**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-Q/A**


Amendment
      No. 1





x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934
              For
                the quarterly period ended March 31, 2006.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: 0-20199








**EXPRESS
      SCRIPTS, INC.**


(Exact
      name of registrant as specified in its charter)








**Delaware**
              (State
                of Incorporation)
            **43-1420563**
              (I.R.S.
                employer identification no.)**13900
                Riverport Dr., Maryland Heights, Missouri**
              (Address
                of principal executive offices)
            **63043**
              (Zip
                Code)





Registrant’s
      telephone number, including area code: (314) 770-1666










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 whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check
      one):




Large
      accelerated filer [X] Accelerated filer [
      ] Non-accelerated filer
      [ ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  No X





Common
                stock outstanding as of March 31, 2006:
            147,028,330
            Shares








**EXPLANATORY
        NOTE**
 
 We
        are
        filing this Amendment No. 1 to Express Scripts, Inc’s Quarterly Report on Form
        10-Q for the quarter ended March 31, 2006 filed with the Securities and Exchange
        Commission on April 26, 2006 (the "Original Form 10-Q") for the purpose of
        including the certifications of our Chief Executive Officer and Chief Financial
        Officer, which were identified as Exhibits 31.1, 31.2, 32.1 and 32.2 on the
        Original Form 10-Q. These Exhibits were inadvertently left off of the EDGAR
        submission of the Original Form 10-Q.
 
 In
        addition, because we are filing this amendment No. 1, we are also taking
        the
        opportunity to correct two other minor errors in the Original Form 10-Q,
        as
        follows:
 
 ·
            Under
                the Executive Summary and Trend Factors Affecting the Business, within
                the
                second paragraph we reported the 2005 generic utilization rate of
                56.3%.
                The actual generic utilization rate for the first quarter of 2005
                was
                54.0%. The generic utilization rate for 2006 of 56.3% is correct
                as stated
                in the Original Form 10-Q.  ·
            Also,
                under Results of Operations: PBM Operating Income, in the first paragraph
                under the table, we reported a 0.4 million, or 4.5%, increase in
                home
                delivery claims volume in the first quarter of 2006 over the first
                quarter
                of 2005. Home delivery claims actually increased 0.6 million, or
                5.5%, in
                the first quarter of 2006 over the first quarter of 2005.  A
                conforming change was also made in the third paragraph under the
                table. 
 There
        have been no changes from the Original Form 10-Q other than as described
        above.














EXPRESS
      SCRIPTS, INC.





INDEX














Part
      I Financial
      Information




Item
      1. Financial
      Statements (unaudited)





a)  Unaudited
      Consolidated Balance Sheet





b)  Unaudited
      Consolidated Statement of Operations





c)  Unaudited
      Consolidated Statement of Changes


in
      Stockholders’ Equity





d)  Unaudited
      Consolidated Statement of Cash Flows





e)  Notes
      to
      Unaudited Consolidated Financial Statements




Item
      2. Management’s
      Discussion and Analysis of Financial


Condition
      and Results of Operations




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 - (Not Applicable)




Item
      2. Unregistered
      Sales of Equity Securities and Use of Proceeds




Item
      3. Defaults
      Upon Senior Securities - (Not Applicable)




Item
      4. Submission
      of Matters to a Vote of Security Holders - (Not Applicable)




Item
      5. Other
      Information - (Not Applicable)




Item
      6. Exhibits





Signatures





Index
      to
      Exhibits







PART
      I. FINANCIAL INFORMATION


**Item
      1.** **Financial
      Statements**


**EXPRESS
                SCRIPTS, INC.****Unaudited
                Consolidated Balance Sheet****March
                31,**
            
            **December
                31,***(in
                millions, except share data)*
            **2006**
            
            **2005**AssetsCurrent
                assets:Cash
                and cash equivalents
            $
            509.4
            
            
            $
            477.9Receivables,
                net
            
            1,332.1
            
            
            
            1,393.2Inventories
            
            260.9
            
            
            
            273.4Deferred
                taxes
            
            52.3
            
            
            
            53.1Prepaid
                expenses and other current assets
            
            57.6
            
            
            
            59.8Total
                current assets
            
            2,212.3
            
            
            
            2,257.4Property
                and equipment, net
            
            192.8
            
            
            
            201.3Goodwill,
                net
            
            2,703.9
            
            
            
            2,700.1Other
                intangible assets, net
            
            293.2
            
            
            
            303.3Other
                assets
            
            28.6
            
            
            
            31.4Total
                assets
            $
            5,430.8
            
            
            $
            5,493.5Liabilities
                and Stockholders’ EquityCurrent
                liabilities:Claims
                and rebates payable
            $
            1,232.4
            
            
            $
            1,380.0Accounts
                payable
            
            590.0
            
            
            
            596.5Accrued
                expenses
            
            284.5
            
            
            
            308.7Current
                maturities of long-term debt
            
            110.0
            
            
            
            110.0Total
                current liabilities
            
            2,216.9
            
            
            
            2,395.2Long-term
                debt
            
            1,360.5
            
            
            
            1,400.5Other
                liabilities
            
            236.8
            
            
            
            233.0Total
                liabilities
            
            3,814.2
            
            
            
            4,028.7Stockholders’
                equity:Preferred
                stock, $0.01 par value per share, 5,000,000 shares
                authorized,and
                no shares issued and outstanding
            
            -
            
            
            
            -Common
                Stock, 275,000,000 shares authorized, $0.01 par value;shares
                issued: 159,439,000 and 159,499,000, respectively;shares
                outstanding: 147,028,000 and 145,993,000, respectively
            
            1.6
            
            
            
            1.6Additional
                paid-in capital
            
            516.6
            
            
            
            473.5Unearned
                compensation under employee compensation plans
            
            (42.9
            )
            
            
            (5.8
            )Accumulated
                other comprehensive income
            
            9.9
            
            
            
            9.8Retained
                earnings
            
            1,647.5
            
            
            
