##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 o
    
    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: 000-52073
 
 SXC HEALTH SOLUTIONS CORP.
 (Exact name of registrant as specified in its charter)
 
 Yukon Territory
    
    75-2578509(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 2441 Warrenville Road, Suite 610, Lisle, IL 60532-3642
(Address of principal executive offices, zip code)
 (800) 282-3232
(Registrants phone number, including area code)
 
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)
    
    
    3Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008
    
    
    4Consolidated Statements of Comprehensive Income for the Three Months Ended March 31,
2009 and 2008
    
    
    5Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008
    
    
    6Consolidated Statements of Shareholders Equity for the Three Months Ended March 31, 2009
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    27SIGNATURE
    
    
    28Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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Part I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 SXC HEALTH SOLUTIONS CORP.
 
 Consolidated Balance Sheets
 (in thousands, except share data)
 March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    79,970
    
    
    $
    67,715Restricted cash
    
    
    13,628
    
    
    
    12,498Accounts receivable, net of allowance for doubtful accounts of
$3,560 (2008  $3,570)
    
    
    84,379
    
    
    
    80,531Rebates receivable
    
    
    23,887
    
    
    
    29,586Unbilled revenue
    
    
    1
    
    
    
    73Prepaid expenses and other assets
    
    
    4,803
    
    
    
    4,382Inventory
    
    
    6,032
    
    
    
    6,689Income tax recoverable
    
    
    2,933
    
    
    
    1,459Deferred income taxes
    
    
    8,546
    
    
    
    10,219Total current assets
    
    
    224,179
    
    
    
    213,152Property and equipment, net of accumulated depreciation of
$20,873 (2008  $19,449)
    
    
    20,117
    
    
    
    20,756Goodwill
    
    
    143,594
    
    
    
    143,751Other intangible assets, net of accumulated amortization of $16,924
(2008  $14,099)
    
    
    43,581
    
    
    
    46,406Deferred financing charges
    
    
    1,369
    
    
    
    1,481Deferred income taxes
    
    
    1,461
    
    
    
    1,323Other assets
    
    
    1,397
    
    
    
    1,474Total assets
    
    $
    435,698
    
    
    $
    428,343LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    7,104
    
    
    $
    8,302Customer deposits
    
    
    14,049
    
    
    
    11,875Salaries and wages payable
    
    
    11,779
    
    
    
    15,681Accrued liabilities
    
    
    24,751
    
    
    
    32,039Pharmacy benefit management rebates payable
    
    
    38,777
    
    
    
    36,326Pharmacy benefit claim payments payable
    
    
    51,891
    
    
    
    51,406Deferred revenue
    
    
    11,225
    
    
    
    7,978Current portion of long-term debt
    
    
    4,800
    
    
    
    3,720Total current liabilities
    
    
    164,376
    
    
    
    167,327Long-term debt, less current installments
    
    
    42,720
    
    
    
    43,920Deferred income taxes
    
    
    14,539
    
    
    
    15,060Deferred lease inducements
    
    
    3,105
    
    
    
    3,217Deferred rent
    
    
    1,528
    
    
    
    1,461Other liabilities
    
    
    3,035
    
    
    
    3,195Total liabilities
    
    
    229,303
    
    
    
    234,180Commitments and contingencies (Note 12)Shareholders equityCommon stock: no par value, unlimited shares authorized;
24,476,544 shares issued and outstanding at March 31, 2009
(2008- 24,103,032 shares)
    
    
    150,495
    
    
    
    146,988Additional paid-in capital
    
    
    12,868
    
    
    
    11,854Retained earnings
    
    
    43,433
    
    
    
    35,751Accumulated other comprehensive loss
    
    
    (401
    )
    
    
    (430
    )Total shareholders equity
    
    
    206,395
    
    
    
    194,163Total liabilities and shareholders equity
    
    $
    435,698
    
    
    $
    428,343
 See accompanying notes to the consolidated financial statements.
  3




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SXC HEALTH SOLUTIONS CORP.
 
