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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF
THE

SECURITIES EXCHANGE ACT OF 1934



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission file number 000-27501





The TriZetto Group, Inc.

(Exact Name of Registrant as Specified in Its
Charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 33-0761159                             
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)



|                                                           |  |           
|---------------------------------------------------------- |  | ----------
|567 San Nicolas Drive, Suite 360 Newport Beach, California |  | 92660     
|(Address of Principal Executive Offices)                   |  | (Zip Code)

Registrants telephone number, including area code: (949) 719-2200





Securities registered pursuant to Section 12(b) of the Act:



|                                                                                     |  |                                          
|------------------------------------------------------------------------------------ |  | -----------------------------------------
|Title of Each Class                                                                  |  | Name of Each Exchange on Which Registered
|Common Stock, $0.001 par value Series A Junior Participating Stock, $0.001 par value |  | The Nasdaq Global Select Market          

Securities registered pursuant to Section 12(g) of the Act:

None.





Indicate by check mark if the registrant is a
well-known seasoned issuer as defined in Rule 405 of the Securities Act.    Yes  x    No   ̈

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of 15(d) of the Act.     Yes   ̈    No  x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large accelerated filer  x    Accelerated filer   ̈    Non-accelerated filer   ̈

Indicated by check mark
whether the registrant is a shell company.    Yes   ̈    No  x

As of June 30, 2007, the aggregate market value of voting stock held by non-affiliates of the registrant, based upon the closing sales price for the
registrants Common Stock, as reported on the NASDAQ Stock Market, was $827.6 million. Shares of Common Stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for any other purpose.

The number of shares of the registrants Common Stock
outstanding as of February 12, 2008 was 42,897,550.

Documents Incorporated by Reference

Part III of this Report incorporates by reference information from the definitive Proxy Statement for the registrants 2008 Annual Meeting of Stockholders.









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THE TRIZETTO GROUP, INC.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2007

TABLE OF CONTENTS



|           |  |                                                                                                              |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                                              |  | Page
|PART I     |  |                                                                                                             
|Item 1     |  | Business                                                                                                     |  | 3   
|Item 1A    |  | Risk Factors                                                                                                 |  | 16  
|Item 1B    |  | Unresolved Staff Comments                                                                                    |  | 24  
|Item 2     |  | Properties                                                                                                   |  | 24  
|Item 3     |  | Legal Proceedings                                                                                            |  | 24  
|Item 4     |  | Submission of Matters to a Vote of Security Holders                                                          |  | 25  
|           | 
|PART II    |  |                                                                                                             
|           |  |                                                                                                             
|Item 5     |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 26  
|Item 6     |  | Selected Financial Data                                                                                      |  | 28  
|Item 7     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 30  
|Item 7A    |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 46  
|Item 8     |  | Financial Statements and Supplementary Data                                                                  |  | 46  
|Item 9     |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  | 46  
|Item 9A    |  | Controls and Procedures                                                                                      |  | 46  
|Item 9B    |  | Other Information                                                                                            |  | 48  
|           | 
|PART III   |  |                                                                                                             
|           |  |                                                                                                             
|Item 10    |  | Directors, Executive Officers and Corporate Governance                                                       |  | 49  
|Item 11    |  | Executive Compensation                                                                                       |  | 49  
|Item 12    |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 49  
|Item 13    |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 49  
|Item 14    |  | Principal Accounting Fees and Services                                                                       |  | 49  
|           | 
|PART IV    |  |                                                                                                             
|           |  |                                                                                                             
|Item 15    |  | Exhibits and Financial Statement Schedules                                                                   |  | 50  
|SIGNATURES |  | 54                                                                                                          



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CAUTIONARY STATEMENT

This report contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future
financial performance. In some cases, you can identify forward-looking statements by terminology such as may, will, should, forecasts, expects, plans, anticipates,
believes, estimates, predicts, potential, or continue or the negative of such terms and other comparable terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined in Item 1A under the caption Risk Factors. These factors may cause our actual events to differ
materially from any forward-looking statement. We do not undertake to update any forward-looking statement.

PART I

Item 1Business

OVERVIEW

TriZetto is distinctly focused on accelerating healthcare payers ability to lead the industrys transformation by providing information technology solutions that enhance revenue growth, drive administrative
efficiency and improve the cost and quality of care for their members. We offer a broad portfolio of proprietary information technology products and services targeted to the payer industry, which is comprised of health insurance plans and third
party benefits administrators. These include:



| |  |  | Enterprise administration software facilitates core payer operations such as benefit plan design, enrollment, claims
processing, billing and payment. Significant administration software products include Facets®, QNXT, QicLinkand Facts, each of which are targeted to different types of customer needs. In addition, TriZetto offers a number of add-on and standalone components to these software systems such as FacetsTMWorkflow, FacetsTMeXtended Integration, QicLink
Autodental, and Web Solutions Suite. These component products provide additional functionality or throughput to TriZettos core software products as well as third-party enterprise administration systems;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cost and quality of care software help payers extend health and wellness services to more of their membership and reduce
the costs of care. Significant care management software products include TriZetto CareAdvance Enterprise®, which gives payers tools to address the full spectrum of care management for all
members, including case, disease, population and utilization management  improving the usage related costs; and TriZetto NetworX Suite, which gives payers tools to better manage provider networks and complex tiered contracts 
improving the unit costs of care for members;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revenue enhancement software and services help payers capture wasted or misdirected funds, especially for government funded claims. These assist Medicare Advantage
and Medicare Part D plans to optimize revenue, reduce administration costs and improve compliance, as well as provide fraud, waste and abuse detection and prevention;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Software hosting services and select business process outsourcing services reduce customers information technology fixed costs and risks, and can accelerate
speed-to-market for new insurance product offerings and services; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Strategic, installation, and optimization consulting services assure realization of the full benefits of our software, accelerate implementation times and reduce
systems architecture risks.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the U.S. healthcare system, payers effectively balance the demands of all the different
constituents in the healthcare system including employers, providers, consumers and brokers. As a result, payers are the central aggregation point for data from across the systems and payers are information-intensive businesses. New government
regulations, shifting market trends and competition constantly pressure these payers to improve and change their product offerings, business policies and processes. To enable these changes, payers must regularly upgrade their information technology
systems. Many payers, especially the largest, have traditionally developed their own information systems in-house. But, increasingly in recent years, payers have utilized commercial systems to reduce information technology and business costs, and
accelerate their time-to-market for new products, enhanced efficiency and competitive advantage.

TriZetto has three unique assets, which
drive its value for customers and provide sustainable competitive advantage:



| |  |  | TriZetto has one of the largest groups of systems experts in the payer industry. This expertise spans hundreds of different payers and systems. This depth of
experience provides a unique foundation for understanding customer needs and developing solutions ahead of the market;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Leveraging its unique expertise, TriZetto has built one of the largest set of integrated software solutions available to the payer market. For customers, this means
one-stop shopping and substantially reduced systems integration cost and risk; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TriZetto technology touches more than 146 million lives, which is over half the insured population of the U.S. This large number of payers and members on
common technology platforms provides a unique distribution channel into the payer market, through which additional products and services can be delivered. In the longer term, this broad footprint provides opportunities to accelerate the development
and adoption of new information technology solutions, such as the next generation of cost and quality of care solutions, real-time claims adjudication and payment, and pay for performance.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We provide products and services to 351 unique customers, including those of our recent acquisitions, in the health plan and benefits administrator
markets. In 2007, these markets represented 92% and 8% of our total revenue, respectively.

The TriZetto Group, Inc. was incorporated in
Delaware in May 1997 with the merger of two organizations: System One, a provider of online electronic-funds transfer technology, and Margolis Health Enterprises, a provider of technology consulting to healthcare organizations. The combination
created a company dedicated to healthcare information technology products and services. Initially, we focused upon providing hosted software services addressed primarily to the provider market. From 1998 to 2003, we increased our focus on the payer
industry. In 2003, we initiated a strategic plan to concentrate exclusively on the payer market and to wind-down our provider business. We completed this plan in 2005 and no longer provide services to the provider market.

We completed our initial public offering in October 1999 and, since that time, have acquired 10 companies: Novalis Corporation, Finserv Health Care
Systems, Inc., Healthcare Media Enterprises, Inc., Erisco Managed Care Technologies, Inc. (Erisco), Resource Information Management Systems, Inc. (RIMS), Infotrust Company, Diogenes, Inc., CareKey, Inc. (CareKey),
Plan Data Management, Inc. (PDM), and Quality Care Solutions, Inc. (QCSI).

Of the 10 acquisitions, the Erisco and RIMS acquisitions completed in the fourth quarter of 2000, the CareKey acquisition completed in the fourth quarter of 2005, and the QCSI acquisition completed in the first
quarter of 2007 were our most significant. Eriscos main product, Facets® and QCSIs main product, QNXT, are the leading administrative systems for managed health plans in
the country. QicLink, developed by RIMS, is the leading automated claims-processing system for benefits administrators. Our CareAdvance products, acquired from CareKey, are considered among the leading solutions for care management,
which is experiencing rapidly growing demand from employers. With these acquisitions and organic growth, TriZetto built a customer base with more than 146 million enrollees (59% of the U.S. insured population) and attained a leadership position
in two market segments of the payer industry, health plans and benefits administrators.

FINANCIAL INFORMATION

Please refer to Item 6, Selected Financial Data, and Item 7, Managements Discussion and Analysis of Financial Condition
and Results of Operations, for a review of revenue, net income, and total assets for the last three years.

OUR STRATEGY

Rising healthcare costs and health insurance premiums are causing employers, as well as federal and state government programs, to shift more of the cost
of healthcare benefits to consumers in the form of higher premium contributions, deductibles, co-insurance and co-payments. Between 2002 and 2007, average premiums for family coverage in the United States increased 78%, while wages grew only 19%.
Typical family out-of-pocket healthcare costs now exceed 10% of the average annual wage. As a result of increased personal spending on healthcare, healthcare consumers (i.e., employees and their family members, individuals, and retirees) are
demanding better service, efficiency, and value from their health plan. This includes improved information regarding health care benefit and insurance coverage options, better information to determine the most efficient methods to fund out-of-pocket
costs, real-time information regarding benefits eligibility and accessibility, accurate information at the point-of-service regarding out-of-pocket costs (i.e., patient or consumer financial responsibility), real-time information regarding
healthcare fund balances and claims payment status, and increased comparative data and intelligence regarding healthcare provider cost (i.e., pricing) and quality.

We believe that payers will play a central and leading role in the evolution of the U.S. healthcare industry. We also believe that most health plans and benefits administrators must evolve and improve their technology
infrastructures, software applications, and business processes to compete in this changing healthcare marketplace. We recognize that the evolution of the healthcare industry to a more retail-like environment may be gradual or in steps. Our strategy,
therefore, is to protect our existing customers investment in our products and services through ongoing research and development that allows for systematic upgrades of existing capabilities, while providing both existing and new payer
customers with innovative information technology products and services that help them strengthen their IT capabilities, and transform their businesses to prosper in this more consumer-centric environment. Key elements of our strategy include:



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| |  |  | Help customers anticipate change and migrate toward a successful future. We have always articulated for our customers our vision of the future of
healthcare and the technology necessary to get there. In 2007, we introduced a new vision concept, Integrated Healthcare Management, which identifies three core systems areas, which must converge to provide shared information and aligned incentives
throughout the healthcare supply chain. As health benefit administration, care management, and constituent engagement systems converge, consumers will see significant improvements in the coordination of their benefits and care. Every year, the
company introduces additional products and services that provide our customers with systems components that help them build for the future.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Offer a compelling value proposition. We are focused on offering a quantified, compelling value proposition that includes such advantages as enhancing
payers revenue growth, driving their administrative efficiency and improving the cost and quality of care for their members. Other benefits include reduced and more predictable information technology costs, more cost effective business
processes, lower administrative costs, lower medical costs, less risk and more rapid return on investment, and faster business transformation. Our internal estimates, based on industry benchmarks and customer data, show that return on investment
increases with the use of our proprietary software in combination with one or more of our outsourced services.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Offer market-leading enterprise administration software for health plans and benefits administrators. As
some of the most information-intensive businesses in the U.S., payers spend about 11% of the premiums they collect on administration activities. Efficient and accurate enterprise administration systems are critical to success. We continuously
upgrade our enterprise administration systems to provide leading functionality for new and changing market demands. Software customers are entitled to these new versions of our software as part of their paid maintenance agreements. With the
acquisition of QCSI in January 2007, TriZetto believes it holds the three leading enterprise administration software engines for health plans of any size and for benefit administrators: Facets®, QNXT and QicLink.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Offer innovative enterprise cost and quality of care applications.Payers spend an average of 86% of
premiums collected on the cost of care for members. But disease management programs only affect costs for a small portion of the total membership. With the increasing pressure of continuously rising medical costs, payers are looking for additional
ways to manage the costs of care. At the same time, employers are increasingly demanding value-added care management and wellness programs from insurers. These two factors are driving increasing interest in TriZettos cost and quality of care
solutions, which address both the unit costs of care as well as the volume usage related costs. TriZettos suite of cost and quality of care solutions are complementary to our enterprise software solutions and allow us to help payers address
the vast majority of healthcare medical costs not focused solely on health plan administration activities. TriZettos NetworX Pricer and NetworX Modeler applications allow health plans to improve the provider contracting process, as
well as to automate the administration of these provider contracts to reduce the aggregate unit cost of care. Our CareAdvance Enterprise suite of advanced care management solutions addresses traditional utilization, case and disease
management, as well as provides secure, portable and personalized health records to facilitate proactive population management. By improving patient wellness, these solutions better control the total usage of healthcare resources and reduce
payers aggregate usage-driven costs of care for members. While these applications are architecturally engineered to most easily integrate with other TriZetto products such as Facets®,
they are also of high value to customers who run enterprise administration systems not developed by TriZetto.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Enhance the value of our core enterprise technology with a variety of add-on software solutions and a continuum of services. In addition to offering
leading enterprise administration and care management solutions, TriZetto has created a number of high-value add-on systems that increase the performance of TriZetto systems and extend the value and return on investment for customers.
TriZettos enterprise systems are very large applications that require significant work to install and optimize. Like many other enterprise software companies, TriZetto offers complementary services that assist customers in achieving business
success, including: professional services, or consulting, for installation and optimization of the companys software. For customers who desire to reduce their data center or overall processing costs, TriZetto also offers software hosting
services and business process outsourcing services. These typically are sold as add-ons following the sale of TriZetto software.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Organize products and services around the customers main business cycles. Our solutions are aligned with the way our customers operate
internally. Our individual products and services, and complete solutions address the main business cycles of a health plan, which are: product development, revenue management, reimbursement management, customer service, network management, care
management, risk management, and general finance and administration. Benefits administrators have largely similar business cycles.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Leverage our strategic relationships. We leverage our current strategic relationships and enter into new relationships to expand our customer base and
service offerings. We have established co-marketing and sales arrangements with third-party systems integrators and software vendors. As our customer base grows, we intend to expand and strengthen these relationships.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Selectively pursue acquisitions. We continually evaluate acquisitions of companies that could expand our market share, product offerings or our
technical capabilities. Since our initial public offering in 1999, we have made 10 acquisitions. We may pursue additional acquisitions that we believe create shareholder value.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

OUR PRODUCTS AND SERVICES

TriZetto is powering
Integrated Healthcare Management, the systematic application of processes and shared information to optimize the coordination of benefits and care for the healthcare consumer. With its technology touching nearly half of the U.S. insured population,
TriZetto is uniquely positioned to drive the convergence of health benefit administration, care management and constituent engagement. The company provides premier information technology solutions that enable payers and other constituents in the
healthcare supply chain to improve the coordination of benefits and care for healthcare consumers.

Building upon its premier position in
core administrative capabilities, over the past five years, TriZetto has pioneered the next generation of advanced care management and provider network technologies while introducing a unique and innovative approach to engaging all players in the
healthcare supply chain through our integrated constituent model. TriZetto solutions include enterprise core administration, care management, network management, consumer retail healthcare and government programs.

In 2007, we derived approximately 48% of our total revenue from license and maintenance fees for
our proprietary enterprise core administration software. Our Facets®, QNXT, Facts and QicLink applications are recognized in their respective markets for providing
advanced solutions that enhance revenue growth, drive administrative efficiencies and improve the cost and quality of care.

Of our total
revenue in 2007, 2006, and 2005, we spent 16%, 15%, and 14% respectively, on software development (expensed and capitalized), primarily for our proprietary software products.

Enterprise Core Administration Software

Facets®. Facets® is a comprehensive, flexible, scalable, production-proven, enterprise-wide core
administration solution for healthcare payers. Facets® provides a functionally rich set of modules that allow health care payers to meet their comprehensive business
requirementsacross claims processing, claims re-pricing, capitation/risk fund accounting, premium billing, provider network management, group/membership administration, referral management, hospital and medical pre-authorization, case
management, customer service, and electronic data interchange.

Facets® can also be combined with complementary software to address the enterprise-wide needs of a managed care organization. Facets® has
been expanded through alliances with complementary solutions for physician credentialing, document imaging, workflow management, data warehousing, and decision support.

Facets® is available to customers on a
hosted or non-hosted basis; it includes core functionality and add-on modules that provide the following features and benefits for health plans:



| |  |  | Flexible, integrated technology to support multiple lines of business and in-depth functionality which provide for the essentials of health plan administration;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Simplified entry of benefit plan information;
| | - |  | ---------------------------------------------



| |  |  | Enhanced views of customer service data;
| | - |  | ----------------------------------------



| |  |  | Integrated HIPAA functionality to satisfy standard electronic transactions and privacy regulations;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Consumer directed healthcare, Medicare and Managed Medicaid solutions;
| | - |  | ----------------------------------------------------------------------



| |  |  | Functions to support complex provider contracts and automated pricing of claims;
| | - |  | --------------------------------------------------------------------------------



| |  |  | Integrated workflow for claims, customer service and group administration;
| | - |  | --------------------------------------------------------------------------



| |  |  | Extended integration tools to enable customers to access key business logic;
| | - |  | ----------------------------------------------------------------------------



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| |  |  | Extensive use of Service-Oriented Architecture (SOA) that emphasizes Web-enabled interoperability to simplify integration of third-party applications; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Choice of leading databases  Oracle, Microsoft SQL and Sybase.
| | - |  | ---------------------------------------------------------------

At December 31, 2007, we had 78 implementations of Facets® at customers comprising approximately 84 million member lives under contract. Many customers have purchased or are updating to Facets®4.3 through 4.5. Over 90 enhancements have been made in recent versions of Facets® with an emphasis on supporting government programs, consumer retail,
customer service and scalability. These upgrades are included in customers annual release fees. In addition, unspecified upgrades generate opportunities to sell consulting and other services to assist with the upgrades, as well as add-on
modules that work exclusively with this new version of Facets®.

QNXT. QNXT is a comprehensive, flexible enterprise-wide core administration solution acquired through our acquisition of QCSI. The QNXT system is a patented, open platform designed based upon a Service
Oriented Architecture employing web services (.NET, XML, and Simple Object Access Protocol or SOAP). QNXT provides a broad set of functionality to healthcare payers to meet their business requirements utilizing a thin client web based user
interface. QNXT core functionality includes: claims processing, claims re-pricing, capitation/risk fund management, premium billing, provider network management, group/membership administration, referral management, hospital and medical
pre-authorization, case management, customer service, and electronic data interchange.

QNXT is available on a hosted or non-hosted
basis. QNXT also offers a number of integrated add-on applications that allow organizations to extend the advantages of QNXT across multiple lines of business including:



| |  |  | QNXT A/R:Provides healthcare organizations with one of the industrys most powerful integrated solutions for managing receivables,
eligibility and claims;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | QNXT Connect: A proven set of tools and web services which enables the electronic exchange of HIPAA-ready standard transactions between a health plan
and their trading partners;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | QNXT Dental: An enterprise dental payer software application system that administers all lines of business and easily manages the complex relationships
between the health plan, its members, and providers;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | QNXT View:A web-based application that allows providers, members and sponsors/employers real-time, self-service access to health benefits and
claims information via the Internet; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | QNXT Case Management:Allows health plans to integrate workflows for authorization and referral management, concurrent review, discharge
planning, complex case management and chronic care management programs.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At December 31, 2007, we had 45
implementations of QNXT at customers comprising approximately 15 million member lives under contract.

Facts. Introduced in
1980, Facts is designed for the indemnity insurance market, specifically managed indemnity, and group insurance. Facts software, which we acquired in our acquisition of Erisco, is a legacy software application which is used for the
essential administrative transactions of an indemnity plan, including enrollment, rating and premium calculation, billing, and claims processing. At December 31, 2007, we had 36 Facts customers totaling more than 48 million lives.

In May 2007, we made a decision to sunset our FACTS proprietary software
product. A formal plan of restructuring was developed and includes four milestones to complete the final coding and release of FACTS 7.0. The final milestone to end sales and support of the FACTS software product is March 31, 2009.
However, we currently intend to convert as many of our existing FACTS customers as possible to our Facets®, QNXTor QicLink software platforms. The plan of restructuring includes the elimination of positions within the research and development group, which was formally communicated to all affected employees late in the
second quarter of 2007. To retain key employees and to ensure that the final product milestones are achieved, benefit packages were provided and are contingent upon completion of these milestones.

QicLink. QicLink is one of the nations most widely-used automated claims
administration technology for benefits administrators. Its flexible design is well suited for third party administrators, as well as organizations that self-fund or self-administer their health benefits. QicLink is a full-functioned enterprise
system that handles enrollment, customer service, claims adjudication, billing and accounts receivable, re-pricing, and payment process, and is available to customers on a licensed, hosted or BPO basis. Recent product releases include functionality
enhancements designed for the consumer-directed market that include debit card processing, expanded auto adjudication and web-based customer service. QicLink has recently completed a major technology platform change, moving from a Unix®-based system to the Microsoft®.NET -connected framework. This new release delivers access to MS SQL Server® relational database functionality and the rapid development and deployment tools afforded by the .NET technology platform. QicLink is also being integrated with targeted third party
solutions as part of the TriZetto Premier Partnership Program to provide affordable access to programs that will help benefits administrators better manage the cost and quality of care. At December 31, 2007, we had 118 QicLink
customers, totaling more than 6 million lives.



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Workflow. The add-on Workflow application for Facets automates manual processes and streamlines
workflows, helping health plans to reduce claims turnaround times, improve customer response and facilitate the creation of employer groups. With Facets Workflow, claims are prioritized and routed automatically according to rules established
by the plans business staff. Faster claims turnaround times allow health plans to realize lower overall operating costs, as well as nearly immediate return on investment through prompt-pay discounts. Facets Workflow functionality for
Customer Service focuses on the management of work items that are not resolved upon initial contact with customer service representative. Facets Workflow functionality for Group Administration allows customers to administer the creation of new
groups and facilitates the group renewal process. The application gives health plans a competitive advantage: faster, more accurate claims adjudication and reduced customer response time, which translates directly into improved service for plan
members and providers.

Cost and Quality of Care.As cost and quality of care issues move to center stage for health plans, the ability to automate
care and provider management becomes key to improving care outcomes and decreasing costs. TriZetto offers solutions for both care management and network management.

Care Management

Health plans are recognizing that care management will quickly become a
required competency for connecting to members in an increasingly consumer-retail world of healthcare. The ability to keep the well from getting sick, to keep the sick out of the hospital and to help the hospitalized recover quickly will reduce
overall medical costs. TriZetto offers CareAdvance Enterprise to address both personal health records for the consumers and health management for the health plans.

CareAdvance Enterprise. Until 2004, the majority of TriZettos solutions focused on payers
administrative costs. In 2004, TriZetto partnered with CareKey to offer the CareAdvance suite of care management solutions. TriZetto completed its acquisition of CareKey in December 2005 and began marketing the CareAdvance suite
as TriZetto CareAdvance Enterprise. TriZetto CareAdvance Enterprise automates all aspects of care management, including: member identification and assessment; guideline-based care planning; member and provider communications; task and
team management; ongoing member monitoring, education and care coaching; personalized health content and interventions; and multi-stakeholder granular reporting for a variety of constituents. The system integrates with TriZettos Facets® administrative system as well as other core administration systems to provide real-time access to member administrative data including claims, eligibility, benefits and authorizations.
CareAdvance Enterprise extends effective care to more members and allows a health plan to serve all its members medical management needs on one platform, including utilization management, catastrophic care coordination, chronic disease
management, wellness, and family care for both commercial and Medicare populations.

Health plans can license and host the care management
enterprise software themselves or have it hosted through TriZettos Hosting Services. Health plans can also use TriZetto Professional Services to implement and optimize their care management operations. Specific services include:
implementation, business process engineering, health program development and launch, and technology and application optimization.

At
December 31, 2007, TriZetto had 18 CareAdvance customers, representing more than 18 million lives.

Network Management

As cost and quality issues move to center stage for health plans, the ability to automate provider networks, including the
contracting and payment cycle becomes key to reducing care costs. Changes to a provider contract by 1% can result in net increases or decreases of millions to a health plans bottom line. Increasingly complex contracts and intense financial
pressures have made network management critical to a health plans success.

NetworX Suite. NetworX was the first enterprise-wide
management system and claims re-pricing solution for preferred provider organizations. The NetworX suite of products helps all types of payer organizations model provider contracts and automate the pricing of complex facility claims. NetworX
Pricer is a specialized application, which automates the claims pricing process for health plans. NetworX Pricer is available as a component solution for integration with any claims system or as an integrated module of Facets. NetworX
Modeler is a standalone application to support the automated modeling and analysis of contracts to help health plans project the financial implications of contracts when negotiating with providers in their network. NetworX Pricer and
NetworX Modeler have an innovative interface, which allows users to share contract data between the two systems.



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Health plans can license the network management software or host it through TriZettos Hosting
Services. Health plans can also use TriZetto Professional Services to implement NetworX for their network management operations. Specific services include implementation, contract loading third-party interface development, and optimization.

Market Solutions

Two pervasive market
forces are driving dramatic changes in healthcare today:



| |  |  | A surge in government healthcare programs as baby boomers drop out of private plans and into Medicare programs while the Medicaid-eligible population grows; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continued pressure on the consumer to pay more of individual healthcare costs to offset the rapidly increasing costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------

TriZetto has formed two market solutions groups to help drive the technological transformation needed to support government and consumer programs.

Retail Healthcare Solutions

A
change that started with high deductible health plans, the retail healthcare movement is rapidly changing how payers interact with their consumer, provider, broker and employer constituents. TriZettos Consumer Retail Healthcare Solutions
combine our traditional technology solutions with services and third-party applications. Specific retail healthcare solutions include:

Fund Management.Combining Facets®
CDH Account Management Module, Metavantes Benefits Card Platform and financial services, TriZettos Fund Management solution enables Facets® users to administer FSA, HRA and HSA
plans on the Facets® platform. Our pre-integrated solutions enables debit card access for FSA, HRA and HSA accounts via a single card. Through Metavante, the fund management solution
provides integration with ACS/Mellon, HSA Bank, and other preferred financial institutions, for one-step HSA account management. Members can track HSA account spending and manage fund investments while benefiting from the health
plans education, online services and enrollment capabilities.

Constituent Web
Solution. Constituent Web Solution, formerly HealthWeb®, allows health plans to exchange information and conduct business with providers, members, employers, and brokers
on a secure basis over the Internet. The Web Solutions suite (or individual applications for Member Enrollment, Member Service, Provider Service, and Employer/Broker Bill, Enrollment and Service) is installed on the health plans web servers or
offered on a hosted basis and then configured according to customer preferences. The applications are easy to use and personalized for each customer, providing access to the business applications and content needed to perform typical healthcare
tasks. Web Solution modules are designed to manage online eligibility, authorizations, referrals, benefit verification, claims status, claims adjudication, and many other transactions benefiting physician offices. The modules also support
enrollment, billing, benefit cost modeling, demographic changes, primary care physician selection, identification card requests, and other transactions for providers, employers, brokers, and health plan members. These solutions reduce customer
service calls, increase satisfaction levels and trim administrative costs and labor, accelerating the payers return on investment in technology.

Benefit Cost Modeler. Benefit Cost Modeler is a Web-based decision-support tool that calculates the dollar amount that the member can expect to pay for healthcare in the year ahead, based on the parameters of each
health plan evaluated and on the members projected utilization of services. Side-by-side comparisons of the financial implications of each health plan option help employees make choices that make sense.

Provider POS Direct. Health plans can use this integrated software solution to enable providers to calculate real-time patient liability or fully
adjudicate a claim in real-time before the patient leaves the providers office. Provider POS Direct helps providers reduce costs associated with growing accounts receivable and collections by allowing the provider to collect true payment at
the time of service.

Professional Services.TriZetto offers a suite of services specifically for Retail Healthcare including Retail
Readiness, Implementation and Optimization. Retail Readiness Services combine strategic planning, business process engineering and implementation services to help a health plan ready its operations to support retail solutions, expanding beyond pure
technology implementation.

Government Programs

TriZetto offers solutions that assist payers as they compete in the rapidly growing Government programs marketplace. Medicare and Medicaid both offer health plans an opportunity to expand their membership. TriZetto
government solutions, which are built on both our core and cost and quality of care software, allow our customers to expand their offerings to include Medicare Part D, Medicare Advantage and Managed Medicaid. Health plans that hope to capture and
profitably



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increase their share of these markets must achieve high levels of administrative efficiency, differentiate themselves from competitors, comply with The
Centers for Medicare and Medicaid Services (CMS) rules, and provide quality services to their members. TriZetto provides the tools and services to help them achieve these goals.

Medicare and Medicare Part D.Facets® and QNXT are leading core administration systems for healthcare payers with more than 40 plans relying on TriZettos core systems for Medicare claims administration. TriZetto offers targeted solutions for Managed Medicare and
Medicare Part D. TriZetto provides core administration software along with care management and network pricing for Medicare to assist a plans efforts to control their administrative costs while providing high quality and cost effective care
for their seniors. Our Medicare FastTrak solution integrates Facets, Hosting Services and BPO to implement a solution in six months. As more plans make the decision to outsource their Medicare business, TriZetto is there with Medicare BPO services
to assist the plan in managing this critical line of business.

Medicaid.TriZetto is also a leader in providing core administration
systems for Managed Medicaid plans. Our solutions can efficiently handle claims processing as well as enrollment, medical-management and workflow processes for Medicaid membership. We continue to enhance our solution to accommodate the evolving
Medicaid reporting requirements and other administrative demands. Health plans can purchase these solutions in a license, hosted or BPO option, including an integrated solutionFastTrakthat implements in six months.

PDM.In 2006, TriZetto acquired Plan Data Management, a leading business solutions company to the Medicare Advantage industry. PDM provides products to assist
plans in four key Medicare Advantage requirements including enrollment administration, HCC revenue management, Financial reconciliation and Claims and Prescription Drug Event (PDE) administration. Plan Data Management is also a leading provider of
fraud, waste and abuse (FWA) services, currently assisting payers covering over 12 million lives.

Medicare Consulting
Services.TriZetto consultants can work on-site to assist payers with such tasks as implementing Medicare solutions, development of a plan for entering the Medicare market, and preparing for a CMS audit. Through best-practices
models, TriZetto can also help ensure that plans optimize administrative systems.

Outsourced Business Services

In 2007, we derived approximately 21% of our total revenue from outsourced business services. Our outsourced business services fall into two categories,
software hosting and application management and business process outsourcing, both of which are described in more detail below.

Software Hosting and
Application Management. TriZetto Hosting Services include integrating, hosting, monitoring, and managing our proprietary software applications alongside other software applications from third party vendors. We deliver software on a
cost-predictable subscription basis, through multi-year contracts that include service levels.

TriZetto Hosting Services include implementing, hosting and supporting Facets®, CareAdvance Enterprise, Constituent Web Solution®, NetworX, QicLink and the third-party applications with which these systems interface. Dedicated teams provide deep knowledge in technical architecture, application support,
performance and tuning, operations and release management. The data center operates 24x7x365 and offers a Class 5 (highest level) data center that includes disaster recovery capabilities that support HIPAA and internal control requirements.

Whether adding new members, or adding care and network management capability, TriZettos hosting customers turn to us to help them
align their strategic and business initiatives. Using TriZettos Hosting Services, health plans can deliver new products to market faster and better manage capacity fluctuations, provide higher service levels and focus IT resources on strategic
initiatives rather than day-to-day operations.

TriZettos hosted solutions provide complete, professionally managed application
management and customization that includes desktop and network connections, software applications, specialized third-party software, information management access and sophisticated reporting capabilities to aid in data analysis and decision making.
Customers can choose the combination of our products and services to best meet their business requirements including:

Hosting.A
comprehensive solution that works for health plans of all sizes. TriZetto Hosting Services include best-practice implementation, and management and support of TriZettos products. Standard packages include monitoring and reporting of
customers equipment, telecommunications, network services and disaster recovery. Also included is the management of daily batch scheduling, reporting, and interfaces to business-critical third-party applications.

On Demand Environments.These services provide pre-configured environments run by experienced
Facets® professionalsto help customers jumpstart their product configuration, testing and training activities, and deliver more features to the market this year than current resources
allow.



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Disaster Recovery.Because compliance is key
to any health plans operations, TriZetto also offers multiple disaster recovery options including a Class 5 (highest level) data center. This facility incorporates advanced technology to ensure the maximum possible disaster preparedness. It
includes features such as redundant connectivity, cooling, power sources, generator and fuel systems. TriZetto data centers are staffed 24x7x365 by Facets® experts who know how to recover
Facets® more quickly and efficiently than companies that provide only equipment and floor space.

InfoTrust®.The
TriZetto Cyber Site also incorporates its powerful InfoTrust® methodology to allow health plans to use recovery equipment as a pre-production model environment for application testing. With
InfoTrust®, TriZetto provides servers and applications as a non-production environment. If a disaster occurs, TriZetto fails over to these environments to recover customers
applications in committed recovery times. This double use methodology provides a more cost effective solution for health plans because it minimizes equipment needs.

Vendor Partner Relationships. In order to provide our customers with accessibility to other specialty software applications that run integrated and alongside TriZetto solutions, we have acquired rights
to license and/or deploy numerous commercially available software applications from a variety of healthcare and other software vendors. These relationships range from perpetual, reusable software licenses and contracts to preferred installer
agreements to informal co-marketing arrangements. We enter into relationships with software vendors in order to offer our customers a variety of solutions tailored to their unique information technology needs. Our relationships with our vendor
partners are designed to provide both parties with numerous mutual benefits.

Business Process Outsourcing (BPO). To complement our software
hosting services, we also provide health plans and benefits administrators with transaction processing services for typical back office functions, including claims, billing, and enrollment. Customers typically outsource to us for the following
reasons: to improve or maintain service, for more predictable costs, to take advantage of our larger scale, to reduce risk through our performance guarantees, to gain access to our technical and healthcare business expertise, to increase
speed-to-market, to ensure business continuity, and to become HIPAA compliant.

Our business process outsourcing services include:



| |  |  | Benefit and Provider Configuration Rule Set-Up. We configure, and can maintain, the customers software according to the customers specific
benefit plans and provider payment arrangements;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Document Imaging/Electronic Data Interchange (EDI) Processing. We accept and process claim forms, enrollment documents and other documents submitted via
paper or EDI, and scan all images for electronic retrieval;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Medical, Dental, and Specialty Claims Processing. We process claims submitted for services under a variety of products and lines of business, adjust
payments, and coordinate benefits. We also generate, print, and distribute claims payment checks and remittance notices to appropriate claimants and to health plan members;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Membership and Enrollment Processing. We set up employer group and individual membership information and process transactions regarding benefit plan
selection, assignment of primary care physicians, and membership changes. We also issue member identification cards and perform other related administrative tasks;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Premium Billing. We generate, print, and mail invoices, post payments received on behalf of the health plan, and reconcile employer group and individual
member accounts against billed amounts;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Print and Mailing Services. We print and mail functional area output documents such as enrollment cards, claims payment checks, remittance notices, premium
invoices, broker commission checks, and capitation payments along with supporting documentation; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Business Continuity Services. We have facilities and personnel available to assist customers using our proprietary products to meet business processing
requirements in the event of a loss of a customer site.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Health
plans can purchase these services on a retainer or project basis. These business process outsourcing services are generally provided in our centralized processing locations. Approximately 225 employees are located at our various processing sites,
providing services for customers using our Facets®, QicLink, and other proprietary and third-party software systems.

Professional Services

We derived approximately 31% of our revenue from professional services in
2007, mainly from consulting and implementations associated with our proprietary software, software hosting, and other outsourcing contracts. As of December 31, 2007, we employed approximately 350 professional services personnel.



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Our professional services team helps our customers implement and leverage technology with end-to-end
capabilities that reduce operational risk while accelerating their ability to support new business lines, change consumer behavior with care management and use business intelligence to drive change management.

Our team has the ability to assess, select, implement and optimize technology and processes to
match the payers business needs across all of TriZettos proprietary software products, including Facets®, CareAdvance, QNXT, Constituent Web Solution®, HIPAA Gateway, and NetworX Suite. TriZetto offers payers five end-to-end capabilities: product expertise, technology integration, user effectiveness training, operational efficiency, and
delivery leadership.

Product Expertise.TriZetto provides product-certified, payer industry experts to drive product configuration through
implementation, testing, and go-live. With unparalleled product expertise, senior-level product consultants specialized in TriZetto products and vertical markets (e.g., Medicare) typically become a trusted advisor to the payers
project team. Product consultants are onsite, dedicated resources for a project duration and have a heavy focus on knowledge transfer. While payers use product consultants typically for implementation and upgrade help, they can also engage this
function to troubleshoot problems and optimize operations. Product consulting includes:



| |  |  | Configuration design;
| | - |  | ---------------------



| |  |  | Data preparation and analysis;
| | - |  | ------------------------------



| |  |  | Go-live support; and
| | - |  | --------------------



| |  |  | Post-implementation optimization.
| | - |  | ---------------------------------

Technology
Integration.TriZettos Technology Integration services enable payers to integrate TriZetto solutions into their IT environments and expand their capabilities to map to business needs. Technology Integration services can be broken into
two categories: Technology Consulting and Customer-Specific Solutions. Technology Consulting has three focus areas:



| |  |  | Enterprise Architecture services - Optimize client investment in infrastructure and TriZetto technology to improve scalability and system performance;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Environment setup and management: -Install and maintain test environments during application implementation; and
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | Performance and optimization -Troubleshoot performance issues and help payers optimize the overall system architecture.
| | - |  | -----------------------------------------------------------------------------------------------------------------------

In addition, TriZettos Customer-Specific Solutions help payers modify TriZetto applications to meet their unique business needs. This includes the following
service areas:



| |  |  | Conversion services:Convert customers legacy system data to TriZettos systems including Facets®, QNXT and NetworX. This includes the migration of customers existing membership, provider, claims and other data from legacy systems; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Application, Extension, Interfaces and Reports Development:Includes requirements analysis, design and development of custom solutions including interfaces,
extracts, extensions, and mini-applications tailored to customer-specific development needs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

User Effectiveness. TriZetto
has application training and certification programs for its products. The overall certification program, which was developed in 2007, will be rolled out in early 2008. Application training includes:



| |  |  | Facets® Application and Technical Training Courses;
| | - |  | ---------------------------------------------------



| |  |  | NetworX Training Courses;
| | - |  | --------------------------



| |  |  | CareAdvance Training Courses;
| | - |  | ------------------------------



| |  |  | Training Development Services; and
| | - |  | ----------------------------------



| |  |  | Post Go-Live Training Services.
| | - |  | -------------------------------

Operational
Efficiency.TriZettos Operational Efficiency services help payers increase their administrative efficiency in three key areas: business processes, business intelligence and testing.



| |  |  | Business Process Engineering:Drives measurable improvements in productivity, cost savings and quality by mapping technology to the business processes and
people it supports. The team uses over 2,000 Facets-specific process models to simulate processes, identify bottle necks, model process improvements and forecast their effect.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Business Intelligence (BI):As information is the key to helping consumers make better health decisions, our BI services continue to take a more integral
role in payer operations. BIs focus has continued to evolve from an IT driven technology to information used by the business operations to assess and understand customer needs. Our BI capabilities include assessment, engineering and
implementation of BI solutions including helping payers build a data warehouse.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Test Strategy and Execution:TriZetto resources provide testing support and process knowledge related to TriZetto applications during implementations. We
support both business testing (requirement review and definition, testing methodology and standards and test data build and mining) and technical testing (batch, tools-based automation and environment management).
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Delivery Leadership.TriZettos unique Delivery Leadership model integrates proven Program and Project Management capabilities into a single function.
It includes leadership support for very large scale, multi-phase implementations, which include multiple application installations and configurations, and application specific project management inside a wider project. Delivery Leadership
capabilities include:



| |  |  | On-site program and project managers to interact, guide, mentor, and support clients;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Project governance, planning & reporting (e.g., Steering Committee) based on quantitative metrics on progress and issues;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Scope, budget & communication management;
| | - |  | -----------------------------------------



| |  |  | Project quality and risk reviews (QA) from Executive Perspective;
| | - |  | -----------------------------------------------------------------



| |  |  | Project financial analysis;
| | - |  | ---------------------------



| |  |  | Partnership with customer management team; and
| | - |  | ----------------------------------------------



| |  |  | Customizable to client PMO structure.
| | - |  | -------------------------------------

SALES AND
MARKETING

Our primary sales and marketing approach is to utilize our direct sales force to promote TriZetto as the single source for
comprehensive healthcare information technology products and services to payers. As of December 31, 2007, we had approximately 95 sales, sales support, account management and marketing employees throughout the United States. Our professional
sales force sells our entire range of offerings to current and prospective customers, including enterprise core administration software, network management and care management, outsourced hosting and business services, and consulting services. We
also have specialized sales personnel who focus exclusively on our care management applications. Separate sales teams have been established for the health plan and benefits administration markets. Our solutions architecture team supports application
and service sales while our sales support team provides in-depth technical information, provides product demonstrations and negotiates contracts with our customers and prospects. To support the overall sales process, multi-disciplinary pursuit teams
are established for each major prospect, spearheaded by a member of executive management.