            1,542.82,132.7
            
            
            
            2,021.9Common
                Stock in treasury at cost, 12,411,000 and 13,506,000shares,
                respectively
            
            (516.1
            )
            
            
            (557.1
            )Total
                stockholders’ equity
            
            1,616.6
            
            
            
            1,464.8Total
                liabilities and stockholders’ equity
            $
            5,430.8
            
            
            $
            5,493.5


*See
      accompanying Notes to Unaudited Consolidated Financial Statements*







**EXPRESS
      SCRIPTS, INC.**


**Unaudited
      Consolidated Statement of Operations**





**Three
                Months Ended****March
                31,***(in
                millions)*
            **2006**
            
            **2005**Revenues1
            $
            4,444.6
            
            
            $
            3,839.1Cost
                of revenues1
            
            4,100.0
            
            
            
            3,574.2Gross
                profit
            
            344.6
            
            
            
            264.9Selling,
                general and administrative
            
            161.1
            
            
            
            126.6Operating
                income
            
            183.5
            
            
            
            138.3Other
                (expense) income:Undistributed
                loss from joint venture
            
            (0.5
            )
            
            
            (0.7
            )Interest
                income
            
            5.0
            
            
            
            1.6Interest
                expense
            
            (20.5
            )
            
            
            (4.7
            )(16.0
            )
            
            
            (3.8
            )Income
                before income taxes
            
            167.5
            
            
            
            134.5Provision
                for income taxes
            
            62.8
            
            
            
            49.2Net
                income
            $
            104.7
            
            
            $
            85.3Basic
                earnings per share:
            $
            0.71
            
            
            $
            0.58Weighted
                average number of common sharesoutstanding
                during the period - Basic EPS
            
            146.5
            
            
            
            147.3Diluted
                earnings per share:
            $
            0.70
            
            
            $
            0.57Weighted
                average number of common sharesoutstanding
                during the period - Diluted EPS
            
            149.1
            
            
            
            149.3








*1* *Excludes estimated retail pharmacy co-payments of $1,220.8 and $1,483.7,
      respectively. These are amounts we instructed retail pharmacies to collect
      from
      members. We have no information regarding actual co-payments
      collected.*





*See
      accompanying Notes to Unaudited Consolidated Financial Statements*










**EXPRESS
                SCRIPTS, INC.****Unaudited
                Consolidated Statement of Changes in Stockholders’
                Equity**Number
                of Shares
            
            Amount*(in
                millions)*
            Common
              Stock
            
            Common
                Stock
            
            Additional
              Paid-in
              Capital
            
            Unearned
                Compensation Under Employee Compensation Plans
            Accumulated
              Other
                Comprehensive Income
            Retained
                Earnings
            Treasury
              Stock
            TotalBalance
                at December 31, 2005
            
            159.5
            
            $
            1.6
            
            $
            473.5
            
            $
            (5.8
            )
            $
            9.8
            
            $
            1,542.8
            
            $
            (557.1
            )
            $
            1,464.8Comprehensive
                income:Net
                income
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            104.7
            
            
            -
            
            
            104.7Other
                comprehensive
                income:Foreign
                currencytranslation
                adjustment
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            0.1
            
            
            -
            
            
            -
            
            
            0.1Comprehensive
                income
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            0.1
            
            
            104.7
            
            
            -
            
            
            104.8Changes
                in stockholders’
                equityrelated
                to employee stock
                plans
            
            (0.1
            )
            
            -
            
            
            43.1
            
            
            (37.1
            )
            
            -
            
            
            -
            
            
            41.0
            
            
            47.0Balance
                at March 31, 2006
            
            159.4
            
            $
            1.6
            
            $
            516.6
            
            $
            (42.9
            )
            $
            9.9
            
            $
            1,647.5
            
            $
            (516.1
            )
            $
            1,616.6


*See
      accompanying Notes to Unaudited Consolidated Financial Statements*













**EXPRESS
                SCRIPTS, INC.****Unaudited****Consolidated
                Statement of Cash Flows**


**Three
                Months Ended****March
                31,***(in
                millions)*
            **2006**
            
            **2005**Cash
                flows from operating activities:Net
                income
            $
            104.7
            
            
            $
            85.3Adjustments
                to reconcile net income to net cashprovided
                by operating activities, excludingthe
                effect of the acquisition:Depreciation
                and amortization
            
            25.8
            
            
            
            19.8Non-cash
                adjustments to net income
            
            12.6
            
            
            
            13.8Taxbenefit
                relating to employee stock compensation
            
            -
            
            
            
            9.8Changes
                in operating assets and liabilitiesClaims
                and rebates payable
            
            (147.6
            )
            
            
            (23.8
            )Other
                net changes in operating assets and liabilities
            
            45.5
            
            
            
            33.3Net
                cash provided by operating activities
            
            41.0
            
            
            
            138.2Cash
                flows from investing activities:Purchases
                of property and equipment
            
            (8.7
            )
            
            
            (5.9
            )Acquisition,
                net of cash acquired, and investment in joint venture
            
            0.2
            
            
            
            -Loan
                repayment from Pharmacy Care Alliance
            
            -
            
            
            
            2.1Net
                cash used in investing activities
            
            (8.5
            )
            
            
            (3.8
            )Cash
                flows from financing activities:Repayment
                of long-term debt
            
            (40.0
            )
            
            
            (5.5
            )Repayment
                of revolving credit line, net
            
            -
            
            
            
            (50.0
            )Tax
                benefit relating to employee stock compensation
            
            21.9
            
            
            
            -Net
                proceeds from employee stock plans
            
            17.5
            
            
            
            10.3Other
            
            (0.4
            )
            
            
            -Net
                cash used in financing activities
            
            (1.0
            )
            
            
            (45.2
            )Effect
                of foreign currency translation adjustment
            
            -
            
            
            
            (0.2
            )Net
                increase in cash and cash equivalents
            
            31.5
            
            
            
            89.0Cash
                and cash equivalents at beginning of period
            
            477.9
            
            
            