 Consolidated Statements of Operations
 (in thousands, except per share data)
 Three months ended March 31,2009
    
    
    2008(unaudited)Revenue:PBM
    
    $
    267,780
    
    
    $
    HCIT:Transaction processing
    
    
    13,727
    
    
    
    14,648Maintenance
    
    
    4,474
    
    
    
    4,210Professional services
    
    
    3,642
    
    
    
    3,791System sales
    
    
    1,337
    
    
    
    1,668Total revenue
    
    
    290,960
    
    
    
    24,317Cost of revenue:PBM
    
    
    238,972
    
    
    
    HCIT
    
    
    12,804
    
    
    
    10,837Total cost of revenue
    
    
    251,776
    
    
    
    10,837Gross profit
    
    
    39,184
    
    
    
    13,480Expenses:Product development costs
    
    
    3,163
    
    
    
    2,458Selling, general and administrative
    
    
    20,797
    
    
    
    5,871Depreciation of property and equipment
    
    
    1,482
    
    
    
    762Amortization of intangible assets
    
    
    2,825
    
    
    
    39628,267
    
    
    
    9,487Operating income
    
    
    10,917
    
    
    
    3,993Interest income
    
    
    (246
    )
    
    
    (1,053
    )Interest expense
    
    
    956
    
    
    
    34Net interest expense (income)
    
    
    710
    
    
    
    (1,019
    )Other (income) expense
    
    
    (325
    )
    
    
    6Income before income taxes
    
    
    10,532
    
    
    
    5,006Income tax expense:Current
    
    
    2,201
    
    
    
    1,382Deferred
    
    
    649
    
    
    
    2672,850
    
    
    
    1,649Net income
    
    $
    7,682
    
    
    $
    3,357Earnings per share:Basic
    
    $
    0.32
    
    
    $
    0.16Diluted
    
    $
    0.31
    
    
    $
    0.16Weighted average number of shares used
in computing earnings per share:Basic
    
    
    24,324,911
    
    
    
    20,995,688Diluted
    
    
    24,923,208
    
    
    
    21,489,156
 See accompanying notes to the consolidated financial statements.
  4




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SXC HEALTH SOLUTIONS CORP.
 
 Consolidated Statements of Comprehensive Income
 (in thousands)
 Three months ended March 31,2009
    
    
    2008(unaudited)Net income
    
    $
    7,682
    
    
    $
    3,357Other comprehensive income  gain on cash flow hedges (net of
income taxes of $9 in 2009)
    
    
    29
    
    
    
    Comprehensive income
    
    $
    7,711
    
    
    $
    3,357
 See accompanying notes to the consolidated financial statements.
  5




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SXC HEALTH SOLUTIONS CORP.
 
 Consolidated Statements of Cash Flows
 (in thousands)
 Three months ended March 31,2009
    
    
    2008(unaudited)Cash flows from operating activities:Net income
    
    $
    7,682
    
    
    $
    3,357Adjustments to reconcile net income to net cash provided by operating
activities:Stock-based compensation
    
    
    613
    
    
    
    779Depreciation of property and equipment
    
    
    1,976
    
    
    
    1,164Amortization of intangible assets
    
    
    2,825
    
    
    
    396Deferred lease inducements and rent
    
    
    (45
    )
    
    
    (64
    )Deferred income taxes
    
    
    649
    
    
    
    302Tax benefit on option exercises
    
    
    (1,562
    )
    
    
    (22
    )(Gain) loss on foreign exchange
    
    
    (94
    )
    
    
    14Changes in operating assets and liabilities, net of effects from acquisition:Accounts receivable
    
    
    (3,863
    )
    
    
    1,210Rebates receivable
    
    
    5,699
    
    
    
    Restricted cash
    
    
    (1,130
    )
    
    
    Unbilled revenue
    
    
    72
    
    
    
    178Prepaid expenses
    
    
    (421
    )
    
    
    (467
    )Inventory
    
    
    657
    
    
    
    (15
    )Income tax recoverable
    
    
    88
    
    
    
    1,018Accounts payable
    
    
    (1,198
    )
    
    
    (594
    )Accrued liabilities
    
    
    (8,617
    )
    
    
    358Deferred revenue
    
    
    3,247
    
    
    
    (755
    )Pharmacy benefit claim payments payable
    
    
    485
    
    
    
    (238
    )Pharmacy benefit management rebates payable
    
    
    2,541
    
    
    
    1,412Customer deposits
    
    
    2,174
    
    
    
    Other
    
    
    64
    
    
    
    Net cash provided by operating activities
    
    
    11,842
    
    
    
    8,033Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,289
    )
    
    
    (2,603
    )Acquisitions, net of cash acquired
    
    
    (180
    )
    
    
    Net cash used in investing activities
    
    
    (3,469
    )
    
    
    (2,603
    )Cash flows from financing activities:Proceeds from exercise of options
    