Our marketing team includes five key areas:
Integrated Marketing, Marketing Communications and Events, Sales Channel Programs, Solutions Marketing and Product Marketing. Key functions of Integrated Marketing include branding and naming, integrated marketing planning, market intelligence,
relationship marketing, analyst relations, employee communications and the Intranet and Internet. Marketing Communications and Events produces our advertising, collateral and lead generation material, as well as plans and executes TriZetto
conferences and trade shows. Sales Channel Programs include customer analytics, loyalty programs, customer satisfaction and customer councils. The Solutions Marketing and Product Marketing teams are responsible for driving a presence in new markets
including developing value propositions, sales tools, application beta management, product roadmaps and segmentation planning.

CUSTOMER SERVICE

We believe that personalized support is necessary to maintain long-term relationships with our customers. Because we support multiple
applications and technology solutions, our functional and technical support staff are grouped and trained by specific application and by application type. These focused staff groups have concentrated expertise that we can deploy as needed to address
customer needs. We cross-train employees to support multiple applications and technology solutions and create economies-of-scale in our support staff.

We further leverage the capabilities of our support staff through the use of sophisticated software that tracks solutions to common computer and software-related problems. This allows our support staff to learn from
the experience of other people within the organization and reduces the time it takes to solve problems. In addition, we provide customer support for our business process outsourcing services.



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Hosted clients interact most directly with TriZettos customer delivery management (CDM) business
unit. The CDM provides ongoing customer support and customer-facing functions for TriZettos hosted customers and reports directly to the senior vice president of Enterprise Infrastructure (i.e., hosting operations). In addition to
providing the customer support services identified above, the CDM is primarily responsible for managing service level commitments and supervising the delivery of customers specific production processing services (e.g., batch processing, online
availability, file transfers, connectivity, and issue resolution) for hosted customers. This service-oriented business unit is composed of TriZettos Customer Support Help Desk and a dedicated customer delivery team composed of customer leads
and a customer delivery executive (CDE).

COMPETITION

The market for healthcare information technology services is intensely competitive, rapidly evolving, highly fragmented and subject to rapid technological change. Correspondingly, the companies that serve this market
have seen significant consolidation in the last few years, as the points below support. Given the ever increasing challenges facing healthcare payers, additional restructuring will likely continue.

TriZetto is distinctly focused on accelerating payers ability to lead the healthcare industrys transformation by providing premier
information technology solutions to:



| |  |  | enhance our customers revenue growth;
| | - |  | --------------------------------------



| |  |  | drive their administrative efficiency; and
| | - |  | ------------------------------------------



| |  |  | improve the cost and quality of care for their members.
| | - |  | -------------------------------------------------------

To accomplish this we use proprietary technologies and methods, develop, integrate and deliver packaged enterprise and component software applications, connectivity solutions for both Internet and direct
communication, application hosting, infrastructure outsourced business services and IT consulting services. Our competitors provide some or all of the services that we provide.

Our competitors can be categorized as follows:



| |  |  | information technology and outsourcing companies, such as Perot Systems Corporation, IBM, Affiliated Computer Services, DST Systems Inc., Electronic Data Systems
Corporation and Infocrossing (Wipro);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | healthcare information software vendors, including the newly combined DST Systems Inc., Perot Systems Corporation, Electronic Data Systems Corporation, and Plexis
Healthcare Systems in the health plan market, as well as Mphasis Healthcare Solutions (formerly Eldorado Computing) and SBPA in the benefits administration market, and MMC 2020, Gorman and Dynamics in the Medicare Advantage market;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | healthcare information technology consulting firms, such as First Consulting Group Inc. (being acquired by CSC), Proxicom (acquired by iCrossing) and the consulting
divisions or former affiliates of the major accounting firms, such as Deloitte Consulting and Accenture;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | healthcare e-commerce and portal companies, such as BenefitFocus, HLTH Corporation (formerly Emdeon/WebMD), Healthation, HealthTrio, AVOLENT, and edocs;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | enterprise application integration vendors such as Vitria, SeeBeyond, TIBCO, Fuego (acquired by BEA) and M2;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | care management software and service companies such as McKesson, MEDecision, HealthTrio, Landacrop, HLTH Corporation (WebMD), and Click4Care;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | network management vendors such as Portico and McKesson;
| | - |  | --------------------------------------------------------



| |  |  | consumer retail software and services companies such as CareGain and FiServ; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | health plans, themselves, some of whom are providing hosting and BPO services to the marketplace and leveraging capabilities across the aggregated membership of
multiple organizations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Each of these types of companies can be expected to compete with us within various segments of
the healthcare information technology market. Furthermore, major software information systems companies and other entities, including those specializing in the healthcare industry that are not presently offering applications that compete with our
products and services, may enter our markets. In addition, some of our third-party software vendors compete with us from time to time by offering their software on a licensed or hosted basis, as do some very large payer organizations that develop
their own in-house solutions.

We believe companies in our industry primarily compete based on performance, price, software functionality,
ease of implementation, level of service, and track record of successful customer installations. Although our competitive position is difficult to characterize due principally to the variety of current and potential competitors and the evolving
nature of our



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market, we believe that we presently compete favorably with respect to all of these factors. While our competition comes from many industry segments, we
believe no other single company offers the integrated, single-source solution that we provide to our customers. This is the basis for our announcement this year of Integrated Healthcare Management (IHM)  the framework for a new, comprehensive
solutions approach to improving the coordination of benefits and care for healthcare consumers.

To be competitive, we must continue to
enhance our products and services within IHM, as well as our sales, marketing, and distribution channels to respond promptly and effectively to:



| |  |  | changes in the healthcare industry, including consolidation;
| | - |  | ------------------------------------------------------------



| |  |  | constantly evolving standards and government regulation affecting healthcare transactions;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | the challenges of technological innovation and adoption;
| | - |  | --------------------------------------------------------



| |  |  | evolving business practices of our customers;
| | - |  | ---------------------------------------------



| |  |  | our competitors new products and services;
| | - |  | -------------------------------------------



| |  |  | new products and services developed by our vendor partners and suppliers; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | challenges in hiring and retaining information technology professionals.
| | - |  | ------------------------------------------------------------------------

BACKLOG

Our total backlog is defined as the revenue we expect to generate in future periods from
existing customer contracts. Our 12-month backlog is defined as the revenue we expect to generate from existing customer contracts over the next 12 months. Most of the revenue in our backlog is derived from multi-year service revenue contracts
(including software hosting, business process outsourcing, IT outsourcing, and software maintenance with periods up to seven years), term software license fees, and consulting contracts. Consulting revenue is included in the backlog when the revenue
from such a consulting contract is expected to be recognized over a period exceeding 12 months.

Backlog can change due to a number of
factors, including unforeseen changes in implementation schedules, contract cancellations (subject to penalties paid by the customer, if applicable), or customer financial difficulties. In such event, unless we enter into new customer agreements
that generate enough revenue to replace or exceed the revenue that is recognized in any given quarter, our backlog will decline. Our backlog at any date may not indicate demand for our products and services and may not reflect actual revenue for any
period in the future.

Our total backlog at December 31, 2007 was approximately $982.6 million compared to $858.2 million at
December 31, 2006. The 12-month backlog at December 31, 2007 was approximately $238.4 million compared to $213.3 million at December 31, 2006.

INTELLECTUAL PROPERTY

Our intellectual property is important to our business. We rely on certain developed software assets
and internal methodologies for performing customer services. Our consulting services group develops and utilizes information technology life-cycle methodology and related paper-based and software-based toolsets to perform customer assessments,
planning, design, development, implementation, and support services. We rely primarily on a combination of patent, copyright, trademark and trade secret laws, confidentiality procedures, and contractual provisions to protect our intellectual
property.

Our efforts to protect our intellectual property may not be adequate. Our competitors may independently develop similar
technology or duplicate our products or services. Unauthorized parties may infringe upon or misappropriate our products, services or proprietary information. In addition, the laws of some foreign countries do not protect proprietary rights as well
as the laws of the United States. In the future, litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be time consuming and
costly.

We could be subject to intellectual property infringement claims as we expand our product and service offerings and the number of
competitors increases. Defending against these claims, even if not meritorious, could be expensive and divert our attention from operating our company. If we become liable to third parties for infringing upon their intellectual property rights, we
could be required to pay a substantial damage award and be forced to develop non-infringing technology, obtain a license or cease using the applications that contain the infringing technology or content. We may be unable to develop non-infringing
technology or content or obtain a license on commercially reasonable terms, or at all.



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We also rely on a variety of technologies that are licensed from third parties to perform key functions.
These third-party licenses are an essential element of our hosted solutions business. These third-party licenses may not be available to us on commercially reasonable terms in the future. The loss of or inability to maintain any of these licenses
could delay the introduction of software enhancements and other features until equivalent technology can be licensed or developed. Any such delay could materially adversely affect our ability to attract and retain customers.

SIGNIFICANT CUSTOMERS

As of December 31, 2007,
we were providing services to 351 unique customers. One of our customers, The Regence Group, accounted for more than 10% of our consolidated revenue in 2007 and 2006. No single customer accounted for more than 10% of our accounts receivable in 2007
or 2006. In 2005, one of our customers, The Regence Group, accounted for more than 10% of our accounts receivable and two of our customers, The Regence Group and United Healthcare Services, Inc., each accounted for more than 10% of our consolidated
revenue.

EMPLOYEES

As of
December 31, 2007, we had approximately 2,000 employees. Our employees are not subject to any collective bargaining agreements, and we generally have good relations with our employees.

AVAILABLE INFORMATION

Our website is located at
www.trizetto.com. We make available free of charge through this website all of our SEC filings including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon
as reasonably practicable after those reports are electronically filed with the SEC.

Item 1ARISK FACTORS

We cannot predict if we will be able to sustain our revenue or positive net income.

We may not be able to sustain or increase our current level of revenue or positive net income. We currently derive our revenue
primarily from providing hosted solutions, software licensing and maintenance, and other services such as consulting. We depend on the continued demand for healthcare information technology and related services. We plan to continue investing in
administrative infrastructure, research and development, sales and marketing, and acquisitions. If we are not able to sustain our current levels of revenue or maintain our profitability, our operations may be adversely affected.

Revenue from a limited number of customers comprises a significant portion of our total revenue, and if these customers terminate or modify existing contracts or
experience business difficulties, it could adversely affect our earnings.

As of December 31, 2007, we were providing services to
351 unique customers. One of our customers, the Regence Group, represented approximately 10.4% of our consolidated revenue in the fiscal year of 2007. Although we typically enter into multi-year customer agreements, a majority of our customers are
able to reduce or cancel their use of our services before the end of the contract term, subject to monetary penalties. We also provide services to some hosted customers without long-term contracts. In addition, many of our contracts are structured
so that we generate revenue based on units of volume, which include the number of members, number of workstations or number of users. If our customers experience business difficulties and the units of volume decline or if a customer ceases
operations for any reason, we will generate less revenue under these contracts and our operating results may be materially and adversely impacted.

Our operating expenses are relatively fixed and cannot be reduced on short notice to compensate for unanticipated contract cancellations or reductions. As a result, any termination, significant reduction or modification of our business
relationships with any of our significant customers could have a material adverse effect on our business, financial condition, operating results and cash flows.

Our business is changing rapidly, which could cause our quarterly operating results to vary and our stock price to fluctuate.

Our quarterly operating results have varied in the past, and we expect that they will continue to vary in future periods. Our quarterly operating results can vary significantly based on a number of factors, such as:



| |  |  | our mix of products and services revenue;
| | - |  | -----------------------------------------



| |  |  | whether our customers choose to license our software under terms and conditions that require revenues to be deferred or recognized ratably over time rather than
upfront;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | our ability to add new customers and renew existing accounts;
| | - |  | -------------------------------------------------------------



| |  |  | selling additional products and services to existing customers;
| | - |  | ---------------------------------------------------------------



| |  |  | long and unpredictable sales cycles;
| | - |  | ------------------------------------



| |  |  | meeting project milestones and customer expectations;
| | - |  | -----------------------------------------------------



| |  |  | seasonality in information technology purchases;
| | - |  | ------------------------------------------------



| |  |  | the timing of new customer sales; and
| | - |  | -------------------------------------



| |  |  | general economic conditions.
| | - |  | ----------------------------

Variations in our quarterly operating results could cause us to not meet the earnings estimates of securities analysts or the expectations of our investors, which could affect the market price of our common stock in a manner that may be
unrelated to our long-term operating performance.

We base our expense levels in part upon our expectations concerning future revenue, and
these expense levels are relatively fixed in the short-term. If we do not achieve our expected revenue targets, we may not be able to reduce our short-term spending in response. Any shortfall in revenue would have a direct impact on our results of
operations.

The intensifying competition we face from both established entities and new entries in the market may adversely affect our revenue and
profitability.

The market for our technology and services is highly competitive and rapidly changing and requires potentially
expensive technological advances. Many of our competitors and potential competitors have significantly greater financial, technical, product development, marketing and other resources, and greater market recognition than we have. Many of our
competitors also have, or may develop or acquire, substantial installed customer bases in the healthcare industry. As a result, our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements
or to devote greater resources to the development, promotion, and sale of their applications or services than we can devote.

Our
competitors can be categorized as follows:



| |  |  | information technology and outsourcing companies, such as Perot Systems Corporation, IBM, Affiliated Computer Services, DST Systems Inc., Electronic Data Systems
Corporation and Infocrossing (Wipro);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | healthcare information software vendors, including the newly combined DST Systems Inc., Perot Systems Corporation, Electronic Data Systems Corporation, and Plexis
Healthcare Systems in the health plan market, as well as Mphasis Healthcare Solutions (formerly Eldorado Computing) and SBPA in the benefits administration market, and MMC 2020, Gorman and Dynamics in the Medicare Advantage market;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | healthcare information technology consulting firms, such as First Consulting Group Inc. (being acquired by CSC), Proxicom (acquired by iCrossing) and the consulting
divisions or former affiliates of the major accounting firms, such as Deloitte Consulting and Accenture;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | healthcare e-commerce and portal companies, such as BenefitFocus, HLTH Corporation (formerly Emdeon/WebMD), Healthation, HealthTrio, AVOLENT, and edocs;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | enterprise application integration vendors such as Vitria, SeeBeyond, TIBCO, Fuego (acquired by BEA) and M2;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | care management software and service companies such as McKesson, MEDecision, HealthTrio, Landacrop, HLTH Corporation (WebMD), and Click4Care;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | network management vendors such as Portico and McKesson;
| | - |  | --------------------------------------------------------



| |  |  | consumer retail software and services companies such as CareGain and FiServ; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | health plans, themselves, some of whom are providing hosting and BPO services to the marketplace and leveraging capabilities across the aggregated membership of
multiple organizations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Further, other entities that do not presently compete with us may do so in the future, including
major software information systems companies and financial services entities.

We believe our ability to compete will depend in part upon
our ability to:



| |  |  | enhance our current technology and services;
| | - |  | --------------------------------------------



| |  |  | respond effectively to technological changes;
| | - |  | ---------------------------------------------



| |  |  | introduce new capabilities for current and new market segments;
| | - |  | ---------------------------------------------------------------



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| |  |  | meet the increasingly sophisticated needs of our customers; and
| | - |  | ---------------------------------------------------------------



| |  |  | maintain and continue to develop partnerships with vendors.
| | - |  | -----------------------------------------------------------

Increased competition may result in price reductions, reduced margins, and loss of market share, any of which could have a material adverse effect on our results of operations. In addition, pricing, margins, and
market share could be negatively impacted further as a greater number of available products in the marketplace increases the likelihood that product and service offerings in our markets become more fungible and price sensitive.

Our sales and implementation cycles are long and unpredictable.

We have experienced and continue to experience long and unpredictable sales cycles, particularly for contracts with large customers, or customers purchasing multiple products and services. Enterprise software
typically requires significant capital expenditures by customers, and the decision to outsource IT-related services is complicated and time-consuming. Major purchases by large payer organizations typically range from nine to 12 months or more from
initial contact to contract execution. The prospects currently in our pipeline may not sign contracts within a reasonable period of time or at all.

In addition, our implementation cycle has ranged from 12 to 24 months or longer from contract execution to completion of implementation. During the sales cycle and the implementation cycle, we will expend substantial time, effort, and
financial resources preparing contract proposals, negotiating the contract, and implementing the solution. We may not realize any revenue to offset these expenditures, and, if we do, accounting principles may not allow us to recognize the revenue
during corresponding periods, which could harm our future operating results. Additionally, any decision by our customers to delay implementation may adversely affect our revenues.

Consolidation of healthcare payer organizations and benefits administrators could decrease the number of our existing and potential customers.

There has been and continues to be acquisition and consolidation activity among healthcare payers and benefits administrators. Mergers or consolidations
of payer organizations in the future could decrease the number of our existing and potential customers. The acquisition of a customer could reduce our revenue and have a negative impact on our results of operations and financial condition. A smaller
overall market for our products and services could also result in lower revenue and margins. In addition, healthcare payer organizations are increasing their focus on consumer directed healthcare, in which consumers interact directly with health
plans through administrative services provided by health plans to employer groups. These services compete with the services provided by benefits administrators and could result in additional consolidation in the benefits administration market.

Some of our significant customers may develop their own software solutions, which could decrease the demand for our products.

Some of our customers in the healthcare payer industry have, or may seek to acquire, the financial and technological resources necessary to develop
software solutions to perform the functions currently serviced by our products and services. Additionally, consolidation in the healthcare payer industry could result in additional organizations having the resources necessary to develop similar
software solutions. If these organizations successfully develop and utilize their own software solutions, they may discontinue their use of our products or services, which could materially and adversely affect our results of operations.

We depend on our software application vendor relationships, and if our software application vendors terminate or modify existing contracts or experience business
difficulties, or if we are unable to establish new relationships with additional software application vendors, it could harm our business.

We depend, and will continue to depend, on our licensing and business relationships with third-party software application vendors. Our success depends significantly on our ability to maintain our existing relationships with our vendors and
to build new relationships with other vendors in order to enhance our services and application offerings and remain competitive. Although most of our licensing agreements are perpetual or automatically renewable, they are subject to termination in
the event that we materially breach such agreements. We may not be able to maintain relationships with our vendors or establish relationships with new vendors. The software, products or services of our third-party vendors may not achieve or maintain
market acceptance or commercial success. Accordingly, our existing relationships may not result in sustained business partnerships, successful product or service offerings or the generation of significant revenue for us.



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Our arrangements with third-party software application vendors are not exclusive. These third-party
vendors may not regard our relationships with them as important to their own respective businesses and operations. They may reassess their commitment to us at any time and may choose to develop or enhance their own competing distribution channels
and product support services. If we do not maintain our existing relationships or if the economic terms of our business relationships change, we may not be able to license and offer these services and products on commercially reasonable terms or at
all. Our inability to obtain any of these licenses could delay service development or timely introduction of new services and divert our resources. Any such delays could materially adversely affect our business, financial condition, operating
results and cash flows.

Our licenses for the use of third-party software applications are essential to the technology solutions we provide
for our customers. Loss of any one of our major vendor agreements may have a material adverse effect on our business, financial condition, operating results and cash flows.

We rely on third-party software vendors for components of our software products.

Our software
products contain components developed and maintained by third-party software vendors, and we expect that we may have to incorporate software from third-party vendors in our future products. We may not be able to replace the functions provided by the
third-party software currently offered with our products if that software becomes obsolete, defective, or incompatible with future versions of our products or is not adequately maintained or updated. Any significant interruption in the availability
of these third-party software products or defects in these products could harm the sale of our products unless and until we can secure or develop an alternative source. Although we believe there are adequate alternate sources for the technology
currently licensed to us, such alternate sources may not be available to us in a timely manner, may not provide us with the same functions as currently provided to us or may be more expensive than products we currently use.

We have sustained rapid growth, and our inability to manage this growth could harm our business.

We have rapidly and significantly expanded our operations since inception and may continue to do so in the future. This growth has placed, and may
continue to place, a significant strain on our managerial, operational, and financial resources, and information systems. If we are unable to manage our growth effectively, it could have a material adverse effect on our business, financial
condition, operating results, and cash flows.

Our acquisition strategy may disrupt our business and require additional financing.

Since our initial public offering in October 1999, we have completed ten acquisitions. A significant portion of our historical growth has occurred
through acquisitions and we may continue to seek strategic acquisitions as part of our growth strategy. We compete with other companies to acquire businesses, making it difficult to acquire suitable companies on favorable terms or at all.
Acquisitions may require significant capital, typically entail many risks, and can result in difficulties integrating operations, personnel, technologies, products and information systems of acquired businesses.

We may be unable to successfully integrate companies that we have acquired or may acquire in the future in a timely manner. If we are unable to
successfully integrate acquired businesses, we may incur substantial costs and delays or other operational, technical or financial problems. In addition, the integration of our acquisitions may divert our managements attention from our
existing business, which could damage our relationships with our key customers and employees.

To finance future acquisitions, we may issue
equity securities that could be dilutive to our stockholders. We may also incur debt and additional amortization expenses related to goodwill and other intangible assets as a result of acquisitions. The interest expense related to this debt and
additional amortization expense may significantly reduce our profitability and have a material adverse effect on our business, financial condition, operating results and cash flows. Acquisitions may also result in large one-time charges as well as
goodwill and intangible assets and impairment charges in the future that could negatively impact our operating results.

Our need for additional
financing is uncertain as is our ability to raise capital if required.

If we are not able to sustain our positive net income, we may
need additional financing to fund operations or growth. We may not be able to raise additional funds through public or private financings at any particular point in the future or on favorable terms. Future financings could adversely affect our
common stock and debt securities.



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Our business will suffer if our software products contain errors.

The proprietary and third party software products we offer are inherently complex. Despite our testing and quality control procedures, errors may be
found in current versions, new versions or enhancements of our products. Significant technical challenges may also arise with our products because our customers purchase and deploy those products across a variety of computer platforms and integrate
them with a number of third-party software applications and databases. If new or existing customers have difficulty deploying our products or require significant amounts of customer support, our costs would increase. Moreover, we could face possible
claims and higher development costs if our software contains undetected errors or if we fail to meet our customers expectations. As a result of the foregoing, we could experience:



| |  |  | loss of or delay in revenue and loss of market share;
| | - |  | -----------------------------------------------------



| |  |  | loss of customers;
| | - |  | ------------------



| |  |  | damage to our reputation;
| | - |  | -------------------------



| |  |  | failure to achieve market acceptance;
| | - |  | -------------------------------------



| |  |  | diversion of development resources;
| | - |  | -----------------------------------



| |  |  | increased service and warranty costs;
| | - |  | -------------------------------------



| |  |  | legal actions by customers against us which could, whether or not successful, increase costs and distract our management; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | increased insurance costs.
| | - |  | --------------------------

We could lose
customers and revenue if we fail to meet contractual obligations including performance standards and other material obligations.

Many
of our service agreements contain performance standards and other post contract obligations. Our failure to meet these standards or breach other material obligations under our agreements could trigger remedies for our customers including
termination, financial penalties and refunds that could have a material adverse effect on our business, financial condition, operating results and cash flows.

If our ability to expand our network and computing infrastructure is constrained in any way, we could lose customers and damage our operating results.

We must continue to expand and adapt our network and technology infrastructure to accommodate additional users, increased transaction volumes, changing customer requirements and technological obsolescence. We may not
be able to accurately project the rate or timing of increases, if any, in the use of our hosted solutions or be able to expand and upgrade our systems and infrastructure to accommodate such increases. We may be unable to expand or adapt our network
infrastructure to meet additional demand or our customers changing needs on a timely basis, at a commercially reasonable cost or at all. Our current information systems, procedures and controls may not continue to support our operations while
maintaining acceptable overall performance and may hinder our ability to exploit the market for healthcare applications and services. Service lapses could cause our users to switch to the services of our competitors, which could have a material
adverse effect on our business, financial condition, operating results and cash flows.

Performance or security problems with our systems could damage
our business.

Our customers satisfaction and our business could be harmed if we, or our customers, experience any system delays,
failures, or loss of data.

Although we devote substantial resources to avoid performance problems, errors may occur. Errors in the
processing of customer data may result in loss of data, inaccurate information, and delays. Such errors could cause us to lose customers and be liable for damages. We currently process a substantial number of our customers transactions and
data at our data centers in Colorado. Although we have safeguards for emergencies and we have contracted backup processing for our customers critical functions, the occurrence of a major catastrophic event or other system failure at any of our
facilities could interrupt data processing or result in the loss of stored data. In addition, we depend on the efficient operation of telecommunication providers that have had periodic operational problems or experienced outages.

A material security breach could damage our reputation or result in liability to us. We retain confidential customer and federally protected patient
information in our data centers. Therefore, it is critical that our facilities and infrastructure remain secure and that our facilities and infrastructure are perceived by the marketplace to be secure. Despite the implementation of security
measures, our infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties, or similar disruptive problems.



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Our services agreements generally contain limitations on liability, and we maintain insurance with
appropriate coverage limits for general liability and professional liability to protect against claims associated with the use of our products and services. However, the contractual provisions and insurance coverage may not provide adequate coverage
against all possible claims that may be asserted. In addition, appropriate insurance may be unavailable in the future at commercially reasonable rates. A successful claim in excess of our insurance coverage could have a material adverse effect on
our business, financial condition, operating results, and cash flows. Even unsuccessful claims could result in litigation or arbitration costs and may divert managements attention from our existing business.

Our success depends on our ability to attract, retain and motivate management and other key personnel.

Our success depends in large part on the continued services of management and key personnel. Competition for personnel in the healthcare information
technology market is intense, and there are a limited number of persons with knowledge of, and experience in, this industry. We do not have employment agreements with most of our executive officers, so any of these individuals may terminate his or
her employment with us at any time. The loss of services from one or more of our management or key personnel, or the inability to hire additional management or key personnel as needed, could have a material adverse effect on our business, financial
condition, operating results, and cash flows. Although we currently experience relatively low rates of turnover for our management and key personnel, the rate of turnover may increase in the future. In addition, we expect to further grow our
operations and our needs for additional management and key personnel will increase. Our continued ability to compete effectively in our business depends on our ability to attract, retain, and motivate these individuals.

We rely on an adequate supply and performance of computer hardware and related equipment from third parties to provide services to larger customers and any
significant interruption in the availability or performance of third-party hardware and related equipment could adversely affect our ability to deliver our products to certain customers on a timely basis.

As we offer our hosted solution services and software to a greater number of customers and particularly to larger customers, we may be required to obtain
specialized computer equipment from third parties that can be difficult to obtain on short notice. Any delay in obtaining such equipment may prevent us from delivering large systems to our customers on a timely basis. We also may rely on such
equipment to meet required performance standards. We may have no control over the resources that third parties may devote to service our customers or satisfy performance standards. If such performance standards are not met, we may be adversely
impacted under our service agreements with our customers.

Any failure or inability to protect our technology and confidential information could
adversely affect our business.

Our success depends in part upon proprietary software and other confidential information. The software
and information technology industries have experienced widespread unauthorized reproduction of software products and other proprietary technology. We rely on a combination of copyright, patent, trademark and trade secret laws, confidentiality
procedures, and contractual provisions to protect our intellectual property. However, these protections may not be sufficient, and they do not prevent independent third-party development of competitive products or services.

We execute confidentiality and non-disclosure agreements with certain employees and our suppliers, as well as limit access to and distribution of our
proprietary information. The departure of any of our management and technical personnel, the breach of their confidentiality and non-disclosure obligations to us, or the failure to achieve our intellectual property objectives could have a material
adverse effect on our business, results of operations and financial condition. We have had, and may continue to have, employees leave us and go to work for competitors. If we are not successful in prohibiting the unauthorized use of our proprietary
technology or the use of our processes by a competitor, our competitive advantage may be significantly reduced which would result in reduced revenues.

Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.

We cannot be certain that our products do not infringe issued patents or other intellectual property rights of others. In addition, because patent
applications in the United States and many other countries are not publicly disclosed until a patent is issued, applications covering technology used in our software products may have been filed without our knowledge. We may be subject to legal
proceedings and claims from time to time, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by us or our licensees in connection with their use of our products. Intellectual
property litigation is expensive and time-consuming and could divert our managements attention away from running our business and seriously harm our business. If we were to discover that our products violated the intellectual property rights
of others, we would have to obtain licenses from these parties in order to continue marketing our products without substantial reengineering. We might not be able to obtain the necessary licenses on acceptable terms or at all, and if



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we could not obtain such licenses, we might not be able to reengineer our products successfully or in a timely fashion. If we fail to address any
infringement issues successfully, we would be forced to incur significant costs, including damages and potentially satisfying indemnification obligations that we have with our customers, and we could be prevented from selling certain of our
products.

If our consulting services revenue does not grow substantially, our revenue growth could be adversely impacted.

Our consulting services revenue represents a significant component of our total revenue and we anticipate that it will continue to represent a
significant percentage of total revenue in the future. The level of consulting services revenue depends upon the healthcare industrys demand for outsourced information technology services and our ability to deliver products that generate
implementation and follow-on consulting services revenue. Our ability to increase services revenue will depend in part on our ability to increase the capacity of our consulting group, including our ability to recruit, train and retain a sufficient
number of qualified personnel.

The insolvency of our customers or the inability of our customers to pay for our services could negatively affect our
financial condition.

Healthcare payers are often required to maintain restricted cash reserves and satisfy strict balance sheet ratios
promulgated by state regulatory agencies. In addition, healthcare payers are subject to risks that physician groups or associations within their organizations become subject to costly litigation or become insolvent, which may adversely affect the
financial stability of the payer. If healthcare payers are unable to pay for our services because of their need to maintain cash reserves or failure to maintain balance sheet ratios or solvency, our ability to collect fees for services rendered
would be impaired and our financial condition could be adversely affected.

Changes in government regulation of the healthcare industry could adversely
affect our business.

During the past several years, the healthcare industry has been subject to increasing levels of government
regulation of, among other things, reimbursement rates and certain capital expenditures. In addition, proposals to substantially reform Medicare, Medicaid, and the healthcare system in general have been or are being considered by Congress. These
proposals, if enacted, may further increase government involvement in healthcare, lower reimbursement rates, and otherwise adversely affect the healthcare industry which could adversely impact our business. The impact of regulatory developments in
the healthcare industry is complex and difficult to predict, and our business could be adversely affected by existing or new healthcare regulatory requirements or interpretations.

Participants in the healthcare industry, such as our payer customers, are subject to extensive and frequently changing laws and regulations, including
laws and regulations relating to the confidential treatment and secure transmission of patient medical records, and other healthcare information. Legislators at both the state and federal levels have proposed and enacted additional legislation
relating to the use and disclosure of medical information, and the federal government may enact new federal laws or regulations in the near future. Pursuant to the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the
Department of Health and Human Services has issued a series of regulations setting forth security, privacy and transactions standards for all health plans, clearinghouses, and healthcare providers to follow with respect to individually identifiable
health information. Many of our customers are also subject to state laws implementing the federal Gramm-Leach-Bliley Act, relating to certain disclosures of nonpublic personal health information and nonpublic personal financial information by
insurers and health plans.

Our payer customers must comply with HIPAA, its regulations, and other applicable healthcare laws and
regulations. In addition, we may be deemed to be a covered entity subject to HIPAA because we offer our customers products that convert data to a HIPAA compliant format. Accordingly, we must comply with certain provisions of HIPAA and in order for
our products and services to be marketable, they must contain features and functions that allow our customers to comply with HIPAA and other healthcare laws and regulations. We believe our products currently allow our customers to comply with
existing laws and regulations. However, because HIPAA and its regulations have yet to be fully interpreted, our products may require modification in the future. If we fail to offer solutions that permit our customers to comply with applicable laws
and regulations, our business will suffer.

We perform billing and claims services that are governed by numerous federal and state civil
and criminal laws. The federal government in recent years has imposed heightened scrutiny on billing and collection practices of healthcare providers and related entities, particularly with respect to potentially fraudulent billing practices, such
as submissions of inflated claims for payment and upcoding. Violations of the laws regarding billing and coding may lead to civil monetary penalties, criminal fines, imprisonment, or exclusion from participation in Medicare, Medicaid and other
federally funded healthcare programs for our customers and for us. Any of these results could have a material adverse effect on our business, financial condition, operating results, and cash flows.



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In addition, laws governing healthcare payers are often not uniform among states. This could require us
to undertake the expense and difficulty of tailoring our products in order for our customers to be in compliance with applicable state and local laws and regulations.

Part of our business is subject to government regulation relating to the Internet that could impair our operations.

The Internet and its associated technologies are subject to increasing government regulation. A number of legislative and regulatory proposals are under consideration by federal, state, local, and foreign governments,
and agencies. Laws or regulations may be adopted with respect to the Internet relating to liability for information retrieved from or transmitted over the Internet, on-line content regulation, user privacy, taxation and quality of products and
services. Many existing laws and regulations, when enacted, did not anticipate the methods of the Internet-based hosted, software and information technology solutions we offer. We believe, however, that these laws may be applied to us. We expect our
products and services to be in substantial compliance with all material federal, state and local laws and regulations governing our operations. However, new legal requirements or interpretations applicable to the Internet could decrease the growth
in the use of the Internet, limit the use of the Internet for our products and services or prohibit the sale of a particular product or service, increase our cost of doing business, or otherwise have a material adverse effect on our business,
results of operations and financial conditions. To the extent that we market our products and services outside the United States, the international regulatory environment relating to the Internet and healthcare services could also have an adverse
effect on our business.

Increased leverage as a result of our convertible note offerings may harm our financial condition and results of operations.

On October 5, 2005, we completed a private placement of $100.0 million aggregate principal amount of our 2.75% Convertible Senior
Notes due 2025 (the 2025 Notes). On April 17, 2007, we completed a private placement of $230.0 million aggregate principal amount of our 1.125% Convertible Senior Notes due 2012 (the 2012 Notes, and together with the
2025 Notes, defined as the Notes). The indebtedness under the Notes constitutes senior unsecured obligations and will rank equal in right of payment with all of the Companys existing and future senior unsecured debt and senior to
all of the Companys future subordinated debt. The Notes were issued pursuant to indentures with Wells Fargo Bank, National Association, as trustee (the Indentures).

As of December 31, 2007, our total consolidated long-term debt was $391.4 million. In addition, the Indentures do not restrict our ability to
incur additional indebtedness, and we may choose to incur additional debt in the future. Our level of indebtedness could have important consequences to you, because:



| |  |  | it could affect our ability to satisfy our debt obligations under the Notes or our credit facility;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | a substantial portion of our cash flows from operations will have to be dedicated to interest and principal payments of our debt obligations and may not be
available for operations, expansion, acquisitions or other purposes;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | it may impair our ability to obtain additional financing in the future;
| | - |  | -----------------------------------------------------------------------



| |  |  | it may limit our flexibility in planning for, or reacting to, changes in our business and industry; and
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | it may make us more vulnerable to downturns in our business, our industry or the economy in general.
| | - |  | ----------------------------------------------------------------------------------------------------

Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which will be subject to our success in
marketing our products and services, general economic conditions and financial, business and other factors affecting our operations, many of which are beyond our control. If we are not able to generate sufficient cash flow from operations in the
future to service our indebtedness, we may be required, among other things:



| |  |  | to seek additional financing in the debt or equity markets;
| | - |  | -----------------------------------------------------------



| |  |  | to refinance or restructure all or a portion of our indebtedness;
| | - |  | -----------------------------------------------------------------



| |  |  | to sell assets; and/or
| | - |  | ----------------------



| |  |  | to reduce or delay planned expenditures on research and development and/or commercialization activities.
| | - |  | --------------------------------------------------------------------------------------------------------

Such measures might not be sufficient to enable us to service our debt. In addition, any such financing, refinancing or sale of assets might not be
available on economically favorable terms or at all.



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We have certain repurchase and payment obligations under the Notes and we may not be able to repurchase such Notes or
pay the amounts due upon conversion of the Notes when necessary.

On various dates, holders of certain of the Notes may require us to
purchase, for cash, all or a portion of their Notes at 100% of their principal amount, plus any accrued and unpaid interest. If a fundamental change occurs, as defined in the Indentures, including a change in control transaction, holders of the
Notes may also require us to repurchase, for cash, all or a portion of their Notes. In addition, upon conversion of the Notes if we have made an irrevocable election to settle conversion in cash, we would be required to satisfy our conversion
obligation up to the principal amount of the Notes in cash. Our ability to repurchase the Notes and settle the conversion of the Notes in cash is effectively subordinated to our senior credit facility and may be limited by law, by the Indentures, by
the terms of other agreements relating to our senior debt and by indebtedness and agreements that we may enter into in the future which may replace, supplement or amend our existing or future debt. Our failure to repurchase the Notes or make the
required payments upon conversion would constitute an event of default under the Indentures, which would in turn constitute a default under the terms of our senior credit facility and other indebtedness at that time.

Our common stock price has been, and may continue to be, volatile and our shareholders may not be able to resell shares of our stock at or above the price paid for
such shares.