            166.1Cash
                and cash equivalents at end of period
            $
            509.4
            
            
            $
            255.1


*See
      accompanying Notes to Unaudited Consolidated Financial Statements*














**EXPRESS
      SCRIPTS, INC.**





**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








**Note
      1 - Summary of significant accounting policies**





Certain
      of our significant accounting policies are described below. Other financial
      statement note disclosures, normally included in financial statements prepared
      in conformity with generally accepted accounting principles, have been omitted
      from this Form 10-Q pursuant to the rules and regulations of the Securities
      and
      Exchange Commission. However, we believe the disclosures contained in this
      Form
      10-Q are adequate to make the information presented not misleading when read
      in
      conjunction with the notes to the consolidated financial statements included
      in
      our Annual Report on Form 10-K for the year ended December 31, 2005 filed with
      the Securities and Exchange Commission on February 22, 2006. For a full
      description of our accounting policies, please refer to the Notes to
      Consolidated Financial Statements included in our Annual Report on Form 10-K
      for
      the year ended December 31, 2005.





We
      believe the accompanying unaudited consolidated financial statements reflect
      all
      adjustments (consisting of only normal recurring adjustments) necessary to
      present fairly the Unaudited Consolidated Balance Sheet at March 31, 2006,
      the
      Unaudited Consolidated Statements of Operations for the three months ended
      March 31, 2006 and 2005, the Unaudited Consolidated Statement of Changes in
      Stockholders’ Equity for the three months ended March 31, 2006, and the
      Unaudited Consolidated Statements of Cash Flows for the three months ended
      March
      31, 2006 and 2005. Operating results for the three months ended March 31, 2006
      are not necessarily indicative of the results that may be expected for the
      year
      ending December  31,  2006.





*REVENUE
      RECOGNITION*





***Revenue
      recognition.*** Revenues
      from our pharmacy benefit management ("PBM") segment are earned by dispensing
      prescriptions from our home delivery pharmacies, processing claims for
      prescriptions filled by retail pharmacies in our networks, and by providing
      services to drug manufacturers, including administration of discount programs
      (see also “—Rebate Accounting”).





Revenues
      from dispensing prescriptions from our home delivery pharmacies, which include
      the co-payment received from members of the health plans we serve, are recorded
      when prescriptions are shipped. At the time of shipment, our earnings process
      is
      complete: the obligation of our customer to pay for the drugs is fixed, and,
      due
      to the nature of the product, the member may not return the drugs nor receive
      a
      refund.





Revenues
      related to the sale of prescription drugs by retail pharmacies in our networks
      consist of the amount the client has contracted to pay us (which excludes the
      co-payment) for the dispensing of such drugs together with any associated
      administrative fees. These revenues are recognized when the claim is processed.
       When we independently have a contractual obligation to pay our network
      pharmacy providers for benefits provided to our clients’ members, we act as a
      principal in the arrangement and we include the total payments we have
      contracted to receive from these clients as revenue, and payments we make to
      the
      network pharmacy providers as cost of revenue in compliance with Emerging Issues
      Task Force (“EITF”) Issue No. 99-19, “Reporting Gross Revenue as a Principal vs.
      Net as an Agent.”  When a prescription is presented by a member to a retail
      pharmacy within our network, we are solely responsible for confirming member
      eligibility, performing drug utilization review, reviewing for drug-to-drug
      interactions, performing clinical intervention, which may involve a call to
      the
      member’s physician, communicating plan provisions to the pharmacy, directing
      payment to the pharmacy and billing the client for the amount they are
      contractually obligated to pay us for the prescription dispensed, as specified
      within our client contracts.  We also provide benefit design and formulary
      consultation services to clients.  We have separately negotiated
      contractual relationships with our clients and with network pharmacies, and
      under our contracts with pharmacies we assume the credit risk of our clients’
ability to pay for drugs dispensed by these pharmacies to clients’
members.  Our clients are not obligated to pay the pharmacies as we are
      primarily obligated to pay retail pharmacies in our network the contractually
      agreed upon amount for the prescription dispensed, as specified within our
      provider contracts.  In addition, under most of our client contracts, we
      realize a positive or negative margin represented by the difference between
      the
      negotiated ingredient costs we will receive from our clients and the separately
      negotiated ingredient costs we will pay to our network pharmacies.  These
      factors indicate we are a principal as defined by EITF 99-19 and, as such,
      we
      record ingredient cost billed to clients in revenue and the corresponding
      ingredient cost paid to network pharmacies in cost of revenues.





If
      we
      merely administer a client’s network pharmacy contracts to which we are not a
      party and under which we do not assume credit risk, we record only our
      administrative fees as revenue.  For these clients, we earn an
      administrative fee for collecting payments from the client and remitting the
      corresponding amount to the pharmacies in the client’s network. In these
      transactions we act as a conduit for the client.  Because we are not the
      principal in these transactions, drug ingredient cost is not included in our
      revenues or in our cost of revenues.





In
      retail
      pharmacy transactions, amounts paid to pharmacies and amounts charged to clients
      are always exclusive of the applicable co-payment. Under our pharmacy
      agreements, the pharmacy is solely obligated to collect the co-payment from
      the
      member based on the amount we advise them to collect.  We have no
      information regarding actual co-payments collected.  As such, we do not
      include member co-payments to retail pharmacies in our revenue or in our cost
      of
      revenue.  Retail pharmacy co-payments, which we instructed retail
      pharmacies to collect from members, of $1.2 billion and $1.5 billion for
      the three months ended March 31, 2006 and 2005, respectively, are excluded
      from
      revenues and cost of revenues.





We
      bill
      our clients based upon the billing schedules established in client
      contracts.  At the end of a period, any unbilled revenues related to the
      sale of prescription drugs that have been adjudicated with retail pharmacies
      are
      estimated based on the amount we will pay to the pharmacies and historical
      gross
      margin.  Those amounts due from our clients are recorded as revenue as they
      are contractually due to us for past transactions.  Adjustments are made to
      these estimated revenues to reflect actual billings at the time clients are
      billed; historically, these adjustments have not been material.