    
    2,346
    
    
    
    195Tax benefit on option exercises
    
    
    1,562
    
    
    
    22Repayment of long-term debt
    
    
    (120
    )
    
    
    Net cash provided by financing activities
    
    
    3,788
    
    
    
    217Effect of foreign exchange on cash balances
    
    
    94
    
    
    
    (14
    )Increase in cash and cash equivalents
    
    
    12,255
    
    
    
    5,633Cash and cash equivalents, beginning of period
    
    
    67,715
    
    
    
    90,929Cash and cash equivalents, end of period
    
    $
    79,970
    
    
    $
    96,562
 See accompanying notes to the consolidated financial statements.
  6




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SXC HEALTH SOLUTIONS CORP.
 
 Consolidated Statements of Shareholders Equity
 (in thousands, except share data)
 Common Stock
    
    
    Additional
    
    
    Retained
    
    
    Accumulated OtherNumber
    
    
    Amount
    
    
    paid-in capital
    
    
    Earnings (deficit)
    
    
    Comprehensive Loss
    
    
    TotalBalance at December 31, 2008
    
    
    24,103,032
    
    
    $
    146,988
    
    
    $
    11,854
    
    
    $
    35,751
    
    
    $
    (430
    )
    
    $
    194,163Activity during the period (unaudited):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,682
    
    
    
    
    
    
    
    7,682Exercise of stock options
    
    
    372,500
    
    
    
    3,489
    
    
    
    (1,143
    )
    
    
    
    
    
    
    
    
    
    
    2,346Issuance of shares for acquisition
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of restricted stock units
    
    
    991
    
    
    
    18
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    Tax benefit on options exercised
    
    
    
    
    
    
    
    
    
    
    1,562
    
    
    
    
    
    
    
    
    
    
    
    1,562Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    613
    
    
    
    
    
    
    
    
    
    
    
    613Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    29Balance at March 31, 2009 (unaudited)
    
    
    24,476,544
    
    
    
    150,495
    
    
    
    12,868
    
    
    
    43,433
    
    
    
    (401
    )
    
    
    206,395Balance at December 31, 2007
    
    
    20,985,934
    
    
    
    103,520
    
    
    
    8,299
    
    
    
    20,638
    
    
    
    
    
    
    
    132,457Activity during the period (unaudited):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,357
    
    
    
    
    
    
    
    3,357Exercise of stock options
    
    
    29,008
    
    
    
    303
    
    
    
    (108
    )
    
    
    
    
    
    
    
    
    
    
    195Tax benefit on options exercised
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    779
    
    
    
    
    
    
    
    
    
    
    
    779Balance at March 31, 2008 (unaudited)
    
    
    21,014,942
    
    
    $
    103,823
    
    
    $
    8,992
    
    
    $
    23,995
    
    
    $
    
    
    
    $
    136,810
 See accompanying notes to the consolidated financial statements.
  7




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SXC HEALTH SOLUTIONS CORP.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    Description of Business
  2.
    
    Basis of Presentation
 (a)
    
    Basis of presentation:The consolidated financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP) and include its
majority-owned subsidiaries. All significant inter-company transactions and balances have
been eliminated in consolidation. Amounts in the consolidated financial statements and
notes are expressed in U.S. dollars, except where indicated, which is also the Companys
functional currency.Certain information and note disclosures normally included in the annual financial
statements prepared in accordance with U.S. GAAP have been condensed or excluded. As a
result, these unaudited interim consolidated financial statements do not contain all the
disclosures required to be included in the annual financial statements and should be read
in conjunction with the most recent audited annual consolidated financial statements and
notes thereto for the year ended December 31, 2008.These unaudited interim consolidated financial statements are prepared following accounting
policies consistent with the Companys audited annual consolidated financial statements for
the year ended December 31, 2008.The financial information included herein reflects all adjustments (consisting only of
normal recurring adjustments), which, in the opinion of management, are necessary for a
fair presentation of the results for the interim periods presented. The results of
operations for the three-month period ended March 31, 2009 are not necessarily indicative
of the results to be expected for the full year ending December 31, 2009.Effective with the acquisition of National Medical Health Card Systems, Inc. (NMHC) on
April 30, 2008, the Company began operating in two reportable segments: PBM and HCIT.
Please see Note 10 for more information.(b)
    
    Use of estimates:The preparation of financial statements in conformity with U.S. GAAP 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 the reported amounts of revenue
and expenses during the period. Significant items subject to such estimates and
assumptions include revenue recognition, rebates, purchase price allocation in connection
with acquisitions, valuation of property and equipment, valuation of intangible assets
acquired and related amortization periods, impairment of goodwill, income tax
uncertainties, contingencies and valuation allowances for receivables and income taxes.
Actual results could differ from those estimates.
 3.
    
