
    
    
    
    
    
    
    
    
    
    
    EndedMarch 29,
    
    
    Increase
    
    
    March 31,2008(1)
    
    
    (Decrease)
    
    
    2007Product net revenues
    
    $
    10,932.4
    
    
    $
    1,341.1
    
    
    
    14.0
    %
    
    $
    9,591.3Total service revenues
    
    
    140.9
    
    
    
    22.3
    
    
    
    18.8
    %
    
    
    118.6Total net revenues
    
    
    11,073.3
    
    
    
    1,363.4
    
    
    
    14.0
    %
    
    
    9,709.9Total cost of revenues
    
    
    10,318.2
    
    
    
    1,265.9
    
    
    
    14.0
    %
    
    
    9,052.3Total gross margin (2)
    
    $
    755.1
    
    
    $
    97.5
    
    
    
    14.8
    %
    
    $
    657.6Gross margin percentage
    
    
    6.8
    %
    
    
    
    
    
    
    
    
    
    
    6.8
    %Selling, general and
administrative expenses
    
    
    258.0
    
    
    
    62.6
    
    
    
    32.0
    %
    
    
    195.4Amortization of intangibles
    
    
    58.5
    
    
    
    13.5
    
    
    
    30.0
    %
    
    
    45.0Operating income
    
    $
    438.6
    
    
    $
    21.4
    
    
    
    5.1
    %
    
    $
    417.2
 
 (1)
    
    Includes PolyMedicas operating results commencing October 31, 2007, the date of acquisition.(2)
    
    Defined as net revenues minus cost of revenues.  Plavix
  30




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Specialty Pharmacy Segment
  Quarter
    
    
    
    
    
    
    
    
    
    
    QuarterEnded
    
    
    
    
    
    
    
    
    
    
    EndedMarch 29,
    
    
    Increase
    
    
    March 31,2008(1)
    
    
    (Decrease)
    
    
    2007Product net revenues
    
    $
    1,874.5
    
    
    $
    439.5
    
    
    
    30.6
    %
    
    $
    1,435.0Total service revenues
    
    
    15.1
    
    
    
    0.4
    
    
    
    2.7
    %
    
    
    14.7Total net revenues
    
    
    1,889.6
    
    
    
    439.9
    
    
    
    30.3
    %
    
    
    1,449.7Total cost of revenues
    
    
    1,744.5
    
    
    
    410.9
    
    
    
    30.8
    %
    
    
    1,333.6Total gross margin (2)
    
    $
    145.1
    
    
    $
    29.0
    
    
    
    25.0
    %
    
    $
    116.1Gross margin percentage
    
    
    7.7
    %
    
    
    (0.3
    )%
    
    
    
    
    
    
    8.0
    %Selling, general and
administrative expenses
    
    
    70.4
    
    
    
    17.4
    
    
    
    32.8
    %
    
    
    53.0Amortization of intangibles
    
    
    11.0
    
    
    
    1.4
    
    
    
    14.6
    %
    
    
    9.6Operating income
    
    $
    63.7
    
    
    $
    10.2
    
    
    
    19.1
    %
    
    $
    53.5
 
 (1)
    
    Includes Critical Cares operating results, which commenced November 14, 2007, the date of acquisition.(2)
    
    Defined as net revenues minus cost of revenues.     31




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##### Table of Contents



Liquidity and Capital Resources
 Cash Flows
  Quarter
    
    
    
    
    
    
    QuarterEnded
    
    
    
    
    
    
    EndedMarch 29,
    
    
    
    
    
    
    March 31,2008(1)
    
    
    Variance
    
    
    2007Net cash provided by operating activities
    
    $
    165.5
    
    
    $
    65.0
    
    
    $
    100.5Net cash used by investing activities
    
    
    (45.6
    )
    
    
    (17.3
    )
    
    
    (28.3
    )Net cash used by financing activities
    
    
    (353.4
    )
    
    
    54.2
    
    
    
    (407.6
    )Net decrease in cash and cash equivalents
    
    
    (233.5
    )
    
    
    101.9
    
    
    
    (335.4
    )Cash and cash equivalents at beginning of period
    
    
    774.1
    
    
    
    (44.4
    )
    
    
    818.5Cash and cash equivalents at end of period
    
    $
    540.6
    
    
    $
    57.5
    
    
    $
    483.1
 
 (1)
    
    Includes PolyMedicas and Critical Cares operating results
commencing October 31, 2007 and November 14, 2007, the
dates of acquisition, respectively. Operating Activities.
  Investing Activities.
 Financing Activities.
  32




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##### Table of Contents



Financing Facilities
 Five-Year Credit Facilities
   Accounts Receivable Financing Facility
  364-day Credit Facility
  Credit
Lines
  Interest Rates
  33