Certain
      implementation and other fees paid to clients upon the initiation of a
      contractual agreement are considered an integral part of overall contract
      pricing and are recorded as a reduction of revenue.  Where they are
      refundable upon early termination of the contract, these payments are
      capitalized and amortized as a reduction of revenue on a straight-line basis
      over the life of the contract.





We
      provide medications/pharmaceuticals for diseases that rely upon high-cost
      injectible, infused, oral, or inhaled drugs which are high cost and have
      sensitive handling and storage needs (“Specialty”).  Our Specialty services
      also include distribution of pharmaceuticals and medical supplies to providers
      and clinics, third-party logistics services for contracted pharma clients,
      fertility services to providers and patients and bio-pharma services including
      marketing, reimbursement and customized logistics solutions.  Revenues from
      our Specialty segment are recognized at the point of shipment.  At the time
      of shipment, the Company has performed substantially all of its obligations
      under its customer contracts and does not experience a significant level of
      reshipments.  Appropriate reserves are recorded for discounts and
      contractual allowances which are estimated based on historical collections
      over
      a recent period.  Any differences between our estimates and actual
      collections are reflected in operations in the period in which payment is
      received.  Differences may result in the amount and timing of our revenues
      for any period if actual performance varies from our estimates.  Allowances
      for returns are estimated based on historical return trends.





Revenues
      from our Pharma Business Solutions ("PBS") segment are derived from the
      distribution of pharmaceuticals requiring special handling or packaging where
      we
      have been selected by the pharmaceutical manufacturer as part of a limited
      distribution network, the distribution of pharmaceuticals through Patient
      Assistance Programs where we receive a fee from the pharmaceutical manufacturer
      for administrative and pharmacy services for the delivery of certain drugs
      free
      of charge to doctors for their low-income patients, sample fulfillment and
      sample accountability services.  Revenues earned by PBS include
      administrative fees received from pharmaceutical manufacturers for dispensing
      or
      distributing consigned pharmaceuticals requiring special handling or packaging
      and administrative fees for verification of practitioner licensure and
      distribution of consigned drug samples to doctors based on orders received
      from
      pharmaceutical sales representatives.  We also administer sample card
      programs for certain manufacturers and include the ingredient costs of those
      drug samples dispensed from retail pharmacies in PBS revenues, and the
      associated costs for these sample card programs in cost of revenues. 
Because manufacturers are independently obligated to pay us and we have an
      independent contractual obligation to pay our network pharmacy providers for
      free samples dispensed to patients under sample card programs, we include the
      total payments from these manufacturers (including ingredient costs) as revenue,
      and payments to the network pharmacy provider as cost of revenue.  These
      transactions require us to assume credit risk.





*REBATE
      ACCOUNTING*





We
      administer rebate programs through which we receive rebates and administrative
      fees from pharmaceutical manufacturers.  Rebates earned for the
      administration of these programs, performed in conjunction with claim processing
      and home delivery services provided to clients are recorded as a reduction
      of
      cost of revenue and the portion of the rebate payable to customers is treated
      as
      a reduction of revenue.  The portion of rebates payable to clients is
      estimated quarterly based on historical and/or anticipated share
      percentages.  These estimates are adjusted to actual when amounts are paid
      to clients.  We record rebates and administrative fees receivable from the
      manufacturer and payable to clients when the prescriptions covered under
      contractual agreements with the manufacturers are dispensed; these amounts
      are
      not dependent upon future pharmaceutical sales.





Rebates
      and administrative fees billed to manufacturers are determinable when the drug
      is dispensed.  We pay all or a contractually agreed upon portion of such
      rebates to our clients.  The portion of rebates and administrative fees
      payable to clients is estimated based on historical and/or anticipated sharing
      percentages.  These estimates are adjusted to actual when amounts are paid
      to clients.





*COST
      OF REVENUES*





Cost
      of
      revenues includes product costs, network pharmacy claims payments and other
      direct costs associated with dispensing prescriptions, including shipping and
      handling (see also “—Revenue Recognition” and “—Rebate
      Accounting”).





*CASH
      AND CASH EQUIVALENTS*





Cash
      and
      cash equivalents include cash on hand and investments with original maturities
      of three months or less.  We have banking relationships resulting in
      certain cash disbursement accounts being maintained by banks not holding our
      cash concentration accounts.  As a result, cash disbursement accounts
      carrying negative book balances of $223.1 million and $170.5 million
      (representing outstanding checks not yet presented for payment) have been
      reclassified to claims and rebates payable, accounts payable and accrued
      expenses at March 31, 2006 and December 31, 2005, respectively.  This
      reclassification restores balances to cash and current liabilities for
      liabilities to our vendors which have not been defeased.  No overdraft or
      unsecured short-term loan exists in relation to these negative balances.





*RECEIVABLES*





Based
      on
      our revenue recognition policies discussed above, certain claims at the end
      of a
      period are unbilled.  Revenue and unbilled receivables for those claims are
      estimated each period based on the amount to be paid to network pharmacies
      and
      historical gross margin.  Estimates are adjusted to actual at the time of
      billing.




As
      of
      March 31, 2006 and December 31, 2005, unbilled receivables were $689.1 million
      and $686.0 million, respectively.  Unbilled receivables are billed to
      clients typically within 30 days of the transaction date based on the
      contractual billing schedule agreed upon with the client.




Included
        in receivables, net, as of March 31, 2006 and December 31, 2005, is an allowance
        for doubtful accounts of $60.2 million and $57.9 million,
        respectively.