    Recent Accounting Pronouncements
 FASB Statement No. 161
 Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB
Statement No. 133
 FASB Statement No. 141(R)
 Business Combinations
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FASB Statement No. 160
 Noncontrolling Interests in
Consolidated Financial Statements  an amendment of ARB No. 51
 4.
    
    Business Combinations
 NMHC Acquisition
 Determination of the Measurement Date for the Market Price of Acquirer
Securities Issued in a Purchase Business Combination
    Cash payment to NMHC shareholders
    
    $
    98,711Value assigned to shares issued
    
    
    40,926Direct costs of the acquisition
    
    
    4,114Total purchase price
    
    $
    143,751
 Direct Costs of the Acquisition
  Preliminary Purchase Price Allocation
 Business Combinations
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Current assets
    
    $
    115,864Property and equipment
    
    
    3,495Goodwill
    
    
    124,931Intangible assets
    
    
    44,420Other assets
    
    
    1,258Total assets acquired
    
    
    289,968Current liabilities
    
    
    133,405Deferred income taxes
    
    
    12,516Other liabilities
    
    
    296Total liabilities assumed
    
    
    146,217Net assets acquired
    
    $
    143,751
  Fair value
    
    
    Useful LifeTrademarks/Trade names
    
    $
    1,120
    
    
    6 monthsCustomer relationships
    
    
    39,700
    
    
    8 yearsNon-compete agreements
    
    
    1,480
    
    
    1 yearSoftware
    
    
    1,120
    
    
    1 yearLicenses
    
    
    1,000
    
    
    15 yearsTotal
    
    $
    44,420
 Unaudited Pro Forma Financial Information
   Three months endedMarch 31,2008Sales
    
    $
    309,905Gross profit
    
    $
    33,259Net loss
    
    $
    418Loss per share:Basic
    
    $
    0.02Diluted
    
    $
    0.02Weighted average shares outstanding:Basic
    
    
    23,781,670Diluted
    
    
    24,275,138
  Zynchros Acquisition
   10




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5.
    
    Cash and Cash Equivalents
  March 31, 2009
    
    
    December 31, 2008(unaudited)Cash on deposit
    
    $
    52,088
    
    
    $
    46,532Payments in transit
    
    
    (57,527
    )
    
    
    (55,559
    )U.S. money market funds
    
    
    85,381
    
    
    
    76,713Canadian dollar deposits (March 31, 2009  Cdn. $35 at 1.2618; December 31, 2008  Cdn. $35 at 1.2168)
    
    
    28
    
    
    
    29$
    79,970
    
    
    $
    67,715
 6.
    
    Goodwill and Other Intangible Assets
   March 31, 2009
    
    
    December 31, 2008Gross
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetCustomer relationships
    
    $
    53,100
    
    
    $
    12,051
    
    
    $
    41,049
    
    
    $
    53,100
    
    
    $
    10,043
    
    
    $
    43,057Acquired software
    
    
    3,565
    
    
    
    2,318
    
    
    
    1,247
    
    
    
    3,565
    
    
    
    1,903
    
    
    
    1,662Trademarks/Trade names
    
    
    1,360
    
    
    
    1,137
    
    
    
    223
    
    
    
    1,360
    
    
    
    1,122
    
    
    
    238Non-compete agreements
    
    
    1,480
    
    
    
    1,357
    
    
    
    123
    
    
    
    1,480
    
    
    
    987
    
    
    
    493Licenses
    
    
    1,000
    
    
    
    61
    
    
    
    939
    
    
    
    1,000
    
    
    
    44
    
    
    
    956Total
    
    $
    60,505
    
    
    $
    16,924
    
    
    $
    43,581
    
    
    $
    60,505
    
    
    $
    14,099
    
    
    $
    46,406
  7.
    