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##### Table of Contents



Swap Agreements
    Covenants
  Debt Ratings
  EBITDA
  34




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##### Table of Contents



Quarters EndedMarch 29,
    
    
    March 31,2008(1)
    
    
    2007Net income
    
    $
    270.2
    
    
    $
    274.8Add:Interest and other (income) expense, net
    
    
    54.3
    (2)
    
    
    14.9Provision for income taxes
    
    
    177.8
    
    
    
    181.0Depreciation expense
    
    
    40.1
    
    
    
    41.5Amortization expense
    
    
    69.5
    
    
    
    54.6EBITDA
    
    $
    611.9
    
    
    $
    566.8Adjusted prescriptions(3)
    
    
    206.7
    
    
    
    189.5EBITDA per adjusted prescription
    
    $
    2.96
    
    
    $
    2.99
 
 (1)
    
    Includes PolyMedicas and Critical Cares operating results
commencing October 31, 2007 and November 14, 2007, the
dates of acquisition, respectively.(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 the majority of
mail-order prescriptions multiplied by 3, plus retail
prescriptions. These mail-order prescriptions are
multiplied by 3 to adjust for the fact that they include
approximately 3 times the amount of product days supplied
compared with retail prescriptions. Plavix
 35




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##### Table of Contents



Commitments
 Contractual Obligations
  Payments Due By Period
 RemainderTotal
    
    
    of 2008
    
    
    2009-2010
    
    
    2011-2012
    
    
    ThereafterLong-term debt obligations(1)
    
    $
    3,600.0
    
    
    $
    
    
    
    $
    
    
    
    $
    1,600.0
    
    
    $
    2,000.0Interest expense on long-term debt obligations(2)
    
    
    1,374.0
    
    
    
    144.7
    
    
    
    385.8
    
    
    
    353.0
    
    
    
    490.5Operating lease obligations(3)
    
    
    123.6
    
    
    
    30.3
    
    
    
    61.7
    
    
    
    22.4
    
    
    
    9.2Purchase commitments(4)
    
    
    129.8
    
    
    
    129.0
    
    
    
    0.8
    
    
    
    
    
    
    
    Other(5)
    
    
    10.0
    
    
    
    
    
    
    
    10.0
    
    
    
    
    
    
    
    Total
    
    $
    5,237.4
    
    
    $
    304.0
    
    
    $
    458.3
    
    
    $
    1,975.4
    
    
    $
    2,499.7
 
 (1)
    
    Long-term debt obligations exclude $16.7 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 $(6.6) million on $200 million of the 7.25%
senior notes.(2)
    
    The variable component of interest expense for the senior
unsecured credit facility is based on the first-quarter
2008 LIBOR. The LIBOR fluctuates and may result in
differences in the presented interest expense on long-term
debt obligations.(3)
    
    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.(4)
    
    Primarily represents contractual commitments to purchase
inventory from certain biopharmaceutical manufacturers and
a brand-name pharmaceutical manufacturer. As of March 29,
2008, these purchase obligations amounted to $123.6 million
for the remainder of 2008, the majority of which is
associated with Accredos specialty pharmacy business. In
addition, PolyMedica has entered into purchase commitments
for advertising spots and other media to obtain favorable
advertising rates. As of March 29, 2008, these commitments
amounted to $6.2 million through 2010, of which $5.4 is
committed for the remainder of 2008.(5)
    
    As part of the PolyMedica acquisition, we assumed a $10
million note payable associated with a previous
acquisition, which is included in other noncurrent
liabilities in the consolidated balance sheet.     Off-Balance Sheet Arrangements
  36




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##### Table of Contents



Share Repurchase Program
  Looking Forward
    Recently Adopted Financial Accounting Standard
   Fair Value Hierarchy.
 
 37




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##### Table of Contents



Medco Fair Value Measurements at Reporting Date
 March 29,Description
    
    2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Fair value of interest rate swap agreements
    
    $
    6.6
    
    
    $
    
    
    
    $
    6.6
    
    
    $
    Available-for-sale investments
    
    
    5.9
    
    
    
    1.9
    
    
    
    4.0
    
    
    
    Money market mutual funds
    
    
    396.0
    
    
    
    396.0
    
    
    
    
    
    
    
    
  Recent Accounting Pronouncements
     38




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
  39




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  Bankruptcy Preference Litigation. Berman
v. Paid Prescriptions, LLC (In re HNRC Dissolution Co.)
 Contract Litigation .
 Accredo
  
 Item 1A. Risk Factors
  Changes in reimbursement rates, including competitive bidding for durable medical equipment
suppliers, could negatively affect our PolyMedica diabetes testing supplies revenues and profits
under our Liberty brand.
   40




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Issuer Purchases of Equity Securities
 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(3)Fiscal Period
    
    purchased
    
    
    per share(1)
    
    
    inception(2)
    
    
    (in thousands)Balances at December 29, 2007
    
    
    