*IMPAIRMENT
      OF LONG-LIVED ASSETS*





We
      evaluate whether events and circumstances have occurred that indicate the
      remaining estimated useful life of long lived assets, including intangible
      assets, may warrant revision or that the remaining balance of an asset may
      not
      be recoverable.  The measurement of possible impairment is based on the
      ability to recover the balance of assets from expected future operating cash
      flows on an undiscounted basis. Impairment losses, if any, would be determined
      based on the present value of the cash flows using discount rates that reflect
      the inherent risk of the underlying business.  No impairments existed as of
      March 31, 2006 and December 31, 2005.





*SELF-INSURANCE
      RESERVES*





We
      maintain insurance coverage for claims that arise in the normal course of
      business.  Where insurance coverage is not available, or, in our judgment,
      is not cost-effective, we maintain self-insurance reserves to reduce our
      exposure to future legal costs, settlements and judgments.  Self-insured
      losses are accrued based upon estimates of the aggregate liability for the
      costs
      of uninsured claims incurred using certain actuarial assumptions followed in
      the
      insurance industry and our historical experience (see Note 7).  It is not
      possible to predict with certainty the outcome of these claims, and we can
      give
      no assurances that any losses, in excess of our insurance and any self-insurance
      reserves, will not be material.





*EMPLOYEE
      STOCK-BASED COMPENSATION*





On
      January 1, 2006, we adopted Financial Accounting Standard (“FAS”) No. 123R,
“Share-Based Payment”, which replaces FAS 123, “Accounting for Stock-Based
      Compensation,” and supersedes Accounting Principles Board No. (“APB”) 25,
“Accounting for Stock Issued to Employees.”  We adopted FAS 123R using the
      modified prospective method.  Under this method of adoption, prior periods
      are not restated.  For awards granted prior to the adoption of FAS 123R,
      compensation cost is recognized for the unvested portion of outstanding awards
      based on the grant-date fair value calculated under FAS 123 for pro forma
      disclosures.





Grant-date
      fair value of stock options and stock-settled stock appreciation rights is
      estimated using a Black-Scholes valuation model.  Compensation expense is
      reduced based on estimated forfeitures with adjustments to actual recorded
      at
      the time of vesting.  Forfeitures are estimated based on historical
      experience.  We use an accelerated method of recognizing compensation cost
      for awards with graded vesting, which essentially treats the grant as three
      separate awards, with vesting periods of 12, 24 and 36 months for those grants
      that vest over three years.  The majority of our stock-based awards have
      three-year vesting.





See
      Note
      6 for more information regarding stock-based compensation.




*NEW
      ACCOUNTING GUIDANCE*





In
      June
      2005, the FASB issued FAS 154, “Accounting Changes and Error Corrections”, which
      superseded APB No. 20, “Accounting Changes”.   APB No. 20 previously
      required that most voluntary changes in accounting principle be recognized
      by
      including in the current period’s net income the cumulative effect of changing
      to the new accounting principle.  In contrast, FAS 154 requires entities
      which voluntarily make a change in accounting principle to apply such change
      retrospectively to prior periods’ financial statements, unless this would be
      impracticable.  In addition, FAS 154 makes a distinction between
      retrospective application of an accounting principle and the restatement of
      financial statements to reflect the correction of an error.  FAS 154 is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005.  We do not expect the implementation of
      FAS 154 to have an impact on our consolidated results of
      operations.





**Note
      2 - Changes in business**





On
      October 14, 2005, we acquired the capital stock of Priority Healthcare
      Corporation (“Priority”) in a cash transaction for $28 per share, or
      approximately $1.3 billion.  The acquisition was accomplished through the
      merger of one of our wholly-owned subsidiaries with and into Priority. 
Priority, headquartered in Lake Mary, Florida, was among the nation’s largest
      Specialty and distribution companies, with approximately $1.7 billion in annual
      revenue during 2004 and approximately $1.1 billion in revenue for the six months
      ended July 2, 2005.  This acquisition is expected to enhance our
      Specialty business.  The $1.3 billion purchase price was financed with
      approximately $167.0 million of cash on hand and the remainder by adding
      $1.6 billion in Term A loans through a new credit facility which replaced
      our prior credit facility.  We are currently in the process of evaluating
      the net assets acquired from Priority.  The allocation of the purchase
      price to the assets and liabilties acquired from Priority is preliminary and
      subject to revision based on the outcome of ongoing evaluations of these assets
      and liabilities.





The
      following table summarizes the estimated fair values of the Priority assets
      acquired and liabilities assumed at the date of acquisition (in
      millions).  There have been no material adjustments made to these fair
      values since December 31, 2005.





As
                of
              March
                31,
              2006Current
                assets
            $
            525.4Property
                and equipment
            
            23.7Goodwill
            
            995.0Other
                identified intangibles
            
            86.0Other
                assets
            
            1.4Total
                assets acquired
            
            1,631.5Current
                liabilities
            
            279.9Deferred
                tax liabilities
            
            36.3Total
                liabilities assumed
            
            316.2Net
                Assets Acquired
            $
            1,315.3





Aetna
      Specialty Pharmacy, a joint venture existing between Priority and Aetna, Inc.
      (“Aetna”), was 60% owned by Priority and 40% by Aetna.  Upon a change in
      control of Priority, the joint venture agreement provided Aetna with an option
      to purchase Priority’s 60% ownership share of the joint venture.  Aetna
      exercised its option and on December 30, 2005 purchased Priority’s 60% ownership
      share of Aetna Specialty Pharmacy.  The gain on the assets sold, which was
      not material, reduced the amount of goodwill we recorded through the Priority
      acquisition.  In the table above, the net assets of Aetna Specialty
      Pharmacy are excluded from the assets acquired and liabilities
      assumed.