    Long Term Debt
    
    
    50% of the net proceeds arising from the issuance or sale by the Company of its own
stock;
    
    100% of the net proceeds of an incurrence of debt, other than proceeds from the
debt permitted under the Credit Facilities; and
    
    100% of the net proceeds of certain asset sales and casualty events, subject to a
right to reinvest the proceeds.
  11




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Three months ended March 31,2009
    
    
    2008Long-term debt
    
    $
    445
    
    
    $
    Finacing charges
    
    
    112
    
    
    
    Other
    
    
    399
    
    
    
    34Total
    
    $
    956
    
    
    $
    34
 8.
    
    Shareholders equity
 (a)
    
    Stock option plan:The Company maintains a stock option plan (the Plan), as amended, which provides for a
maximum of 3,937,500 common shares of the Company to be issued as option grants. The
Compensation Committee of the Board of Directors determines award amounts, option prices
and vesting periods, subject to the provisions of the Plan. All officers, directors,
employees and service providers of the Company are eligible to receive option awards at the
discretion of the Compensation Committee.
  12




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(b)
    
    Employee Stock Purchase Plan:The Company maintains an Employee Stock Purchase Plan (ESPP) which allows eligible
employees to withhold annually up to a maximum of 15% of their base salary, or $25,000,
subject to IRS limitations, for the purchase of the Companys common shares. Common shares
will be purchased on the last day of each offering period at a discount of 5% of the fair
market value of the common shares on such date. The aggregate number of common shares that
may be issued under the ESPP may not exceed 100,000 common shares.During the first quarter of 2009, the ESPP was amended so that the common shares available
for purchase under the ESPP are drawn from reacquired common shares purchased by the
Company in the open market. During the three months ended March 31, 2009 and 2008, there
were 3,720 and nil shares issued under the ESPP, respectively.The ESPP is not considered compensatory under the provisions of SFAS No. 123R and,
therefore, no portion of the costs related to ESPP purchases will be included in the
Companys stock-based compensation expense.(c)
    
    Outstanding shares:At March 31, 2009, the Company had outstanding common shares of 24,476,544 and stock
options outstanding of 1,715,269. At December 31, 2008, the Company had outstanding common
 shares of 24,103,032 and stock options outstanding of 2,093,194. As of March 31, 2009,
stock options outstanding consisted of 776,894 options at a weighted-average exercise price
of Canadian $11.79 and 938,375 options at a weighted-average exercise price of U.S. $17.25.
In connection with the acquisition of NMHC, the Company issued 2,785,981 common shares to
former shareholders of NMHC.(d)
    
    Restricted stock units:The Company assumed 170,500 restricted stock units of NMHC after the acquisition, which
converted into 126,749 restricted stock units of the Company. The restricted stock units
vest 33% each in November 2008, November 2009 and November 2010. In September 2008, the
Company issued an additional 51,000 restricted stock units with a grant date fair value of
$15.90 per share to certain new employees who were previous employees of NMHC. These
restricted stock units vest in one-fourth increments on each grant date anniversary. At
March 31, 2009, there were 102,889 restricted stock units outstanding.
 
 9.
    
    Stock-based compensation
  Three months ended March 31,2009
    
    2008Total U.S. dollar stock options granted
    
    500
    
    257,450Volatility
    
    55.5%
    
    49.6  52.4%Risk-free interest rate
    
    1.96%
    
    1.67  2.37%Expected life
    
    4.5 years
    
    2.5  4.5 yearsDividend yield
    
    
    
    Weighted-average grant date fair value
    
    $8.09
    
    $4.91
   13




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##### Table of Contents



10.
    
    Segment information
  Three months ended March 31,2009
    
    
    2008RevenueUnited States
    
    $
    290,467
    
    
    $
    23,104Canada
    
    
    493
    
    
    
    1,213Total
    
    $
    290,960
    
    
    $
    24,317
 March 31, 2009
    
    
    December 31, 2008Net assetsUnited States
    
    $
    196,489
    
    
    $
    182,105Canada
    
    
    9,906
    
    
    
    12,058Total
    
    $
    206,395
    
    
    $
    194,163
  Three months ended March 31,2009
    
    
    2008PBM:Revenues
    
    $
    267,780
    
    
    $
    Gross profit
    
    $
    28,808
    
    
    $
    Total assets at March 31, 2009
    
    $
    298,875HCIT:Revenues
    
    $
    23,180
    
    
    $
    24,317Gross profit
    
    $
    10,376
    
    
    $
    13,480Total assets at March 31, 2009
    
    $
    136,823Consolidated:Revenues
    
    $
    290,960
    
    
    $
    24,317Gross profit
    
    $
    39,184
    
    
    $
    13,480Total assets at March 31, 2009
    
    $
    435,698
  14




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##### Table of Contents



11.
    