The price for shares of our common stock has exhibited high levels of volatility with significant volume and price
fluctuations, which makes our common stock unsuitable for many investors. For example, for the year ended December 31, 2007, the closing price of our common stock ranged from a high of $21.68 to a low of $14.95. The fluctuations in price of our
common stock have occasionally been related to our operating performance. These broad fluctuations may negatively impact the market price of shares of our common stock. The price of our common stock has also been influenced by:



| |  |  | fluctuations in our results of operations or the operations of our competitors or customers;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | failure of our results of operations to meet the expectations of stock market analysts and investors;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | changes in stock market analyst recommendations regarding us, our competitors or our customers; and
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | the timing and announcements of new products or financial results by us or our competitors.
| | - |  | -------------------------------------------------------------------------------------------

Future issuances of common stock may depress the trading price of our common stock.

Any future issuance of equity securities, including the issuance of shares upon conversion of the Notes, could dilute the interests of our existing stockholders and could substantially decrease the trading price of
our common stock. We may issue equity securities in the future for a number of reasons, including to finance our operations and business strategy, to adjust our ratio of debt to equity, to satisfy our obligations upon the exercise of outstanding
warrants or options or for other reasons.

Our stockholder rights plan and charter documents could make it more difficult for a third party to acquire
us, even if doing so would be beneficial to our shareholders.

Our stockholder rights plan and certain provisions of our certificate of
incorporation and Delaware law are intended to encourage potential acquirers to negotiate with us and allow our Board of Directors the opportunity to consider alternative proposals in the interest of maximizing shareholder value. However, such
provisions may also discourage acquisition proposals or delay or prevent a change in control, which in turn, could harm our stock price.

Item 1BUnresolved Staff Comments

Not applicable.

Item 2Properties

Facilities

As of December 31, 2007, we were leasing a total of 14 facilities located in the United States. Our principal executive and corporate office is located in Newport Beach, California. Our data center that we use to
serve customers is located in Greenwood Village, Colorado. Our leases have expiration dates ranging from 2008 to 2018. We believe that our facilities are adequate for our current operations and that additional leased space can be obtained, if
needed.

Item 3Legal Proceedings

We are involved in litigation from time to time relating to claims arising
out of our operations in the normal course of business. As of the filing date of this annual report on Form 10-K, we were not a party to any legal proceedings, the adverse outcome of which, in managements opinion, individually or in the
aggregate, would have a material adverse effect on our results of operations, financial position and/or cash flows.



24



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##### Table of Contents

Item 4Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our
stockholders during the quarter ended December 31, 2007.



25



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##### Table of Contents

PART II

Item 5Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock has been traded on the NASDAQ Stock Market under the symbol TZIX since October 8, 1999.

The following table shows the high and low sales prices of our common stock as reported on the NASDAQ Stock Market for the periods indicated:



|                   |  |      |       |     |   |      
|------------------ |  | ---- | ----- | --- | - | -----
|Quarters Ended     |  | High |       | Low
|December 31, 2007  |  | $    | 18.64 |     | $ | 14.52
|September 30, 2007 |  | $    | 20.00 |     | $ | 15.19
|June 30, 2007      |  | $    | 20.37 |     | $ | 17.00
|March 31, 2007     |  | $    | 21.93 |     | $ | 17.70
|December 31, 2006  |  | $    | 18.95 |     | $ | 14.25
|September 30, 2006 |  | $    | 15.53 |     | $ | 11.89
|June 30, 2006      |  | $    | 17.68 |     | $ | 12.69
|March 31, 2006     |  | $    | 19.74 |     | $ | 16.11

As of February 12, 2008, there were 198 holders of record based on the records of our
transfer agent.

We have never paid cash dividends on our common stock. We currently anticipate that we will retain earnings, if any, to
support operations and to finance the growth and development of our business and do not anticipate paying cash dividends in the foreseeable future. The payment of cash dividends by us is restricted by our current bank credit facility, which contains
a restriction prohibiting us from paying any cash dividends without the banks prior approval.

The following table sets forth all
purchases made by us of our common stock during each month within the fourth quarter of 2007.



|                                        |  |                                          |  |                                      |       |                                                                                     |           |                                                                                                                 |          
|--------------------------------------- |  | ---------------------------------------- |  | ------------------------------------ | ----- | ----------------------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------------------------------------------- | ---------
|Month                                   |  | Total Number ofShares(or Units)Purchased |  | Average Price Paidper Share(or Unit) |       | Total Number ofShares(or Units)Purchased asPart ofPubliclyAnnouncedPlans orPrograms |           | Maximum Number(or ApproximateDollar Value)of Shares(or Units) thatMay Yet BePurchasedUnder the Plans orPrograms
|October 1, 2007  October 31, 2007(1)   |  | 5,559                                    |  | $                                    | 16.19 |                                                                                     |          |                                                                                                                 |         
|November 1, 2007  November 30, 2007(2) |  | 693,279                                  |  |                                      | 15.07 |                                                                                     | 683,567   |                                                                                                                 | 2,316,433
|December 1, 2007  December 31, 2007(3) |  | 2,224,314                                |  |                                      | 16.08 |                                                                                     | 2,222,178 |                                                                                                                 | 94,255   
|                                        |  |                                          |  |                                      |       |                                                                                     |           |                                                                                                                 |          
|Total                                   |  | 2,923,152                                |  |                                      | 15.84 |                                                                                     | 2,905,745 |                                                                                                                 | 94,255   
|                                        |  |                                          |  |                                      |       |                                                                                     |           |                                                                                                                 |          



|(1) | All 5,559 shares repurchased in October were in connection with the satisfaction
of employee tax obligations upon the vesting of restricted stock awards.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 9,712 shares of the
693,279 shares repurchased in November were in connection with the satisfaction of employee tax obligations upon the vesting of restricted stock awards.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | 2,136 shares of the 2,224,314 shares repurchased in December were in connection
with the satisfaction of employee tax obligations upon the vesting of restricted stock awards.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent Sales of Unregistered
Securities

In connection with our recent acquisition of Plan Data Management, Inc. (PDM), we entered into a Merger
Agreement, dated October 26, 2006, with PDM (the Merger Agreement). Pursuant to the Merger Agreement, we issued 491,488 shares of TriZetto common stock as part of the closing payment. The number of shares was determined based upon a
per share value of $16.28 which represents the average closing price of TriZettos common stock for the 20 trading days ending October 27, 2006. Assuming the same per share value and prior to any adjustments that may be required under the
Merger Agreement, we may issue up to approximately 798,525 additional shares of common stock in connection with subsequent payments that may become due under the Merger Agreement. On July 12, 2007, we issued 149,664 shares of TriZetto common
stock as part of the first contingent payment that became due under the Merger Agreement, based upon a per share value of $19.44.



26



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##### Table of Contents

In connection with the issuance of shares to PDM securityholders, we relied upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, and Regulation D promulgated thereunder. Each PDM securityholder has represented to us that such securityholder is an accredited investor, as such term is defined
in Regulation D, or has the requisite knowledge and experience in financial and business matters. In addition, each PDM securityholder has had access to information concerning TriZetto and is acquiring the securities for such securityholders
own account and not with a view to the distribution thereof.

Stock Performance Graph

The graph below compares the five-year cumulative total stockholder return on our common stock for the five-year period ended December 31, 2007, with
the cumulative total return of (a) the Nasdaq Market Index and (b) Hemscott Industry Group Index 825Healthcare Information Services over the same period. The graph assumes $100.00 invested at the beginning of the period in our
common stock and the stocks represented by the above named indices and the reinvestment of all dividends; we have paid no dividends on our common stock. The performance graph is not necessarily an indicator of future performance. This information
has been provided by Hemscott, Inc.

Comparison of Five-Year Cumulative Total Returns to Stockholders

LOGO



|                                               |  |                         |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |       
|---------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | - | ------
|                                               |  | Year Ended December 31,
|Company/Index/Market                           |  | 2002                    |        | 2003 |   | 2004   |  | 2005 |        | 2006 |   | 2007  
|The TriZetto Group, Inc.                       |  | $                       | 100.00 |      | $ | 105.05 |  | $    | 154.72 |      | $ | 276.71 |  | $ | 299.19 |  | $ | 282.90
|Hemscott Healthcare Information Services Index |  |                         | 100.00 |      |   | 118.85 |  |      | 139.45 |      |   | 184.17 |  |   | 197.75 |  |   | 213.94
|Nasdaq Market Index                            |  |                         | 100.00 |      |   | 150.36 |  |      | 163.00 |      |   | 166.58 |  |   | 183.68 |  |   | 201.91



27



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##### Table of Contents

Item 6Selected Financial Data

The following selected consolidated financial data, except as noted
herein, has been taken or derived from our audited consolidated financial statements and should be read in conjunction with the full consolidated financial statements included herein. Certain reclassifications have been made to prior year amounts to
conform to current year presentation with respect to services and products revenue and cost of revenue, with no effect on net income.



|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                          |  | Years Ended December 31,                 |        
|                                                                          |  | 2007                                     |         |   | 2006 |   |         | 2005 |  |   | 2004    |   |  | 2003 |        
|                                                                          |  | (in thousands, except per share amounts) |        
|Consolidated statement of income data:                                    |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Revenue:                                                                  |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Services and other                                                        |  | $                                        | 360,450 |   |      | $ | 272,943 |      |  | $ | 243,483 |   |  | $    | 223,257 |   |  | $ | 244,641 |  
|Products                                                                  |  |                                          | 91,341  |   |      |   | 74,994  |      |  |   | 48,736  |   |  |      | 51,308  |   |  |   | 45,688  |  
|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenue                                                             |  |                                          | 451,791 |   |      |   | 347,937 |      |  |   | 292,219 |   |  |      | 274,565 |   |  |   | 290,329 |  
|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Operating costs and expenses:                                             |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cost of revenue  services and other (1)                                  |  |                                          | 193,796 |   |      |   | 165,229 |      |  |   | 144,318 |   |  |      | 157,573 |   |  |   | 217,552 |  
|Cost of revenue  products (excludes amortization of acquired technology) |  |                                          | 21,652  |   |      |   | 14,175  |      |  |   | 14,210  |   |  |      | 12,025  |   |  |   | 6,455   |  
|Research and development                                                  |  |                                          | 62,120  |   |      |   | 42,789  |      |  |   | 31,655  |   |  |      | 30,398  |   |  |   | 24,823  |  
|Selling, general and administrative                                       |  |                                          | 113,250 |   |      |   | 103,809 |      |  |   | 76,758  |   |  |      | 59,980  |   |  |   | 52,138  |  
|Restructuring and impairment charges (2)                                  |  |                                          |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 3,769   |  
|Amortization of acquired technology                                       |  |                                          | 5,675   |   |      |   | 4,120   |      |  |   | 660     |   |  |      | 440     |   |  |   | 7,120   |  
|Amortization of acquired other intangible assets                          |  |                                          | 5,427   |   |      |   | 867     |      |  |   | 2,225   |   |  |      | 3,804   |   |  |   | 3,788   |  
|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total operating costs and expenses                                        |  |                                          | 401,920 |   |      |   | 330,989 |      |  |   | 269,826 |   |  |      | 264,220 |   |  |   | 315,645 |  
|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) from operations                                             |  |                                          | 49,871  |   |      |   | 16,948  |      |  |   | 22,393  |   |  |      | 10,345  |   |  |   | (25,316 | )
|Interest income                                                           |  |                                          | 9,446   |   |      |   | 3,823   |      |  |   | 1,619   |   |  |      | 583     |   |  |   | 970     |  
|Interest expense                                                          |  |                                          | (13,291 | ) |      |   | (3,342  | )    |  |   | (1,579  | ) |  |      | (1,369  | ) |  |   | (2,005  | )
|Change in fair value of derivative instruments                            |  |                                          | 403     |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Other income                                                              |  |                                          |        |   |      |   | 180     |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) before provision for income taxes                           |  |                                          | 46, 429 |   |      |   | 17,609  |      |  |   | 22,433  |   |  |      | 9,559   |   |  |   | (26,351 | )
|Provision for income taxes                                                |  |                                          | (18,199 | ) |      |   | (2,494  | )    |  |   | (412    | ) |  |      | (1,101  | ) |  |   | (1,124  | )
|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                                                         |  | $                                        | 28,230  |   |      | $ | 15,115  |      |  | $ | 22,021  |   |  | $    | 8,458   |   |  | $ | (27,475 | )
|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss) per share:                                              |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic                                                                     |  | $                                        | 0.64    |   |      | $ | 0.36    |      |  | $ | 0.52    |   |  | $    | 0.18    |   |  | $ | (0.60   | )
|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Diluted                                                                   |  | $                                        | 0.52    |   |      | $ | 0.33    |      |  | $ | 0.48    |   |  | $    | 0.18    |   |  | $ | (0.60   | )
|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Shares used in computing net income (loss) per share:                     |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic                                                                     |  |                                          | 44,392  |   |      |   | 42,389  |      |  |   | 41,948  |   |  |      | 46,794  |   |  |   | 46,170  |  
|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Diluted                                                                   |  |                                          | 59,366  |   |      |   | 45,691  |      |  |   | 45,503  |   |  |      | 48,157  |   |  |   | 46,170  |  
|                                                                          |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  



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|                                                                   |  |                |         |      |   |         |  |      |         |      |   |         |  |   |        
|------------------------------------------------------------------ |  | -------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                                                   |  | December 31,  
|                                                                   |  | 2007           |         | 2006 |   | 2005    |  | 2004 |         | 2003
|                                                                   |  | (in thousands)
|Consolidated balance sheet data:                                   |  |                |         |      |   |         |  |      |         |      |   |         |  |   |        
|Cash, cash equivalents, restricted cash and short-term investments |  | $              | 208,507 |      | $ | 107,978 |  | $    | 108,483 |      | $ | 73,147  |  | $ | 76,347 
|Total assets                                                       |  |                | 677,982 |      |   | 382,600 |  |      | 317,739 |      |   | 239,884 |  |   | 233,308
|Total short-term debt and capital lease obligations                |  |                | 11,875  |      |   | 1,576   |  |      | 2,099   |      |   | 43,786  |  |   | 34,920 
|Total long-term debt and capital lease obligations                 |  |                | 391,422 |      |   | 114,030 |  |      | 101,065 |      |   | 13,838  |  |   | 7,155  
|Total stockholders equity                                         |  |                | 147,656 |      |   | 133,907 |  |      | 101,358 |      |   | 86,933  |  |   | 113,523



|(1) | Included in cost of revenue are charges associated with loss on contracts. During the fourth quarter of 2003, we decided to wind-down our outsourcing services to physician group
customers. As a result of this decision, we estimated that the existing customer agreements would generate a total loss of $11.3 million until the terms of these agreements expired in 2008. We recorded a loss accrual in the fourth quarter of 2003.
Through discussions and negotiations, we were able to accelerate the termination of our services agreements with certain physician group customers and implemented cost cutting measures that reduced the expected future costs to support our remaining
customers. As a result of these actions, we were able to reverse approximately $5.9 million of previously accrued loss on contracts charges in 2004. Early in the second quarter of 2005, we executed termination agreements with our two remaining
physician group customers. We continued to provide outsourced business services through May 2005, when the transition services were completed. The completion of these services to the remaining customers allowed us to reverse the remaining balance in
the loss on contracts accrual of $2.9 million in the second quarter of 2005. The total amount of loss actually incurred related to the outsourcing services to physician group customers was $2.1 million in 2004 and $403,000 in the first six months of
2005.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In December 2003, we negotiated a settlement regarding out-of-scope work related to one of our large fixed fee
implementation projects. As a result of this settlement, we estimated that this project would generate a total loss of $3.7 million until its completion, which was expected to occur in mid-2004. We recorded a loss accrual in the fourth quarter of
2003. In 2004, we determined that the large fixed fee implementation project would require a greater effort to complete than previously estimated. As a result, we accrued an additional $5.0 million of loss on contracts charges in the first six
months of 2004. In the fourth quarter of 2004, we negotiated a settlement of additional out-of-scope work, which decreased the total loss on the project and resulted in the reversal of approximately $455,000 of previously accrued loss on contracts
charges. This fixed fee implementation was completed by the end of the first quarter of 2005. The total amount of loss actually incurred on this project was $7.7 million in 2004 and $484,000 in the first quarter of 2005.

|(2) | In the fourth quarter of 2003, we made a decision to wind-down our outsourcing services to physician groups and to
discontinue our outsourcing services to certain non-Facets® payer customers. We estimated that our future net cash flows from the assets used in these businesses would not recover their net
book value. Accordingly, a total charge of $4.0 million was taken as a restructuring and impairment charge in the fourth quarter of 2003, which represented the net book value of these assets. The assets were written off in the first quarter of 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Item 7Managements Discussion and Analysis of Financial Condition and Results of Operations

Overview

We offer a broad portfolio of proprietary information technology products and
services targeted to the payer industry, which is comprised of health insurance plans and third party benefits administrators. We offer core administration software, including Facets Extended Enterprise, QicLink Extended Enterprise,
QNXT, enterprise cost and quality of care software, including Clinical CareAdvance and Personal CareAdvance, and our NetworX suite for provider network management. The Company also provides a number of component software
solutions and add-ons to the enterprise software solutions, including CDH Account Management, Workflow, Constituent Web Solution® and Benefit Cost Modeler. In addition, in connection with
the recent acquisition of PDM, we provide business solutions for Medicare Advantage, Detection and Recovery Services and Healthcare Informatics. To support these software products, the Company provides software hosting services and business process
outsourcing services, giving customers variable cost alternatives to licensing software, as well as strategic, implementation and optimization consulting services. As of December 2007, we served 351 unique customers in the health plan and benefits
administrator markets, which we collectively refer to as payers. In 2007, these markets represented 92% and 8% of our total revenue, respectively.

We measure financial performance by monitoring revenue, bookings and backlog, and net income. Total revenue for 2007 was $451.8 million compared to $347.9 million for 2006. Services and other revenue for 2007 was $360.5 million compared to
$272.9 million for 2006. Products revenue for 2007 was $91.3 million compared to $75.0 million for 2006. Operating costs and expenses for 2007 were $401.9 million compared to $331.0 million for 2006. Bookings for 2007 were $431.4 million compared to
$381.6 million for 2006. Backlog at December 31, 2007 was $982.6 million compared to $858.2 million at December 31, 2006. Net income in 2007 was $28.2 million compared to $15.1 million in 2006. These financial comparisons are further
explained in the section below, Results of Operations.

We generate services revenue from several sources, including the
provision of outsourcing services, such as software hosting and business process outsourcing services, the sale of maintenance and support for our proprietary and certain of our non-proprietary software products, and from consulting fees for
implementation, installation, configuration, business process engineering, data conversion, testing and training related to the use of our proprietary, and third-party licensed products. We generate products revenue from the licensing of our
software. Cost of revenue includes costs related to the products and services we provide to our customers and costs associated with the operation and maintenance of our customer connectivity centers. These costs include salaries and related expenses
for consulting personnel, customer connectivity centers personnel, customer support personnel, application software license fees, amortization of capitalized software development costs, telecommunications costs, facility costs, and maintenance
costs. Research and development (R&D) expenses are salaries and related expenses associated with the development of software applications prior to establishing technological feasibility. Such expenses include compensation paid to
software engineering personnel and other administrative, infrastructure and facility expenses and fees to outside contractors and consultants. Selling, general and administrative expenses consist primarily of salaries and related expenses for sales,
sales commissions, account management, marketing, administrative, finance, legal, human resources and executive personnel, and fees for certain professional services.

As part of our growth strategy, we intend to increase revenue per customer by continuing to introduce new complementary products and services, including new cost and quality of care products and services, to our
established enterprise software and hosting and business process outsourcing services. Some of these service offerings, including hosting, business process outsourcing, and consulting have a higher cost of revenue, resulting in lower gross profit
margins. Therefore, to the extent that our revenue increases through the sale of these lower margin product and service offerings, our total gross profit margin may decrease.

We are continuing to target larger health plan customers. This has given us the opportunity to sell additional services such as software hosting,
business intelligence, and business process outsourcing services. As the technology requirements of our customers become more sophisticated, our service offerings have become more complex. This has lengthened our sales cycles and made it more
difficult for us to predict the quarterly timing of our software and services sales.

In May 2007, we made a decision to sunset our FACTS proprietary software product. A formal plan of restructuring was developed and includes four milestones to complete the final coding and release of FACTS 7.0. The final
milestone to end sales and support of the FACTS software product is March 31, 2009. However, we currently intend to convert as many of our existing FACTS customers as possible to our Facets®, QNXTor QicLink software platforms. The plan of restructuring includes the elimination of positions within
the research and development group, which was formally communicated to all affected employees late in the second quarter of 2007. To retain key employees and to ensure that the final product milestones are achieved, benefit packages were provided
and are contingent upon completion of these milestones. We currently estimate that the total amount of severance expense and retention bonuses to be accrued through the final milestone date on March 31, 2009 is approximately $1.0 million. As of
December 31, 2007, we have accrued $441,000 related to severance expense and retention bonuses, which are reflected in cost of revenue  services and other and research and development in the consolidated statement of income. To date, no
costs have been paid or otherwise settled.



30



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##### Table of Contents

In December 2007, our management and administrative services agreement with QualChoice of Arkansas, Inc.
and QCA Health Plan (QCA) expired. However, effective January 2008, we have entered into a seven-year hosting services agreement with QCA. Revenue from the QCA management and administrative services agreement was $15.9 million in 2006
and $10.0 million in 2007.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities at the date of our financial statements. Those estimates are based on our experience, terms of existing contracts, observance of trends in the industry, information provided by our customers and information available from other
outside sources, which are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements, and may potentially result in materially different
results under different assumptions and conditions. We have identified the following as critical accounting policies to our company:



| |  |  | Revenue recognition;
| | - |  | --------------------



| |  |  | Up-front payments to customers;
| | - |  | -------------------------------



| |  |  | Sales returns and allowance for doubtful accounts;
| | - |  | --------------------------------------------------



| |  |  | Capitalization of software development costs;
| | - |  | ---------------------------------------------



| |  |  | Goodwill and other intangible assets;
| | - |  | -------------------------------------



| |  |  | Litigation accruals;
| | - |  | --------------------



| |  |  | Self-insurance;
| | - |  | ---------------



| |  |  | Bonus accrual;
| | - |  | --------------



| |  |  | Income taxes; and
| | - |  | -----------------



| |  |  | Stock-based compensation.
| | - |  | -------------------------

This
listing is not a comprehensive list of all of our accounting policies. For a detailed discussion on the application of these and other accounting policies, see Note 2 of Notes to Consolidated Financial Statements.

Revenue Recognition.We recognize revenue when persuasive evidence of an arrangement exists, the product or service has been delivered,
fees are fixed or determinable, collection is reasonably assured and all other significant obligations have been fulfilled. Our revenue is classified into two categories: services and other, and products. For the year ended December 31, 2007,
approximately 80% of our total revenue was generated from services and other revenue and 20% was from products revenue.

We follow the
provisions of the Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition, AICPA Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended, EITF Issue 00-3,
Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entitys Hardware, and EITF Issue 00-21, Revenue Arrangements with Multiple Deliverables.

We generate services and other revenue from several sources, including the provision of outsourcing services, such as software hosting and
other business services, and the sale of maintenance and support for our proprietary software products. We apply EITF 00-3 to hosting arrangements that include the licensing of software. A software element covered by SOP 97-2 is present in a hosting
arrangement if the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty and it is feasible for the customer to either run the software on its own hardware or contract
with another party unrelated to the vendor to host the software. Outsourcing services revenue is typically billed and recognized monthly over the contract term, generally three to seven years. Many of our outsourcing agreements require us to
maintain a certain level of operating performance. We record revenue net of estimated penalties resulting from any failure to maintain this level of operating performance. These penalties have not been significant in the



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past. Software maintenance and support revenues are typically based on one-year renewable contracts and are recognized ratably over the contract period.
Software maintenance in which we receive payment in advance is recorded on the balance sheet as deferred revenue.

We also generate
services and other revenue from consulting fees for implementation, installation, configuration, business process engineering, data conversion, testing and training related to the use of our proprietary and third party licensed products. In certain
instances, we also generate services revenue from customization services of our proprietary licensed products. We recognize revenue for these services as they are performed. We also generate services revenues associated with preparing our customer
connectivity center or a customers data center in order to ready a specific customer for software hosting services. These fees are usually separate and distinct from the hosting fees, and performance of the set-up services represents the
culmination of the earnings process. We recognize revenue for these services as they are performed. We generate other revenue from certain one-time charges, including certain contractual fees such as termination fees and change of control fees, and
we recognize the revenue for these fees once the termination or change of control is guaranteed, there are no remaining substantive performance obligations and collection is reasonably assured. Other revenue is also generated from fees related to
our product-related customer conferences, which is recognized as our obligations are performed.

For multiple element arrangements, such as
software license, consulting services, outsourcing services and maintenance, and where vendor-specific objective evidence (VSOE) of fair value exists for all undelivered elements, we account for the delivered elements in accordance with
the residual method of SOP 97-2 or EITF 00-21, as applicable. VSOE of fair value is determined for each undelivered element based on how it is sold separately, or in the case of maintenance, the renewal rate. For arrangements in which
VSOE of fair value does not exist for each undelivered element, including specified product and upgrade rights, revenue for the delivered element is deferred and not recognized until VSOE of fair value is available for the undelivered element or
delivery of each element has occurred, unless the only undelivered element is a service in which revenue from the delivered element is recognized over the service period. In determine VSOE for the undelivered elements, no portion of the discount is
allocated to specified or unspecified product or upgrade rights.

Under the residual method, the arrangement fee is recognized as follows:
(1) the total fair value of the undelivered elements, as indicated by VSOE of fair value, is deferred and subsequently recognized in accordance with the relevant sections of SOP 97-2 and (2) the difference between the total arrangement fee
and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements.

We generate products
revenue from the licensing of our software. Under SOP 97-2, software license revenue is recognized upon the execution of a license agreement, upon delivery of the software, when fees are fixed or determinable, when collectibility is probable and
when all other significant obligations have been fulfilled. For software license agreements in which customer acceptance is a significant condition of earning the license fees, revenue is not recognized until acceptance occurs. For software license
agreements that require significant customization or modification of the software, revenue for the software is recognized on a percentage-of-completion basis as the customization services are performed. Progress to completion under the
percentage-of-completion method is generally determined based upon direct labor costs. For software license arrangements that include a right to use the product for a defined period of time or for content subscriptions, revenue is recognized ratably
over the term of the license.

Up-front Payments to Customers.We may pay certain up-front amounts to our customers in
connection with the establishment of our hosting and outsourcing services contracts. Under EITF 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products), these payments are
capitalized and amortized over the life of the contract as a reduction to revenue, provided that such amounts are recoverable from future revenue under the contract. If an up-front payment is not recoverable from future revenue or contract
cancellation penalties paid by the customer, the amount will be expensed in the period it is deemed unrecoverable. Unamortized up-front fees were $4.7 million and $6.2 million as of December 31, 2007 and 2006, respectively.

Sales Allowances and Doubtful Account Reserves.We maintain a reserve for estimated discounts, pricing adjustments, and other sales
allowances. The reserve is charged to revenue in amounts sufficient to maintain the allowance at a level we believe is adequate based on historical experience and current trends. We also maintain an allowance for doubtful accounts to reflect
estimated losses resulting from the inability of customers to make required payments. We base this allowance on estimates after consideration of factors such as the composition of the accounts receivable aging and bad debt history and our evaluation
of the financial condition of the customers. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional bad debt expense may be required. We typically do not require
collateral. Historically, our estimates for sales allowances and doubtful account reserves have been adequate to cover accounts receivable exposures. We continually monitor these reserves and make adjustments to these provisions when we believe
actual credits or other allowances may differ from established reserves.



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Capitalization of Software Development Costs.The capitalization of software costs includes
developed technology acquired in acquisitions and costs incurred by us in developing our products that qualify for capitalization. We account for our software development costs, other than costs for internal-use software, in accordance with SFAS
No. 86, Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed. We capitalize costs associated with product development, coding and testing subsequent to establishing technological feasibility of the
product. Technological feasibility is established after completion of a detailed program design or, in its absence, a working model. Capitalization of computer software costs ceases upon a products general availability release. Amounts
capitalized as software development costs are amortized using the greater of revenues during the period compared to the total estimated revenues to be earned or on a straight-line basis over estimated lives, which is generally deemed to be five
years. In some instances, the period between achieving technological feasibility and the general availability of such software is short and software development costs qualifying for capitalization is insignificant. As a result, no costs are
capitalized and such costs are expensed in the period incurred.

On a quarterly
basis, we monitor the expected net realizable value of the capitalized software for factors that would indicate impairment, such as a decline in the demand, the introduction of new technology, or the loss of a significant customer. In 2007,
capitalized software impairment charges were approximately $130,000 for a software product component of the Constituent Web Solution® suite, since the future undiscounted cash flows no
longer support the assets carrying value. The impairment charge was recorded to cost of revenue  products in the consolidated statement of income.

Goodwill and Other Intangible Assets. Acquisitions are accounted for using the purchase method of accounting. The purchase price is allocated to the tangible and intangible assets acquired and the
liabilities assumed on the basis of their estimated fair market values on the acquisition date. The excess of the purchase price over the estimated fair market value of the assets purchased and liabilities assumed is allocated to goodwill and other
intangible assets.

Under FASB Statement No. 142, Goodwill and Other Intangible Assets, goodwill and intangible assets
deemed to have indefinite lives are subject to annual (or more often if indicators of impairment exist) impairment tests using a two-step process. The first step looks for indicators of impairment. If indicators of impairment are revealed in the
first step, then the second step is conducted to measure the amount of the impairment, if any. We performed our annual impairment test on March 31, 2007, and this test did not reveal indications of impairment.

Litigation Accruals. Pending unsettled lawsuits involve complex questions of fact and law and may require expenditure of significant funds.
From time to time, we may enter into confidential discussions regarding the potential settlement of such lawsuits; however, there can be no assurance that any such discussions will occur or will result in a settlement. Moreover, the settlement of
any pending litigation could require us to incur settlement payments and costs. In the period in which a new legal case arises, an expense will be accrued if our liability to the other party is probable and can be reasonably estimated. On a
quarterly basis, we review and analyze the adequacy of our accruals for each individual case for all pending litigations. Adjustments are recorded as needed to ensure appropriate levels of reserve. Our attorney fees and other defense costs related
to litigation are expensed as incurred.

Self-Insurance.Effective January 1, 2006, we became self-insured for certain
losses related to employee health and dental benefits. We record a liability based on an estimate of claims incurred but not recorded determined based on actuarial analysis of historical claims experience and historical industry data. We maintain
individual and aggregate stop-loss coverages with a third party insurer to limit our total exposure for these programs. Our self-insurance liability contains uncertainties because the calculation requires management to make assumptions and apply
judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date. We do not believe that there is a reasonable likelihood that there will be a material change in the future
assumptions or estimates we use to calculate our self-insurance liability. However, if actual results are not consistent with our assumptions and estimates, we may be exposed to losses or gains that could be material.

Bonus Accrual.Our bonus model is designed to project the level of funding required under the bonus program as approved by the Compensation
Committee of the Board of Directors. A significant portion of the bonus program is based on the Company meeting certain financial objectives, such as revenue, earnings per share, and the level of capital spending. The expense related to the bonus
program is accrued in the year of performance and paid in the first quarter following the fiscal year end. The bonus model is analyzed and adjusted on a quarterly basis as necessary based on achievement of targets.

Income Taxes.We account for income taxes under Statement of Accounting Financial Standards No. 109, Accounting for Income
Taxes (SFAS No. 109). This statement requires the recognition of deferred tax assets and liabilities for the future consequences of events that have been recognized in our financial statements or tax returns. The measurement
of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and the tax bases of our assets and liabilities result in a deferred tax asset, SFAS No. 109 requires an



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evaluation of the probability of being able to realize the future benefits indicated by such an asset. A valuation allowance related to a deferred tax asset
is recorded when it is more likely than not that some portion or the entire deferred tax asset will not be realized. We review the need for a valuation allowance on a quarterly basis and believe that there is sufficient certainty regarding the
realizability of substantially all of our deferred tax assets.

In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 applies to all tax positions accounted for under SFAS No. 109 and defines the confidence level that a tax position must meet in order to be recognized in the
financial statements. The interpretation requires that the tax effects of a position be recognized only if it is more-likely-than-not to be sustained by the taxing authority as of the reporting date. If a tax position is not considered
more-likely-than-not to be sustained then no benefits of the position are to be recognized. FIN 48 requires additional disclosures and is effective as of the beginning of the first fiscal year beginning after December 15,
2006. Accordingly, on January 1, 2007, we adopted FIN 48 and as a result of the adoption, deferred tax assets increased approximately $700,000, goodwill increased $1.3 million, approximately $700,000 was reclassified from accrued
liabilities to other long-term liabilities, and the liability for unrecognized tax benefits increased by $7.1 million. There was no effect on our stockholders equity upon its adoption of FIN 48. A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows (in thousands):



|                                             |  |                                       |        |  
|-------------------------------------------- |  | ------------------------------------- | ------ | -
|                                             |  | Liability forUnrecognizedTax Benefits |       
|Balance at January 1, 2007                   |  | $                                     | 7,120  |  
|Additions for tax position of current period |  |                                       | 3,913  |  
|Settlements                                  |  |                                       | (125   | )
|                                             |  |                                       |        |  
|Balance at December 31, 2007                 |  | $                                     | 10,908 |  
|                                             |  |                                       |        |  

We account for uncertain tax positions in accordance with FIN 48. Accordingly, we report a
liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Included in the balance of unrecognized tax benefits at December 31, 2007 and January 1, 2007 are tax positions of $10.9 million and $7.1
million, respectively, of which $2.9 million and $1.8 million, respectively, would reduce our effective tax rate if recognized. The difference primarily relates to (1) unrecognized tax benefit amounts arising from business combinations that, if
recognized, would be recorded to goodwill and (2) unrecognized tax benefit amounts associated with temporary differences and carryforwards.

For the years ended December 31, 2007, 2006 and 2005, all of our subsidiaries are included in a consolidated Federal income tax return with TriZetto. The statute of limitations related to the consolidated Federal income tax return is
closed for all tax years up to and including 2003. The expiration of the statute of limitations related to the various state income tax returns that we and our subsidiaries file varies by state. Our consolidated Federal income tax return for the
year ended December 31, 2005 is currently under examination, however, we do not anticipate a material impact. Additionally, there are no significant state income tax returns under examination.

The liability for unrecognized tax benefits included accrued interest and penalty of approximately $500,000 and $40,000 at December 31, 2007 and
January 1, 2007, respectively. Included in the consolidated statements of income is $407,000, zero and zero of interest on unrecognized tax benefits during the years ended December 31, 2007, 2006 and 2005, respectively. We do not expect an
unrecognized tax benefit to change significantly over the next twelve months.

Share-Based Awards. Effective January 1,
2006, we adopted the fair value recognition provisions of FASB Statement No. 123R, Share-Based Payment, (SFAS 123R), which requires measurement and recognition of compensation expense for all share-based payment awards
made to employees and directors. Under the fair value recognition provisions of SFAS 123R, stock-based compensation cost is estimated at the grant date based on the awards fair-value and is recognized as expense ratably over the requisite
service period. Prior to the adoption of SFAS 123R, we accounted for share-based awards using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, as
allowed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. Under the intrinsic value method, no share-based compensation cost was recognized for awards to employees or directors if
the exercise price of the award was equal to the fair market value of the underlying stock on the date of grant.



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We adopted SFAS 123R using the modified prospective application method. Under the modified
prospective application method, prior periods are not retrospectively revised for comparative purposes. The valuation provisions of SFAS 123R apply to share-based payments granted after January 1, 2006 and granted prior to, but not yet vested
as of January 1, 2006. Estimated compensation expense for awards outstanding and unvested on January 1, 2006 is recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under
SFAS No. 123. We recognize share-based compensation cost over the requisite service period using the straight-line single option method.

We use the Black-Scholes option-pricing model to calculate fair value which requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before
exercising them (expected term), the estimated volatility of our common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (forfeitures). The assumptions
used in calculating the fair value of share-based payment awards represent managements best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use
different assumptions, our stock-based compensation could be materially different in the future. In addition, if our actual forfeiture rate is materially different from our estimate, stock-based compensation expense could be significantly different
from what we have recorded in the current period.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157, Fair Value Measurements, (FAS
157). FAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. FAS 157 clarifies that the fair value is the exchange
price in an orderly transaction between market participants to sell the asset or transfer the liability in the market. The standard emphasizes that fair value is a market-based measurement, not an entity-specific measurement and a fair value
measurement should, therefore, be based on the assumptions that market participants would use in pricing the asset or liability. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are
evaluating the accounting and disclosure requirements and we do not expect the adoption of FAS 157 to have a material impact on our financial statements.

In December 2007, the FASB issued Business Combinations, (FAS 141R). FAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination, recognizing
assets acquired and liabilities assumed arising from contingencies, and determining what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. FAS 141R is
effective for fiscal years beginning after December 15, 2008. We expect FAS 141R will have an impact on our consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature,
terms and size of the acquisitions we consummate after the effective date. We are currently evaluating what impact, if any, FAS 141R will have on our consolidated financial statements.

In December 2007, the FASB issued Noncontrolling Interests in Consolidated Financial Statement (FAS 160). FAS 160 amends ARB 51
to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the
consolidated financial statements. Consolidated net income should include the net income for both the parent and the noncontrolling interest with disclosure of both amounts on the consolidated statement income. The calculation of earnings per share
will continue to be based on income amounts attributable to the parent. FAS 160 is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact, if any, FAS 160 will have on our consolidated financial
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Revenue Information

Revenue by customer type and revenue mix for the years ended December 31, 2007, 2006, and 2005, is as follows (amounts in thousands):



|                                 |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  
|-------------------------------- |  | ------------------------ | ------- |  | ---- | - |  | ---- | ------- |  | --- | - |  | - | ------- |  | --- | -
|                                 |  | Years Ended December 31, |        
|                                 |  | 2007                     |         |  | 2006 |   |  | 2005 |        
|Revenue by customer type:        |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  
|Health plans                     |  | $                        | 413,564 |  | 92   | % |  | $    | 312,567 |  | 90  | % |  | $ | 256,162 |  | 88  | %
|Benefits administration          |  |                          | 38,227  |  | 8    | % |  |      | 35,370  |  | 10  | % |  |   | 35,915  |  | 12  | %
|Provider                         |  |                          |        |  | 0    | % |  |      |        |  | 0   | % |  |   | 142     |  | 0   | %
|                                 |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  
|Total revenue                    |  | $                        | 451,791 |  | 100  | % |  | $    | 347,937 |  | 100 | % |  | $ | 292,219 |  | 100 | %
|                                 |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  
|Revenue mix:                     |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  
|Services and other revenue       |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  
|Outsourced business services     |  | $                        | 96,242  |  | 21   | % |  | $    | 86,877  |  | 25  | % |  | $ | 79,418  |  | 27  | %
|Software maintenance             |  |                          | 123,957 |  | 28   | % |  |      | 88,628  |  | 25  | % |  |   | 80,719  |  | 28  | %
|Consulting services and other    |  |                          | 140,252 |  | 31   | % |  |      | 97,438  |  | 28  | % |  |   | 83,346  |  | 28  | %
|                                 |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  
|Services and other revenue total |  |                          | 360,451 |  |      |   |  |      | 272,943 |  |     |   |  |   | 243,483 |  |     |  
|                                 |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  
|Products revenue                 |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  
|Software license fees            |  |                          | 76,938  |  | 17   | % |  |      | 74,994  |  | 22  | % |  |   | 48,736  |  | 17  | %
|Term license Fees                |  |                          | 14,402  |  | 3    | % |  |      |        |  | 0   | % |  |   |        |  | 0   | %
|                                 |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  
|Products revenue total           |  |                          | 91,340  |  |      |   |  |      | 74,994  |  |     |   |  |   | 48,736  |  |     |  
|                                 |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  
|Total revenue                    |  | $                        | 451,791 |  | 100  | % |  | $    | 347,937 |  | 100 | % |  | $ | 292,219 |  | 100 | %
|                                 |  |                          |         |  |      |   |  |      |         |  |     |   |  |   |         |  |     |  

Our total backlog is defined as the revenue we expect to generate in future periods from existing
customer contracts. Our 12-month backlog is defined as the revenue we expect to generate from existing customer contracts over the next 12 months. Most of the revenue in our backlog is derived from multi-year service revenue contracts (including
software hosting, business process outsourcing, IT outsourcing, and software maintenance with periods up to seven years), term software license fees, and consulting contracts. Consulting revenue is included in the backlog when the revenue from such
consulting contract is expected to be recognized over a period exceeding 12 months.