The
      results of operations of Priority are included in our consolidated results
      of
      operations beginning October 14, 2005.  The following unaudited pro forma
      information presents a summary of our combined results of operations and those
      of Priority as if the acquisition had occurred at the beginning of the periods
      presented, along with certain pro forma adjustments to give effect to
      amortization of other intangible assets, interest expense on acquisition debt
      and other adjustments.  The following pro forma financial information is
      not necessarily indicative of the results of operations as they would have
      been
      had the transactions been effected on the assumed date, nor is it necessarily
      an
      indication of trends in future results (in millions, except per share
      data):





**Three
                Months**
              **Ended**
              **March
                31, 2005**Total
                revenues
            $
            4,317.5Net
                income
            
            87.2Basic
                earnings per share
            
            0.59Diluted
                earnings per share
            
            0.58








**Note
      3 - Medicare discount card program**





In
      January 2004, we entered into an agreement to provide PBM services for the
      Medicare discount program of Pharmacy Care Alliance, Inc. (“PCA”), a nonstock,
      not-for-profit entity jointly controlled by the National Association of Chain
      Drugstores (“NACDS”) and us. Our PBM services include the negotiation of
      discounts from individual retailers and pharmaceutical manufacturers, the
      enrollment of cardholders and the processing of prescription claims. During
      2004, we entered into a lending agreement with PCA, whereby we committed to
      lend
      up to $17.0 million to PCA in the form of a revolving line of credit to
      fund its operating activities. As of March 31, 2006, PCA owed $12.6
      million under the credit facility including interest and principal. The credit
      agreement has been extended until May 31, 2006 and we do not expect any
      additional borrowings from PCA.




The
      Medicare discount program is scheduled to end by June of 2006. In regard to
      the
      revolving line of credit extended to PCA, the collectibility of any unsecured
      borrowings will be a function of PCA’s costs in closing out the program. Because
      enrollment and utilization was lower than expected, the outstanding balance
      of
      our receivable from PCA was fully reserved in a prior year.




**Note
      4 - Goodwill and other intangibles**





The
      following is a summary of our goodwill and other intangible assets (amounts
      in
      millions).





**March
                31, 2006**
            
            **December
                31, 2005****Gross**
              **Carrying
                Amount**
            
            **Accumulated**
              **Amortization**
            
            **Gross**
              **Carrying
                Amount**
            
            **Accumulated**
              **Amortization**GoodwillPBM
            $
            1,509.0
            
            $
            107.0
            
            $
            1,509.0
            
            $
            107.0Specialty(1)
            
            1,279.8
            
            
            -
            
            
            1,276.0
            
            
            -PBS
            
            22.1
            
            
            -
            
            
            22.1
            
            
            -$
            2,810.9
            
            $
            107.0
            
            $
            2,807.1
            
            $
            107.0Other
                intangible assetsPBMCustomer
                contracts
            $
            265.5
            
            $
            97.6
            
            $
            265.4
            
            $
            94.5Other
            
            73.1
            
            
            54.1
            
            
            72.8
            
            
            52.2338.6
            
            
            151.7
            
            
            338.2
            
            
            146.7SpecialtyCustomer
                contracts(1)
            
            110.7
            
            
            13.9
            
            
            110.7
            
            
            9.1Other(1)
            
            7.9
            
            
            2.1
            
            
            8.0
            
            
            1.8118.6
            
            
            16.0
            
            
            118.7
            
            
            10.9PBSCustomer
                contracts
            
            4.0
            
            
            2.0
            
            
            4.0
            
            
            1.8Other
            
            1.9
            
            
            0.2
            
            
            1.9
            
            
            0.15.9
            
            
            2.2
            
            
            5.9
            
            
            1.9Total
                other intangible assets
            $
            463.1
            
            $
            169.9
            
            $
            462.8
            
            $
            159.5




(1) 
      As a result of our acquisition of the capital stock of Priority in October
      2005,
      we preliminarily recorded goodwill, customer contracts, trade names, and other
      intangible assets of $995.0 million, $82.0 million, $2.2 million, and $1.8
      million, respectively (See Note 2).





The
      aggregate amount of amortization expense of other intangible assets was $10.1
      million and $7.5 million for the three months ended March 31, 2006 and 2005,
      respectively. The future aggregate amount of amortization expense of other
      intangible assets is approximately $31.5 million for 2006, $38.5 million for
      2007, $35.0 million for 2008, $34.2 million for 2009, and $29.5 million for
      2010. The weighted average amortization period of intangible assets subject
      to
      amortization is 15 years in total, and by major intangible class is 16 years
      for
      customer contracts and four years for other intangible assets.





**Note
      5 - Earnings per share (reflecting the two-for-one stock split effective June
      24, 2005)**





Basic
      earnings per share is computed using the weighted average number of common
      shares outstanding during the period. Diluted earnings per share is computed
      in
      the same manner as basic earnings per share but adds the number of additional
      common shares that would have been outstanding for the period if the dilutive
      potential common shares had been issued. The following is the reconciliation
      between the number of weighted average shares used in the basic and diluted
      earnings per share calculation for all periods (amounts in
      millions):





**Three
                Months Ended**
              **March
                31,****2006**
            
            **2005**Weighted
                average number of common sharesoutstanding
                during the period - Basic EPS
            
            146.5
            
            147.3Dilutive
                common stock equivalents:Outstanding
                stock options, stock-settledappreciation
                rights, restricted stock units,and
                executive deferred compensation units
            
            2.6
            
            2.0Weighted
                average number of common sharesoutstanding
                during the period - Diluted EPS
            
            149.1
            
            149.3








The
      above
      shares are all calculated under the “treasury stock” method in accordance with
      FAS 128, “Earnings Per Share.”





**Note
      6 - Stock-based compensation plans**


Under
        our
        stock-based compensation plans, we have issued stock options, stock-settled
        stock appreciation rights (“SSRs”), restricted stock and performance share
        awards. As of March 31, 2006, approximately 8.8 million shares of our Common
        Stock are available for issuance under this plan. Awards are typically settled
        using treasury shares. The maximum contractual term of stock options and
        SSRs
        granted under the 2000 LTIP is 10 years. Due to the nature of the awards,
        we use
        the same valuation methods and accounting treatments for SSRs and stock options.
        During the three months ended March 31, 2006, we granted to certain officers
        and
        employees approximately 46,000 performance share awards with a fair market
        value
        of $87.27. The performance share awards cliff vest at the end of three years
        and
        are subject to shareholder approval. The number of shares that ultimately
        vest
        is dependent upon achieving specific performance targets. All performance
        share
        awards are non-vested as of March 31, 2006. We also granted 804,000 SSRs
        and
        25,000 stock options with a weighted average fair market value of $29.07.
        The
        SSRs and stock options have three-year graded vesting.
 