    Income Taxes
 Accounting
for Income Taxes
  Uncertain Tax Positions
  Three months endedMarch 31,2009
    
    
    2008Beginning balance
    
    $
    297
    
    
    $
    202Effect of change in accounting position for income tax uncertainties
    
    
    
    
    
    
    Increase in interest related to tax positions taken in prior years
    
    
    11
    
    
    
    17Balance at March 31
    
    $
    308
    
    
    $
    219
   12.
    
    Contingencies
   15




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13.
    
    Derivative Instruments and Fair Value
         16




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##### Table of Contents



Quoted Prices
    
    
    Significant
    
    
    Significantin Active
    
    
    Observable
    
    
    UnobservableMarkets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalAssets:Derivatives
    
    $
    
    
    
    $
    5
    
    
    $
    
    
    
    $
    5Liabilities:Derivatives
    
    $
    
    
    
    $
    904
    
    
    $
    
    
    
    $
    904
    Effective portion of gain on
    
    
    
    Ineffective portion of loss on
    
    
    
    
    
    Effective portion of loss
on interest rate contracts during term of hedging relationshipinterest rate contracts
    
    
    
    interest rate contracts
    
    Total change in fair value of
    
    reclassed into interest expenseincluded in AOCI
    
    
    
    included in interest expense
    
    interest rate contracts
    
    during the current period$
    39
    
    
    
    
    $
    11
    
    
    $
    28
    
    
    $
    100
  17




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##### Table of Contents



ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  Caution Concerning Forward-Looking Statements
   Overview
 PBM Business
      18




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HCIT Business
   Operating Expenses
  Industry
      19




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##### Table of Contents



Competitive Strengths
  Flexible, Customized and Independent Services.
 Information-Based Cost-Containment Methods.
 Selected financial highlights for the three months ended March 31, 2009 compared to the same period
in 2008
 NMHC Acquisition
    
    
    Total revenue in 2009 was $291.0 million, which included $267.8 million of revenue from
the Companys new PBM segment, which is largely attributable to the acquisition of NMHC in
April 2008, as compared to $24.3 million in 2008.
    
    The Company reported net income of $7.7 million, or $0.31 per share (fully-diluted), for
the three months ended March 31, 2009, which included $2.8 million of expense related to
the amortization of intangible assets, compared to $3.4 million, or $0.16 per share
(fully-diluted), for the same period in 2008, which included $0.4 million of expense
related to the amortization of intangible assets.
 Results of Operations
 Three months ended March 31, 2009 as compared to the three months ended March 31, 2008
 Three months ended March 31,In thousands, except per share data
    
    2009
    
    
    2008Revenue
    
    $
    290,960
    
    
    $
    24,317Gross profit
    
    
    39,184
    
    
    
    13,480Product development costs
    
    
    3,163
    
    
    
    2,458SG&A
    
    
    20,797
    
    
    
    5,871Depreciation of property and equipment
    
    
    1,482
    
    
    
    762Amortization of inangible assets
    
    
    2,825
    
    
    
    396Interest expense (income), net
    
    
    710
    
    
    
    (1,019
    )Other expense (income), net
    
    
    (325
    )
    
    
    6Income before income taxes
    
    
    10,532
    
    
    
    5,006Income tax expense
    
    
    2,850
    
    
    
    1,649Net income
    
    $
    7,682
    
    
    $
    3,357Diluted earnings per share
    
    $
    0.31
    
    
    $
    0.16
 Revenue
   20




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##### Table of Contents



Cost of Revenue
  Gross Profit
  Product Development Costs
   SG&A Costs
   Depreciation
  Amortization
  Interest Income and Expense
  Income Taxes
  Net Income
  Segment Analysis
  PBM
    
    
    HCIT
    
    
    Consolidated2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    267,780
    
    
    $
    
    
    
    $
    23,180
    
    
    $
    24,317
    
    
    $
    290,960
    
    
    $
    24,317Gross profit
    
    $
    28,808
    
    
    $
    
    
    
    $
    10,376
    
    
    $
    13,480
    
    
    $
    39,184
    
    
    $
    13,480Gross profit %
    
    
    10.8
    %
    
    
    0.0
    %
    
    
    44.8
    %
    
    
    55.4
    %
    
    
    13.5
    %
    
    
    55.4
    %
  21




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##### Table of Contents



PBM
     HCIT
  2009
    
    
    2008RecurringTransaction processing
    
    $
    13,727
    
    
    $
    14,648Maintenance
    
    
    4,474
    
    
    