Backlog can change due to a number of factors,
including unforeseen changes in implementation schedules, contract cancellations (subject to penalties paid by the customer), or customer financial difficulties. In such event, unless we enter into new customer agreements that generate enough
revenue to replace or exceed the revenue we expect to generate from our backlog in any given quarter, our backlog will decline. Our backlog at any date may not indicate demand for our products and services and may not reflect actual revenue for any
period in the future. Our 12-month and total backlog data are as follows (in thousands):



|                 |  |          |         |         |   |         |  |         |         |          |   |         |  |         |         |         |   |          |  |   |         |  |   |         |  |   |        
|---------------- |  | -------- | ------- | ------- | - | ------- |  | ------- | ------- | -------- | - | ------- |  | ------- | ------- | ------- | - | -------- |  | - | ------- |  | - | ------- |  | - | -------
|                 |  | 12/31/07 |         | 9/30/07 |   | 6/30/07 |  | 3/31/07 |         | 12/31/06 |   | 9/30/06 |  | 6/30/06 |         | 3/31/06 |   | 12/31/05
|12-month backlog |  | $        | 238,400 |         | $ | 225,500 |  | $       | 229,000 |          | $ | 236,700 |  | $       | 213,300 |         | $ | 191,600  |  | $ | 186,100 |  | $ | 187,300 |  | $ | 185,100
|                 |  |          |         |         |   |         |  |         |         |          |   |         |  |         |         |         |   |          |  |   |         |  |   |         |  |   |        
|Total backlog    |  | $        | 982,600 |         | $ | 941,100 |  | $       | 944,400 |          | $ | 964,800 |  | $       | 858,200 |         | $ | 747,800  |  | $ | 717,500 |  | $ | 704,700 |  | $ | 703,400
|                 |  |          |         |         |   |         |  |         |         |          |   |         |  |         |         |         |   |          |  |   |         |  |   |         |  |   |        

Total quarterly bookings equal the estimated total dollar value of the contracts signed in the
quarter. Bookings can vary substantially from quarter to quarter, based on a number of factors, including the number and type of prospects in our pipeline, the length of time it takes a prospect to reach a decision and sign the contract, and the
effectiveness of our sales force. Included in quarterly bookings are up to seven years of maintenance revenue and hosting and other services revenue. Bookings for each of the quarters are as follows (in thousands):



|                   |  |          |         |         |   |         |  |         |        |          |   |         |  |         |         |         |   |          |  |   |        |  |   |        |  |   |       
|------------------ |  | -------- | ------- | ------- | - | ------- |  | ------- | ------ | -------- | - | ------- |  | ------- | ------- | ------- | - | -------- |  | - | ------ |  | - | ------ |  | - | ------
|                   |  | 12/31/07 |         | 9/30/07 |   | 6/30/07 |  | 3/31/07 |        | 12/31/06 |   | 9/30/06 |  | 6/30/06 |         | 3/31/06 |   | 12/31/05
|Quarterly bookings |  | $        | 163,200 |         | $ | 74,500  |  | $       | 93,800 |          | $ | 99,900  |  | $       | 139,700 |         | $ | 75,900   |  | $ | 78,600 |  | $ | 87,400 |  | $ | 83,100
|                   |  |          |         |         |   |         |  |         |        |          |   |         |  |         |         |         |   |          |  |   |        |  |   |        |  |   |       



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Results of Operations

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006.

Revenue. Total revenue increased $103.9
million, or 30%, to $451.8 million in 2007 from $347.9 million for the same period in 2006. Of this increase, $87.6 million related to services and other revenue and $16.3 million related to products revenue.

Services and Other Revenue. Services and other revenue includes outsourced business
services (primarily software hosting and business process outsourcing), maintenance fees related to our software license contracts, consulting services and other revenue. Services and other revenue increased $87.6 million, or 32%, to $360.5 million
in 2007 from $272.9 million for the same period in 2006, which includes the impact of the PDM and QCSI acquisitions. This increase was the result of a $42.8 million increase in consulting services and other revenue, a $35.3 million increase in
software maintenance revenue, and an increase of $9.4 million in outsourced business services. The increase in consulting services and other revenue was due primarily to new Facets®,
NetworX, CareAdvanceand QNXT implementations. The increase in software maintenance revenue was attributable primarily to new agreements
for certain Facets®, NetworX, Constituent Web Solution®, CareAdvance and QNXT customers, as well as annual rate
increases from existing customers. The increase in outsourced business services revenue was primarily due to new Facets®, NetworX, Constituent Web Solution® and CareAdvance hosted customers and increased membership from existing customers.

Products Revenue.Products revenue, which includes software license sales, increased $16.3 million, or 22%, to $91.3 million in 2007, which includes the impact of the QCSI acquisition, from $75.0 million for the same period in
2006. The increase was due primarily to new license sales of our QNXT software product.

Cost of Revenue  Services and Other.
Cost of revenue for services and other increased $28.6 million, or 17%, to $193.8 million in 2007 from $165.2 million for the same period in 2006 to support the increase in our outsourced business services, software maintenance, and consulting
services and other revenue.

Cost of revenue for outsourced business services and software maintenance revenue increased approximately $9.9
million, primarily attributable to higher compensation and related costs of $7.6 million, a $2.7 million increase in utilization of outside consultants, a $2.0 million increase in telecommunications expense, a $1.2 million increase in postage and
freight, and a $1.3 million net increase in other costs. These increases were offset by a $3.7 million decrease in investment in infrastructure and technology costs and a $1.4 million decrease in depreciation expense. Higher compensation and related
costs were impacted by increased headcount, including the acquisition of PDM and QCSI, the impact of the 2007 annual merit increases, and an increase in SFAS 123R expense related to stock option and award grants. Increased fees from outside
consultants were attributable to a higher utilization of external resources for product support services. Telecommunication costs were impacted by increased spending related to customer connectivity and employee telecom equipment. The increase in
other costs included an overall net increase in travel and facility-related costs, an increase in employee relation expenses, and a loss on the sale of assets. Lower infrastructure and technology costs resulted primarily from the expiration of
certain operating leases and lower purchases of computer equipment and supplies. Depreciation expense related primarily to fully depreciated assets and a lower mix of equipment with longer estimated useful lives offset by new assets acquired from
PDM and QCSI.

Cost of revenue for consulting services and other revenue increased $18.7 million, primarily attributable to higher
compensation and related costs of $9.3 million, a $6.3 million increase in outside services, increased travel costs of $2.5 million and a $400,000 net increase in other costs. Higher compensation and related costs were impacted by increased
headcount, including the acquisition of PDM and QCSI, the impact of the 2007 annual merit increases, and an increase in SFAS 123R expense related to stock option grants and restricted stock awards. The increase in outside services was primarily
attributable to higher utilization of outside consultants on implementation projects. The overall increase in travel costs were also impacted by increased headcount and the increased level of implementation projects. The increase in other costs
primarily included employee relation expenses and facility-related costs.

As a percentage of total revenue, cost of revenue for services
and other approximated 43% in 2007 compared with 48% for the same period in 2006.



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Cost of Revenue  Products. Cost of revenue for products, excluding the amortization of acquired
technology, increased $7.5 million, or 53%, to $21.7 million in 2007 from $14.2 million for the same period in 2006 to support the increase in our software license sales. The overall increase was due primarily to higher compensation and related
costs of $6.5 million, an increase of $1.0 million in amortization of capitalized software development costs, and a $1.3 million increase in other costs. These increases were partly offset by a $1.4 million decrease in royalty expense and decreased
investment in infrastructure and technology. Higher compensation and related costs were impacted by increased headcount, including the acquisition of PDM and QCSI, and the impact of the 2007 annual merit increases. The increase in amortization of
capitalized software development costs resulted from the release for sale of new versions of certain of our proprietary software products over the past year. The increase in other costs included an overall increase in facility-related costs,
employee relation expenses, outside services and travel. The decrease in royalty expense was due primarily to the termination of a pre-existing royalty agreement with CareKey, which we subsequently acquired, as well as a decrease related to existing
royalty agreements with various clients. Investment in infrastructure and technology was impacted primarily from purchases of hardware for client resale, partially offset by an increase in depreciation expense related primarily to computer hardware
and software. As a percentage of total revenue, cost of revenue for products approximated 5% in 2007 compared with 4% for the same period in 2006.

Gross Margin. Gross margin, excluding the amortization of acquired technology and other intangibles, increased from 48% in 2006 to 52% for the same period in 2007. The increase in gross margin resulted primarily from
higher-margin mix of revenue, operating efficiencies and the improvement in pricing of our products and services.

Research and Development (R&D)
Expenses. R&D expenses increased $19.3 million, or 45%, to $62.1 million in 2007 from $42.8 million for the same period in 2006. The overall increase in R&D expenses was due primarily to $9.4 million in higher compensation and
related costs, $5.4 million in higher utilization of outside consultants, increased investment in infrastructure and technology costs of $2.1 million, $1.0 million in facility-related costs, and a $1.3 million increase in other costs. Higher
compensation and related costs were impacted by increased headcount, resulting from the acquisition of PDM and QCSI, the impact of the 2007 annual merit increases, and an increase in SFAS 123R expense related to stock option grants and restricted
stock awards. The increase in utilization of outside consultants is primarily attributed to the continued development of QNXT. Higher infrastructure and technology costs resulted from increased purchases of computer equipment and supplies.
Facility-related costs were impacted primarily from the acquisition of PDM and QCSI. The increase in other costs included an overall increase in travel, employee relation expenses and telecommunication costs. As a percentage of total revenue,
R&D expenses approximated 14% in 2007 compared with 12% for the same period in 2006. R&D expenses, as a percentage of total R&D spending (which includes capitalized R&D costs of $8.5 million in 2007 and $8.6 million for the same
period in 2006), was 88% in 2007 compared with 83% for the same period in 2006.

Selling, General and Administrative (SG&A) Expenses.
SG&A expenses increased $9.5 million, or 9%, to $113.3 million in 2007 from $103.8 million for the same period in 2006. The overall increase in SG&A expenses was due primarily to $16.7 million in higher compensation and related costs, a $3.3
million increase in outsourced consultants and professional services, a $2.0 million increase in travel, a $3.4 million increase in investment and infrastructure and technology costs, a $2.1 million increase in sales and marketing related expenses,
and a $800,000 increase in other costs. These increases were offset by approximately $18.7 million related primarily to legal related costs incurred in the third quarter of 2006. Higher compensation and related costs were impacted by increased
headcount, including the acquisition of PDM and QCSI, the impact of the 2007 annual merit increases, higher commissions, and an increase in SFAS 123R expense related to stock option grants and restricted stock awards. Professional services and
outsourced consultants increased due primarily to higher audit, internal audit and professional tax fees, in addition to consulting services provided for corporate and market strategy. Higher infrastructure and technology costs were driven primarily
by support for internal initiatives and upgrades and an increase in depreciation expense due primarily to the acquisition of assets from PDM and QCSI and leasehold improvement projects of our existing facilities. Travel costs were impacted by
increased headcount, an increase in employee meetings for strategic planning, and conferences and trade shows held in 2007. Sales and marketing related expenses also increased due to conferences and trade shows held in 2007. The increase in other
costs included telecommunications expense and facility-related costs. The decrease in legal related costs was attributed to a $15.0 legal settlement and lower litigation costs of $3.7 million related to the McKesson litigation settled in the third
quarter of 2006.As a percentage of total revenue, selling, general and administrative expenses approximated 25% in 2007 compared with 30% for the same period in 2006.

Amortization of Intangible Assets. Amortization of intangible assets is comprised of acquired technology and acquired other intangible assets. In total, amortization of intangible assets increased $6.1
million, or 123%, to $11.1 million in 2007 from $5.0 million for the same period in 2006 due to the acquisitions of PDM and QCSI.



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Amortization of Acquired Technology. The amortization of acquired technology is excluded
from cost of revenue  products and consists primarily of amounts amortized with respect to core or completed technology and existing software. Amortization of acquired technology increased approximately $1.6 million, or 38%, to $5.7 million in
2007 from $4.1 million for the same period in 2006. The increase was due to the amortization of acquired technology from the acquisitions of PDM and QCSI.

Amortization of Acquired Other Intangible Assets. Amortization of acquired other intangible assets increased $4.5 million, or 526%, to $5.4 million in 2007 from $900,000 for the same period in 2006. The
increase was due primarily to acquired other intangible assets from the acquisitions of PDM and QCSI.

Future amortization expense related to existing
intangible assets is estimated to be as follows (in thousands):



|                                  |  |                    |        |                                 |   |        |  |   |       
|--------------------------------- |  | ------------------ | ------ | ------------------------------- | - | ------ |  | - | ------
|For the years ending December 31, |  | AcquiredTechnology |        | Acquired OtherIntangible Assets |   | Total 
|2008                              |  | $                  | 5,683  |                                 | $ | 5,533  |  | $ | 11,216
|2009                              |  |                    | 5,243  |                                 |   | 5,533  |  |   | 10,776
|2010                              |  |                    | 4,890  |                                 |   | 5,532  |  |   | 10,422
|2011                              |  |                    | 2,290  |                                 |   | 5,532  |  |   | 7,822 
|2012                              |  |                    | 1,850  |                                 |   | 5,337  |  |   | 7,187 
|Thereafter                        |  |                    | 6,549  |                                 |   | 20,573 |  |   | 27,122
|                                  |  |                    |        |                                 |   |        |  |   |       
|Total                             |  | $                  | 26,505 |                                 | $ | 48,040 |  | $ | 74,545
|                                  |  |                    |        |                                 |   |        |  |   |       

Amortization expense related to existing intangible assets will vary from amounts identified above
in the event we recognize impairment charges prior to the amortized useful life of any intangible assets.

Interest Income. Interest income
increased $5.6 million, or 147%, to $9.4 million in 2007 from $3.8 million for the same period in 2006. The increase was due primarily to higher cash balances in our investment accounts resulting from the proceeds received on the 2012 convertible
notes and borrowings from the term loan.

Interest Expense. Interest expense increased $10.0 million, or 298%, to $13.3 million in 2007 from
$3.3 million for the same period in 2006. The increase is due primarily to a $6.1 million increase related to borrowings from the term loan and revolving line of credit and a $3.6 million increase related our convertible notes.

Change in Fair Value of Derivative Liabilities. The change in fair value of derivative liabilities was $400,000 in 2007 resulting from derivative
liabilities in connection with our 2012 convertible notes entered into in April 2007. Derivative liabilities are presented at fair value and are marked to market each period with changes in the fair value recorded in earnings. We do not expect any
additional adjustments beyond the third quarter of 2007.

Other Income. Other income decreased $180,000 due to the gain on sale of an
internet domain name in 2006.

Provision for Income Taxes. Provision for income taxes was $18.2 million in 2007 compared to approximately
$2.5 million for the same period in 2006. The effective tax rate was 39.2% for 2007 compared with 14.2% for the same period in 2006. The provision increase is due primarily to the elimination of the valuation allowance associated with our net
operating loss carryforward, which occurred as of January 1, 2007, offset by a benefit recorded in connection with the Federal and State R&D credits for the current tax year.

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005.

Revenue. Total
revenue increased $55.7 million, or 19%, to $347.9 million in 2006 from $292.2 million for 2005. Of this increase, $29.4 million related to services and other revenue and $26.3 million related to products revenue.

Services and Other Revenue. Services and other revenue includes outsourced business
services (primarily software hosting and business process outsourcing), maintenance fees related to our software license contracts, consulting services and other revenue. Services and other revenue increased $29.4 million, or 12%, to $272.9 million
in 2006 from $243.5 million in 2005. This increase was the result of a $14.0 million increase in consulting services and other revenue, a $7.9 million increase in software maintenance revenue, and an increase of $7.5 million in outsourced business
services. The increase in consulting services and other revenue was due primarily to new Facets®, QicLink, NetworX and CareAdvance implementations. The increase in
software maintenance revenue was attributable primarily to new agreements for certain Facets®, NetworX, Constituent Web Solution® and CareAdvance customers and annual rate increases from existing customers. The overall increase in outsourced business services revenue was primarily due to new Facets® and
CareAdvance hosted customers and increased membership from existing Facets® hosted customers.



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Products Revenue.Products revenue,
which includes software license sales, increased $26.3 million, or 54%, to $75.0 million in 2006 from $48.7 million in 2005 resulting from increased sales for new Facets®, NetworX,
Constituent Web Solution® and CareAdvance license sales to our health plan customers.

Cost of Revenue  Services and Other. Cost of revenue for services and other increased $20.9 million, or 15%, to $165.2 million in 2006 from $144.3 million in 2005 to support the increase in our outsourced business
services, software maintenance, and consulting services and other revenue.

Cost of revenue for our outsourced business services and
software maintenance revenue increased $6.1 million, primarily attributable to higher compensation costs of $3.0 million, increased investment in infrastructure and technology of $3.0 million, a $2.9 million reversal of a loss on contracts accrual
and a $1.7 million increase in other costs, partially offset by a $2.5 million decrease in depreciation expense and lower costs for outside consultants of $1.8 million. Higher compensation costs were impacted by the annual merit increases in early
2006, the adoption of SFAS 123R and a reassignment of product and development leaders and other executives to more appropriately align their responsibilities with our market facing strategy. Higher infrastructure and technology costs were driven by
customer and internal upgrades, new operating lease agreements for data center equipment and related maintenance. In 2005, we executed termination agreements with our two remaining physician group customers, allowing us to reverse the remaining
balance in our loss on contracts accrual. The overall increase in other costs was primarily related to bad debt expense, postage and freight, telecommunications, and travel. The reduction in depreciation expense related primarily to fully
depreciated assets and a lower mix of equipment with longer estimated useful lives, offset in part by depreciation related to new additions in 2006. Reduced fees from our outside consultants were attributable to a higher utilization of internal
resources for product support services.

Cost of revenue for our consulting services and other revenue increased $14.8 million, primarily
attributable to higher compensation costs of $12.8 million, increased investment in infrastructure and technology of $2.1 million, increased travel costs of $1.1 million and a $1.1 million increase in other costs, partly offset by a $2.6 million
reduction in utilization of outside consultants. Compensation costs were impacted by an increase in headcount, the adoption of SFAS 123R and a reassignment of product and development leaders and other executives to more appropriately align their
responsibilities with our market facing strategy. Higher infrastructure and technology costs and travel costs were also impacted by increased headcount and the increased level of implementation projects. The overall increase in other costs was
primarily related to facilities expense associated with a new facility acquired in the December 2005 acquisition of CareKey and expansion projects for certain of our existing facilities, as well as an increase in telecom usage. Reduced fees from
outside consultants were attributable to a higher utilization of internal resources on implementation projects.

As a percentage of total
revenue, cost of revenue for services and other approximated 48% in 2006 compared with 49% in 2005.

Cost of Revenue  Products. Cost of
revenue for products, excluding the amortization of acquired technology, remained flat year over year. Amortization of capitalized software development costs increased $1.6 million, partly offset by a decrease in software customer pass-through costs
of $1.0 million and a $700,000 decrease in royalty expense. The increase in amortization of capitalized software development costs resulted from new versions of certain of our proprietary software products which were released for sale in mid to late
2005 and in 2006. Software customer pass-through costs decreased due primarily to a decreased volume of customer pass-through agreements. The decrease in royalty expense was due primarily to the elimination of a pre-acquisition royalty relationship
with CareKey in 2005. As a percentage of total revenue, cost of revenue for products approximated 4% in 2006 compared with 5% in 2005.

Gross
Margin. The overall gross margin, excluding the amortization of acquired technology and other intangibles, increased to 48% in 2006 from 46% for the same period in 2005. The increase in gross margin in 2006 primarily reflected a more
profitable mix of products and services, improved pricing and operating efficiencies.

Research and Development (R&D) Expenses. R&D
expenses increased $11.1 million, or 35%, to $42.8 million in 2006 from $31.7 million in 2005. The overall increase in R&D expenses was due primarily to higher compensation costs which were impacted by our annual merit increases in early 2006,
increased headcount related to the development of cost and quality of care solutions following the December 2005 acquisition of CareKey and the adoption of SFAS 123R. As a percentage of total revenue, R&D expenses approximated 12% in 2006
compared with 11% in 2005. R&D expenses, as a percentage of total R&D expenditures (which includes capitalized R&D expenses of $8.6 million in 2006 and 2005), was 83% in 2006 compared with 79% in 2005.

Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased $27.0 million, or 35%, to $103.8 million in 2006 from $76.8 million in
2005. The overall increase resulted primarily from a $15.0 million legal settlement that occurred in the third quarter of 2006, $10.7 million in higher compensation and related costs, increased investment in



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infrastructure and technology of $1.5 million, and an increase of approximately $700,000 in legal costs. These increases were offset in part by a $1.0
million reduction in utilization of outside consultants and a net decrease of $400,000 related to facilities expense. In the third quarter of 2006, we entered into a settlement agreement with McKesson Information Solutions LLC (McKesson)
by which we agreed to pay McKesson a one-time royalty fee of $15.0 million. Higher compensation and related costs were impacted by our annual merit increases in early 2006, increased headcount and recruiting fees related to new hires, and our
adoption of SFAS 123R, offset in part by a reassignment of product and development leaders and other executives to more appropriately align their responsibilities with our market facing strategy. Investment in infrastructure and technology costs was
driven primarily by support for internal growth and upgrades. The $700,000 increase in legal fees was attributable to a $1.1 million insurance reimbursement related to a legal settlement that occurred in 2005, partially offset by a $400,000 decrease
in litigation defense costs in 2006. The lower utilization of outside consultants related to strategic planning and process improvement projects in 2005. The net decrease in facilities expense is due to facility closures related to lease termination
costs in 2005 of $900,000, offset by a $500,000 increase related primarily to incremental costs associated with the acquisition of CareKey in December 2005 and expansion projects for certain of our existing facilities. As a percentage of total
revenue, selling, general and administrative expenses approximated 30% in 2006 compared with 26% in 2005.

Amortization of Intangible Assets.
Amortization of intangible assets is comprised of acquired technology and acquired other intangible assets. In total, amortization of intangible assets increased $2.1 million, or 73%, to $5.0 million in 2006 from $2.9 million in 2005.

Amortization of Acquired Technology. The amortization of acquired technology is excluded from cost of revenue  products and consists
primarily of amounts amortized with respect to core or completed technology and existing software. Amortization of acquired technology increased $3.4 million, or 524%, to $4.1 million in 2006 from $660,000 in 2005. The increase was due to the
amortization of core technology and existing software acquired through the CareKey acquisition.

Amortization of Acquired Other
Intangible Assets. Amortization of acquired other intangible assets decreased $1.3 million, or 61%, from $2.2 million in 2005 to $870,000 in 2006. The decrease was due primarily to certain intangible assets acquired in previous years, which
were fully amortized in late 2005 and early 2006.

Interest Income. Interest income increased $2.2 million, or 136%, to $3.8 million in 2006
from $1.6 million in 2005. The increase is due primarily to higher cash balances in our operating and investment accounts, resulting primarily from the $100.0 million convertible debt issued in 2005.

Interest Expense. Interest expense increased $1.7 million, or 112%, to $3.3 million in 2006 from $1.6 million in 2005. The increase relates primarily to a
$2.1 million increase in interest charges incurred on the $100.0 million convertible debt issued in October 2005 and an increase of $100,000 related to our line of credit borrowings. These increases were offset in part by a decrease of $500,000
related primarily to certain capital leases ending in late 2005 and early 2006 and the IMS Health note payable, which was fully repaid in January 2005.

Provision for Income Taxes. Provision for income taxes was $2.5 million in 2006 compared to $412,000 in 2005. The provision increase is due mostly to an increase in state income taxes as a result of having previously utilized
many of our state net operating loss carryovers, net of a release of a portion of our tax contingency reserve and state tax refunds received related to prior years for which income tax benefit was not previously recorded. The effective tax rate was
14.2% for 2006, which was lower than the Federal statutory rate primarily due to the decrease in (release of) valuation allowance, which occurred as a result of utilization of net operating loss carryovers, and the increase in state income taxes.
The effective tax rate was 1.8% for 2005.



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Selected Quarterly Results of Operations

This data has been derived from unaudited consolidated financial statements that, in the opinion of our management, include all adjustments consisting
only of normal recurring adjustments that we consider necessary for a fair presentation of the information when read in conjunction with our audited consolidated financial statements and the attached notes included herein. The operating results for
any quarter are not necessarily indicative of the results for any future period. Certain reclassifications have been made to prior year amounts to conform to current year presentation with respect to services and products revenue and cost of
revenue, with no effect on net income. The following table sets forth certain unaudited consolidated statement of operations data for the eight quarters ended December 31, 2007 (in thousands, except per share data):



|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------- |  | ---------------- | ------- | - | ----------------- | - | ------- | ------------ |  | - | ------------- | - |  | ---------------- | ------- | - | ----------------- | - | ------ | ------------ |  | - | ------------- | - |  | - | ------ | - |  | - | ------ | -
|                                                                          |  | Quarters Ended   |        
|                                                                          |  | December 31,2007 |         |   | September 30,2007 |   |         | June 30,2007 |  |   | March 31,2007 |   |  | December 31,2006 |         |   | September 30,2006 |   |        | June 30,2006 |  |   | March 31,2006 |  
|Revenue:                                                                  |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Services and other                                                        |  | $                | 85,842  |   |                   | $ | 93,401  |              |  | $ | 91,432        |   |  | $                | 89,775  |   |                   | $ | 69,957 |              |  | $ | 67,421        |   |  | $ | 69,793 |   |  | $ | 65,772 |  
|Products                                                                  |  |                  | 30,705  |   |                   |   | 13,505  |              |  |   | 23,403        |   |  |                  | 23,728  |   |                   |   | 18,515 |              |  |   | 19,016        |   |  |   | 17,917 |   |  |   | 19,546 |  
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Total revenue (1)                                                         |  |                  | 116,547 |   |                   |   | 106,906 |              |  |   | 114,835       |   |  |                  | 113,503 |   |                   |   | 88,472 |              |  |   | 86,437        |   |  |   | 87,710 |   |  |   | 85,318 |  
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Operating costs and expenses:                                             |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Cost of revenue  services and other                                      |  |                  | 45,403  |   |                   |   | 48,441  |              |  |   | 50,353        |   |  |                  | 49,599  |   |                   |   | 41,064 |              |  |   | 41,838        |   |  |   | 41,980 |   |  |   | 40,347 |  
|Cost of revenue  products (excludes amortization of acquired technology) |  |                  | 6,218   |   |                   |   | 5,456   |              |  |   | 4,775         |   |  |                  | 5,203   |   |                   |   | 3,231  |              |  |   | 3,238         |   |  |   | 3,232  |   |  |   | 4,474  |  
|Research and development                                                  |  |                  | 15,255  |   |                   |   | 14,686  |              |  |   | 16,444        |   |  |                  | 15,735  |   |                   |   | 10,982 |              |  |   | 10,586        |   |  |   | 10,743 |   |  |   | 10,478 |  
|Selling, general and administrative (2)                                   |  |                  | 30,829  |   |                   |   | 25,276  |              |  |   | 29,337        |   |  |                  | 27,808  |   |                   |   | 22,961 |              |  |   | 35,505        |   |  |   | 24,027 |   |  |   | 21,316 |  
|Amortization of acquired technology                                       |  |                  | 1,421   |   |                   |   | 1,307   |              |  |   | 1,237         |   |  |                  | 1,710   |   |                   |   | 1,030  |              |  |   | 935           |   |  |   | 940    |   |  |   | 1,215  |  
|Amortization of acquired other intangible assets                          |  |                  | 1,383   |   |                   |   | 1,383   |              |  |   | 1,360         |   |  |                  | 1,301   |   |                   |   | 213    |              |  |   | 233           |   |  |   | 128    |   |  |   | 293    |  
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Total operating costs and expenses                                        |  |                  | 100,509 |   |                   |   | 96,549  |              |  |   | 103,506       |   |  |                  | 101,356 |   |                   |   | 79,481 |              |  |   | 92,335        |   |  |   | 81,050 |   |  |   | 78,123 |  
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Income (loss) from operations                                             |  |                  | 16,038  |   |                   |   | 10,357  |              |  |   | 11,329        |   |  |                  | 12,147  |   |                   |   | 8,991  |              |  |   | (5,898        | ) |  |   | 6,660  |   |  |   | 7,195  |  
|Interest income                                                           |  |                  | 2,702   |   |                   |   | 3,188   |              |  |   | 2,803         |   |  |                  | 753     |   |                   |   | 1,051  |              |  |   | 937           |   |  |   | 945    |   |  |   | 890    |  
|Interest expense                                                          |  |                  | (3,534  | ) |                   |   | (3,633  | )            |  |   | (3,483        | ) |  |                  | (2,641  | ) |                   |   | (850   | )            |  |   | (825          | ) |  |   | (835   | ) |  |   | (832   | )
|Change in fair value of derivative liabilities                            |  |                  |        |   |                   |   | 2,886   |              |  |   | (2,483        | ) |  |                  |        |   |                   |   |       |              |  |   |              |   |  |   |       |   |  |   |       |  
|Other income                                                              |  |                  |        |   |                   |   |        |              |  |   |              |   |  |                  |        |   |                   |   |       |              |  |   |              |   |  |   |       |   |  |   | 180    |  
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Income (loss) before (provision for) benefit from income taxes            |  |                  | 15,206  |   |                   |   | 12,798  |              |  |   | 8,166         |   |  |                  | 10,259  |   |                   |   | 9,192  |              |  |   | (5,786        | ) |  |   | 6,770  |   |  |   | 7,433  |  
|(Provision for) benefit from income taxes                                 |  |                  | (6,128  | ) |                   |   | (3,185  | )            |  |   | (4,523        | ) |  |                  | (4,363  | ) |                   |   | (1,646 | )            |  |   | 103           |   |  |   | (356   | ) |  |   | (595   | )
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Net income (loss)                                                         |  | $                | 9,078   |   |                   | $ | 9,613   |              |  | $ | 3,643         |   |  | $                | 5,896   |   |                   | $ | 7,546  |              |  | $ | (5,683        | ) |  | $ | 6,414  |   |  | $ | 6,838  |  
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Net income (loss) for diluted EPS calculation                             |  | $                | 9,875   |   |                   | $ | 10,615  |              |  | $ | 4,184         |   |  | $                | 5,896   |   |                   | $ | 7,546  |              |  | $ | (5,683        | ) |  | $ | 6,414  |   |  | $ | 6,838  |  
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Net income (loss) per share:                                              |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Basic                                                                     |  | $                | 0.20    |   |                   | $ | 0.21    |              |  | $ | 0.08          |   |  | $                | 0.13    |   |                   | $ | 0.18   |              |  | $ | (0.13         | ) |  | $ | 0.15   |   |  | $ | 0.16   |  
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Diluted                                                                   |  | $                | 0.16    |   |                   | $ | 0.17    |              |  | $ | 0.07          |   |  | $                | 0.12    |   |                   | $ | 0.16   |              |  | $ | (0.13         | ) |  | $ | 0.14   |   |  | $ | 0.15   |  
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Shares used in computing net income (loss) per share:                     |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Basic                                                                     |  |                  | 44,341  |   |                   |   | 44,837  |              |  |   | 44,522        |   |  |                  | 43,856  |   |                   |   | 42,744 |              |  |   | 42,526        |   |  |   | 42,370 |   |  |   | 41,899 |  
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  
|Diluted                                                                   |  |                  | 62,166  |   |                   |   | 62,734  |              |  |   | 61,876        |   |  |                  | 47,825  |   |                   |   | 46,273 |              |  |   | 42,526        |   |  |   | 45,394 |   |  |   | 45,666 |  
|                                                                          |  |                  |         |   |                   |   |         |              |  |   |               |   |  |                  |         |   |                   |   |        |              |  |   |               |   |  |   |        |   |  |   |        |  



|(1) | In December 2006, the Company entered into a settlement with one of its larger customers that had disputed payments due from a software implementation project. The amounts
represented revenue recorded in the first two quarters of 2006 and were included in the allowance for sales returns and a reduction to revenue in the quarter ended September 30, 2006. The settlement fully resolved the issues and resulted in a
payment that was less than the amount previously disputed.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In September 2004, McKesson Information Solutions LLC (McKesson) filed a lawsuit against the Company. In the third quarter of 2006, the Company entered into an agreement
with McKesson to settle the lawsuit and agreed to pay McKesson a one-time royalty fee of $15.0 million, which was expensed in the same period, for a license in the patent that covers past and future use of the Companys products and services by
all existing customers.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Liquidity and Capital Resources

Capital Resources

As of December 31, 2007, cash available to fund our operations include cash
and cash equivalents totaling $208.5 million. Our principal sources of liquidity include cash from operations, borrowings under our debt facility, proceeds from the issuance of convertible debt, cash obtained from our acquisitions, employee
exercises of stock options and private financings, described as follows:



| |  |  | In October 2005, we issued $100.0 million aggregate principal amount of 2.75% Convertible Senior Notes due 2025 (the 2025 Notes). The 2025 Notes are
convertible, at the holders option in certain circumstances, into shares of our common stock at an initial conversion price of $18.85 per share, or 53.0504 shares for each $1,000 principal amount of 2025 Notes, subject to certain adjustments.
The maximum conversion rate is 68.9655 shares for each $1,000 principal amount of 2025 Notes. The 2025 Notes bear interest at a rate of 2.75%, which is payable in cash semi-annually.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In January 2007, we amended and restated our Credit Agreement, initially established December 21, 2004, to add a term loan of up to $150.0 million and to
extend the expiration date of the Credit Agreement, including our $100.0 million revolving credit facility, to January 5, 2011. As of December 31, 2007, we had outstanding borrowings on the revolving line of credit of $4.0 million and were
in compliance with all applicable covenants and other restrictions under the Credit Agreement. In January 2007, we borrowed $75.0 million under the term loan to help fund our acquisition of QCSI, of which $67.0 million was outstanding as of
December 31, 2007. We can borrow up to an additional $75.0 million under the term loan through and including March 31, 2008, at which time no additional funds can be borrowed under the term loan.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In April 2007, we issued $230.0 million aggregate principal amount of 1.125% Convertible Senior Notes due 2012 (the 2012 Notes). The 2012 Notes are
convertible, at the holders option in certain circumstances, into shares of our common stock at an initial conversion price of $21.97 per share, or 45.5114 shares for each $1,000 principal amount of 2012 Notes, subject to certain adjustments.
The maximum conversion rate is 53.4759 shares for each $1,000 principal amount of 2012 Notes. The 2012 Notes bear interest at an annual rate of 1.125%, which is payable in cash semi-annually.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Based on our current operating plan, we believe that existing cash and cash equivalents balances, short-term investments balances, cash forecasted by
management to be generated by operations and borrowings from existing credit facilities will be sufficient to meet our working capital and capital requirements for at least the next 12 months. However, if events or circumstances occur such that we
do not meet our operating plan as expected, we may be required to seek additional capital and/or reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives. We may seek
additional financing, which may include debt and/or equity financing or funding through third party agreements. There can be no assurance that any additional financing will be available on acceptable terms, if at all. Any equity financing may result
in dilution to existing stockholders and any debt financing may include restrictive covenants.



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##### Table of Contents

Summary of Cash Activities

As of December 31, 2007, we had cash and cash equivalents totaling $208.5 million. Significant cash flow activities for the years ended December 31, 2007, 2006 and 2005 are as follows (in thousands):



|                                                                       |  |                          |          |   |      |   |         |      |  |   |          |  
|---------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                       |  | Years Ended December 31, |         
|                                                                       |  | 2007                     |          |   | 2006 |   |         | 2005 | 
|Cash provided by operating activities                                  |  | $                        | 53,380   |   |      | $ | 40,154  |      |  | $ | 43,825   |  
|Purchase of property and equipment and software licenses               |  |                          | (17,355  | ) |      |   | (10,575 | )    |  |   | (7,171   | )
|Capitalization of software development costs                           |  |                          | (8,474   | ) |      |   | (8,568  | )    |  |   | (8,608   | )
|Acquisitions, net of cash acquired                                     |  |                          | (145,393 | ) |      |   | (40,581 | )    |  |   | (26,799  | )
|Proceeds from revolving line of credit and other debt financings       |  |                          | 395,760  |   |      |   | 37,992  |      |  |   | 179,650  |  
|Payments on revolving line of credit and other debt financings         |  |                          | (149,503 | ) |      |   | (28,313 | )    |  |   | (135,533 | )
|Payments for repurchase of common stock                                |  |                          | (46,006  | ) |      |   |        |      |  |   | (19,798  | )
|Excess tax benefits from stock-based compensation                      |  |                          | 8,670    |   |      |   |        |      |  |   |         |  
|Employee exercise of common stock options and purchase of common stock |  |                          | 10,371   |   |      |   | 10,008  |      |  |   | 10,254   |  

Cash and cash equivalents increased $101.4 million in 2007 from $107.1 million at
December 31, 2006 to $208.5 million at December 31, 2007. The main contributors of this increase were $53.4 million in cash provided by operating activities, $395.8 million in proceeds from our revolving line of credit and other financing
debt (including $189.8 million from our convertible debt offering and $205.2 million from our revolving line of credit and term loan), $10.4 million in proceeds from employee option exercises and stock purchases, and $8.7 million of excess tax
benefits from stock-based compensation. These cash inflows were partially offset by net cash payments of $145.4 million related to the acquisitions of PDM and QCSI, $149.5 million in payments on our revolving line of credit and other financing debt
(including $138.2 million on our revolving line of credit and $8.0 million on our term loan), $46.0 million to repurchase shares under our share repurchase program, and $25.8 million for capital spending.