 During
        the first quarter, we also granted to certain officers and employees
        approximately 69,000 restricted shares of Common Stock with a fair market
        value
        of $87.27. These shares have three-year graded vesting. The number of non-vested
        restricted stock awards was 288,000 at March 31, 2006 and 449,000 at
        December 31, 2005.
 
 The
        following table presents amounts related to stock-based
        compensation:
  ***(in
                    millions, except per share data)***
                **SSRs
                    and Stock options**
                **Restricted
                    Stock**
                  **and
                    Performance Shares**Stock-based
                    compensation:Expense,
                    pre-tax
                $
                5.1
                
                $
                2.4Expense,
                    after tax
                
                3.2
                
                
                1.5Expense
                    per diluted share
                
                0.02
                
                
                0.01Unamortized
                    portion(1)
                
                28.4
                
                
                14.2




(1)  As
        of
        March 31, 2006 we have $0.3 million of unearned compensation related to unvested
        shares that are part of our deferred compensation plan.
 
 The
        weighted average remaining recognition period for SSRs and stock options
        is 1.6
        years, and for restricted stock and performance shares is 2.4
        years.
 
 As
        a
        result of the adoption of FAS 123R, we now classify the tax benefit from
        the
        exercise of stock options as a financing cash inflow.  For the three months
        ended March 31, 2006, the tax benefit related to employee
        stock compensation was $21.9 million. Prior to the adoption of FAS 123R the
        tax benefit from the exercise of stock options was classified as an inflow
        from
        operating activities and under the modified prospective method, prior periods
        are not restated to reflect the adoption of FAS 123R.
 
 Prior
        to
        January 1, 2006, we accounted for stock-based compensation in accordance
        with
        APB 25, which required the use of the intrinsic value method. Accordingly,
        no
        compensation expense was recognized in prior periods for the stock options
        granted, since the exercise price was equal to the fair market value of the
        shares at the grant date. Compensation expense was recognized under APB 25
        for
        restricted stock awards based on the fair market value of the stock on the
        date
        of grant.
 
 Had
        compensation cost for our stock-based compensation plans been determined
        based
        on the fair value method required by FAS 123R, net earnings and earnings
        per
        share would have been reduced as shown in the following table:


**Three
                months ended*****(in
                millions, except per share data)***
            **March
                31, 2005**Net
                income, as reported
            $
            85.3Plus:
                Employee stock-based compensation expenseincluded
                in reported net earnings, net of relatedtax
                effects
            
            3.6Less:
                Employee stock-based compensation expensedetermined
                using fair-value based method forstock-based
                awards, net of tax
            
            (6.8
            )Pro
                forma net income
            $
            82.1Basic
                earnings per shareAs
                reported
            $
            0.58Pro
                forma
            
            0.56Diluted
                earnings per shareAs
                reported
            $
            0.57Pro
                forma
            
            0.55




The
      fair
      value of options and SSRs granted is estimated on the date of grant using a
      Black-Scholes multiple option-pricing model with the following weighted average
      assumptions:





**Three
                Months Ended March 31,****2006**
            **2005**Expected
                life of option
            3-5
                years
            3-5
                yearsRisk-free
                interest rate
            4.6%-4.7%
            3.5%-4.1%Expected
                volatility of stock
            34%
            40%Expected
                dividend yield
            None
            None





A
      summary
      of the status of stock options and SSRs as of March 31, 2006, and changes
      during the three months ended March 31, 2006 are presented
      below.




**Three
                Months Ended**
              **March
                31, 2006***(share
              data in millions)*
            Shares
            
            Weighted-
              Average
              Exercise
              PriceOutstanding
                at beginning of year
            
            6.3
            
            $
            28.21Granted
            
            0.8
            
            $
            87.33Exercised
            
            (0.9
            )
            $
            20.92Forfeited/Cancelled
            
            (0.1
            )
            $
            51.60Outstanding
                at end of period
            
            6.1
            
            $
            37.21Awards
                exercisable at period end
            
            3.4
            
            $
            23.33Weighted-average
                fair value of
              options
                granted during the year
            $
            29.07




A
          summary
          of the status of restricted stock and performance shares as of March 31,
          2006 and changes during the three months ended March 31, 2006 are presented
          below.
  **Three
                    Months Ended**
                  **March
                    31, 2006***(share
                    data in millions)*
                Shares
                Weighted-Average
                    Grant Date
                  Fair
                    ValueOutstanding
                    at beginning of year
                
                0.4
                
                $
                35.36Granted
                
                0.1
                
                $
                87.27Released
                
                (0.2
                )
                $
                32.39Forfeited/Cancelled
                
                -
                
                
                -Outstanding
                    at end of period
                
                0.3
                
                $
                49.18
 
 At
          March
          31, 2006, the weighted-average remaining contractual lives of stock options
          outstanding and stock options exercisable were 5.2 years and 4.4
          years, respectively, and the aggregate intrinsic value (the amount by which
          the
          market value of the underlying stock exceeds the exercise price of the
          option)
          of shares outstanding and shares exercisable was $307.3 million and $221.4
          million, respectively. Upon vesting of restricted stock in the first quarter
          of
          2006 and 2005, we received $0.5 million and $1.9 million of cash,
          respectively, for tax withholding.  Cash proceeds, tax benefits, fair value
          of vested shares and intrinsic value related to total stock options exercised
          and restricted shares vested during the three months ended March 31, 2006
          and
          2005 are provided in the following table:
 
 **Three
                    Months Ended March 31,*****(in
                    millions)***
                **2006**
                
                
                **2005**Proceeds
                    from stock options exercised
                $
                20.5
                
                $
                12.2Tax
                    benefit related toemployee stock compensation
                