    
    
    
    
    
    
    
    111,400,964
    
    
    $
    1,984,670Fiscal January 2008
    
    
    5,273,200
    
    
    $
    51.80
    
    
    
    5,273,200
    
    
    $
    1,711,495Fiscal February 2008
    
    
    8,220,621
    
    
    $
    49.00
    
    
    
    8,220,621
    
    
    $
    1,308,670Fiscal March 2008
    
    
    7,555,620
    
    
    $
    42.99
    
    
    
    7,555,620
    
    
    $
    983,864First quarter 2008 totals
    
    
    21,049,441
    
    
    $
    47.55
    
    
    
    21,049,441
 
 (1)
    
    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 initiated during the three months ended March 29, 2008. The
average price paid per share for repurchases initiated since inception is $34.10.(2)
    
    The Company repurchased all of the above-referenced shares of its common stock through its publicly announced
share repurchase program.(3)
    
    These amounts reflect the remaining authorized repurchases based on the increase in the authorized repurchases. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  41




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##### Table of Contents



Item 5. Other Information
 Rule 10b5-1 Sales Plans.
   (1)
 Number of
    
    
    
    Number ofShares to be
    
    
    
    Shares Sold
    
    ProjectedSold Under the
    
    
    
    Under the
    
    BeneficialName and Position
    
    Plan(2)
    
    Timing of Sales Under the Plan
    
    Plan(3)
    
    Ownership(4)John Driscoll
President, New Markets
    
    
    27,934
    
    
    Option exercise in tranches
of 18,934 and 1,000 shares
shall be triggered if stock
reaches specific prices; sale
of 8,000 previously acquired
shares shall trigger if stock
reaches specified price.
    
    
    0
    
    
    
    41,874Kenneth O. Klepper
President and Chief Operating Officer
    
    
    53,334
    
    
    Sale of 11,000 previously
acquired shares if stock
reaches a specified price and
sales related to exercise of
53,334 options shall trigger
if stock reaches specified
price.
    
    
    11,000
    
    
    
    214,044Thomas M. Moriarty
General Counsel, Secretary and
Senior Vice President,
Pharmaceutical Contracting
    
    
    20,958
    
    
    Option exercise in tranches
of 6,628; 7,200 and 7,130 shares
shall be triggered if
stock reaches specific
prices; sale of 8,120
previously acquired shares
shall trigger if stock
reaches specified price.
    
    
    8,120
    
    
    
    5,680David B. Snow, Jr.
Chairman and Chief Executive Officer
    
    
    200,000
    
    
    Sale of 200,000 previously
acquired shares if stock
reaches a specified price.
    
    
    0
    
    
    
    978,812
 42




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##### Table of Contents



(1)
    
    This table does not include any trading plans entered into by any executive
officer that have expired by their terms or have been fully executed through April 29,
2008. No plans entered into by executive officers have been voluntarily terminated.(2)
    
    This column reflects the number of shares remaining to be sold as of April 29,
2008.(3)
    
    This column reflects the number of shares sold under the plan through April
29, 2008.(4)
    
    This column reflects an estimate of the number of 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 29, 2008, 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 29, 2008 outside of the plan. 
 Item 6. Exhibits
 Number
    
    Description
    
    Method of Filing3.1
    
    
    Second Amended and Restated
Articles of Incorporation of Medco
Health Solutions, Inc., as further
amended (incorporated by reference
to Exhibit 3.2 to the Registrants
Registration Statement on Form S-3
filed March 12, 2008).
    
    Incorporated by reference.3.2
    
    
    Third Amended and Restated Bylaws
of Medco Health Solutions, Inc.
(incorporated by reference to
Exhibit 3.1 to the Registrants
Current Report on Form 8-K filed
February 5, 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 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.
 43




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##### Table of Contents



Signatures
  MEDCO HEALTH SOLUTIONS, INC.(Registrant)Date: April 29, 2008
    
    By:
    
    /s/ David B. Snow, Jr.Name:
    
    David B. Snow, Jr.Title:
    
    Chairman and Chief Executive OfficerDate: April 29, 2008
    
    By:
    
    /s/ Richard J. Rubino, C.P.A.Name:
    
    Richard J. Rubino, C.P.A.Title:
    
    Senior Vice President, Finance and Chief Financial Officer
 44




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##### Table of Contents



Index to Exhibits
 Number
    
    Description3.1
    
    
    Second Amended and Restated Articles of Incorporation of Medco
Health Solutions, Inc., as further amended (incorporated by
reference to Exhibit 3.2 to the Registrants Registration Statement
on Form S-3 filed March 12, 2008).3.2
    
    
    Third Amended and Restated Bylaws of Medco Health Solutions, Inc.
(incorporated by reference to Exhibit 3.1 to the Registrants
Current Report on Form 8-K filed February 5, 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.
 45