Commitments and Contingencies

The following tables
summarize our estimated contractual obligations and other commercial commitments as of December 31, 2007 (in thousands):



|                                   |  |                                             |         |                 |   |          |  |          |        |                  |   |         |  |   |        
|---------------------------------- |  | ------------------------------------------- | ------- | --------------- | - | -------- |  | -------- | ------ | ---------------- | - | ------- |  | - | -------
|                                   |  | Payments (including interest) Due by Period
|Contractual obligations            |  | Total                                       |         | Less than1 Year |   | 1-3Years |  | 3-5Years |        | More than 5Years
|Short-term debt                    |  | $                                           | 52      |                 | $ | 52       |  | $        |       |                  | $ |        |  | $ |       
|Capital lease obligations          |  |                                             | 2,280   |                 |   | 1,108    |  |          | 1,034  |                  |   | 138     |  |   |       
|Operating leases                   |  |                                             | 57,675  |                 |   | 12,874   |  |          | 18,191 |                  |   | 12,313  |  |   | 14,297 
|Convertible debt                   |  |                                             | 391,175 |                 |   | 5,338    |  |          | 9,300  |                  |   | 240,756 |  |   | 135,781
|                                   |  |                                             |         |                 |   |          |  |          |        |                  |   |         |  |   |        
|Total contractual obligations      |  | $                                           | 451,182 |                 | $ | 19,372   |  | $        | 28,525 |                  | $ | 253,207 |  | $ | 150,078
|                                   |  |                                             |         |                 |   |          |  |          |        |                  |   |         |  |   |        
|                                   |  |                                             |         |                 |  
|Other commercial commitments       |  | TotalAmountsCommitted                       |         | LessThan1 Year  |   | 1-3Years |  | 3-5Years |        | More than 5Years
|Line of credit                     |  | $                                           | 4,000   |                 | $ |         |  | $        |       |                  | $ | 4,000   |  | $ |       
|Term loan                          |  |                                             | 77,450  |                 |   | 14,924   |  |          | 62,526 |                  |   |        |  |   |       
|Standby letters of credit          |  |                                             | 1,740   |                 |   | 348      |  |          | 1,308  |                  |   |        |  |   | 84     
|                                   |  |                                             |         |                 |   |          |  |          |        |                  |   |         |  |   |        
|Total other commercial commitments |  | $                                           | 83,190  |                 | $ | 15,272   |  | $        | 63,834 |                  | $ | 4,000   |  | $ | 84     
|                                   |  |                                             |         |                 |   |          |  |          |        |                  |   |         |  |   |        



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##### Table of Contents

Convertible debt represents scheduled principal and interest payments for our 2025 Notes and 2012 Notes,
which includes $100.0 million and $230.0 million aggregate principal amounts, respectively. The 2025 Notes bear interest at a rate of 2.75%, which is payable in cash semi-annually in arrears on April 1 and October 1 of each year, and
commenced on April 1, 2006, to the holders of record on the preceding March 15 and September 15, respectively. The 2025 Notes mature on October 1, 2025. However, on or after October 5, 2010, we may from time to time at our
option redeem the 2025 Notes, in whole or in part, for cash, at the applicable redemption date. Additionally, holders of the 2025 Notes may require us to purchase all or a portion of their 2025 Notes in cash on each of October 1,
2010, October 1, 2015 and October 1, 2020. The 2012 Notes bear interest at a rate of 1.125%, which is payable in cash semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2007, to
the holders of record on the preceding April 1 and October 1, respectively. The 2012 Notes mature on April 15, 2012.

As of
December 31, 2007, we had outstanding four unused standby letters of credit in the aggregate amount of $1.7 million, which serve as security deposits for certain operating leases.

Excluded from the tables above are certain potential payments to CareKey stockholders and optionholders as these payments are contingent upon the
achievement of financial milestones and are payable in either cash or stock at our election. CareKey stockholders and optionholders are entitled to receive three contingent consideration payments of $8.3 million each (up to $25.0 million), upon the
achievement of certain revenue milestones during the period beginning upon acquisition and ending December 31, 2008. In addition, further consideration payable in cash or stock at our election, may be paid to former CareKey stockholders and
optionholders if, prior to December 31, 2008, the acquired CareKey products generate revenues in excess of certain revenue milestones and/or if a negotiated multiple of software maintenance revenues of acquired CareKey products during the
fiscal year ended December 31, 2009 exceed total purchase consideration made to those former CareKey stockholders and optionholders.

Also excluded from the tables above are certain potential payments to former PDM and QCSI stockholders and option and warrant holders. PDM security holders may be entitled to receive additional contingent consideration as follows: $5.0
million on or before December 31, 2008 and $8.0 million on or before December 31, 2009, each subject to reduction if certain revenue thresholds are not satisfied during the applicable measurement period or to the extent TriZetto is
entitled to claims for indemnification as specified in the Merger Agreement. Additional contingent consideration of up to $8.0 million may be paid on June 30, 2009 if certain revenue thresholds are satisfied, provided that in no event will the
aggregate consideration of all payments exceed $42.0 million. The contingent consideration is payable at the Companys election in either cash or common stock.

QCSI stockholders, warrantholders and optionholders are entitled to receive contingent consideration up to a total of $12.0 million, including (i) an aggregate cash payment of $5.0 million on January 31,
2008 (the Holdback), and (ii) a contingent aggregate cash payment of up to $7.0 million on January 31, 2008, based upon license and software maintenance revenues arising from the sale of QCSI products for the twelve
(12) month period commencing on January 1, 2007 and ending on December 31, 2007. The amount of the Holdback was reduced by $2.4 million due to a negative working capital adjustment, as defined in the Merger Agreement and the
contingent cash payment of $7.0 million was earned as of December 31, 2007. On January 30, 2008, we paid the former QCSI shareholders the remaining $2.6 million Holdback along with the previously earned $7.0 million contingent
consideration, for a total cash payment of $9.6 million, both of which were accrued as of December 31, 2007.

Due to the uncertainty
with respect to the timing of future cash flows associated with the Companys unrecognized tax benefits at December 31, 2007, the Company is unable to make reasonably reliable estimates of the period of cash settlement with the respective
taxing authorities. Therefore, $10.9 million of unrecognized tax benefits have been excluded from the table above. See Note 11 of the consolidated financial statements for a discussion on income taxes.

OFF-BALANCE SHEET ARRANGEMENTS

We do not currently
have any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet or
other contractually narrow or limited purposes.



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##### Table of Contents

Item 7AQuantitative and Qualitative Disclosures About Market Risk

Market risk associated with
adverse changes in financial and commodity market prices and rates could impact our financial position, operating results or cash flows. We are exposed to market risk due to changes in interest rates such as the prime rate and LIBOR. This exposure
is directly related to our normal operating and funding activities.

The interest rate on our $100.0 million revolving credit facility and
$150.0 million term loan is a per annum rate equal at our election to either (i) the LIBOR rate plus an adjustable applicable margin of between 1.75% and 3.50% or (ii) the lending institutions prime rate plus an adjustable applicable
margin of between 0.0% and 2.0%, subject to specified restrictions, and is payable monthly in arrears or upon maturity date. The revolving credit facility and term loan expire in January 2011. As of December 31, 2007, we had outstanding
borrowings on the revolving line of credit of $4.0 million and $67.0 million outstanding borrowings on the term loan.

In October 2005, we
issued $100.0 million aggregate principal amount of 2.75% Convertible Senior Notes due 2025 (the 2025 Notes). The 2025 Notes are convertible into shares of our common stock at an initial conversion price of $18.85 per share, or 53.0504
shares for each $1,000 principal amount of 2025 Notes, subject to certain adjustments. The maximum conversion rate is 68.9655 shares for each $1,000 principal amount of 2025 Notes. The 2025 Notes were issued pursuant to an Indenture, dated
October 5, 2005, by and between us and Wells Fargo Bank, National Association, as trustee. The 2025 Notes bear interest at a rate of 2.75%, which is payable in cash semi-annually in arrears on April 1 and October 1 of each year, and
commenced on April 1, 2006, to the holders of record on the preceding March 15 and September 15, respectively.

In April
2007, we issued $230.0 million aggregate principal amount of 1.125% Convertible Senior Notes due 2012 (the 2012 Notes). The 2012 Notes are convertible into shares of our common stock at an initial conversion price of $21.97 per share, or
45.5114 shares for each $1,000 principal amount of 2012 Notes, subject to certain adjustments. The maximum conversion rate is 53.4759 shares for each $1,000 principal amount of 2012 Notes. The 2012 Notes were issued pursuant to an Indenture, dated
April 17, 2007, by and between us and Wells Fargo Bank, National Association, as trustee. The 2012 Notes bear interest at a rate of 1.125%, which is payable in cash semi-annually in arrears on April 15 and October 15 of each year, and
commenced on October 15, 2007, to the holders of record on the preceding April 1 and October 1, respectively.

We manage
interest rate risk by investing excess funds in cash equivalents and short-term investments bearing variable interest rates, which are tied to various market indices. We also manage interest rate risk by closely managing our borrowings on our credit
facility based on our operating needs in order to minimize the interest expense incurred. As a result, we do not believe that near-term changes in interest rates will result in a material effect on our future earnings, fair values or cash flows.

Item 8Financial Statements and Supplementary Data

The financial statements and supplementary data
required by this Item 8 are set forth at the pages indicated at Item 15(a)(1).

Item 9Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9AControls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)), as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective.

In
addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the fourth quarter of our fiscal year ended December 31, 2007 that has materially affected, or is
reasonable likely to materially affect, our internal control over financial reporting.

Managements Report on Internal Control Over Financial
Reporting

The management of The TriZetto Group, Inc. (the Company) is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rule 13a15(f) under the Securities Exchange Act of 1934. The Companys internal control over financial reporting is a process designed under the supervision of the Companys
principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Companys financial statements for external reporting purposes in accordance with
U.S. generally accepted accounting principles.



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##### Table of Contents

As of December 31, 2007, management assessed the effectiveness of the Companys internal
control over financial reporting based on the framework established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management
has determined that the Companys internal control over financial reporting was effective as of December 31, 2007.

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

The scope of managements
assessment of the effectiveness of our internal control over financial reporting as of December 31, 2007 includes all of our businesses except for Quality Care Solutions, Inc. (QCSI), which was acquired on January 10, 2007. The
acquired QCSI business constituted approximately $188 million and $173 million of total and net assets, respectively, as of December 31, 2007, and $66 million and $12 million of revenues and income from operations, respectively, for the year
then ended. In accordance with guidance issued by the Securities and Exchange Commission, our management is permitted to exclude QCSI from its assessment as of December 31, 2007.

Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included
in this Annual Report on Form 10-K, has audited the Companys internal control over financial reporting as of December 31, 2007. The report, which expresses unqualified opinion on the Companys internal control over financial
reporting as of December 31, 2007, is included in this Item under the heading Attestation Report of Independent Registered Public Accounting Firm.

Attestation Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

The Board of Directors and Stockholders of The TriZetto Group, Inc.

We have audited The TriZetto Group, Inc.s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The TriZetto Group, Inc.s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the companys internal control over
financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.



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

As indicated in the accompanying Managements Report on Internal Control Over Financial Reporting, managements assessment of and conclusion on
the effectiveness of internal control over financial reporting did not include the internal controls of Quality Care Solutions, Inc., which is included in the 2007 consolidated financial statements of The TriZetto Group, Inc. and constituted $188
million and $173 million of total and net assets, respectively, as of December 31, 2007, and $66 million and $12 million of revenues and income from operations, respectively, for the year then ended. Our audit of internal control over financial
reporting of The TriZetto Group, Inc. also did not include an evaluation of the internal control over financial reporting of Quality Care Solutions, Inc.

In our opinion, The TriZetto Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The TriZetto
Group, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2007 of The TriZetto Group, Inc. and
our report dated February 14, 2008 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Orange County, California

February 14, 2008

Item 9BOther Information

None.



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PART III

Item 10Directors, Executive Officers and Corporate Governance

The information required by this Item
is set forth under the captions Election of Directors, Executive Officers, Section 16(a) Beneficial Ownership Reporting Compliance and Corporate Governance in our definitive Proxy Statement, which will
be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities and Exchange Act of 1934 and is incorporated herein by reference.

The Company maintains a Code of Ethics, which is applicable to all directors, officers and employees, including the Companys Principal Executive Officer, Principal Financial Officer and Principal Accounting
Officer and persons performing similar functions. The Code of Ethics is available free of charge on the Companys website at www.trizetto.com. Any amendment or waiver to the Code of Ethics that applies to our directors or executive
officers will be posted on our website or in a report filed with the SEC on Form 8-K. A copy of the Code of Ethics is available upon written request to: Investor Relations, The TriZetto Group, 567 San Nicolas Drive, Suite 360, Newport Beach,
California 92660.

Item 11Executive Compensation

The information required by this Item is set forth under the captions
Compensation Discussion and Analysis, Compensation Committee Interlocks and Insider Participation and Compensation Committee Report in our definitive Proxy Statement, which will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A under the Securities and Exchange Act of 1934 and is incorporated herein by reference.

Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is set forth under the captions Security Ownership of Management and Certain Beneficial Owners and Equity Compensation Plan Information in our definitive Proxy Statement, which
will be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities and Exchange Act of 1934 and is incorporated herein by reference.

Item 13Certain Relationships and Related Transactions, and Director Independence

The information
required by this Item is set forth under the captions Transactions with Related Persons and Director Independence in our definitive Proxy Statement, which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities and Exchange Act of 1934 and is incorporated herein by reference.

Item 14Principal Accounting Fees and Services

The information required by this Item is set forth
under the caption Independent Registered Public Accountants in our definitive Proxy Statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities and Exchange Act of 1934 and
is incorporated herein by reference.



49



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##### Table of Contents

PART IV

Item 15Exhibits and Financial Statement Schedules



| | (a) | List of documents filed as part of this Form 10-K:
| | --- | --------------------------------------------------



| | (1) | Financial Statements.
| | --- | ---------------------

See Index to
Financial Statements and Schedule on page F-1.



| | (2) | Financial Statement Schedules.
| | --- | ------------------------------

See Index
to Financial Statements and Schedule on page F-1.



| | (3) | Exhibits.
| | --- | ---------

The following exhibits are filed (or
incorporated by reference herein) as part of this Form 10-K:



|              |  |                                                                                                                                                                                                                                                                                                                                                                       
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                
|2.1*          |  | Agreement and Plan of Reorganization, dated as of May 16, 2000, by and among TriZetto, Elbejay Acquisition Corp., IMS Health Incorporated and Erisco Managed Care Technologies, Inc. (Incorporated
by reference to Exhibit 2.1 of TriZettos Form 8-K as filed with the SEC on May 19, 2000, File No. 000-27501)                                                      
|              | 
|2.2*          |  | Agreement and Plan of Merger, dated as of November 2, 2000, by and among TriZetto, Cidadaw Acquisition Corp., Resource Information Management Systems, Inc. (RIMS), the shareholders
of RIMS, Terry L. Kirch and Thomas H. Heimsoth (Incorporated by reference to Exhibit 2.1 of TriZettos Form 8-K as filed with the SEC on December 18, 2000, File No. 000-27501)
|              | 
|2.3*          |  | First Amendment to Agreement and Plan of Merger, dated as of December 1, 2000, by and among TriZetto, Cidadaw Acquisition Corp., RIMS, the shareholders of RIMS, Terry L. Kirch and Thomas H.
Heimsoth (Incorporated by reference to Exhibit 2.2 of TriZettos Form 8-K as filed with the SEC on December 18, 2000, File No. 000-27501)                               
|              | 
|2.4*          |  | Agreement and Plan of Merger, dated as of December 22, 2005, by and among TriZetto, CK Acquisition Corp., CareKey, Inc. (CareKey), the shareholders of CareKey, and Ido Schoenberg
(Incorporated by reference to Exhibit 2.1 of TriZettos Form 8-K as filed with the SEC on December 29, 2005, File No. 000-27501)                                                  
|              | 
|2.5*          |  | Agreement and Plan of Merger, dated as of September 12, 2006, by and among TriZetto, Quartz Acquisition Corp., Quality Care Solutions, Inc., and Michael Lee (Incorporated by reference to Exhibit
2.1 of TriZettos Form 10-Q as filed with the SEC on November 6, 2006, File No. 000-27501).                                                                        
|              | 
|2.6*          |  | Agreement and Plan of Merger, dated as of October 26, 2006, by and among TriZetto, PDM Acquisition Corp., Plan Data Management, Inc., and Stephen B.C. Jackson (Incorporated by reference to
Exhibit 2.1 of TriZettos Form 8-K as filed with the SEC on December 29, 2006).                                                                                          
|              | 
|3.1*          |  | Form of Amended and Restated Certificate of Incorporation of TriZetto, as filed with the Delaware Secretary of State effective as of October 14, 1999 (Incorporated by reference to Exhibit 3.2 of
TriZettos Registration Statement on Form S-1/A, as filed with the SEC on September 14, 1999, File No. 333-84533)                                                  
|              | 
|3.2*          |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation of TriZetto, dated October 3, 2000 (Incorporated by reference to Exhibit 3.1 of TriZettos Form 10-Q as filed
with the SEC on November 14, 2000, File No. 000-27501)                                                                                                                    
|              | 
|3.3*          |  | Certificate of Designation of Rights, Preferences and Privileges of Series A Junior Participating Preferred Stock of TriZetto, dated October 17, 2000 (Incorporated by reference to Exhibit 3.2 of
TriZettos Form 10-Q as filed with the SEC on November 14, 2000, File No. 000-27501)                                                                               
|              | 
|3.4           |  | Amended and Restated Bylaws of TriZetto effective as of November 21, 2007.                                                                                                                                                                                                                                                                                            
|              | 
|4.1*          |  | Specimen common stock certificate (Incorporated by reference to Exhibit 4.1 of TriZettos Registration Statement on Form S-1/A as filed with the SEC on September 14, 1999, File No.
333-84533)                                                                                                                                                                       



50



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|              |  |                                                                                                                                                                                                                                                                                                                                                          
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                   
|4.2*          |  | Rights Agreement, dated October 2, 2000, by and between TriZetto and U.S. Stock Transfer Corporation (Incorporated by reference to Exhibit 2.1 of TriZettos Form 8-A12G as filed with the
SEC on October 19, 2000, File No. 000-27501)                                                                                                                  
|              | 
|4.3*          |  | First Amendment to Rights Agreement, dated December 21, 2004, between the Company and U.S. Stock Transfer Corporation, as Rights Agent (Incorporated by reference to Exhibit 2 of TriZettos
Form 8A12G/A as filed with the SEC on December 21, 2004, File No. 000-27501)                                                                                
|              | 
|4.4*          |  | Indenture, dated as of October 5, 2005, by and between The TriZetto Group, Inc. and Wells Fargo Bank, National Association, as trustee (including form of 2.75% Convertible Senior Note due 2015)
(Incorporated by reference to Exhibit 4.3 of TriZettos Form 10-Q as filed with the SEC on November 7, 2005, File No. 000-27501)                       
|              | 
|4.5*          |  | Registration Rights Agreement, dated as of October 5, 2005, by and between The TriZetto Group, Inc. and UBS Securities, LLC, Banc of America Securities, LLC and William Blair & Company, LLC,
as the Initial Purchasers (Incorporated by reference to Exhibit 4.2 of TriZettos Form 10-Q as filed with the SEC on November 7, 2005, File No. 000-27501)
|              | 
|4.6*          |  | Indenture, dated April 17, 2007, between The TriZetto Group, Inc. and Wells Fargo Bank, National Association, as trustee (including form of 1.125% Convertible Senior Note due April 15,
2012) (Incorporated by reference to Exhibit 4.1 of TriZettos Form 8-K as filed with the SEC on April 17, 2007, File No. 000-27501)                             
|              | 
|4.7*          |  | Registration Rights Agreement, dated April 17, 2007, between The TriZetto Group, Inc., Deutsche Bank Securities Inc., Goldman, Sachs & Co. and UBS Investment Bank, as the initial
purchasers (Incorporated by reference to Exhibit 4.2 of TriZettos Form 8-K as filed with the SEC on April 17, 2007, File No. 000-27501)                              
|              | 
|10.1*         |  | First Amended and Restated 1998 Stock Option Plan (Incorporated by reference to Exhibit 4.1 of TriZettos Form S-8 as filed with the SEC on August 7, 2000, File No.
333-43220)                                                                                                                                                                          
|              | 
|10.2*         |  | Form of 1998 Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.2 of TriZettos Registration Statement on Form S-1 as filed with the SEC on August 5, 1999, File
No. 333-84533)                                                                                                                                                   
|              | 
|10.3*         |  | Form of 1998 Non-Qualified Stock Option Agreement (Incorporated by reference to Exhibit 10.3 of TriZettos Registration Statement on Form S-1 as filed with the SEC on August 5, 1999, File
No. 333-84533)                                                                                                                                               
|              | 
|10.4*         |  | Form of Restricted Stock Agreement between TriZetto and certain consultants and employees (Incorporated by reference to Exhibit 10.3 of TriZettos Form 10-Q as filed with the SEC on August
14, 2000, File No. 000-27501)                                                                                                                               
|              | 
|10.5*         |  | RIMS Stock Option Plan (Incorporated by reference to Exhibit 4.1 of TriZettos Form S-8 as filed with the SEC on December 21, 2000, File No. 000-27501)                                                                                                                                                                                                  
|              | 
|10.6*         |  | Form of Restricted Stock Agreement Between TriZetto and Certain Employees (Incorporated by reference to Exhibit 10.39 of TriZettos Form 10-K as filed with the SEC on March 31, 2003, File
No. 000-27501)                                                                                                                                               
|              | 
|10.7*         |  | 1998 Long-Term Incentive Plan, dated March 25, 2004 (Incorporated by reference to Appendix B of TriZettos proxy statement on Schedule 14A as filed with the SEC on April 15,
2004)                                                                                                                                                                      
|              | 
|10.8*         |  | 2005 Amendment to 1998 Long-Term Incentive Plan, dated April 7, 2005 (Incorporated by reference to Appendix B of TriZettos proxy statement on Schedule 14A as filed with the SEC on April
18, 2005)                                                                                                                                                     
|              | 
|10.9*         |  | 2006 Amendment to 1998 Long-Term Incentive Plan, dated April 5, 2006 (Incorporated by reference to Appendix A of TriZettos proxy statement on Schedule 14A as filed with the SEC on April
25, 2006)                                                                                                                                                     
|              | 
|10.10*        |  | Form of 1998 Long-term Incentive Plan Stock Option Award Agreement (Incorporated by reference to Exhibit 10.1 of Trizettos Form 10-Q as filed with the SEC on November 9, 2004, File No.
000-27501)                                                                                                                                                     
|              | 
|10.11*        |  | Form of Restricted Stock Agreement between TriZetto and Certain Employees (Incorporated by reference to Exhibit 10.2 of Trizettos Form 10-Q as filed with the SEC on May 10, 2004, File No.
000-27501)                                                                                                                                                  
|              | 
|10.12*        |  | Form of Restricted Stock Agreement between TriZetto and Certain Employees (Incorporated by reference to Exhibit 10.1 of Trizettos Form 10-Q as filed with the SEC on August 6, 2004, File
No. 000-27501)                                                                                                                                                
|              | 
|10.13*        |  | Form of Restricted Stock Award Agreement (Performance Compensation Award) between TriZetto and certain employees. (Incorporated by reference to Exhibit 10.41 of TriZettos Form 10-K as
filed with the SEC on March 16, 2007, File No. 000-27501)                                                                                                       



51



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|              |  |                                                                                                                                                                                                                                                                                                                                                       
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                
|10.14*        |  | Quality Care Solutions, Inc. Stock Option Plan, dated January 11, 2007 (Incorporated by reference to Exhibit 10.2 of TriZettos Form 10-Q as filed with the SEC on May 8, 2007,
File No. 000-27501)                                                                                                                                                   
|              | 
|10.15*        |  | Office Lease Agreement, dated April 26, 1999, between St. Paul Properties, Inc. and TriZetto (including addendum) (Incorporated by reference to Exhibit 10.10 of TriZettos Registration
Statement on Form S-1 as filed with the SEC on August 5, 1999, File No. 333-84533)                                                                           
|              | 
|10.16*        |  | Sublease Agreement, dated December 18, 1998, between TPI Petroleum, Inc. and TriZetto (including underlying Office Lease Agreement by and between St. Paul Properties, Inc. and Total, Inc.)
(Incorporated by reference to Exhibit 10.11 of TriZettos Registration Statement on Form S-1 as filed with the SEC on August 5, 1999, File No. 333-84533)
|              | 
|10.17*        |  | First Modification and Ratification of Lease, dated November 1, 1999, by and between TriZetto and St. Paul Properties, Inc. (Incorporated by reference to Exhibit 10.22 of TriZettos
Form 10-K as filed with the SEC on March 30, 2000, File No. 000-27501)                                                                                          
|              | 
|10.18*        |  | Second Modification and Ratification of Lease, dated December 1999, by and between TriZetto and St. Paul Properties, Inc. (Incorporated by reference to Exhibit 10.23 of TriZettos Form 10-K
as filed with the SEC on March 30, 2000, File No. 000-27501)                                                                                            
|              | 
|10.19*        |  | Third Modification and Ratification of Lease, dated January 15, 2000, by and between TriZetto and St. Paul Properties, Inc. (Incorporated by reference to Exhibit 10.16 of TriZettos
Form 10-K as filed with the SEC on April 2, 2001, File No. 000-27501)                                                                                           
|              | 
|10.20*        |  | Fourth Modification and Ratification of Lease, dated October 15, 2000, by and between TriZetto and St. Paul Properties, Inc. (Incorporated by reference to Exhibit 10.17 TriZettos Form
10-K as filed with the SEC on April 2, 2001, File No. 000-27501)                                                                                             
|              | 
|10.21*        |  | Fifth Modification and Ratification of Lease, dated October 31, 2002, by and between TriZetto and St. Paul Properties, Inc. (Incorporated by reference to Exhibit 10.16 of TriZettos
Form 10-K as filed with the SEC on March 16, 2007, File No. 000-27501)                                                                                          
|              | 
|10.22*        |  | Sixth Modification and Ratification of Lease, dated May 19, 2003, by and between TriZetto and St. Paul Properties, Inc. (Incorporated by reference to Exhibit 10.17 of TriZettos Form
10-K as filed with the SEC on March 16, 2007, File No. 000-27501)                                                                                              
|              | 
|10.23*        |  | Seventh Modification and Ratification of Lease, dated April 12, 2004, by and between TriZetto and St. Paul Properties, Inc. (Incorporated by reference to Exhibit 10.18 of TriZettos
Form 10-K as filed with the SEC on March 16, 2007, File No. 000-27501)                                                                                          
|              | 
|10.24*        |  | Eighth Modification and Ratification of Lease, dated April 7, 2006, by and between TriZetto and St. Paul Properties, Inc. (Incorporated by reference to Exhibit 10.19 of TriZettos Form
10-K as filed with the SEC on March 16, 2007, File No. 000-27501)                                                                                            
|              | 
|10.25*        |  | Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.40 of TriZettos Form 10-Q as filed with the SEC on May 15, 2003, File No. 000-27501)                                                                                                                                                                                      
|              | 
|10.26*        |  | Amended and Restated Employee Stock Purchase Plan, effective April 7, 2005 (Incorporated by reference to Appendix C of TriZettos proxy statement on Schedule 14A as filed with the SEC
on April 18, 2005)                                                                                                                                            
|              | 
|10.27*        |  | Executive Deferred Compensation Plan, dated as of June 30, 2005, between TriZetto and Certain Key Employees (Incorporated by reference to Exhibit 10.1 of TriZettos Form 8-K as filed
with the SEC on December 27, 2005, File No. 000-27501)                                                                                                         
|              | 
|10.28*        |  | Amended and Restated Executive Employment Agreement, dated January 1, 2006, by and between the Company and Jeffrey H. Margolis (Incorporated by reference to Exhibit 10.1 of TriZettos
Form 10-Q as filed with the SEC on November 6, 2006, File No. 000-27501)                                                                                      
|              | 
|10.29*        |  | Cash Bonus Plan (Incorporated by reference to Exhibit 10.1 of TriZettos Form 8-K as filed with the SEC on May 15, 2006, File No. 000-27501)                                                                                                                                                                                                          



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|              |  |                                                                                                                                                                                                                                                                                                               
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                                                                                        
|10.30*        |  | Form of Change of Control Agreement entered into by and between TriZetto and certain executive officers of TriZetto effective as of August 24, 2006 (Incorporated by reference to Exhibit
10.1 of TriZettos Form 8-K as filed with the SEC on August 29, 2006, File No. 000-27501)                           
|              | 
|10.31*        |  | Settlement and License Agreement, dated September 7, 2006, by and between TriZetto and McKesson Information Solutions LLC (Incorporated by reference to Exhibit 10.3 of TriZettos Form
10-Q as filed with the SEC on November 6, 2006, File No. 000-27501).                                                  
|              | 
|10.32*        |  | Amended and Restated Credit Agreement, dated January 10, 2007, by and among TriZetto, each of TriZettos subsidiaries, and Wells Fargo Foothill, Inc. (Incorporated by reference to
Exhibit 10.39 of TriZettos Form 10-K as filed with the SEC on March 16, 2007, File No. 000-27501)                        
|              | 
|10.33*        |  | First Amendment to the Amended and Restated Credit Agreement, dated July 1, 2007, by and among TriZetto, each of TriZettos subsidiaries, and Wells Fargo Foothills, Inc. (Incorporated
by reference to Exhibit 10.7 of TriZettos Form 10-Q as filed with the SEC on August 8, 2007, File No. 000-27501)     
|              | 
|10.34*        |  | Second Amendment to the Amended and Restated Credit Agreement, dated October 1, 2007, by and among TriZetto, each of TriZettos subsidiaries, and Wells Fargo Foothill, Inc.
(Incorporated by reference to Exhibit 10.4 of TriZettos Form 10-Q as filed with the SEC on November 2, 2007, File No. 000-27501)
|              | 
|10.35*        |  | Confirmation, dated April 11, 2007, between Deutsche Bank AG, London Branch and The TriZetto Group, Inc (Incorporated by reference to Exhibit 10.1 of TriZettos Form 8-K as filed with
the SEC on April 17, 2007, File No. 000-27501)                                                                        
|              | 
|10.36*        |  | Confirmation, dated April 11, 2007, between Deutsche Bank AG, London Branch and The TriZetto Group, Inc (Incorporated by reference to Exhibit 10.2 of TriZettos Form 8-K as filed with
the SEC on April 17, 2007, File No. 000-27501)                                                                        
|              | 
|10.37*        |  | Confirmation, dated April 11, 2007, between Goldman, Sachs & Co. and The TriZetto Group, Inc (Incorporated by reference to Exhibit 10.3 of TriZettos Form 8-K as filed with the SEC
on April 17, 2007, File No. 000-27501)                                                                                   
|              | 
|10.38*        |  | Confirmation, dated April 11, 2007, between Goldman, Sachs & Co. and The TriZetto Group, Inc (Incorporated by reference to Exhibit 10.4 of TriZettos Form 8-K as filed with the SEC
on April 17, 2007, File No. 000-27501).                                                                                  
|              | 
|10.39*        |  | Confirmation, dated April 11, 2007, between UBS AG, London Branch and The TriZetto Group, Inc (Incorporated by reference to Exhibit 10.5 of TriZettos Form 8-K as filed with the SEC on
April 17, 2007, File No. 000-27501)                                                                                  
|              | 
|10.40*        |  | Confirmation, dated April 11, 2007, between UBS AG, London Branch and The TriZetto Group, Inc (Incorporated by reference to Exhibit 10.6 of TriZettos Form 8-K as filed with the SEC on
April 17, 2007, File No. 000-27501)                                                                                  
|              | 
|10.41*        |  | Amendment to Confirmation, dated July 26, 2007, between Deutsche AG, London Branch and The TriZetto Group, Inc. (Incorporated by reference to Exhibit 10.8 of TriZettos Form 10-Q as filed
with the SEC on August 8, 2007, File No. 000-27501)                                                               
|              | 
|10.42*        |  | Amendment to Confirmation, dated July 26, 2007, between Goldman, Sachs & Co. and The TriZetto Group, Inc. (Incorporated by reference to Exhibit 10.9 of TriZettos Form 10-Q as filed
with the SEC on August 8, 2007, File No. 000-27501)                                                                     
|              | 
|10.43*        |  | Amendment to Confirmation, dated July 26, 2007, between UBS AG, London Branch and The TriZetto Group, Inc. (Incorporated by reference to Exhibit 10.10 of TriZettos Form 10-Q as filed with
the SEC on August 8, 2007, File No. 000-27501)                                                                   
|              | 
|10.44*        |  | Form of Performance Unit Award Agreement between TriZetto and Certain Employees (Incorporated by reference to Exhibit 10.1 of TriZettos Form 8-K as filed with the SEC on February 14, 2008,
File No. 000-27501)                                                                                             
|              | 
|14.1*         |  | Code of Ethics (Incorporated by reference to Exhibit 14.1 of TriZettos Form 10-Q as filed with the SEC on August 14, 2003, File No. 000-27501)                                                                                                                                                               
|              | 
|21.1          |  | Current Subsidiaries of TriZetto                                                                                                                                                                                                                                                                              
|              | 
|23.1          |  | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm                                                                                                                                                                                                                                   
|              | 
|31.1          |  | Certification of CEO Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                         
|              | 
|31.2          |  | Certification of CFO Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                         
|              | 
|32.1          |  | Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                          



|* | Previously filed.
|- | -----------------



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 15, 2008.



THE TRIZETTO GROUP, INC.By:

/s/ Jeffrey H. MargolisJeffrey H. Margolis, Chief Executive Officer and Chairman of the Board


POWER OF ATTORNEY

Each of the undersigned hereby constitutes and appoints Jeffrey H. Margolis and Robert G. Barbieri, or either of them, his/her true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution, to sign any or all amendments to the Form 10-K of The TriZetto Group, Inc. for the year ended December 31, 2007 and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his/her substitute or substitutes, may do or cause to be done by virtue hereof in any and
all capacities.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.



|                        |  |                                                                                 |  |                  
|----------------------- |  | ------------------------------------------------------------------------------- |  | -----------------
|Signature               |  | Title                                                                           |  | Date             
|                        |  |                                                                                
|/s/ Jeffrey H. Margolis |  |                                                                                 |  |                  
|Jeffrey H. Margolis     |  | Chief Executive Officer and Chairman of the Board (principal executive officer) |  | February 15, 2008
|                        |  |                                                                                
|/s/ Robert G. Barbieri  |  |                                                                                 |  |                  
|Robert G. Barbieri      |  | Chief Financial Officer (principal financial and accounting officer)            |  | February 15, 2008
|                        |  |                                                                                
|/s/ Nancy H. Handel     |  |                                                                                 |  | February 15, 2008
|Nancy H. Handel         |  | Director                                                                        |  |                  
|                        |  |                                                                                
|/s/ Thomas B. Johnson   |  |                                                                                 |  | February 15, 2008
|Thomas B. Johnson       |  | Director                                                                        |  |                  
|                        |  |                                                                                
|/s/ L. William Krause   |  |                                                                                 |  | February 15, 2008
|L. William Krause       |  | Director                                                                        |  |                  
|                        |  |                                                                                
|/s/ Paul F. LeFort      |  |                                                                                 |  | February 15, 2008
|Paul F. LeFort          |  | Director                                                                        |  |                  
|                        |  |                                                                                
|/s/ Donald J. Lothrop   |  |                                                                                 |  | February 15, 2008
|Donald J. Lothrop       |  | Director                                                                        |  |                  
|                        |  |                                                                                
|/s/ Jerry P. Widman     |  |                                                                                 |  | February 15, 2008
|Jerry P. Widman         |  | Director                                                                        |  |                  



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THE TRIZETTO GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL INFORMATION



|                                                                                                              |  |     
|------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                              |  | Page
|                                                                                                              | 
|Report of Independent Registered Public Accounting Firm                                                       |  | F-2 
|                                                                                                              | 
|Consolidated Balance SheetsDecember 31, 2007 and 2006                                                        |  | F-3 
|                                                                                                              | 
|Consolidated Statements of IncomeFor the years ended December 31, 2007, 2006 and 2005                        |  | F-4 
|                                                                                                              | 
|Consolidated Statements of Stockholders EquityFor the years ended December 31, 2007, 2006 and 2005 and 2004 |  | F-5 
|                                                                                                              | 
|Consolidated Statements of Cash FlowsFor the years ended December 31, 2007, 2006 and 2005                    |  | F-6 
|                                                                                                              | 
|Notes to Consolidated Financial Statements                                                                    |  | F-7 
|                                                                                                              | 
|Financial Statement ScheduleValuation and Qualifying Accounts                                                |  | S-1 



F-1



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of The TriZetto Group,
Inc.

We have audited the accompanying consolidated balance sheets of The TriZetto Group, Inc. as of December 31, 2007 and 2006, and the related
consolidated statements of income, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15. These
financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The TriZetto
Group, Inc. at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment.

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), The TriZetto Group, Inc.s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 14, 2008 expressed an unqualified opinion thereon.