    4,210Total recurring
    
    
    18,201
    
    
    
    18,858Non-RecurringProfessional services
    
    
    3,642
    
    
    
    3,791System sales
    
    
    1,337
    
    
    
    1,668Total non-recurring
    
    
    4,979
    
    
    
    5,459Total revenue
    
    $
    23,180
    
    
    $
    24,317
  Recurring Revenue :
   Non-Recurring Revenue:
   Cost of Revenue:
  Gross Profit:
  22




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##### Table of Contents



Liquidity and Capital Resources
   Credit Agreement
    
    
    50% of the net proceeds arising from the issuance or sale by the Company of its own stock;
    
    100% of the net proceeds of any incurrence of debt, other than proceeds from debt
permitted under the Credit Facilities; and
    
    100% of the net proceeds of certain asset sales and casualty events, subject to a right to
reinvest the proceeds.
     Consolidated Balance Sheets
  
    
    Restricted cash totaling $13.6 million relates to cash balances required to be
maintained in accordance with various state statues, contractual terms with customers
and other customer restrictions related to the PBM business associated with the
acquisition of NMHC. The Company continues to monitor changes in balance requirements
that may release restrictions and allow the funds to be used for general corporate
purposes.
    
    Rebates receivable of $23.9 million relate to billed and unbilled PBM receivables
from pharmaceutical manufacturers in connection with the administration of the rebate
program where the Company is the principal contracting party. The receivable and
related payables are based on estimates, which are subject to final settlement.
  23




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##### Table of Contents




    
    The Companys inventory balance of $6.0 million consists predominately of
prescription drugs and medical supplies at its Mail Service and Specialty Service
pharmacies.
    
    Other assets of $1.4 million consist primarily of security deposits related to the
Companys inventory facilities.
    
    Customer deposits payable of $14.0 million relate to deposits required by the
Company from certain customers in order to satisfy liabilities incurred on the
customers behalf for the adjudication of pharmacy claims.
 Cash flows from operating activities
      Cash flows from investing activities
    Cash flows from financing activities
    Future Capital Requirements
     24




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##### Table of Contents



Contingencies
    Contractual Obligations
  Outstanding Securities
  Critical Accounting Estimates
  Recent Accounting Standards
 FASB Statement No. 161
 Disclosures about Derivative Instruments and
Hedging Activities-an amendment of FASB Statement No. 133
 FASB Statement No. 141(R)
 Business Combinations
 FASB Statement No. 160
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
  25




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##### Table of Contents



ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk
   
 ITEM 4. Controls and Procedures
    
 PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  
 ITEM 5. Other Information
   26




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##### Table of Contents



ITEM 6. Exhibits
 Exhibit Number
    
    Description of Document
    
    Reference31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification
of CEO pursuant to Section 302 of the
Sarbanes-Oxley Act
    
    Filed herewith31.2
    
    
    Rule 13a-14(a)/15d-14(a) Certification
of CFO pursuant to Section 302 of the
Sarbanes-Oxley Act
    
    Filed herewith32.1
    
    
    Section 1350 Certification of CEO as
adopted by Section 906 of the
Sarbanes-Oxley Act
    
    Filed herewith32.2
    
    
    Section 1350 Certification of CFO as
adopted by Section 906 of the
Sarbanes-Oxley Act
    
    Filed herewith
  27




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##### Table of Contents



SIGNATURE
  SXC Health Solutions Corp.May 7, 2009
    By:
    /s/ Jeffrey ParkJeffrey ParkChief Financial Officer
(on behalf of the registrant and
as Chief Accounting Officer)  28




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document
    
    Reference31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification
of CEO pursuant to Section 302 of the
Sarbanes-Oxley Act
    
    Filed herewith31.2
    
    
    Rule 13a-14(a)/15d-14(a) Certification
of CFO pursuant to Section 302 of the
Sarbanes-Oxley Act
    
    Filed herewith32.1
    
    
    Section 1350 Certification of CEO as
adopted by Section 906 of the
Sarbanes-Oxley Act
    
    Filed herewith32.2
    
    
    Section 1350 Certification of CFO as
adopted by Section 906 of the
Sarbanes-Oxley Act
    
    Filed herewith
  29