/s/ Ernst
& Young LLP

Orange County, California

February 14,
2008



F-2



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##### Table of Contents

THE TRIZETTO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



|                                                                                                                            |  |              |          |   |      |   |          |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                            |  | December 31, |         
|                                                                                                                            |  | 2007         |          |   | 2006 |  
|Assets                                                                                                                      |  |              |          |   |      |   |          |  
|Current assets:                                                                                                             |  |              |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                   |  | $            | 208,507  |   |      | $ | 107,057  |  
|Restricted cash                                                                                                             |  |              |         |   |      |   | 921      |  
|Accounts receivable, less allowances of $3,528 and $3,770 at December 31, 2007 and 2006, respectively                       |  |              | 92,118   |   |      |   | 64,386   |  
|Prepaid expenses and other current assets                                                                                   |  |              | 17,458   |   |      |   | 11,415   |  
|Deferred tax assets                                                                                                         |  |              | 10,273   |   |      |   | 14,100   |  
|                                                                                                                            |  |              |          |   |      |   |          |  
|Total current assets                                                                                                        |  |              | 328,356  |   |      |   | 197,879  |  
|Property and equipment, net                                                                                                 |  |              | 32,889   |   |      |   | 26,777   |  
|Capitalized software development costs, net                                                                                 |  |              | 25,903   |   |      |   | 27,913   |  
|Goodwill                                                                                                                    |  |              | 200,219  |   |      |   | 90,337   |  
|Other intangible assets, net                                                                                                |  |              | 74,545   |   |      |   | 27,347   |  
|Other assets                                                                                                                |  |              | 16,070   |   |      |   | 12,347   |  
|                                                                                                                            |  |              |          |   |      |   |          |  
|Total assets                                                                                                                |  | $            | 677,982  |   |      | $ | 382,600  |  
|                                                                                                                            |  |              |          |   |      |   |          |  
|Liabilities and Stockholders Equity                                                                                        |  |              |          |   |      |   |          |  
|Current liabilities:                                                                                                        |  |              |          |   |      |   |          |  
|Current portion of notes payable                                                                                            |  | $            | 53       |   |      | $ | 115      |  
|Current portion of term loan                                                                                                |  |              | 10,714   |   |      |   |         |  
|Current portion of capital lease obligations                                                                                |  |              | 1,108    |   |      |   | 1,461    |  
|Accounts payable                                                                                                            |  |              | 16,142   |   |      |   | 18,091   |  
|Accrued liabilities                                                                                                         |  |              | 53,079   |   |      |   | 61,595   |  
|Deferred revenue                                                                                                            |  |              | 41,356   |   |      |   | 30,508   |  
|                                                                                                                            |  |              |          |   |      |   |          |  
|Total current liabilities                                                                                                   |  |              | 122,452  |   |      |   | 111,770  |  
|Long-term convertible debt                                                                                                  |  |              | 330,000  |   |      |   | 100,000  |  
|Long-term revolving line of credit and term loan                                                                            |  |              | 60,250   |   |      |   | 12,000   |  
|Other long-term liabilities                                                                                                 |  |              | 6,370    |   |      |   | 2,340    |  
|Capital lease obligations                                                                                                   |  |              | 1,172    |   |      |   | 2,030    |  
|Deferred tax liabilities                                                                                                    |  |              | 2,817    |   |      |   | 14,100   |  
|Deferred revenue, non-current                                                                                               |  |              | 7,265    |   |      |   | 6,453    |  
|                                                                                                                            |  |              |          |   |      |   |          |  
|Total liabilities                                                                                                           |  |              | 530,326  |   |      |   | 248,693  |  
|                                                                                                                            |  |              |          |   |      |   |          |  
|Commitments and contingencies (Note 8)                                                                                      |  |              |          |   |      |   |          |  
|                                                                                                                            |  |             
|Stockholders equity:                                                                                                       |  |              |          |   |      |   |          |  
|Common stock: $0.001 par value; shares authorized: 95,000; shares issued and outstanding: 42,816 in 2007 and 43,497 in 2006 |  |              | 44       |   |      |   | 43       |  
|Additional paid-in capital                                                                                                  |  |              | 362,151  |   |      |   | 376,633  |  
|Accumulated deficit                                                                                                         |  |              | (214,539 | ) |      |   | (242,769 | )
|                                                                                                                            |  |              |          |   |      |   |          |  
|Total stockholders equity                                                                                                  |  |              | 147,656  |   |      |   | 133,907  |  
|                                                                                                                            |  |              |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                                  |  | $            | 677,982  |   |      | $ | 382,600  |  
|                                                                                                                            |  |              |          |   |      |   |          |  



F-3



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##### Table of Contents

THE TRIZETTO GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)



|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                          |  | Years Ended December 31, |        
|                                                                          |  | 2007                     |         |   | 2006 |   |         | 2005 | 
|Revenue:                                                                  |  |                          |         |   |      |   |         |      |  |   |         |  
|Services and other                                                        |  | $                        | 360,450 |   |      | $ | 272,943 |      |  | $ | 243,483 |  
|Products                                                                  |  |                          | 91,341  |   |      |   | 74,994  |      |  |   | 48,736  |  
|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|Total revenue                                                             |  |                          | 451,791 |   |      |   | 347,937 |      |  |   | 292,219 |  
|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|Operating costs and expenses:                                             |  |                          |         |   |      |   |         |      |  |   |         |  
|Cost of revenue - services and other                                      |  |                          | 193,796 |   |      |   | 165,229 |      |  |   | 144,318 |  
|Cost of revenue - products (excludes amortization of acquired technology) |  |                          | 21,652  |   |      |   | 14,175  |      |  |   | 14,210  |  
|Research and development                                                  |  |                          | 62,120  |   |      |   | 42,789  |      |  |   | 31,655  |  
|Selling, general and administrative                                       |  |                          | 113,250 |   |      |   | 103,809 |      |  |   | 76,758  |  
|Amortization of acquired technology                                       |  |                          | 5,675   |   |      |   | 4,120   |      |  |   | 660     |  
|Amortization of acquired other intangible assets                          |  |                          | 5,427   |   |      |   | 867     |      |  |   | 2,225   |  
|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                                                  |  |                          | 401,920 |   |      |   | 330,989 |      |  |   | 269,826 |  
|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|Income from operations                                                    |  |                          | 49,871  |   |      |   | 16,948  |      |  |   | 22,393  |  
|Interest income                                                           |  |                          | 9,446   |   |      |   | 3,823   |      |  |   | 1,619   |  
|Interest expense                                                          |  |                          | (13,291 | ) |      |   | (3,342  | )    |  |   | (1,579  | )
|Change in fair value of derivative instruments                            |  |                          | 403     |   |      |   |        |      |  |   |        |  
|Other income                                                              |  |                          |        |   |      |   | 180     |      |  |   |        |  
|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|Income before provision for income taxes                                  |  |                          | 46,429  |   |      |   | 17,609  |      |  |   | 22,433  |  
|Provision for income taxes                                                |  |                          | (18,199 | ) |      |   | (2,494  | )    |  |   | (412    | )
|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|Net income                                                                |  | $                        | 28,230  |   |      | $ | 15,115  |      |  | $ | 22,021  |  
|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|Net income per share:                                                     |  |                          |         |   |      |   |         |      |  |   |         |  
|Basic                                                                     |  | $                        | 0.64    |   |      | $ | 0.36    |      |  | $ | 0.52    |  
|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|Diluted                                                                   |  | $                        | 0.52    |   |      | $ | 0.33    |      |  | $ | 0.48    |  
|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|Shares used in computing net income per share:                            |  |                          |         |   |      |   |         |      |  |   |         |  
|Basic                                                                     |  |                          | 44,392  |   |      |   | 42,389  |      |  |   | 41,948  |  
|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|Diluted                                                                   |  |                          | 59,366  |   |      |   | 45,691  |      |  |   | 45,503  |  
|                                                                          |  |                          |         |   |      |   |         |      |  |   |         |  

See accompanying notes.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years Ended December 31, 2007, 2006 and 2005

(in thousands)



|                                                                        |  |              |   |  |                          |    |   |                           |   |         |                    |  |   |                          |   |  |   |          |   |  |   |         |  
|----------------------------------------------------------------------- |  | ------------ | - |  | ------------------------ | -- | - | ------------------------- | - | ------- | ------------------ |  | - | ------------------------ | - |  | - | -------- | - |  | - | ------- | -
|                                                                        |  | Common Stock |   |  | AdditionalPaid-inCapital |    |   | DeferredStockCompensation |   |         | AccumulatedDeficit |  |   | TotalStockholdersEquity |  
|                                                                        |  | Shares       |   |  | Amount                   |    |   |                           |   |        
|Balance, December 31, 2004                                              |  | 42,201       |   |  | $                        | 42 |   |                           | $ | 369,669 |                    |  | $ | (2,873                   | ) |  | $ | (279,905 | ) |  | $ | 86,933  |  
|Employee exercise of common stock options and purchase of common stock  |  | 1,370        |   |  |                          | 2  |   |                           |   | 10,252  |                    |  |   |                         |   |  |   |         |   |  |   | 10,254  |  
|Stock-based compensation                                                |  |             |   |  |                          |   |   |                           |   | 191     |                    |  |   | 1,206                    |   |  |   |         |   |  |   | 1,397   |  
|Issuance of restricted stock grants                                     |  | 100          |   |  |                          |   |   |                           |   | 1,319   |                    |  |   | (1,319                   | ) |  |   |         |   |  |   |        |  
|Repurchase of common stock from ValueAct Capital                        |  | (600         | ) |  |                          | (1 | ) |                           |   | (5,297  | )                  |  |   |                         |   |  |   |         |   |  |   | (5,298  | )
|Repurchase of common stock related to convertible debt                  |  | (1,000       | ) |  |                          | (1 | ) |                           |   | (14,499 | )                  |  |   |                         |   |  |   |         |   |  |   | (14,500 | )
|Issuance of common stock for purchase of software patent                |  | 33           |   |  |                          |   |   |                           |   | 551     |                    |  |   |                         |   |  |   |         |   |  |   | 551     |  
|Net income                                                              |  |             |   |  |                          |   |   |                           |   |        |                    |  |   |                         |   |  |   | 22,021   |   |  |   | 22,021  |  
|                                                                        |  |              |   |  |                          |    |   |                           |   |         |                    |  |   |                          |   |  |   |          |   |  |   |         |  
|Balance, December 31, 2005                                              |  | 42,104       |   |  |                          | 42 |   |                           |   | 362,186 |                    |  |   | (2,986                   | ) |  |   | (257,884 | ) |  |   | 101,358 |  
|Employee exercise of common stock options and purchase of common stock  |  | 1,131        |   |  |                          | 1  |   |                           |   | 10,007  |                    |  |   |                         |   |  |   |         |   |  |   | 10,008  |  
|Elimination of deferred stock compensation in accordance with SFAS 123R |  |             |   |  |                          |   |   |                           |   | (2,986  | )                  |  |   | 2,986                    |   |  |   |         |   |  |   |        |  
|Stock-based compensation                                                |  |             |   |  |                          |   |   |                           |   | 7,426   |                    |  |   |                         |   |  |   |         |   |  |   | 7,426   |  
|Issuance of restricted stock grants                                     |  | 262          |   |  |                          |   |   |                           |   |        |                    |  |   |                         |   |  |   |         |   |  |   |        |  
|Net income                                                              |  |             |   |  |                          |   |   |                           |   |        |                    |  |   |                         |   |  |   | 15,115   |   |  |   | 15,115  |  
|                                                                        |  |              |   |  |                          |    |   |                           |   |         |                    |  |   |                          |   |  |   |          |   |  |   |         |  
|Balance, December 31, 2006                                              |  | 43,497       |   |  |                          | 43 |   |                           |   | 376,633 |                    |  |   |                         |   |  |   | (242,769 | ) |  |   | 133,907 |  
|Employee exercise of common stock options and purchase of common stock  |  | 1,272        |   |  |                          | 3  |   |                           |   | 10,368  |                    |  |   |                         |   |  |   |         |   |  |   | 10,371  |  
|Issuance of common stock in connection with PDM acquisition             |  | 641          |   |  |                          | 1  |   |                           |   | 11,819  |                    |  |   |                         |   |  |   |         |   |  |   | 11,820  |  
|Purchase of call options related to 2012 convertible debt               |  |             |   |  |                          |   |   |                           |   | (58,972 | )                  |  |   |                         |   |  |   |         |   |  |   | (58,972 | )
|Stock warrants issued related to 2012 convertible debt                  |  |             |   |  |                          |   |   |                           |   | 25,714  |                    |  |   |                         |   |  |   |         |   |  |   | 25,714  |  
|Reclassification of embedded derivative as non-current liability        |  |             |   |  |                          |   |   |                           |   | (7,328  | )                  |  |   |                         |   |  |   |         |   |  |   | (7,328  | )
|Reclassification of embedded derivative liability to equity             |  |             |   |  |                          |   |   |                           |   | 6,925   |                    |  |   |                         |   |  |   |         |   |  |   | 6,925   |  
|Deferred taxes associated with debt offerings                           |  |             |   |  |                          |   |   |                           |   | 23,012  |                    |  |   |                         |   |  |   |         |   |  |   | 23,012  |  
|Excess tax benefits from stock-based compensation                       |  |             |   |  |                          |   |   |                           |   | 8,670   |                    |  |   |                         |   |  |   |         |   |  |   | 8,670   |  
|Repurchase of common stock related to stock repurchase program          |  | (2,906       | ) |  |                          | (3 | ) |                           |   | (46,003 | )                  |  |   |                         |   |  |   |         |   |  |   | (46,006 | )
|Stock-based compensation                                                |  |             |   |  |                          |   |   |                           |   | 11,313  |                    |  |   |                         |   |  |   |         |   |  |   | 11,313  |  
|Issuance of restricted stock grants                                     |  | 312          |   |  |                          |   |   |                           |   |        |                    |  |   |                         |   |  |   |         |   |  |   |        |  
|Net income                                                              |  |             |   |  |                          |   |   |                           |   |        |                    |  |   |                         |   |  |   | 28,230   |   |  |   | 28,230  |  
|                                                                        |  |              |   |  |                          |    |   |                           |   |         |                    |  |   |                          |   |  |   |          |   |  |   |         |  
|Balance, December 31, 2007                                              |  | 42,816       |   |  | $                        | 44 |   |                           | $ | 362,151 |                    |  | $ |                         |   |  | $ | (214,539 | ) |  | $ | 147,656 |  
|                                                                        |  |              |   |  |                          |    |   |                           |   |         |                    |  |   |                          |   |  |   |          |   |  |   |         |  

See accompanying notes.



F-5



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##### Table of Contents

THE TRIZETTO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                  |  |                          |          |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                  |  | Years Ended December 31, |         
|                                                                                  |  | 2007                     |          |   | 2006 |   |         | 2005 | 
|Cash flows from operating activities:                                             |  |                          |          |   |      |   |         |      |  |   |         |  
|Net income                                                                        |  | $                        | 28,230   |   |      | $ | 15,115  |      |  | $ | 22,021  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |          |   |      |   |         |      |  |   |         |  
|(Net reduction in) provision for doubtful accounts and sales allowances           |  |                          | (498     | ) |      |   | 3,214   |      |  |   | (597    | )
|Stock-based compensation                                                          |  |                          | 11,313   |   |      |   | 7,426   |      |  |   | 1,397   |  
|Loss (gain) loss on disposal of property and equipment                            |  |                          | 201      |   |      |   | (158    | )    |  |   | 70      |  
|Depreciation and amortization                                                     |  |                          | 24,334   |   |      |   | 22,237  |      |  |   | 23,282  |  
|Amortization of acquired technology                                               |  |                          | 5,675    |   |      |   | 4,120   |      |  |   | 660     |  
|Amortization of acquired other intangible assets                                  |  |                          | 5,427    |   |      |   | 867     |      |  |   | 2,225   |  
|Excess tax benefits from stock-based compensation                                 |  |                          | (8,670   | ) |      |   |        |      |  |   |        |  
|Impairment of software development costs                                          |  |                          | 132      |   |      |   |        |      |  |   |        |  
|Change in fair value of derivative instruments                                    |  |                          | (403     | ) |      |   |        |      |  |   |        |  
|Recovery from contracts                                                           |  |                          |         |   |      |   |        |      |  |   | (2,877  | )
|Increase in cash surrender value of life insurance policies                       |  |                          | (602     | ) |      |   | (683    | )    |  |   | (151    | )
|Changes in assets and liabilities (net of acquisition):                           |  |                          |          |   |      |   |         |      |  |   |         |  
|Restricted cash                                                                   |  |                          | 921      |   |      |   | 622     |      |  |   | (88     | )
|Accounts receivable                                                               |  |                          | (20,493  | ) |      |   | (23,794 | )    |  |   | 12,825  |  
|Prepaid expenses and other current assets                                         |  |                          | 578      |   |      |   | (1,092  | )    |  |   | (3,386  | )
|Other assets                                                                      |  |                          | 5,631    |   |      |   | (486    | )    |  |   | (8,384  | )
|Accounts payable                                                                  |  |                          | (4,614   | ) |      |   | 4,911   |      |  |   | 2,417   |  
|Accrued liabilities                                                               |  |                          | 2,609    |   |      |   | 11,746  |      |  |   | (2,620  | )
|Deferred revenue                                                                  |  |                          | 3,609    |   |      |   | (3,891  | )    |  |   | (2,969  | )
|                                                                                  |  |                          |          |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                         |  |                          | 53,380   |   |      |   | 40,154  |      |  |   | 43,825  |  
|                                                                                  |  |                          |          |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities:                                             |  |                          |          |   |      |   |         |      |  |   |         |  
|Sale of short-term investments, net                                               |  |                          |         |   |      |   |        |      |  |   | 1,203   |  
|Purchase of property and equipment and software licenses                          |  |                          | (17,355  | ) |      |   | (10,575 | )    |  |   | (7,171  | )
|Capitalization of software development costs                                      |  |                          | (8,474   | ) |      |   | (8,568  | )    |  |   | (8,608  | )
|Purchase of intangible assets                                                     |  |                          |         |   |      |   |        |      |  |   | (572    | )
|Acquisitions, net of cash acquired                                                |  |                          | (145,393 | ) |      |   | (40,581 | )    |  |   | (26,799 | )
|                                                                                  |  |                          |          |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                             |  |                          | (171,222 | ) |      |   | (59,724 | )    |  |   | (41,947 | )
|                                                                                  |  |                          |          |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities:                                             |  |                          |          |   |      |   |         |      |  |   |         |  
|Proceeds from revolving line of credit                                            |  |                          | 130,200  |   |      |   | 37,000  |      |  |   | 78,000  |  
|Proceeds from term note                                                           |  |                          | 75,000   |   |      |   |        |      |  |   |        |  
|Proceeds from convertible debt                                                    |  |                          | 223,100  |   |      |   |        |      |  |   | 100,000 |  
|Proceeds from warrant                                                             |  |                          | 25,714   |   |      |   |        |      |  |   |        |  
|Proceeds from debt financing and capital leases                                   |  |                          | 718      |   |      |   | 992     |      |  |   | 1,650   |  
|Payments on revolving line of credit                                              |  |                          | (138,200 | ) |      |   | (25,000 | )    |  |   | (90,000 | )
|Payment for convertible note hedge (call options)                                 |  |                          | (58,972  | ) |      |   |        |      |  |   |        |  
|Payments on notes payable                                                         |  |                          | (1,640   | ) |      |   | (997    | )    |  |   | (40,991 | )
|Payments on term note                                                             |  |                          | (8,036   | ) |      |   |        |      |  |   |        |  
|Payments on capital leases                                                        |  |                          | (1,627   | ) |      |   | (2,316  | )    |  |   | (4,542  | )
|Payment for repurchase of common stock                                            |  |                          | (46,006  | ) |      |   |        |      |  |   | (19,798 | )
|Excess tax benefits from stock-based compensation                                 |  |                          | 8,670    |   |      |   |        |      |  |   |        |  
|Employee exercises of stock options and purchase of common stock                  |  |                          | 10,371   |   |      |   | 10,008  |      |  |   | 10,254  |  
|                                                                                  |  |                          |          |   |      |   |         |      |  |   |         |  
|Net cash provided by financing activities                                         |  |                          | 219,292  |   |      |   | 19,687  |      |  |   | 34,573  |  
|                                                                                  |  |                          |          |   |      |   |         |      |  |   |         |  
|Net increase in cash and cash equivalents                                         |  |                          | 101,450  |   |      |   | 117     |      |  |   | 36,451  |  
|Cash and cash equivalents at beginning of year                                    |  |                          | 107,057  |   |      |   | 106,940 |      |  |   | 70,489  |  
|                                                                                  |  |                          |          |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of year                                          |  | $                        | 208,507  |   |      | $ | 107,057 |      |  | $ | 106,940 |  
|                                                                                  |  |                          |          |   |      |   |         |      |  |   |         |  

See Note 14 for supplemental cash flow disclosures.

See accompanying notes.



F-6



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Formation and Business of the Company

The
TriZetto Group, Inc. (the Company) was incorporated in the state of Delaware on May 27, 1997. The Company develops, licenses and supports proprietary and third-party software products for the healthcare industry. The Company also
provides hosting, applications management, business process management, consulting and other services primarily to the healthcare industry. The Company provides access to its hosted solutions either through the Internet or through traditional
networks and sells its software and services to customers primarily in the United States.

2. Summary of Significant Accounting Policies

Basis of consolidation

The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Liquidity and capital resources

The
Company has generated net income of $28.2 million, $15.1 million and $22.0 million for the years ended December 31, 2007, 2006 and 2005, respectively, and has an accumulated deficit of $214.5 million at December 31, 2007. The Company has
generated cash from operating activities of $53.4 million, $40.2 million and $43.8 million for the years ended December 31, 2007, 2006, and 2005, respectively. The Company has total cash and cash equivalents of $208.5 million and net working
capital of $205.9 million at December 31, 2007. Based on the Companys current operating plan, management believes existing cash and cash equivalents, cash forecasted by management to be generated by operations and borrowings from existing
credit facilities will be sufficient to meet the Companys working capital and capital requirements through at least December 31, 2008. However, if events or circumstances occur such that the Company does not meet its operating plan as
expected, the Company may be required to seek additional capital and/or to reduce certain discretionary spending, which could have a material adverse effect on the Companys ability to achieve its intended business objectives. The Company may
seek additional financing, which may include debt and/or equity financing or funding through third party agreements. There can be no assurance that any additional financing will be available on acceptable terms, or available at all. Any equity
financing may result in dilution to existing stockholders and any debt financing may include restrictive covenants.

Company owned life
insurance

The Company has purchased life insurance policies to fund its obligations under certain deferred compensation plans for
officers, key employees and directors that were initiated in 2006. Cash surrender values of these policies are adjusted for fluctuations in the market value of underlying investments. The cash surrender value is adjusted each reporting period and
any gain or loss is recorded and included in the Companys consolidated statements of income. For the years ended December 31, 2007, 2006 and 2005, the Company recorded a loss of approximately $14,000, a gain of approximately $5,000 and
zero, respectively.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of credit risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, short-term investments and accounts receivable. Cash and cash equivalents are deposited in demand and money
market accounts in three financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Companys
accounts receivable are derived from revenue earned from customers primarily located in the United States. The Company generally requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based
upon the expected collectibility of individual accounts.

In 2007 and 2006, one customer, The Regence Group, accounted for more than 10% of
consolidated revenue. No single customer accounted for more than 10% of the Companys accounts receivable in 2007 and 2006. In 2005, one customer, The Regence Group, accounted for more than 10% of the Companys accounts receivable and two
customers, The Regence Group and United Healthcare Services, Inc., each accounted for more than 10% of its consolidated revenue.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Fair value of financial instruments

Carrying amounts of certain of the Companys financial instruments including cash and cash equivalents, accounts receivable and accounts payable
approximate fair value due to their short maturities. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of its debt obligations approximates fair value.

Cash and cash equivalents

The
Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents include money market funds, commercial paper and various deposit accounts.

Restricted cash

As of December 31, 2006, the
Company had four outstanding and unused standby letters of credit in the aggregate amount of $921,000, which served as security deposits for certain operating leases. The Company was required to maintain a cash balance equal to the outstanding
letters of credit, which was classified as restricted cash on the balance sheet.

In 2007, and in compliance with the Companys Credit
Agreement, all outstanding and unused standby letters of credit in the amount of $1.7 million were transferred to Wells Fargo Bank. As a result, funds will be drawn from the Companys revolving line of credit in the event a standby letter
credit is presented for issuance by the beneficiary. In this case, the Company is not required to maintain a cash balance equal to the outstanding letters of credit. Therefore, there is no restricted cash as of December 31, 2007.

Property and equipment

Property and
equipment are stated at cost and are depreciated on a straight-line basis over their estimated useful lives: computer equipment, other equipment and software are depreciated over three to five years, furniture and fixtures are depreciated over seven
years, and leased transportation equipment is depreciated over 20 years. Leasehold improvements are amortized over seven years or the lease term, if shorter. Upon retirement or sale, the cost and related accumulated depreciation are removed from the
balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred.

Leases

The Company leases facilities and equipment under non-cancelable operating and capital lease agreements, which
include scheduled increases in minimum rents and renewal provisions at the option of the Company. The Company determines the appropriate classification of leases by performing the tests in accordance with FASB Statement No. 13, Accounting
for Leases. For certain facility leases, the Company receives reimbursement or allowances from its landlords to compensate for costs incurred by the Company for improvement or expansion of its properties. Tenant improvement allowances are
recorded as a deferred rent liability and recognized ratably as a reduction to rent expense over the remaining lease term. The lease term used in all lease accounting calculations begins with the date the Company takes possession of the facility or
equipment and ends on the expiration of the primary lease term or the expiration of any renewal periods that are deemed to be reasonably assured at the inception of the lease. Rent holidays and escalating payment terms are recognized on a
straight-line basis over the lease term.

Goodwill

Under Financial Accounting Standards Board (FASB) Statement Nos. 141 and 142, Business Combinations and Goodwill and Other Intangible Assets, respectively, goodwill is not amortized
but, instead, is tested annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value.

The Company tests goodwill using the two-step process prescribed in FASB Statement No. 142. The first required step is to determine if a potential impairment exists, while the second step measures the amount of
the impairment, if any. The Company performed its annual impairment test on March 31, 2007, and this test did not reveal any indications of impairment.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Long-lived assets, including other intangible assets

Other intangible assets arising from the Companys acquisitions consist of customer lists, core technology, tradenames and intellectual property,
which are being amortized on a straight-line basis over their estimated useful lives of five to ten years. Software technology rights are being amortized on a straight-line basis over the lesser of the contract term or five years. Long-lived assets
and other intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable in accordance with FASB Statement No. 144, Accounting for the Impairment or
Disposal of LongLived Assets. Recoverability is measured by comparison of the assets carrying amount to future net undiscounted cash flows the assets are expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the assets. The discount rate applied to these cash flows is based on a discount
rate commensurate with the risks involved.

Under FASB Statement No. 144, the Company is required to perform an evaluation of its
property and equipment for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The Company did not perform any evaluation in 2007 or 2006, as management did not believe that any such
indicators existed.

Revenue recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, the product or service has been delivered, fees are fixed or determinable, collection is reasonably assured and all other significant
obligations have been fulfilled. The Companys revenue is classified into two categories: services and other, and products. For the year ended December 31, 2007, approximately 80% of the Companys total revenue was generated from
services and other revenue and 20% was from products revenue.

The Company follows the provisions of the Securities and Exchange Commission
Staff Accounting Bulletin No. 104, Revenue Recognition, AICPA Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended, EITF Issue 00-3, Application of AICPA Statement of Position 97-2
to Arrangements That Include the Right to Use Software Stored on Another Entitys Hardware, and EITF Issue 00-21, Revenue Arrangements with Multiple Deliverables.

The Company generates services revenue from several sources, including the provision of outsourcing services, such as software hosting and other business
services, and the sale of maintenance and support for its proprietary software products. The Company applies EITF 00-3 to hosting arrangements that include the licensing of software. A software element covered by SOP 97-2 is present in a hosting
arrangement if the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty and it is feasible for the customer to either run the software on its own hardware or contract
with another party unrelated to the vendor to host the software. Software hosting and other business services revenue is typically billed and recognized monthly over the contract term, generally three to seven years. Many of the Companys
outsourcing agreements require it to maintain a certain level of operating performance. The Company records revenue net of estimated penalties resulting from any failure to maintain this level of operating performance. These penalties have not been
significant in the past. Software maintenance and support revenues are typically based on one-year renewable contracts and are recognized ratably over the contract period. Software maintenance in which we receive payment in advance is recorded on
the balance sheet as deferred revenue.

The Company also generates services revenue from consulting fees for implementation, installation,
configuration, business process engineering, data conversion, testing and training related to the use of its proprietary and third party licensed products. In certain instances, the Company also generates services revenue from customization services
of its proprietary licensed products. The Company recognizes revenue for these services as they are performed. The Company also generates services revenues associated with preparing its customer connectivity center or a customers data center
in order to ready a specific customer for software hosting services. These fees are usually separate and distinct from the hosting fees, and performance of the set-up services represents the culmination of the earnings process. The Company
recognizes revenue for these services as they are performed. The Company generates other revenue from certain one-time charges, including certain contractual fees such as termination fees and change of control fees, and it recognizes the revenue for
these fees once the termination or change of control is guaranteed, there are no remaining substantive performance obligations and collection is reasonably assured. Other revenue is also generated from fees related to the Companys
product-related conference, which is recognized as our obligations are performed.

For multiple element arrangements, such as software
license, consulting services, outsourcing services and maintenance, and where vendor-specific objective evidence (VSOE) of fair value exists for all undelivered elements, the Company accounts for the delivered elements in accordance with
the residual method, of SOP 97-2 or EITF 00-21, as



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



applicable. VSOE of fair value is determined for each undelivered element based on how it is sold separately, or in the case of maintenance, the renewal
rate. For arrangements in which VSOE of fair value does not exist for each undelivered element, including specified product and upgrade rights, revenue for the delivered element is deferred and not recognized until VSOE of fair value is available
for the undelivered element or delivery of each element has occurred, unless the only undelivered element is a service in which revenue from the delivered element is recognized over the service period. In determining VSOE for the undelivered
elements, no portion of the discount is allocated to specified or unspecified product or upgrade rights.

Under the residual method, the
arrangement fee is recognized as follows: (1) the total fair value of the undelivered elements, as indicated by VSOE of fair value, is deferred and subsequently recognized in accordance with the relevant sections of SOP 97-2 and (2) the
difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements.

The Company generates products revenue from the licensing of its software. Under SOP 97-2, software license revenue is recognized upon the execution of a license agreement, upon delivery of the software, when fees are
fixed or determinable, when collectibility is probable and when all other significant obligations have been fulfilled. For software license agreements in which customer acceptance is a significant condition of earning the license fees, revenue is
not recognized until acceptance occurs. For software license agreements that require significant customizations or modifications of the software, revenue for the software is recognized on a percentage-of-completion basis as the customization
services are performed. Progress to completion under the percentage-of-completion method is generally determined based upon direct labor costs. For software license arrangements that include a right to use the product for a defined period of time or
for content subscriptions, revenue is recognized ratably over the term of the license.

Research and development expense and capitalized
software development costs

Research and development (R&D) expenses are salaries and related expenses associated with
the development of software applications prior to establishing technological feasibility. Such expenses include compensation paid to engineering personnel and fees to outside contractors and consultants. Costs incurred internally in the development
of our software products are expensed as incurred as R&D expenses until technological feasibility has been established, after which production costs are capitalized as software development costs in accordance with FASB Statement No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. Technology feasibility is established after completion of a detailed program design or, in its absence, a working model. Capitalization ceases and
amortization of capitalized software development costs begins when the software product is available for general release to customers. In some instances, the period between achieving technological feasibility and the general availability of such
software is short and software development costs qualifying for capitalization is insignificant. As a result, no costs are capitalized and such costs are expensed in the period incurred.

On a quarterly basis, the Company monitors the expected net realizable value of the capitalized
software for factors that would indicate impairment, such as a decline in the demand, the introduction of new technology, or the loss of a significant customer. In 2007, capitalized software impairment charges were approximately $130,000 for a
software product component of the Constituent Web Solution® suite since the future undiscounted cash flows no longer support the assets carrying value.

Amounts capitalized as software development costs are amortized using the greater of revenues during the period compared to the total estimated revenues
to be earned or on a straight-line basis over estimated lives, which is generally deemed to be five years. Software development costs of $8.5 million, $8.6 million, and $8.6 million have been capitalized for each of the years ended December 31,
2007, 2006 and 2005, respectively. Amortization expense for the years ended December 31, 2007, 2006, and 2005 was $10.4 million, $9.4 million, and $7.8 million, respectively, and is included in cost of revenueproducts.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Capitalized software development costs, net consist of the following (in thousands):



|                                       |  |                         |         |   |      |   |         |  
|-------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                       |  | Years EndedDecember 31, |        
|                                       |  | 2007                    |         |   | 2006 |  
|Capitalized software development costs |  | $                       | 63,518  |   |      | $ | 55,838  |  
|Less: accumulated amortization         |  |                         | (37,615 | ) |      |   | (27,925 | )
|                                       |  |                         |         |   |      |   |         |  
|                                       |  | $                       | 25,903  |   |      | $ | 27,913  |  
|                                       |  |                         |         |   |      |   |         |  

Internal-use software

The Company capitalizes direct costs of materials and services used in the development of internal-use software in accordance with Statement of Position
(SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Amounts capitalized are amortized on a straight-line basis over a period of three to five years and are included in software
within property and equipment.

Share-Based awards

Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123R, Share-Based Payment, (SFAS 123R), which requires measurement and
recognition of compensation expense for all share-based payment awards made to employees and directors. Under the fair value recognition provisions of SFAS 123R, stock-based compensation cost is estimated at the grant date based on the awards
fair-value and is recognized as expense ratably over the requisite service period. Prior to the adoption of SFAS 123R, the Company accounted for share-based awards using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), as allowed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123).
Under the intrinsic value method, no share-based compensation cost was recognized for awards to employees or directors if the exercise price of the award was equal to the fair market value of the underlying stock on the date of grant.

The Company adopted SFAS 123R using the modified prospective application method. Under the modified prospective application method, prior periods
are not retrospectively revised for comparative purposes. The valuation provisions of SFAS 123R apply to share-based payments granted after January 1, 2006 and granted prior to, but not yet vested as of January 1, 2006. Estimated
compensation expense for awards outstanding and unvested on January 1, 2006 is recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under SFAS No. 123. The Company
recognizes share-based compensation cost over the requisite service period using the straight-line single option method.

The Company uses
the Black-Scholes option-pricing model to calculate fair value which requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them
(expected term), the estimated volatility of our common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (forfeitures). The assumptions used in
calculating the fair value of share-based payment awards represent managements best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses
different assumptions, its stock-based compensation could be materially different in the future. In addition, if the Companys actual forfeiture rate is materially different from its estimate, stock-based compensation expense could be
significantly different from what the Company has recorded in the current period.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Prior to adopting the provisions of SFAS 123R, the Company recorded estimated compensation
expense for stock options based on their intrinsic value on the date of grant pursuant to APB No. 25 and provided the pro forma disclosures required by SFAS No. 123 under the fair value method. The effect on net income and earnings
per common share for 2005 was as follows:



|                                                                                                                                      |  |                             |        |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | -
|                                                                                                                                      |  | Year EndedDecember 31, 2005 |       
|Net income as reported                                                                                                                |  | $                           | 22,021 |  
|Add: stock-based employee compensation expense included in reported net income, net of related tax effects                            |  |                             |       |  
|Deduct: stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                             | (5,782 | )
|                                                                                                                                      |  |                             |        |  
|Pro forma net income                                                                                                                  |  | $                           | 16,239 |  
|                                                                                                                                      |  |                             |        |  
|Net income per share                                                                                                                  |  |                             |        |  
|Basic, as reported                                                                                                                    |  | $                           | 0.52   |  
|                                                                                                                                      |  |                             |        |  
|Diluted, as reported                                                                                                                  |  | $                           | 0.48   |  
|                                                                                                                                      |  |                             |        |  
|Basic, pro forma                                                                                                                      |  | $                           | 0.39   |  
|                                                                                                                                      |  |                             |        |  
|Diluted, pro forma                                                                                                                    |  | $                           | 0.36   |  
|                                                                                                                                      |  |                             |        |  

The following table is a summary of the amount of stock-based compensation expense recognized in
the consolidated statements of income (in thousands):



|                                     |  |                          |        |      |   |       |  |   |      
|------------------------------------ |  | ------------------------ | ------ | ---- | - | ----- |  | - | -----
|                                     |  | Years Ended December 31,
|                                     |  | 2007                     |        | 2006 |   | 2005 
|Cost of revenue  services and other |  | $                        | 1,689  |      | $ | 1,675 |  | $ | 36   
|Cost of revenue  products           |  |                          | 442    |      |   |      |  |   |     
|Research and development             |  |                          | 1,655  |      |   | 893   |  |   | 34   
|Selling, general and administrative  |  |                          | 7,527  |      |   | 4,858 |  |   | 1,327
|                                     |  |                          |        |      |   |       |  |   |      
|Total                                |  | $                        | 11,313 |      | $ | 7,426 |  | $ | 1,397
|                                     |  |                          |        |      |   |       |  |   |      

Advertising costs

Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2007, 2006, and 2005 was $1.9 million, $644,000, and
$1.2 million, respectively.

Income taxes

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109). This statement requires the recognition of
deferred tax assets and liabilities for the future consequences of events that have been recognized in the Companys financial statements or tax returns. The measurement of the deferred items is based on enacted tax laws. In the event the
future consequences of differences between financial reporting bases and the tax bases of the Companys assets and liabilities result in a deferred tax asset, SFAS No. 109 requires an evaluation of the probability of being able to realize
the future benefits indicated by such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. The Company reviews the need for a
valuation allowance on a quarterly basis and believes that there is sufficient certainty regarding the realizability of its deferred tax assets, and therefore, has not recorded a valuation allowance against its net deferred tax assets.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48
applies to all tax positions accounted for under SFAS No. 109 and defines the confidence level that a tax position must meet in order to be recognized in the financial statements. The interpretation requires that the tax effects of a position
be recognized only if it is more-likely-than-not to be sustained by the taxing authority as of the reporting date. If a tax position is not considered more-likely-than-not to be sustained then no benefits of the position are
to be recognized. FIN 48 requires additional disclosures and is effective as of the beginning of the first fiscal year beginning after December 15, 2006. Accordingly, on January 1, 2007, the Company adopted FIN 48 and as a result
of the adoption, deferred tax assets increased



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



approximately $700,000, goodwill increased $1.3 million, approximately $700,000 was reclassified from accrued liabilities to other long-term liabilities, and
the liability for unrecognized tax benefits increased by $7.1 million. There was no effect on the Companys stockholders equity upon its adoption of FIN 48. A reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows (in thousands):



|                                             |  |                                       |        |  
|-------------------------------------------- |  | ------------------------------------- | ------ | -
|                                             |  | Liability forUnrecognizedTax Benefits |       
|Balance at January 1, 2007                   |  | $                                     | 7,120  |  
|Additions for tax position of current period |  |                                       | 3,913  |  
|Settlements                                  |  |                                       | (125   | )
|                                             |  |                                       |        |  
|Balance at December 31, 2007                 |  | $                                     | 10,908 |  
|                                             |  |                                       |        |  

The Company accounts for uncertain tax positions in accordance with FIN 48. Accordingly, the
Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax
expense.

Included in the balance of unrecognized tax benefits at December 31, 2007 and January 1, 2007 are tax positions of
$10.9 million and $7.1 million, respectively, of which $2.9 million and $1.8 million, respectively, would reduce the Companys effective tax rate if recognized. The difference primarily relates to (1) unrecognized tax benefit amounts
arising from business combinations that, if recognized, would be recorded to goodwill and (2) unrecognized tax benefit amounts associated with temporary differences and carryforwards.

For the years ended December 31, 2007, 2006 and 2005, all of the Companys subsidiaries are included in a consolidated Federal income tax
return with TriZetto. The statute of limitations related to the consolidated Federal income tax return is closed for all tax years up to and including 2003. The expiration of the statute of limitations related to the various state income tax returns
that the Company and subsidiaries file, varies by state. The Companys consolidated Federal income tax return for year ended December 31, 2005 is currently under examination, however, the Company does not anticipate a material impact.
Additionally, there are no significant state income tax returns under examination.

. The liability for unrecognized tax benefits included
accrued interest and penalty of approximately $500,000 and $40,000 at December 31, 2007 and January 1, 2007, respectively. Included in the consolidated statements of income is $407,000, zero and zero of interest on unrecognized tax
benefits during the years ended December 31, 2007, 2006 and 2005, respectively. The Company does not expect an unrecognized tax benefit to change significantly over the next twelve months.

Computation of earnings per share

The computation of basic earnings per share (EPS) is based on the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share is based on the weighted average number of
common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options, warrants and shares issuable upon vesting of restricted stock awards, calculated using the treasury
stock method, and shares to be issued upon conversion of convertible debt.

Emerging Issues Task Force Issue No. 04-08, The
Effect of Contingently Convertible Instruments on Diluted Earnings per Share (EITF No. 04-08), requires companies to account for contingently convertible debt using the if converted method set forth in Statement of
Financial Account Standard (SFAS) No. 128, Earnings Per Share, for calculating diluted EPS. Under the if converted method, the after-tax effect of interest expense related to the convertible securities is
added back to net income and convertible debt is assumed to have been converted to equity at the beginning of the period or at such time when the convertible debt became outstanding if issued during the period, and is added to outstanding common
shares, unless the inclusion of such shares is anti-dilutive.

For the years ended December 31, 2007, 2006 and 2005, approximately
2.0 million, 1.4 million and 2.8 million options were antidilutive. For the years ended December 31, 2007, 2006 and 2005, approximately 7.4 million, zero and zero warrants, respectively, were antidilutive. For the years
ended December 31, 2006 and 2005, approximately 5.3 million shares from the assumed conversion of convertible debt were antidilutive. These antidilutive shares were excluded from the table below.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following is a reconciliation of the computations of basic and diluted EPS information for each
of the three years ended December 31, 2007, 2006 and 2005 (in thousands, except per share data):



|                                                      |  |                          |        |      |   |        |  |   |       
|----------------------------------------------------- |  | ------------------------ | ------ | ---- | - | ------ |  | - | ------
|                                                      |  | Years Ended December 31,
|                                                      |  | 2007                     |        | 2006 |   | 2005  
|Numerator:                                            |  |                          |        |      |   |        |  |   |       
|Net income, as reported                               |  | $                        | 28,230 |      | $ | 15,115 |  | $ | 22,021
|After-tax interest expense on 2.75% convertible debt  |  |                          | 1,672  |      |   |       |  |   |      
|After-tax interest expense on 1.125% convertible debt |  |                          | 1,114  |      |   |       |  |   |      
|                                                      |  |                          |        |      |   |        |  |   |       
|Net income for diluted EPS calculation                |  | $                        | 31,016 |      | $ | 15,115 |  | $ | 22,021
|                                                      |  |                          |        |      |   |        |  |   |       
|Denominator:                                          |  |                          |        |      |   |        |  |   |       
|Weighted average shares outstanding - basic           |  |                          | 44,392 |      |   | 42,389 |  |   | 41,948
|2.75% convertible debt converted to common shares     |  |                          | 5,305  |      |   |       |  |   |      
|1.125% convertible debt converted to common shares    |  |                          | 7,399  |      |   |       |  |   |      
|Unvested common shares outstanding                    |  |                          | 170    |      |   | 552    |  |   | 523   
|Stock options                                         |  |                          | 2,100  |      |   | 2,750  |  |   | 3,032 
|                                                      |  |                          |        |      |   |        |  |   |       
|Adjusted weighted average shares for diluted EPS      |  |                          | 59,366 |      |   | 45,691 |  |   | 45,503
|                                                      |  |                          |        |      |   |        |  |   |       
|Basic earnings per share                              |  | $                        | 0.64   |      | $ | 0.36   |  | $ | 0.52  
|                                                      |  |                          |        |      |   |        |  |   |       
|Diluted earnings per share                            |  | $                        | 0.52   |      | $ | 0.33   |  | $ | 0.48  
|                                                      |  |                          |        |      |   |        |  |   |       

Comprehensive income

The Company has adopted the provisions of FASB Statement No. 130, Comprehensive Income (FAS 130). FAS 130 establishes
standards for reporting and display of comprehensive income and its components for general-purpose financial statements. Comprehensive income is defined as net income plus all revenues, expenses, gains and losses from non-owner sources that are
excluded from net income in accordance with U.S. generally accepted accounting principles. Comprehensive income was equal to net income for 2007, 2006 and 2005.

Reclassifications

Certain reclassifications, none of which affected net income, have been made to
prior year amounts to conform to current year presentation.

Up-front Payments to Customers

The Company may pay certain up-front amounts to our customers in connection with the establishment of our hosting and outsourcing services contracts.
Under EITF 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products), these payments are capitalized and amortized over the life of the contract as a reduction to revenue,
provided that such amounts are recoverable from future revenue under the contract. If an up-front payment is not recoverable from future revenue or contract cancellation penalties paid by the customer, the amount will be expensed in the period it is
deemed unrecoverable. Unamortized up-front fees were $4.7 million and $6.2 million as of December 31, 2007 and 2006, respectively.

Sales Allowances and Doubtful Account Reserves

The Company maintains a reserve for estimated discounts, pricing
adjustments, and other sales allowances. The reserve is charged to revenue in amounts sufficient to maintain the allowance at a level the Company believes is adequate based on historical experience and current trends. The Company also maintains an
allowance for doubtful accounts to reflect estimated losses resulting from the inability of customers to make required payments. The Company bases this allowance on estimates after consideration of factors such as the composition of the accounts
receivable aging and bad debt history and our evaluation of the financial condition of the customers. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional bad debt
expense may be required. The Company typically does not require collateral. Historically, the Companys estimates for sales allowances and doubtful account reserves have been adequate to cover accounts receivable exposures. The Company
continually monitors these reserves and makes adjustments to these provisions when the Company believes actual credits or other allowances may differ from established reserves.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Self-Insurance

Effective January 1, 2006, the Company became self-insured for certain losses related to employee health and dental benefits. The Company records a liability based on an estimate of claims incurred but not
recorded determined based on actuarial analysis of historical claims experience and historical industry data. The Company maintains individual and aggregate stop-loss coverage with a third party insurer to limit the Companys total exposure for
these programs. The Companys self-insurance liability contains uncertainties because the calculation requires management to make assumptions and apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not
reported as of the balance sheet date. The Company does not believe that there is a reasonable likelihood that there will be a material change in the future assumptions or estimates the Company uses to calculate our self-insurance liability.
However, if actual results are not consistent with the Companys assumptions and estimates, the Company may be exposed to losses or gains that could be material.

Bonus Accrual

The Companys bonus model is designed to project the level of funding required
under the bonus program as approved by the Compensation Committee of the Board of Directors. A significant portion of the bonus program is based on the Company meeting certain financial objectives, such as revenue, earnings per share, and the level
of capital spending. The expense related to the bonus program is accrued in the year of performance and paid in the first quarter following the fiscal year end. The bonus model is analyzed and adjusted on a quarterly basis as necessary based on
achievement of targets.

Recent accounting pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Fair Value Measurements,(FAS 157). FAS 157
defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. FAS 157 clarifies that the fair value is the exchange price in an orderly
transaction between market participants to sell the asset or transfer the liability in the market. The standard emphasizes that fair value is a market-based measurement, not an entity-specific measurement and a fair value measurement should,
therefore, be based on the assumptions that market participants would use in pricing the asset or liability. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect
the adoption of FAS 157 to have a material impact on its financial statements.

In December 2007, the FASB issued Business
Combinations, (FAS 141R). FAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and
any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination, recognizing assets acquired and liabilities assumed arising from contingencies, and
determining what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. FAS 141R is effective for fiscal years beginning after December 15, 2008. The Company
expects FAS 141R will have an impact on its consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions it consummates after the effective
date. The Company is currently evaluating the impact, if any, FAS 141R will have on its consolidated financial statements.

In December
2007, the FASB issued Noncontrolling Interests in Consolidated Financial Statement (FAS 160). FAS 160 amends ARB 51 to establish accounting and reporting standards for the non-controlling (minority) interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both
the parent and the noncontrolling interest with disclosure of both amounts on the consolidated statement income. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. FAS 160 is effective for
fiscal years beginning after December 15, 2008. The Company is currently evaluating what impact, if any, FAS 160 will have on its consolidated financial statements.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



3. Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the following (in thousands):



|                                                  |  |              |         |   |      |   |         |  
|------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                  |  | December 31, |        
|                                                  |  | 2007         |         |   | 2006 |  
|Prepaid expensesother                            |  | $            | 1,399   |   |      | $ | 1,450   |  
|Prepaid hardware & software license & maintenance |  |              | 4,833   |   |      |   | 5,484   |  
|Prepaid commission & royalty                      |  |              | 354     |   |      |   | 145     |  
|Up-front fees                                     |  |              | 4,731   |   |      |   | 6,198   |  
|Accounts receivableother                         |  |              | 626     |   |      |   | 735     |  
|Income tax receivable                             |  |              | 7,511   |   |      |   | 433     |  
|Prepaid insurance                                 |  |              | 1,050   |   |      |   | 576     |  
|Prepaid rent & operating leases                   |  |              | 686     |   |      |   | 830     |  
|Prepaid deposits                                  |  |              | 2,466   |   |      |   | 2,411   |  
|Cash value of life insurance policies             |  |              | 1,175   |   |      |   | 572     |  
|Deferred financing costs                          |  |              | 8,417   |   |      |   | 2,634   |  
|Acquisition costs                                 |  |              |        |   |      |   | 1,471   |  
|Other                                             |  |              | 280     |   |      |   | 823     |  
|                                                  |  |              |         |   |      |   |         |  
|                                                  |  |              | 33,528  |   |      |   | 23,762  |  
|Less: Current portion                             |  |              | (17,458 | ) |      |   | (11,415 | )
|                                                  |  |              |         |   |      |   |         |  
|                                                  |  | $            | 16,070  |   |      | $ | 12,347  |  
|                                                  |  |              |         |   |      |   |         |  

4. Property and Equipment

Property and equipment, net, consist of the following (in thousands):



|                               |  |              |         |   |      |   |         |  
|------------------------------ |  | ------------ | ------- | - | ---- | - | ------- | -
|                               |  | December 31, |        
|                               |  | 2007         |         |   | 2006 |  
|Computer equipment             |  | $            | 44,915  |   |      | $ | 37,104  |  
|Furniture and fixtures         |  |              | 7,642   |   |      |   | 6,647   |  
|Other equipment                |  |              | 6,951   |   |      |   | 4,878   |  
|Software                       |  |              | 42,097  |   |      |   | 36,354  |  
|Leasehold improvements         |  |              | 9,300   |   |      |   | 6,702   |  
|                               |  |              |         |   |      |   |         |  
|                               |  |              | 110,905 |   |      |   | 91,685  |  
|Less: Accumulated depreciation |  |              | (78,016 | ) |      |   | (64,908 | )
|                               |  |              |         |   |      |   |         |  
|                               |  | $            | 32,889  |   |      | $ | 26,777  |  
|                               |  |              |         |   |      |   |         |  

Included in property and equipment at December 31, 2007 and 2006 is equipment acquired under
capital leases totaling approximately $23.7 million and $24.3 million, and related accumulated depreciation of $21.6 million and $20.9 million, respectively. Depreciation expense for the years ended December 31, 2007, 2006 and 2005 was $14.0
million, $12.9 million and $15.5 million, respectively.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



5. Goodwill and Other Intangible Assets

Goodwill and other intangible assets, net, consist of the following (in thousands):



|                                          |  |              |         |   |      |   |        |  
|----------------------------------------- |  | ------------ | ------- | - | ---- | - | ------ | -
|                                          |  | December 31, |        
|                                          |  | 2007         |         |   | 2006 |  
|Non-amortizable intangible assets         |  |              |         |   |      |   |        |  
|Goodwill                                  |  | $            | 200,219 |   |      | $ | 90,337 |  
|                                          |  |              |         |   |      |   |        |  
|Amortizable intangible assets             |  |              |         |   |      |   |        |  
|Customer lists                            |  | $            | 54,500  |   |      | $ | 9,700  |  
|Core technology and intellectual property |  |              | 41,174  |   |      |   | 28,674 |  
|Tradenames                                |  |              | 5,878   |   |      |   | 4,879  |  
|                                          |  |              |         |   |      |   |        |  
|                                          |  |              | 101,552 |   |      |   | 43,253 |  
|                                          |  |             
|Less: Accumulated amortization            |  |              |         |   |      |   |        |  
|Customer lists                            |  |              | (8,159  | ) |      |   | (3,040 | )
|Core technology and intellectual property |  |              | (13,774 | ) |      |   | (7,987 | )
|Tradenames                                |  |              | (5,074  | ) |      |   | (4,879 | )
|                                          |  |              |         |   |      |   |        |  
|                                          |  | $            | 74,545  |   |      | $ | 27,347 |  
|                                          |  |              |         |   |      |   |        |  

The amount of amortization expense excluded from cost of revenue  products consists
primarily of amounts amortized with respect to acquired technology, which includes core or completed technology and existing software. Amortization expense recorded for the years ended December 31, 2007, 2006 and 2005 related to acquired
technology was $5.7 million, $4.1 million and $660,000, respectively. Amortization expense recorded for the years ended December 31, 2007, 2006 and 2005 related to acquired other intangible assets was $5.4 million, $867,000 and $2.2 million,
respectively.

The weighted average amortization period for customer lists, core technology and intellectual property, and tradenames is
9.0 years, 5.9 years and 3.0 years, respectively. The weighted average amortization period for total amortizable intangible assets is 6.8 years. The estimated aggregate amortization expense related to these intangible assets for the next five fiscal
years and thereafter is as follows (in thousands):



|                                  |  |                    |        |                                 |   |        |  |   |       
|--------------------------------- |  | ------------------ | ------ | ------------------------------- | - | ------ |  | - | ------
|For the years ending December 31, |  | AcquiredTechnology |        | Acquired OtherIntangible Assets |   | Total 
|2008                              |  | $                  | 5,683  |                                 | $ | 5,533  |  | $ | 11,216
|2009                              |  |                    | 5,243  |                                 |   | 5,533  |  |   | 10,776
|2010                              |  |                    | 4,890  |                                 |   | 5,532  |  |   | 10,422
|2011                              |  |                    | 2,290  |                                 |   | 5,532  |  |   | 7,822 
|2012                              |  |                    | 1,850  |                                 |   | 5,337  |  |   | 7,187 
|Thereafter                        |  |                    | 6,549  |                                 |   | 20,573 |  |   | 27,122
|                                  |  |                    |        |                                 |   |        |  |   |       
|Total                             |  | $                  | 26,505 |                                 | $ | 48,040 |  | $ | 74,545
|                                  |  |                    |        |                                 |   |        |  |   |       

Amortization expense related to existing intangible assets will vary from amounts identified above
in the event the Company recognizes impairment charges prior to the amortized useful life of any intangible assets.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The changes in the carrying amount of goodwill during the year are summarized as follows (in
thousands):



|                                    |  |   |         |  
|----------------------------------- |  | - | ------- | -
|Balance as of December 31, 2006     |  | $ | 90,337  |  
|PDM acquisition (1)                 |  |   | (565    | )
|QCSI acquisition                    |  |   | 110,959 |  
|FIN 48 adjustment (2)               |  |   | 1,321   |  
|Purchase accounting adjustments (3) |  |   | (1,833  | )
|                                    |  |   |         |  
|Balance as of December 31, 2007     |  | $ | 200,219 |  
|                                    |  |   |         |  



|(1) | The goodwill adjustments related to the PDM acquisition include an allocation of $9.8 million from goodwill to identifiable intangible assets based on the final valuation report for
PDM, $5.2 million for contingent consideration earned by PDM stockholders and option holders, and $4.1 million of other purchase accounting adjustments primarily related to income taxes.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Company recorded a $1.3 million adjustment to goodwill based on a FIN 48 analysis.
|--- | --------------------------------------------------------------------------------------

|(3) | The Company recorded a $1.8 million adjustment for taxes associated with purchase accounting related to its acquisitions of CareKey and Diogenes.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

6. Accrued Liabilities

Accrued liabilities consist
of the following (in thousands):



|                                                         |  |              |        |      |   |       
|-------------------------------------------------------- |  | ------------ | ------ | ---- | - | ------
|                                                         |  | December 31,
|                                                         |  | 2007         |        | 2006
|Accrued payroll and benefits                             |  | $            | 34,181 |      | $ | 29,475
|Accrued professional and litigation fees and settlements |  |              | 1,342  |      |   | 8,609 
|Accrued contingent consideration                         |  |              | 9,772  |      |   | 16,500
|Accrued outside services                                 |  |              | 170    |      |   | 370   
|Accrued employee relations                               |  |              | 388    |      |   | 602   
|Accrued income and other taxes                           |  |              | 1,964  |      |   | 2,125 
|Other                                                    |  |              | 5,262  |      |   | 3,914 
|                                                         |  |              |        |      |   |       
|                                                         |  | $            | 53,079 |      | $ | 61,595
|                                                         |  |              |        |      |   |       

7. Debt

2.75% Convertible Senior Notes

In October 2005, the Company issued $100.0 million aggregate principal amount of
2.75% Convertible Senior Notes due 2025 (the 2025 Notes). The 2025 Notes bear interest at a rate of 2.75%, which is payable in cash semi-annually in arrears on April 1 and October 1 of each year, and commenced on April 1,
2006, to the holders of record on the preceding March 15 and September 15, respectively.

The 2025 Notes are convertible into
shares of the Companys common stock at an initial conversion price of $18.85 per share, or 53.0504 shares for each $1,000 principal amount of 2025 Notes, subject to certain adjustments pursuant to an indenture with Wells Fargo Bank, National
Association, as trustee (the 2025 Indenture). The maximum conversion rate is 68.9655 shares for each $1,000 principal amount of 2025 Notes. Upon conversion of the 2025 Notes, the Company will have the right to deliver shares of its
common stock, cash or a combination of cash and shares of its common stock. The 2025 Notes are convertible (i) prior to October 1, 2020, during any fiscal quarter after the fiscal quarter ending December 31, 2005, if the closing sale
price of the Companys common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter exceeds 120% of the conversion price in effect on the last
trading day of the immediately preceding fiscal quarter, (ii) prior to October 1, 2020, during the five business day period after any five consecutive trading day period (the Note Measurement Period) in which the average
trading price per $1,000 principal amount of 2025 Notes was equal to or less than 97% of the average conversion value of the 2025 Notes during the Note Measurement Period, (iii) upon the occurrence of specified corporate transactions, as
described in the 2025 Indenture, (iv) if the Company calls the 2025 Notes for redemption, or (v) any time on or after October 1, 2020.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The 2025 Notes mature on October 1, 2025. However, on or after October 5, 2010, the Company
may from time to time at its option redeem the 2025 Notes, in whole or in part, for cash, at a redemption price equal to 100% of the principal amount of the 2025 Notes the Company redeems, plus any accrued and unpaid interest to, but excluding, the
redemption date. On each of October 1, 2010, October 1, 2015 and October 1, 2020, holders may require the Company to purchase all or a portion of their 2025 Notes at a purchase price in cash equal to 100% of the principal amount
of the 2025 Notes to be purchased, plus any accrued and unpaid interest to, but excluding, the purchase date. In addition, holders may require the Company to repurchase all or a portion of their 2025 Notes upon a fundamental change, as described in
the 2025 Indenture, at a repurchase price in cash equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Additionally, the 2025 Notes
may become immediately due and payable upon an Event of Default, as defined in the 2025 Indenture. Pursuant to a Registration Rights Agreement dated October 5, 2005, the Company filed with the Securities and Exchange Commission, a registration
statement under the Securities Act for the purpose of registering for resale, the 2025 Notes and all of the shares of its common stock issuable upon conversion of the 2025 Notes.

1.125% Convertible Senior Notes

On April 11, 2007, the Company entered into a Purchase
Agreement with Deutsche Bank Securities Inc., Goldman, Sachs & Co. and UBS Investment Bank (the Initial Purchasers), to sell $230.0 million aggregate principal amount of its 1.125% Convertible Senior Notes due 2012 which
included $30 million to cover over-allotments (the 2012 Notes) in a private placement in reliance on Section 4(2) of the Securities Act of 1933, as amended (the Securities Act). The 2012 Notes have been resold by the
Initial Purchasers to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The sale of the 2012 Notes to the Initial Purchasers was consummated on April 17, 2007.

The aggregate net proceeds received by the Company from the sale of the 2012 Notes was approximately $223 million, after deducting the Initial
Purchasers discount and offering expenses. The 2012 Notes are the Companys senior unsecured obligations and rank equal in right of payment with all of the Companys other senior unsecured debt and senior to all of the Companys
future subordinated debt.

The 2012 Notes were issued pursuant to an indenture, dated April 17, 2007, by and between the Company and
Wells Fargo Bank, National Association, as trustee (the 2012 Indenture). The 2012 Notes bear interest at a rate of 1.125%, which is payable in cash semi-annually in arrears on April 15 and October 15 of each year, and commenced
on October 15, 2007, to the holders of record on the preceding April 1 and October 1, respectively.

The 2012 Notes are
convertible into shares of the Companys Common stock at an initial conversion price of $21.97 per share, or 45.5114 shares for each $1,000 principal amount of 2012 Notes, subject to certain adjustments set forth in the 2012 Indenture. The
maximum conversion rate is 53.4759 shares for each $1,000 principal amount of 2012 Notes. Upon conversion of the 2012 Notes, the Company will have the right to deliver shares of its common stock, cash or a combination of cash and shares of its
common stock. The 2012 Notes are convertible (i) prior to January 15, 2012, during any calendar quarter after the calendar quarter ending June 30, 2007, if the closing sale price of the Companys common stock for 20 or more
trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter exceeds 130% of the conversion price in effect on the last trading day of the immediately preceding fiscal quarter,
(ii) prior to January 15, 2012, during the five business day period after any five consecutive trading day period (the Note Measurement Period) in which the average trading price per $1,000 principal amount of 2012 Notes was
equal to or less than 97% of the average conversion value of the 2012 Notes during the Note Measurement Period, (iii) upon the occurrence of specified corporate transactions, as described in the 2012 Indenture, or (iv) any time on or after
January 15, 2012.

The Company used $59.0 million of the aggregate net proceeds from the 2012 Notes to pay the net cost of a call
option transaction entered into in connection with the offering. The call option covers approximately 10.4 million shares of the Companys common stock and is intended to reduce the dilution to the Companys common stock upon
potential future conversion of the 2012 Notes. The call option has an exercise price equal to the conversion price of the 2012 Notes and will terminate on the earlier of (i) the last day any of the 2012 Notes remain outstanding or
(ii) April 15, 2012. The Company also entered into a warrant transaction in connection with the offering. The Company sold warrants to acquire approximately 10.4 million shares of the Companys common stock to affiliates of one
or more of the initial purchases for $25.7 million. The warrants have an exercise price of $31.79 per share and may be settled at various dates from July 2012 through December 2012.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



It was determined that upon execution of the combined agreements the Company did not have sufficient
authorized and unissued shares available to settle all of its commitments that may require the issuance of stock during the maximum period those commitments could remain outstanding. As a result, warrants to purchase approximately 3.0 million
shares of the Companys common stock did not meet the definition of an equity instrument and were recorded as a derivative financial instrument liability. Such warrants were recorded at fair value upon purchase and were subsequently marked to
fair value through earnings.

The fair value of the derivative instruments on April 17, 2007 was determined based on the price paid by
the initial purchasers for the warrants. The Company initially recorded $7.3 million of the $25.7 million proceeds from the warrants as a non-current liability. On July 26, 2007, the Company entered into amendments with each of the holders of
the warrants, which changed the maximum shares issuable under the warrants to an amount below the Companys total authorized and unissued shares currently available. As a result of the amendments, the requirement to classify certain of the
warrants as derivative liabilities was eliminated and the fair value of the liability of $6.9 million on July 26, 2007 was reclassified to stockholders equity in the third quarter of 2007. Since no actively traded market for the
derivative instruments existed as of June 30, 2007, the fair value of the derivative instruments was determined using a Black-Scholes valuation model utilizing the following weighted average assumptions: volatility of 28%, expected life of 5.33
years to 5.44 years, risk-free interest rate of 4.86% and no expected dividends. Expected volatility was based on the observed volatility in the initial hedge transactions. Due to the decrease in the underlying fair value of the derivative
instruments from April 17, 2007 to July 26, 2007, the Company recorded income of approximately $400,000.

Wells Fargo Foothill Amended and
Restated Credit Agreement

On January 10, 2007, the Company (together with certain specified subsidiaries, the
Borrowers) entered into an Amended and Restated Credit Agreement (the Credit Agreement) with Wells Fargo Foothill, Inc., as the administrative agent and lender (the Lender). The Credit Agreement amended and
restated the Companys $100.0 million revolving credit facility with the Lender and provided that the Lender will make available to the Company up to $150.0 million of term debt (the Term Loan). The Credit Agreement expires by its
terms on January 5, 2011. All borrowings under the Credit Agreement bear interest at a per annum rate equal to either (i) the LIBOR rate plus an adjustable applicable margin of between 1.75% and 3.50% or (ii) Wells Fargos prime
rate plus an adjustable applicable margin of between 0.0% and 2.0%, at the election of the Company, subject to specified restrictions.

The
Company initially drew down $75.0 million from the Term Loan to partially fund its acquisition of Quality Care Solutions, Inc. (QCSI) in January 2007. All borrowings under the Term Loan must be repaid in quarterly installments commencing
on June 30, 2007 and continuing on the first day of each calendar quarter thereafter through January 5, 2011, in amounts equal to the amount outstanding under the Term Loan on June 30, 2007 with a final balloon payment due
January 5, 2011.

On October 1, 2007, the Company entered into Amendment Number Two to the Amended and Restated Credit Agreement
dated January 10, 2007 (the Amendment), with Wells Fargo Foothill, Inc. The Amendment allows the Borrowers to request additional term loan draws through March 31, 2008 and further extends the application of an unused term loan
commitment fee through April 1, 2008. In addition, the Amendment modifies the definition of Share Repurchases to permit the Company to repurchase up to $100.0 million of its common stock provided that the Company has liquidity
(defined as the sum of unrestricted cash and cash equivalents plus availability of borrowings on our revolving line of credit) in excess of $80.0 million both before and immediately after giving effect to such transaction and provided that the share
repurchase is consummated on or before March 31, 2008.

As of December 31, 2007, no additional draws have been made. In the event
Borrowers terminate the Credit Agreement prior to its expiration or make certain prepayments, the Borrowers will be required to pay the Lender a termination or prepayment fee equal to 1% of the maximum credit amount in the event of termination or 1%
of the prepayment amount in the event of prepayments, subject to specified exceptions. Under the Credit Agreement, the Borrowers have granted the Lender a security interest in all of the assets of the Borrowers.

The Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations on the Borrowers
with respect to indebtedness, liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates of the Borrowers. The Credit Agreement also includes financial covenants including minimum EBITDA,
minimum liquidity, minimum recurring revenue (which includes outsourced business services and software maintenance revenue) and maximum capital expenditures.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



As of December 31, 2007, the Company had outstanding borrowings on the revolving line of credit
of $4.0 million and $67.0 million outstanding under the Term Loan, and was in compliance with all applicable covenants and other restrictions under the Credit Agreement. As of December 31, 2007, the Company had $96.0 million available under its
revolving line of credit.

Debt consists of the following at December 31 (in thousands):



|                                                                                                                                                                                                                                                                                                                                      |  |               |         |   |                             |   |         |      |  |   |         |   |  |   |       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | --------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------
|                                                                                                                                                                                                                                                                                                                                      |  | Notes Payable |         |   | Line of Credit andTerm Loan
|                                                                                                                                                                                                                                                                                                                                      |  | 2007          |         |   | 2006                        |   |         | 2007 |  |   | 2006   
|Long-term convertible debt, due in 2025, interest at 2.75% fixed rate, payable semi-annually in arrears                                                                                                                                                                                                                               |  | $             | 100,000 |   |                             | $ | 100,000 |      |  | $ |        |   |  | $ |      
|Long-term convertible debt, due in 2012, interest at 1.125% fixed rate, payable semi-annually in arrears                                                                                                                                                                                                                              |  |               | 230,000 |   |                             |   |        |      |  |   |        |   |  |   |      
|Term loan of $150.0 million, interest at the lending institutions prime rate plus adjustable applicable margin between 0.00% and 2.00%
(prime rate 7.25% at December 31, 2007), payable monthly in arrears; or LIBOR rate plus an adjustable applicable margin of between 1.75% and 3.5%, payable upon maturity date                 |  |               |        |   |                             |   |        |      |  |   | 66,964  |   |  |   |      
|Revolving credit facility of $100.0 million, interest at the lending institutions prime rate plus adjustable applicable margin between
0.00% and 2.00% (prime rate 7.25% at December 31, 2007), payable monthly in arrears; or LIBOR rate plus an adjustable applicable margin of between 1.75% and 3.5%, payable upon maturity date |  |               |        |   |                             |   |        |      |  |   | 4,000   |   |  |   | 12,000
|Other                                                                                                                                                                                                                                                                                                                                 |  |               | 53      |   |                             |   | 115     |      |  |   |        |   |  |   |      
|                                                                                                                                                                                                                                                                                                                                      |  |               |         |   |                             |   |         |      |  |   |         |   |  |   |       
|Total debt                                                                                                                                                                                                                                                                                                                            |  | $             | 330,053 |   |                             | $ | 100,115 |      |  | $ | 70,964  |   |  |   | 12,000
|Less: Current portion                                                                                                                                                                                                                                                                                                                 |  |               | (53     | ) |                             |   | (115    | )    |  |   | (10,714 | ) |  |   |      
|                                                                                                                                                                                                                                                                                                                                      |  |               |         |   |                             |   |         |      |  |   |         |   |  |   |       
|                                                                                                                                                                                                                                                                                                                                      |  | $             | 330,000 |   |                             | $ | 100,000 |      |  | $ | 60,250  |   |  | $ | 12,000
|                                                                                                                                                                                                                                                                                                                                      |  |               |         |   |                             |   |         |      |  |   |         |   |  |   |       

Future principal payments of debt at December 31, 2007 are as follows (in thousands):



|                                    |  |              |         |                            |   |       
|----------------------------------- |  | ------------ | ------- | -------------------------- | - | ------
|For the Periods Ending December 31, |  | NotesPayable |         | Line ofCredit andTerm Loan
|2008                                |  | $            | 53      |                            | $ | 10,714
|2009                                |  |              |        |                            |   | 8,036 
|2010                                |  |              |        |                            |   | 10,714
|2011                                |  |              |        |                            |   | 41,500
|2012                                |  |              | 230,000 |                            |   |      
|Thereafter                          |  |              | 100,000 |                            |   |      

8. Commitments and Contingencies

The Company leases office space and equipment under non-cancelable operating and capital leases with various expiration dates through 2016. Capital lease
obligations are collateralized by the equipment subject to the leases. The Company is responsible for maintenance costs and property taxes on certain of the operating leases. Operating lease expense for the years ended December 31, 2007, 2006
and 2005 was $15.3 million, $15.1 million and $12.2 million, respectively. These amounts are net of sublease income of zero, $331,000 and $668,000 for the years ended December 31, 2007, 2006 and 2005.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Future minimum lease payments under non-cancelable operating and capital leases at December 31,
2007 are as follows (in thousands):



|                                  |  |               |        |   |                 |   |       
|--------------------------------- |  | ------------- | ------ | - | --------------- | - | ------
|For the Years Ending December 31, |  | CapitalLeases |        |   | OperatingLeases
|2008                              |  | $             | 1,233  |   |                 | $ | 12,874
|2009                              |  |               | 621    |   |                 |   | 10,407
|2010                              |  |               | 517    |   |                 |   | 7,784 
|2011                              |  |               | 141    |   |                 |   | 6,196 
|2012                              |  |               |       |   |                 |   | 6,118 
|Thereafter                        |  |               |       |   |                 |   | 14,297
|                                  |  |               |        |   |                 |   |       
|Total minimum lease payments      |  |               | 2,512  |   |                 | $ | 57,676
|                                  |  |               |        |   |                 |   |       
|Less: interest                    |  |               | (232   | ) |                 |   |       
|Less: current portion             |  |               | (1,108 | ) |                 |   |       
|                                  |  |               |        |   |                 |   |       
|                                  |  | $             | 1,172  |   |                 |   |       
|                                  |  |               |        |   |                 |   |       

As of December 31, 2007, the Company had three sale-leaseback transactions for certain
computer hardware equipment. The leases, which are classified as operating, have lease terms of three years. The Company did not realize any gain or loss on the sale as the fair value approximated the carrying value of the equipment. The future
lease payments under these sale-leaseback transactions for the years ending December 31, 2008 and 2009 are included in the above table totaling $400,000 and $140,000, respectively.

As of December 31, 2007, the Company had outstanding four unused standby letters of credit in the aggregate amount of $1.7 million which serve as
security deposits for certain operating leases.

Pursuant to the terms of the Agreement and Plan of Merger in connection with the
Companys acquisition of CareKey (Note 13), CareKey stockholders and option holders are entitled to receive three contingent consideration payments of $8.3 million each (up to $25.0 million), upon the achievement of certain revenue milestones
during the period beginning upon acquisition and ending December 31, 2008. In addition, further consideration payable in cash or stock at our election, may be paid to former CareKey stockholders and option holders if, prior to December 31,
2008, the acquired CareKey products generate revenues in excess of certain revenue milestones and/or if a negotiated multiple of software maintenance revenues of acquired CareKey products during the fiscal year ended December 31, 2009 exceed
total purchase consideration made to those former CareKey stockholders and option holders.

Under the Agreement and Plan of Merger with PDM
(Note 13), PDM stockholders and option holders may be entitled to receive contingent consideration as follows: aggregate $5.0 million on or before December 31, 2008 and $8.0 million on or before December 31, 2009, each subject to reduction
if certain revenue thresholds are not satisfied during the applicable measurement period or to the extent the Company is entitled to claims for indemnification as specified in the Merger Agreement. Additional contingent consideration of up to $8.0
million may be paid on June 30, 2009 if certain revenue thresholds are satisfied, provided that in no event will the aggregate consideration of all payments exceed $42.0 million. The contingent consideration is payable at the Companys
election in either cash or common stock.

QCSI stockholders, warrantholders and optionholders are entitled to receive contingent
consideration up to a total of $12.0 million, including (i) an aggregate cash payment of $5.0 million on January 31, 2008 (the Holdback), and (ii) a contingent aggregate cash payment of up to $7.0 million on
January 31, 2008, based upon license and software maintenance revenues arising from the sale of QCSI products for the twelve (12) month period commencing on January 1, 2007 and ending on December 31, 2007. The amount of the
Holdback was reduced by $2.4 million due to a negative working capital adjustment, as defined in the Merger Agreement and the contingent cash payment of $7.0 million was earned and accrued as of December 31, 2007. The $2.4 million negative
working capital adjustment and the $7.0 million contingent cash payment were recorded in December 2007 as a net increase to goodwill.

9. Litigation

The Company is involved in litigation from time to time relating to claims arising out of its operations in the normal course of
business. As of the filing date of this annual report on Form 10-K, the Company was not a party to any legal proceedings, the adverse outcome of which, in managements opinion, individually or in the aggregate, would have a material adverse
effect on its results of operations, financial position and/or cash flows.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



10. Stockholders Equity

Common stock

In December 2004, the Company and IMS Health entered into a Share Purchase
Agreement pursuant to which, on the same date, the Company purchased all of the 12,142,857 shares (IMS Shares) of the Companys common stock, owned by IMS Health for an aggregate purchase price of $82.0 million, or $6.75 per share.
The purchase price was paid by delivery of $44.6 million in cash and a Subordinated Promissory Note in the principal amount of $37.4 million. The Subordinated Promissory Note bore interest at the rate of 5.75% and was due and paid in full on
January 21, 2005 from the Companys cash accounts. Immediately following the purchase of the IMS Shares, the Company placed 6,600,000 of such shares with ValueAct Capital for an aggregate purchase price of $44.6 million, or $6.75 per
share.

Pursuant to a letter dated December 5, 2004, the Company was given the right to repurchase up to 600,000 of the shares sold to
ValueAct. On September 19, 2005, the Company exercised its repurchase right with respect to all 600,000 shares for an aggregate purchase price of $5.3 million, or $8.83 per share, that was paid for in cash.

On September 30, 2005, the Company entered into a Purchase Agreement with UBS Securities, LLC, Banc of America Securities, LLC and William
Blair & Company LLC (the Initial Purchasers), to sell $100 million aggregate principal amount of its 2.75% Convertible Senior Notes due 2025 (the Notes) in a private placement in reliance on Section 4(2) of the
Securities Act of 1933, as amended (the Securities Act). The Notes have been resold by the Initial Purchasers to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The sale of the Notes to the Initial
Purchasers was consummated on October 5, 2005. The aggregate net proceeds received by the Company from the sale of the Notes were approximately $82.0 million, after deducting the amount used to repurchase 1,000,000 shares of its common
stock at $14.50 per share in connection with the private placement, the Initial Purchasers discount and estimated offering expenses. The indebtedness under the Notes constitutes the Companys senior unsecured obligations and will
rank equally with all of its existing and future unsecured indebtedness.

On January 26, 2006, the Board of Directors approved a
repurchase program which allowed for the repurchase of up to 1 million shares of the Companys common stock at a price and time to be determined by the Companys Chief Executive Office or Chief Financial Officer. As of
December 31, 2006, no shares had been repurchased under the plan. On October 29, 2007, the repurchase program was amended to increase the amount of shares that the Company can repurchase under the program to the lesser of 3 million
shares or $50.0 million and to extend the expiration date. Unless further extended by the Board of Directors, the current repurchase plan will expire on December 31, 2008. As of December 31, 2007, 2,905,745 shares had been repurchased
under the plan for a total price of approximately $46.0 million, including commissions. The repurchased shares were retained as treasury stock.

The Company also entered into a warrant transaction in connection with the April 17, 2007 convertible debt offering. The Company sold warrants to acquire approximately 10.4 million shares of the Companys common stock to
affiliates of one or more of the initial purchases for $25.7 million. The warrants have an exercise price of $31.79 per share and may be settled at various dates from July 2012 through December 2012.

Common stockholders are entitled to dividends as and when declared by the Board of Directors subject to the prior rights of preferred stockholders. The
holders of each share of common stock are entitled to one vote.

Stock option and award plans

In May 1998, the Company adopted the 1998 Stock Option Plan (the 1998 Stock Option Plan) under which the Board of Directors (the
Board) or the Compensation Committee (the Committee) may issue incentive and non-qualified stock options to employees, directors and consultants. The Committee had the authority to determine to whom options will be granted,
the number of shares and the term and exercise price. Options were to be granted at an exercise price not less than fair market value for incentive stock options or 85% of fair market value for non-qualified stock options. For individuals holding
more than 10% of the voting rights of all classes of stock, the exercise price of incentive stock options was not to be less than 110% of fair market value. The options generally vest and became exercisable annually at a rate of 25% of the option
grant over a four-year period. The term of the options would be no longer than five years for incentive stock options for which the grantee owns greater than 10% of the voting power of all classes of stock and no longer than ten years for all other
options.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In November 2000, in connection with the Resource Information Management Systems, Inc.
(RIMS) acquisition, the Company adopted the RIMS Stock Option Plan based primarily upon RIMS existing non-statutory stock option plan. Unless previously terminated, the Plan shall terminate at the close of business on
January 1, 2009, and no options shall be granted under it thereafter. Such termination shall not affect any option previously granted. Upon a business combination by the Company with any corporation or other entity, the Company may provide
written notice to optionees that options shall terminate on a date not less than 14 days after the date of such notice unless theretofore exercised. In connection with such notice, the Company may, in its discretion, accelerate or waive any deferred
exercise period.

In March 2004, the Board of Directors of the Company amended and restated the 1998 Stock Option Plan, renaming it the
1998 Long-Term Incentive Plan (the Plan). As amended, the Plan permits the granting of the following types of awards: options, share appreciation rights (SARs), restricted and unrestricted share awards, deferred share units,
and performance awards. The principal changes made to the 1998 Stock Option Plan pursuant to this amendment and restatement are as follows: (i) renaming it The TriZetto Group, Inc. 1998 Long-term Incentive Plan, (ii) increasing
the numbers of shares available for issuance by 2,000,000 (from 11,000,000 to 13,000,000 shares), (iii) adding provisions that permit awards other than options, and (iv) modifying the Committees discretion to administer the Plan and
past or future awards. The terms and conditions of all options outstanding under the 1998 Stock Option Plan immediately before the effective date of this amendment and restatement shall continue to be governed by the terms and conditions of the 1998
Stock Option Plan (and the respective instruments evidencing each such option) as in effect on the date each such option was granted; provided, however, that any one or more provisions of the amended and restated Plan, may, in the Committees
discretion, be extended to one or more of such options (subject to the participants written consent of any adverse changes).

In
April 2006, the Board of Directors of the Company adopted amendments to the Plan to (i) increase by 1,500,000 the total number of shares of the Companys common stock available for issuance under the Plan from 13,000,000 to 14,500,000 and
(ii) increase by 500,000 the share limitation on awards other than options and stock appreciation rights from 700,000 to 1,200,000.

In January 2007, in connection with the QCSI acquisition, the Company adopted the Quality Care Solutions, Inc. Stock Option Plan based upon QCSIs existing stock option plan. The maximum aggregate number of shares that may be issued
under this plan is 375,446, of which 140,000 shares had been issued as of December 31, 2007. These options were awarded to those individuals that were employed by QCSI at the time of the merger. The plan terminated at the close of business on
December 31, 2007, and options shall no longer be granted under the plan.

Stock options

Stock option activity under the Plan is summarized as follows (in thousands, except per share data):



|                                    |  |                |   |  |                |               |                               |   |      
|----------------------------------- |  | -------------- | - |  | -------------- | ------------- | ----------------------------- | - | -----
|                                    |  | NumberofShares |   |  | Exercise Price |               | WeightedAverageExercise Price
|Outstanding as of December 31, 2004 |  | 7,688          |   |  | $              | 0.25  $63.25 |                               | $ | 9.33 
|Granted                             |  | 2,214          |   |  |                | 8.35  16.07  |                               |   | 8.67 
|Exercised                           |  | (1,290         | ) |  |                | 0.25  15.13  |                               |   | 7.51 
|Cancelled                           |  | (365           | ) |  |                | 3.34  15.25  |                               |   | 8.71 
|                                    |  |                |   |  |                |               |                               |   |      
|Outstanding as of December 31, 2005 |  | 8,247          |   |  |                | 0.25  63.25  |                               |   | 9.44 
|Granted                             |  | 737            |   |  |                | 12.75  18.36 |                               |   | 16.68
|Exercised                           |  | (1,086         | ) |  |                | 0.25  15.13  |                               |   | 8.54 
|Cancelled                           |  | (178           | ) |  |                | 3.49  20.25  |                               |   | 9.88 
|                                    |  |                |   |  |                |               |                               |   |      
|Outstanding as of December 31, 2006 |  | 7,720          |   |  |                | 0.25  63.25  |                               |   | 10.25
|Granted                             |  | 822            |   |  |                | 16.90  20.42 |                               |   | 19.37
|Exercised                           |  | (1,283         | ) |  |                | 0.25  16.81  |                               |   | 8.29 
|Cancelled                           |  | (306           | ) |  |                | 3.49  57.50  |                               |   | 13.80
|                                    |  |                |   |  |                |               |                               |   |      
|Outstanding as of December 31, 2007 |  | 6,953          |   |  | $              | 0.25  $63.25 |                               | $ | 11.53
|                                    |  |                |   |  |                |               |                               |   |      



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The total intrinsic value of options exercised during the years ended December 31, 2007, 2006
and 2005 was $15.3 million, $9.3 million and $9.2 million, respectively. Upon exercise, the Company generally issues new shares from the remaining available pool versus from treasury.

The options outstanding and currently exercisable by exercise price at December 31, 2007 are as follows (in thousands, except per share data):



|                        |  |                                          |  |                                         |  |                              |       |                 |       |                              |   |      
|----------------------- |  | ---------------------------------------- |  | --------------------------------------- |  | ---------------------------- | ----- | --------------- | ----- | ---------------------------- | - | -----
|                        |  | Options Outstanding at December 31, 2007 |  |                                         |  |                             
|                        |  | Weighted Average                         |  | Options Exercisableat December 31, 2007
|Range of Exercise Price |  | Number ofShares                          |  | RemainingContractual Life(Years)        |  | WeightedAverageExercisePrice |       | Number ofShares |       | WeightedAverageExercisePrice
|$0.25 - $6.50           |  | 716                                      |  | 3.74                                    |  | $                            | 3.27  |                 | 690   |                              | $ | 3.17 
|$6.66 - $6.66           |  | 1,043                                    |  | 6.13                                    |  |                              | 6.66  |                 | 673   |                              |   | 6.66 
|$7.00 - $7.77           |  | 282                                      |  | 5.78                                    |  |                              | 7.12  |                 | 247   |                              |   | 7.13 
|$8.35 - $8.35           |  | 975                                      |  | 7.09                                    |  |                              | 8.35  |                 | 330   |                              |   | 8.35 
|$8.48 - $9.25           |  | 698                                      |  | 5.54                                    |  |                              | 8.86  |                 | 333   |                              |   | 8.83 
|$11.14 - $12.50         |  | 724                                      |  | 3.87                                    |  |                              | 12.29 |                 | 564   |                              |   | 12.28
|$12.69 - $14.50         |  | 178                                      |  | 5.26                                    |  |                              | 13.58 |                 | 120   |                              |   | 13.58
|$15.13 - $15.13         |  | 723                                      |  | 2.75                                    |  |                              | 15.13 |                 | 723   |                              |   | 15.13
|$15.25 - $17.17         |  | 725                                      |  | 7.89                                    |  |                              | 16.70 |                 | 220   |                              |   | 16.37
|$17.81 - $57.50         |  | 889                                      |  | 7.51                                    |  |                              | 22.74 |                 | 198   |                              |   | 33.46
|                        |  |                                          |  |                                         |  |                              |       |                 |       |                              |   |      
|                        |  | 6,953                                    |  | 5.70                                    |  |                              | 11.53 |                 | 4,098 |                              |   | 10.70
|                        |  |                                          |  |                                         |  |                              |       |                 |       |                              |   |      

At December 31, 2007, 2006, and 2005, options exercisable under the plans were 4,097,872,
4,010,132, and 3,765,394, respectively. The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2007 was $45.4 million and $30.5 million, respectively. The weighted average remaining contractual life of
options exercisable at December 31, 2007 was 4.56 years. As of December 31, 2007, $10.2 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of 1.56 years.

The fair value of option grants was estimated using the Black-Scholes pricing model. The Company evaluates the assumptions used to value
stock awards on a quarterly basis. The following weighted average assumptions were used for the periods presented:



|                                                  |  |                          |            |   |      |   |            |      |  |   |         |  
|------------------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ------- | -
|                                                  |  | Years Ended December 31, |           
|                                                  |  | 2007                     |            |   | 2006 |   |            | 2005 | 
|Expected volatility                               |  |                          | 46         | % |      |   | 45         | %    |  |   | 55      | %
|Risk-free interest rate                           |  |                          | 4.76       | % |      |   | 4.75       | %    |  |   | 3.70    | %
|Expected life                                     |  |                          | 6.25 years |   |      |   | 6.25 years |      |  |   | 4 years |  
|Forfeiture rate                                   |  |                          | 6.0        | % |      |   | 6.0        | %    |  |   |        |  
|Expected dividends                                |  |                          | 0          | % |      |   | 0          | %    |  |   | 0       | %
|Weighted average grant date fair value of options |  | $                        | 10.08      |   |      | $ | 8.49       |      |  | $ | 3.99    |  

Expected volatility is based on a combination of implied volatility from traded options on the
Companys stock and historical volatility of the Companys stock. The risk-free interest rate is the U.S. Treasury rate for the week of the grant having a term equal to the expected life of the option. The expected life of options granted
represents the period of time that options granted are expected to be outstanding. The Company has determined that historical experience is not a good predictor of future exercise patterns and thus has applied the simplified method
outlined in Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate expected life. The forfeiture rate is the estimated percentage of options granted that are expected to be forfeited or cancelled before becoming fully
vested and is based on historical experience. In the pro forma information required under SFAS No. 123 prior to January 1, 2006, the Company accounted for forfeitures as they occurred. The Company has not made any dividend payments
nor does it have plans to pay dividends in the foreseeable future.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Restricted stock awards

The Company issues restricted stock awards to certain key employees to encourage continued service. Restricted stock awards are based on either service or
performance conditions. Service based awards generally vest between two and four years and compensation expense is recognized ratably over the vesting period. Performance based awards vest upon satisfying certain performance conditions and
compensation expense is recognized based on the probable outcome of that performance condition. Pursuant to the restricted stock agreements, the Company shall cancel any unvested restricted stock awards upon termination of services.

Prior to the January 1, 2006 adoption of SFAS 123R, the Company recorded deferred stock compensation for the issuance of restricted stock awards
which was then amortized to compensation expense over the vesting period. The valuation of restricted stock is calculated based on the fair market value on the date of grant. With the adoption of SFAS 123R, the Company reclassified $3.0 million of
unearned deferred stock compensation to additional paid-in capital.

The following table summarizes nonvested restricted stock activity
under the Plan (in thousands, except per share data):



|                                  |  |                 |   |  |                                      |      
|--------------------------------- |  | --------------- | - |  | ------------------------------------ | -----
|                                  |  | Number ofShares |   |  | Weighted-AverageGrant-DateFair Value
|Nonvested as of December 31, 2006 |  | 546             |   |  |                                      | 12.04
|Granted                           |  | 434             |   |  |                                      | 19.80
|Vested                            |  | (222            | ) |  |                                      | 10.32
|Forfeited                         |  | (122            | ) |  |                                      | 15.37
|                                  |  |                 |   |  |                                      |      
|Nonvested as of December 31, 2007 |  | 636             |   |  | $                                    | 17.29
|                                  |  |                 |   |  |                                      |      

As of December 31, 2007, there was $7.7 million of total unrecognized compensation cost
related to nonvested restricted stock awards, which will be amortized over the weighted-average remaining service period of 1.87 years.

Employee Stock Purchase Plan

In August 1999, the Board of Directors of the Company adopted the
Employee Stock Purchase Plan (the Stock Purchase Plan), which is intended to qualify under Section 423 of the Internal Revenue Code. A total of 600,000 shares of common stock were reserved for issuance under the original Stock
Purchase Plan. The Stock Purchase Plan was amended and restated on May 14, 2003 and again on May 11, 2005, ultimately increasing the number of common stock reserved for issuance to 1,500,000 shares, of which 343,208 remain available for
issuance at December 31, 2007. Each employee of the Company who customarily works more than 20 hours per week for more than five months per calendar year is eligible to participate in offerings under the Stock Purchase Plan if on the offering
date, such employee has been employed by the Company for at least 90 days. Employees who own more than 5% of the Companys outstanding stock may not participate. The Stock Purchase Plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed the lesser of 15% of an employees compensation or $25,000.

The two semi-annual
offerings under the Stock Purchase Plan begin on January 1 and July 1 and continue until the end of the six-month period ending on June 30 and December 31 (the Offering Period). The first Offering Period commenced on
January 1, 2000. Effective July 1, 2005, the purchase price of the common stock under the Stock Purchase Plan will be equal to 95% of the fair market value per share of common stock on the last date of the offering period (or purchase
date). The amended Stock Purchase Plan satisfies all of the criteria that do not give rise to recognizable compensation costs on the Companys consolidated statements of income. The Stock Purchase Plan will terminate in 2009, unless terminated
sooner by the Board of Directors. Shares issued under the Stock Purchase Plan in 2007, 2006, and 2005 were 41,844, 70,866, and 89,869, at a weighted average purchase price of $17.40, $15.82, and $8.02 per share, respectively. Shares issued in 2005
represent only one offering period since the purchase date of the second offering period took place in early January 2006.

Shareholder rights plan

In September 2000, the Board of Directors of the Company adopted a shareholder rights plan.
The plan provides for a dividend distribution of one preferred stock purchase right (a Right) for each outstanding share of common stock, distributed to stockholders of record on or after October 19, 2000. The Rights will be
exercisable only if a person or group acquires 15% or more of the Companys common stock (an Acquiring Person) or announces a tender offer for 15% or more of the common stock. Each Right will entitle stockholders to buy one
one-hundredth of a share of newly created Series



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



A Junior Participating Preferred Stock, par value $0.001 per share, of the Company at an initial exercise price of $75 per Right, subject to adjustment from
time to time. However, if any person becomes an Acquiring Person, each Right will then entitle its holder (other than the Acquiring Person) to purchase at the exercise price, common stock of the Company having a market value at that time of twice
the Rights exercise price. If the Company is later acquired in a merger or similar transaction, all holders of Rights (other than the Acquiring Person) may, for $75.00, purchase shares of the acquiring corporation with a market value of
$150.00. Rights held by the Acquiring Person will become void. The Rights Plan excludes from its operation ValueAct Capital with respect to the shares of the Companys common stock acquired by it on December 21, 2004. As a result, their
holdings will not cause the Rights to become exercisable or non-redeemable or trigger the other features of the Rights. The Rights will expire on October 2, 2010, unless earlier redeemed by the Board at $0.001 per Right.

The holders of Series A Junior Participating Preferred Stock in preference to the holders of common stock, shall be entitled to receive, when, as and if
declared by the Board of Directors, quarterly dividends payable in cash in an amount per share equal to 100 times the aggregate per share amount of all cash dividends or non-cash dividends other than a dividend payable in share of common stock.

Each share of Series A Junior Participating Preferred Stock shall entitle its holder to 100 votes.

11. Income Taxes

The components of the provision for
income taxes are as follows (in thousands):



|                           |  |                          |        |      |   |       |  |   |     |  
|-------------------------- |  | ------------------------ | ------ | ---- | - | ----- |  | - | --- | -
|                           |  | Years Ended December 31, |       
|                           |  | 2007                     |        | 2006 |   | 2005  | 
|Current:                   |  |                          |        |      |   |       |  |   |     |  
|Federal                    |  | $                        | 719    |      | $ | 1,272 |  | $ | 429 |  
|State                      |  |                          | 1,890  |      |   | 1,222 |  |   | (17 | )
|                           |  |                          |        |      |   |       |  |   |     |  
|                           |  |                          | 2,609  |      |   | 2,494 |  |   | 412 |  
|                           |  |                          |        |      |   |       |  |   |     |  
|Deferred:                  |  |                          |        |      |   |       |  |   |     |  
|Federal                    |  |                          | 14,407 |      |   |      |  |   |    |  
|State                      |  |                          | 1,183  |      |   |      |  |   |    |  
|                           |  |                          |        |      |   |       |  |   |     |  
|                           |  |                          | 15,590 |      |   |      |  |   |    |  
|                           |  |                          |        |      |   |       |  |   |     |  
|Provision for income taxes |  | $                        | 18,199 |      | $ | 2,494 |  | $ | 412 |  
|                           |  |                          |        |      |   |       |  |   |     |  



F-27



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax liabilities and assets as of December 31, 2007 and 2006, are as follows (in
thousands):



|                                                   |  |                   |        |           |                   |         |         |  |   |           |   |  |   |         |  
|-------------------------------------------------- |  | ----------------- | ------ | --------- | ----------------- | ------- | ------- |  | - | --------- | - |  | - | ------- | -
|                                                   |  | December 31, 2007 |        |           | December 31, 2006 |        
|                                                   |  | Current           |        | Long Term |                   |         | Current |  |   | Long-Term |  
|Deferred tax assets:                               |  |                   |        |           |                   |         |         |  |   |           |   |  |   |         |  
|Reserves and accruals                              |  | $                 | 2,346  |           | $                 |        |         |  | $ | 8,143     |   |  | $ |        |  
|Deferred compensation                              |  |                   |       |           |                   | 6,699   |         |  |   |          |   |  |   | 2,886   |  
|Other                                              |  |                   |       |           |                   | 226     |         |  |   |          |   |  |   | 376     |  
|State taxes                                        |  |                   | 662    |           |                   |        |         |  |   | 729       |   |  |   |        |  
|Deferred revenue                                   |  |                   |       |           |                   | 3,797   |         |  |   |          |   |  |   |        |  
|Depreciation                                       |  |                   |       |           |                   | 817     |         |  |   |          |   |  |   | 245     |  
|Start-up costs                                     |  |                   | 739    |           |                   | 983     |         |  |   | 554       |   |  |   | 2,440   |  
|Bond interest expense                              |  |                   |       |           |                   | 21,374  |         |  |   |          |   |  |   |        |  
|Net operating losses and capital losses            |  |                   | 2,914  |           |                   |        |         |  |   | 8,787     |   |  |   |        |  
|Tax credits                                        |  |                   | 3,612  |           |                   | 2,124   |         |  |   |          |   |  |   | 2,674   |  
|                                                   |  |                   |        |           |                   |         |         |  |   |           |   |  |   |         |  
|Total deferred tax assets                          |  |                   | 10,273 |           |                   | 36,020  |         |  |   | 18,213    |   |  |   | 8,621   |  
|                                                   |  |                   |        |           |                   |         |         |  |   |           |   |  |   |         |  
|Deferred tax liabilities:                          |  |                   |        |           |                   |         |         |  |   |           |   |  |   |         |  
|Deferred revenue                                   |  |                   |       |           |                   |        |         |  |   | (1,984    | ) |  |   |        |  
|Other                                              |  |                   |       |           |                   | (130    | )       |  |   |          |   |  |   |        |  
|State taxes                                        |  |                   |       |           |                   | (1,310  | )       |  |   |          |   |  |   | (40     | )
|Acquired intangible assets                         |  |                   |       |           |                   | (26,845 | )       |  |   |          |   |  |   | (13,234 | )
|Capitalized software                               |  |                   |       |           |                   | (10,552 | )       |  |   |          |   |  |   | (9,447  | )
|                                                   |  |                   |        |           |                   |         |         |  |   |           |   |  |   |         |  
|Total deferred tax liabilities                     |  |                   |       |           |                   | (38,837 | )       |  |   | (1,984    | ) |  |   | (22,721 | )
|                                                   |  |                   |        |           |                   |         |         |  |   |           |   |  |   |         |  
|Net deferred tax assets before valuation allowance |  |                   | 10,273 |           |                   | (2,817  | )       |  |   | 16,229    |   |  |   | (14,100 | )
|Valuation allowance                                |  |                   |       |           |                   |        |         |  |   | (2,129    | ) |  |   |        |  
|                                                   |  |                   |        |           |                   |         |         |  |   |           |   |  |   |         |  
|Net deferred taxes                                 |  | $                 | 10,273 |           | $                 | (2,817  | )       |  | $ | 14,100    |   |  | $ | (14,100 | )
|                                                   |  |                   |        |           |                   |         |         |  |   |           |   |  |   |         |  

The valuation allowance on the deferred tax assets was zero and $2.1 million as of
December 31, 2007 and 2006, respectively. The valuation allowance decreased by $2.1 million during 2007 as a result of the acquisition of Plan Data Management, Inc.. At December 31, 2007 and 2006, deferred tax assets do not include $6.8
million and $9.5 million, respectively, of excess tax benefits from employee stock option exercises that are a component of the Companys net operating loss carryovers. Equity will be increased by $6.8 million when such excess tax benefits are
realized.

The Companys effective tax rate differs from the statutory rate as shown in the following schedule (in thousands):



|                                                           |  |                          |        |   |      |   |        |      |  |   |        |  
|---------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                           |  | Years Ended December 31, |       
|                                                           |  | 2007                     |        |   | 2006 |   |        | 2005 | 
|Tax expense at federal statutory rate                      |  | $                        | 16,251 |   |      | $ | 6,163  |      |  | $ | 7,851  |  
|State income taxes                                         |  |                          | 1,997  |   |      |   | 1,970  |      |  |   | (17    | )
|Change in valuation allowance                              |  |                          |       |   |      |   | (5,926 | )    |  |   | (7,658 | )
|Initial recognition of tax benefits allocated to goodwill  |  |                          | 553    |   |      |   | 526    |      |  |   |       |  
|Refund of prior year state taxes                           |  |                          |       |   |      |   | (354   | )    |  |   |       |  
|Increase (decrease) in reserve for uncertain tax positions |  |                          | 286    |   |      |   | (350   | )    |  |   |       |  
|Credit                                                     |  |                          | (789   | ) |      |   |       |      |  |   |       |  
|Other                                                      |  |                          | (695   | ) |      |   |       |      |  |   |       |  
|Nondeductible items                                        |  |                          | 596    |   |      |   | 465    |      |  |   | 236    |  
|                                                           |  |                          |        |   |      |   |        |      |  |   |        |  
|                                                           |  | $                        | 18,199 |   |      | $ | 2,494  |      |  | $ | 412    |  
|                                                           |  |                          |        |   |      |   |        |      |  |   |        |  

Federal and state tax loss carryforwards at December 31, 2007 are $19.1 million and
$46.8 million, respectively. The federal tax loss carryforwards will start to expire beginning in 2010. The state tax loss carryforwards will start to expire beginning in 2008. Of the total, approximately $11.5 million of the remaining federal
tax loss carryforwards are related to net operating losses obtained in connection with the acquisition of Quality Care Solutions, Inc. The net operating loss is subject to limitations in accordance with IRC Section 382. The Company expects to
utilize the majority of the operating loss in 2008.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



12. Employee Benefit Plans

In January 1998, the Company adopted a defined contribution plan (the 401(k) Plan) which qualifies under Section 401(k) of the Internal Revenue Code of 1986. Employees are eligible to participate the
first day of the month following 30 days of employment. Eligible employees may make voluntary contributions to the 401(k) Plan of up to 25% of their annual compensation, not to exceed the statutory limit.

Effective January 1, 2001, the Company provides a discretionary matching contribution to the 401(k) Plan in the amount of $0.50 for each $1.00
contributed to the Plan, up to 6% of pay. Employees must be employed on the last day of the Plan Year (December 31) to receive the match. The match has a three-year vesting period after which the employee will be 100% vested. The Companys cash
contributions to the 401(k) plan in 2007, 2006 and 2005 were approximately $2.8 million, $2.3 million and $1.9 million, respectively. The increase in the Companys cash contributions in 2007 was impacted by the acquisition of PDM and QCSI.

On December 21, 2005, the Companys Compensation Committee of the Board of Directors formally adopted the Executive Deferred
Compensation Plan (the Plan). The Plan is an unfunded deferred compensation plan established and maintained for the purpose of providing key management employees with the opportunity to defer the receipt of compensation and to accumulate
earnings on such deferrals on a tax-deferred basis. The Companys Compensation Committee of the Board of Directors determines which key management employees will be eligible to participate in the Plan. Currently, all of the executive officers
of the Company are eligible to participate. The Plan is administered by the Company and became effective as of June 30, 2005.

Under
the Plan, each participant may elect to defer, for any calendar year, up to 75% of his or her base salary and/or 100% of any commissions and/or bonuses earned during such calendar year. Amounts deferred for each participant are recorded in a
bookkeeping account for such participant. Each participant is allowed to make a hypothetical allocation of the amounts credited to his or her account among investment options/indices that the Company makes available from time to time. Each account
is credited at least annually with notational earnings equal to the aggregate/weighted average return on the investment options/indices selected by the participant, less expenses. The Company also may credit each participants account with a
discretionary company contribution. Company contributions vest after three years of service with the Company. The Companys cash contribution to the Plan in 2007 and 2006 was approximately $79,000 and $52,000, respectively.

Upon termination of employment, a participant is entitled to a benefit from the Company equal to the amount of vested contributions credited to his or
her account, subject to certain restrictions. Alternatively, a participant may elect to have all or a portion the contributions in his or her account paid in one or more installments, subject to certain waiting period and other restrictions set
forth in the Plan.

The Company has purchased life insurance policies with the funds in which the executive officers elected to defer in
the Plan. The majority of the non-qualified retirement plan assets are held in a company-owned life insurance policy, whose investment assets are a separately-managed portfolio administered by an insurance company. The assets held under this
insurance policy are recorded at estimated fair value with changes in estimated value recorded in net earnings. At the end of fiscal year 2006, the Company was the beneficiary of various insurance contracts on some of the participants in the Plans.
At December 31, 2007, these life insurance contracts had cash surrender values of approximately $1.2 million.

13. Acquisitions

CareKey, Inc.

On December 22, 2005, the Company acquired all of the issued and outstanding shares of
CareKey, Inc. (CareKey). CareKey is a leading provider of advanced care management software. Prior to the acquisition, the Company had entered into an arrangement at the end of 2003 to integrate CareKey products into its suite of care
management solutions (CareAdvance ) for sale within the Facets® installed customer base. The combination expands the Companys market opportunities and
increases its customers ability to improve the cost and quality of care for their members.

The acquisition was accounted for using
the purchase method of accounting and the results of operations have been included in the consolidated financial statements of the Company since the acquisition date. As of December 31, 2005, the excess of the purchase price over the
preliminary fair market value of the assets purchased and liabilities assumed was $47.7 million and was allocated to goodwill. In August 2006, the Company received the final valuation report from its independent valuation firm of assets and
liabilities assumed. The final valuation of identifiable intangible assets was determined to be



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



$29.0 million. The $29.0 million allocated to identifiable intangible assets includes customer relationships and maintenance agreements of $7.4 million to be
amortized over a ten-year life, existing software of $13.0 million to be amortized over a five-year life, and core technology of $8.6 million to be amortized over a ten-year life. The purchase price as of December 31, 2005 was approximately
$63.2 million, which consisted of cash payments of $60.0 million, assumed liabilities of $2.7 million and acquisition-related costs of $500,000. In December 2007, the Company recorded an adjustment for taxes associated with purchase accounting which
reduced goodwill by approximately $1.3 million.

CareKey stockholders and option holders are entitled to receive three contingent
consideration payments of $8.3 million each (up to $25.0 million), upon the achievement of certain revenue milestones during the period beginning upon acquisition and ending December 31, 2008. In addition, further consideration payable in cash
or stock at the Companys election, may be paid to former CareKey stockholders and option holders if, prior to December 31, 2008, the acquired CareKey products generate revenues in excess of certain revenue milestones and/or if a
negotiated multiple of software maintenance revenues of acquired CareKey products during the fiscal year ended December 31, 2009 exceeds total purchase consideration made to those former CareKey stockholders and option holders. As of
December 31, 2007, the revenue milestones have not been met and no contingent consideration payments have been paid. The contingent consideration, if and when it is earned, will be recorded as additional purchase price and allocated to
goodwill.

The following unaudited pro forma summary combines the consolidated results of operations of the Company and CareKey for the
year ended December 31, 2005 as if the acquisition had occurred at the beginning of 2005, after giving effect to certain pro forma adjustments (in thousands, except per share amounts):



|                               |  |                                       |        
|------------------------------ |  | ------------------------------------- | -------
|                               |  | Year EndedDecember 31,(unaudited)2005
|Total revenue                  |  | $                                     | 298,462
|Net income                     |  | $                                     | 16,709 
|Net income per share (diluted) |  | $                                     | 0.37   

This pro forma financial information is provided for informational purposes only and may not be
indicative of the results of operations as they would have been had the transaction been effected on the assumed date, nor is it indicative of the results of operations which may occur in the future.

Plan Data Management, Inc.

On
December 22, 2006, the Company acquired all of the issued and outstanding shares of Plan Data Management, Inc. (PDM). PDM is a leading provider of revenue enhancement software and administrative efficiency solutions for payers that
service members in Medicare Advantage, Medicare Part D and Medicaid plans. The combination adds new high-return solutions to the Companys portfolio of software and services for payers and further leverages its expanding customer base.

The acquisition was accounted for using the purchase method of accounting and the results of operations have been included in the
consolidated financial statements of the Company since the acquisition date. At December 31, 2006, the excess of the purchase price over the preliminary fair market value of the assets purchased and liabilities assumed was $15.0 million and was
initially allocated to goodwill. In June 2007, the Company received the final valuation report from its independent valuation firm and identifiable intangible assets were determined to be $9.8 million. The $9.8 million allocated to identifiable
intangible assets includes customer relationships of $7.3 million to be amortized over a 10-year life, core technology of $1.9 million to be amortized over a 10-year life, existing software of $400,000 to be amortized over a three-year life, and
$200,000 in tradenames to be amortized over a five-year life.

The purchase price as of December 31, 2006 was approximately $19.6
million, which consisted of 491,488 shares of the Companys common stock, cash payments of $8.0 million, assumed liabilities of $3.1 million and acquisition-related costs of $500,000. The 491,488 shares of common stock were based upon a per
share value of $18.13, which represents the average closing price of the Companys common stock a few days before and after the December 22, 2006 measurement date. The issuance of the 491,488 shares of common stock and the cash payment of
$8.0 million to PDM stockholders and option holders were completed in January 2007.

In June 2007, the purchase price increased by an
additional $5.2 million for contingent consideration earned by PDM stockholders and option holders. The distribution of the contingent consideration consisted of cash payments of $2.3 million and the issuance of 149,664 shares of common stock in
July 2007. In December 2007, the Company recorded an adjustment for taxes associated with purchase accounting which increased goodwill by approximately $3.1 million.



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



PDM stockholders and option holders are also entitled to receive contingent consideration under each
of the following circumstances: $5.0 million on or before December 31, 2008 and $8.0 million on or before December 31, 2009, each subject to reduction if certain revenue thresholds are not satisfied during the applicable measurement
period. Additional contingent consideration of up to $8.0 million may be paid on June 30, 2009 if certain revenue thresholds are satisfied, provided that in no event will the aggregate consideration of all payments exceed $42.0 million. The
contingent consideration, if and when it is earned, will be recorded as additional purchase price and allocated to goodwill. The merger consideration is also subject to adjustment based upon minimum cash and working capital balances or to the extent
TriZetto is entitled to claims for indemnification as specified in the Merger Agreement. The contingent consideration is payable at the Companys election in either cash or common stock.

Quality Care Solutions, Inc.

On January 10, 2007, the Company acquired privately held Quality Care Solutions, Inc. (QCSI). QCSI is an innovator of software and information technology solutions for the healthcare payer industry. The combination creates
the industrys broadest array of solution choices for payers, addressing their scale, implementation speed and technology platform strategies.

The acquisition was accounted for using the purchase method of accounting and the results of operations have been included in the consolidated financial statements of the Company since the acquisition date. As a result, the Company
allocated $55.9 million from goodwill to identifiable intangible assets. In June 2007, the Company received the final valuation report from its independent valuation firm and identifiable intangible assets were determined to be $48.5 million. The
$48.5 million allocated to identifiable intangible assets includes customer relationships of $37.5 million to be amortized over a 10-year life, core technology of $8.0 million to be amortized over a 10-year life, existing software of $2.2 million to
be amortized over a five-year life, and $800,000 in tradenames to be amortized over a five-year life. The weighted average amortization period for customer lists, core technology and intellectual property, and tradenames is 10.0 years, 8.2 years and
5.0 years, respectively. In total, the weighted average amortization period for QCSI intangible assets is 9.4 years.

The purchase price
was approximately $174.0 million, which consisted of cash payments of $146.4 million, assumed liabilities of $17.4 million, a $5.0 million contingent payment (the Holdback), and acquisition-related costs of $5.2 million. In December
2007, the purchase price increased by a total of $4.6 million which consisted of a $7.0 million contingent payment offset by a $2.4 million adjustment to the Holdback. The $7.0 million contingent consideration was earned by QCSI stockholders and
option holders and was based upon license and software maintenance revenues arising from the sale of QCSI products for the 12-month period commencing on January 1, 2007 and ending on December 31, 2007. The amount of the Holdback was
reduced by $2.4 million due to a negative working capital adjustment, as defined in the Merger Agreement. The $4.6 million net increase in the purchase price was recorded to goodwill as of December 31, 2007. The Company also recorded $7.5
million of other purchase accounting adjustments primarily related to income taxes.



F-31



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following unaudited pro forma summary combines the consolidated results of operations of the
Company and QCSI for the year ended December 31, 2006, as if the acquisition had occurred at the beginning of 2006, after giving effect to certain pro forma adjustments (in thousands, except per share amounts):



|                               |  |                                       |        
|------------------------------ |  | ------------------------------------- | -------
|                               |  | Year EndedDecember 31,(unaudited)2006
|Total revenue                  |  | $                                     | 406,438
|Net income                     |  | $                                     | 5,031  
|Net income per share (diluted) |  | $                                     | 0.11   

This pro forma financial information is provided for informational purposes only and may not be
indicative of the results of operations as they would have been had the transaction been effected on the assumed date, nor is it indicative of the results of operations which may occur in the future.

Purchase Price Allocations

The purchase price allocations for the acquisitions described above were based on the fair value of the assets and liabilities on the date of purchase, as follows (in thousands):



|                               |  |         |        |     |   |        |  |   |        
|------------------------------ |  | ------- | ------ | --- | - | ------ |  | - | -------
|                               |  | CareKey |        | PDM |   | QCSI  
|Total current assets           |  | $       | 13,935 |     | $ | 3,758  |  | $ | 24,074 
|Property, plant, equipment     |  |         | 1,544  |     |   | 861    |  |   | 2,603  
|Goodwill                       |  |         | 35,110 |     |   | 14,453 |  |   | 110,959
|Other intangible assets        |  |         | 29,000 |     |   | 9,800  |  |   | 48,500 
|Other assets, non-current      |  |         | 18     |     |   |       |  |   |       
|                               |  |         |        |     |   |        |  |   |        
|Total assets acquired          |  |         | 79,607 |     |   | 28,872 |  |   | 186,136
|Current liabilities            |  |         | 2,257  |     |   | 2,858  |  |   | 17,650 
|Other liabilities, non-current |  |         |       |     |   | 3,348  |  |   | 7,307  
|                               |  |         |        |     |   |        |  |   |        
|Total liabilities acquired     |  |         | 2,257  |     |   | 6,206  |  |   | 24,957 
|                               |  |         |        |     |   |        |  |   |        
|Net assets acquired            |  | $       | 77,350 |     | $ | 22,666 |  | $ | 161,179
|                               |  |         |        |     |   |        |  |   |        

14. Supplemental Cash Flow Disclosures (in thousands)



|                                                       |  |                                 |        |      |   |       |  |   |      
|------------------------------------------------------ |  | ------------------------------- | ------ | ---- | - | ----- |  | - | -----
|                                                       |  | For the Years EndedDecember 31,
|                                                       |  | 2007                            |        | 2006 |   | 2005 
|Supplemental disclosures for cash flow information     |  |                                 |        |      |   |       |  |   |      
|Cash paid for interest                                 |  | $                               | 12,708 |      | $ | 3,280 |  | $ | 941  
|Cash paid for income taxes                             |  |                                 | 7,782  |      |   | 2,467 |  |   | 1,090
|Non-cash investing and financing activities            |  |                                 |        |      |   |       |  |   |      
|Assets acquired through capital lease                  |  |                                 | 349    |      |   | 2,487 |  |   | 1,424
|Common stock issued in connection with PDM acquisition |  |                                 | 11,820 |      |   |      |  |   |     
|Common stock issued for purchase of intangible assets  |  |                                 |       |      |   |      |  |   | 551  



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##### Table of Contents

THE TRIZETTO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



15. Segment Information

The Company has adopted FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information (FAS 131). FAS 131 requires enterprises to report information about
operating segments in annual financial statements and selected information about reportable segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic
areas and major customers. The Company has only one reportable segment.

The Company classifies its revenue in the following categories:
services and other, and products as follows (in thousands):



|                              |  |                                  |         |      |   |         |  |   |        
|----------------------------- |  | -------------------------------- | ------- | ---- | - | ------- |  | - | -------
|                              |  | For the Years Ended December 31,
|                              |  | 2007                             |         | 2006 |   | 2005   
|Outsourced business services  |  | $                                | 96,242  |      | $ | 86,877  |  | $ | 79,418 
|Software maintenance          |  |                                  | 123,957 |      |   | 88,628  |  |   | 80,719 
|Consulting services and other |  |                                  | 140,252 |      |   | 97,438  |  |   | 83,346 
|                              |  |                                  |         |      |   |         |  |   |        
|Services and other revenue    |  |                                  | 360,451 |      |   | 272,943 |  |   | 243,483
|                              |  |                                  |         |      |   |         |  |   |        
|Software license fees         |  |                                  | 76,938  |      |   | 74,994  |  |   | 48,736 
|Term license Fees             |  |                                  | 14,402  |      |   |        |  |   |       
|                              |  |                                  |         |      |   |         |  |   |        
|Products revenue              |  |                                  | 91,340  |      |   | 74,994  |  |   | 48,736 
|                              |  |                                  |         |      |   |         |  |   |        
|Total revenue                 |  | $                                | 451,791 |      | $ | 347,937 |  | $ | 292,219
|                              |  |                                  |         |      |   |         |  |   |        

The Companys assets are all located in the United States and the Companys sales were
primarily to customers located in the United States.

16. Quarterly Financial Data (unaudited and in thousands, except per share data)



|                     |  |             |         |                            |   |                  |  |   |                                   |   |  |                                     |       |   |  |   |       |  
|-------------------- |  | ----------- | ------- | -------------------------- | - | ---------------- |  | - | --------------------------------- | - |  | ----------------------------------- | ----- | - |  | - | ----- | -
|                     |  | Net Revenue |         | OperatingCosts andExpenses |   | NetIncome (loss) |  |   | Net Income (Loss)Per Share, Basic |   |  | Net Income (Loss)Per Share, Diluted |      
|Fiscal year 2007     |  |             |         |                            |   |                  |  |   |                                   |   |  |                                     |       |   |  |   |       |  
|First quarter        |  | $           | 113,503 |                            | $ | 101,356          |  | $ | 5,896                             |   |  | $                                   | 0.13  |   |  | $ | 0.12  |  
|Second quarter       |  |             | 114,835 |                            |   | 103,506          |  |   | 3,643                             |   |  |                                     | 0.08  |   |  |   | 0.07  |  
|Third quarter        |  |             | 106,906 |                            |   | 96,549           |  |   | 9,613                             |   |  |                                     | 0.21  |   |  |   | 0.17  |  
|Fourth quarter       |  |             | 116,547 |                            |   | 100,724          |  |   | 9,078                             |   |  |                                     | 0.20  |   |  |   | 0.16  |  
|Fiscal year 2006 (1) |  |             |         |                            |   |                  |  |   |                                   |   |  |                                     |       |   |  |   |       |  
|First quarter        |  |             | 85,318  |                            |   | 78,123           |  |   | 6,838                             |   |  |                                     | 0.16  |   |  |   | 0.15  |  
|Second quarter       |  |             | 87,710  |                            |   | 81,050           |  |   | 6,414                             |   |  |                                     | 0.15  |   |  |   | 0.14  |  
|Third quarter (2)    |  |             | 86,437  |                            |   | 92,335           |  |   | (5,683                            | ) |  |                                     | (0.13 | ) |  |   | (0.13 | )
|Fourth quarter       |  |             | 88,472  |                            |   | 79,481           |  |   | 7,546                             |   |  |                                     | 0.18  |   |  |   | 0.16  |  



|(1) | In December 2006, the Company entered into a settlement with one of its larger customers that had disputed payments due from a software implementation project. The amounts
represented revenue recorded in the first two quarters of 2006 and were included in the allowance for sales returns and a reduction to revenue in the quarter ended September 30, 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In September 2004, McKesson Information Solutions LLC (McKesson) filed a lawsuit against the Company. In the third quarter of 2006, the Company entered into an agreement
with McKesson to settle the lawsuit and agreed to pay McKesson a one-time royalty fee of $15.0 million, which was expensed in the same period, for a license in the patent that covers past and future use of the Companys products and services by
all existing customers.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17. Subsequent Events

On January 3, 2008, the Company finalized its common stock repurchase program. Through January 3, 2008, an additional 94,253 shares were purchased for $1.7 million. The total shares purchased under the
program were 2,999,998 at a total price, including commissions, of $47.8 million, resulting in an average purchase price of $15.92 per share.



F-33



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##### Table of Contents

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)



|                                               |  |                             |        |                                          |   |         |                            |  |   |                        |   |  |   |       
|---------------------------------------------- |  | --------------------------- | ------ | ---------------------------------------- | - | ------- | -------------------------- |  | - | ---------------------- | - |  | - | ------
|                                               |  | BalanceatBeginningof Period |        | AdditionsCharged toCosts andExpenses (1) |   |         | (Deductions)Recoveries (2) |  |   | Balanceat End ofPeriod
|Sales allowances and doubtful account reserves |  |                             |        |                                          |   |         |                            |  |   |                        |   |  |   |       
|Year ended December 31, 2005                   |  | $                           | 1,692  |                                          | $ | (401    | )                          |  | $ | (436                   | ) |  | $ | 855   
|Year ended December 31, 2006                   |  | $                           | 855    |                                          | $ | 3,214   |                            |  | $ | (299                   | ) |  | $ | 3,770 
|Year ended December 31, 2007                   |  | $                           | 3,770  |                                          | $ | (498    | )                          |  | $ | 255                    |   |  | $ | 3,527 
|                                               |  |                             |        |                                         
|Deferred tax valuation allowance               |  |                             |        |                                          |   |         |                            |  |   |                        |   |  |   |       
|Year ended December 31, 2005                   |  | $                           | 27,713 |                                          | $ | (5,487  | )                          |  | $ |                       |   |  | $ | 22,226
|Year ended December 31, 2006                   |  | $                           | 22,226 |                                          | $ | (20,097 | )                          |  | $ |                       |   |  | $ | 2,129 
|Year ended December 31, 2007                   |  | $                           | 2,129  |                                          | $ | (2,129  | )                          |  | $ |                       |   |  | $ |      



|(1) | Adjustments to the sales allowances and doubtful account reserves were the result of the collections of aged receivables.
|--- | -------------------------------------------------------------------------------------------------------------------------

|(2) | Deductions include the net effect of write-offs and recoveries of uncollectible amounts with respect to accounts receivable.
|--- | ----------------------------------------------------------------------------------------------------------------------------



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