                21.9
                
                
                9.8Fair
                    value of vested restricted shares
                
                19.7
                
                
                16.3Intrinsic
                    value of stock options exercised
                
                64.6
                
                
                18.6


**Note
      7 - Contingencies**





We
      accrue
      self-insurance reserves based upon estimates of the aggregate liability of
      claim
      costs in excess of our insurance coverage. Reserves are estimated using certain
      actuarial assumptions followed in the insurance industry and our historical
      experience (see Note 1, “Self-insurance reserves”). The majority of these claims
      are legal claims and our liability estimate is primarily related to the cost
      to
      defend these claims. We do not accrue for settlements, judgments, monetary
      fines
      or penalties until such amounts are probable and estimable, in compliance with
      FAS 5, “Accounting for Contingencies.” Under FAS 5, if the range of possible
      loss is broad, the liability accrual is based on the lower end of the range.





While
      we
      believe that our services and business practices are in compliance with all
      applicable laws, rules and regulations in all material respects, we cannot
      predict the outcome of these matters at this time. An unfavorable outcome in
      one
      or more of these matters could result in the imposition of judgments, monetary
      fines or penalties, or injunctive or administrative remedies. We can give no
      assurance that such judgments, fines and remedies, and future costs associated
      with these matters would not have a material adverse effect on our consolidated
      results of operations, consolidated financial position and/or consolidated
      cash
      flow from operations.








**Note
      8 - Segment reporting**





We
      report
      segments on the basis of services offered and have determined that we have
      three
      reportable segments: PBM, Specialty, and PBS.  Our domestic and Canadian
      PBM operating segments have similar characteristics and as such have been
      aggregated into a single PBM reporting segment. Our PBS segment includes our
      Specialty Distribution Services ("SDS") and Phoenix Marketing Group,
      LLC ("PMG") service lines.  Effective in October 2005, we began
      managing our Specialty business as a separate operating segment. 
Previously, our Specialty business was part of our domestic PBM operating
      segment.  The change is primarily due to the acquisition of Priority (see
      Note 2) on October 14, 2005. Our Specialty segment consists of our CuraScript
      (acquired in January 2004) and Priority businesses and 2005 data has been
      reclassified to reflect the change in our operating and reporting
      segments.





Operating
      income is the measure used by our chief operating decision maker to assess
      the
      performance of each of our operating segments. The following table presents
      information about our reportable segments, including a reconciliation of
      operating income to income before income taxes, for the three months ended
      March
      31, 2006 and 2005:





***(in
                millions)***
            **PBM**
            
            **Specialty**
            **PBS**
            
            **Total****For
                the three months ended March 31, 2006**Product
                revenue:Network
                revenues
            $
            2,152.8
            
            $
            -
            
            $
            -
            
            $
            2,152.8Home
                delivery revenues
            
            1,318.8
            
            
            -
            
            
            -
            
            
            1,318.8Other
                revenues
            
            -
            
            
            866.8
            
            
            29.7
            
            
            896.5Service
                revenues
            
            39.8
            
            
            9.8
            
            
            26.9
            
            
            76.5Total
                revenues
            
            3,511.4
            
            
            876.6
            
            
            56.6
            
            
            4,444.6Depreciation
                and amortization expense
            
            16.6
            
            
            7.5
            
            
            1.7
            
            
            25.8Operating
                income
            
            158.8
            
            
            19.6
            
            
            5.1
            
            
            183.5Undistributed
                loss from joint venture
            
            
            
            
            
            
            
            
            
            
            (0.5
            )Interest
                income
            
            
            
            
            
            
            
            
            
            
            5.0Interest
                expense
            
            
            
            
            
            
            
            
            
            
            (20.5
            )Income
                before income taxes
            
            
            
            
            
            
            
            
            
            
            167.5Capital
                expenditures
            
            6.4
            
            
            1.2
            
            
            1.1
            
            
            8.7**For
                the three months ended March 31, 2005**Product
                revenue:Network
                revenues
            $
            2,301.3
            
            $
            -
            
            $
            -
            
            $
            2,301.3Home
                delivery revenues
            
            1,213.3
            
            
            -
            
            
            -
            
            
            1,213.3Other
                revenues
            
            -
            
            
            226.2
            
            
            35.4
            
            
            261.6Service
                revenues
            
            33.8
            
            
            0.6
            
            
            28.5
            
            
            62.9Total
                revenues
            
            3,548.4
            
            
            226.8
            
            
            63.9
            
            
            3,839.1Depreciation
                and amortization expense
            
            17.0
            
            
            1.4
            
            
            1.4
            
            
            19.8Operating
                income
            
            124.1
            
            
            6.9
            
            
            7.3
            
            
            138.3Undistributed
                loss from joint venture
            
            
            
            
            
            
            
            
            
            
            (0.7
            )Interest
                income
            
            
            
            
            
            
            
            
            
            
            1.6Interest
                expense
            
            
            
            
            
            
            
            
            
            
            (4.7
            )Income
                before income taxes
            
            
            
            
            
            
            
            
            
            
            134.5Capital
                expenditures
            
            3.0
            
            
            0.9
            
            
            2.0
            
            
            5.9**As
                of March 31, 2006**Total
                assets
            $
            3,170.2
            
            $
            2,083.0
            
            $
            177.6
            
            $
            5,430.8Investment
                in equity method investees
            
            0.4
            
            
            3.1
            
            
            -
            
            
            3.5**As
                of December 31, 2005**Total
                assets
            $
            3,255.5
            
            $
            2,066.9
            
            $
            171.1
            
            $
            5,493.5Investment
                in equity method investees
            
            0.8
            
            
            2.8
            
            
            -
            
            
            3.6





PBM
      product revenue consists of revenues from the dispensing of prescription drugs
      from our home delivery pharmacies and revenues from the sale of prescription
      drugs by retail pharmacies in our retail pharmacy networks. Specialty product
      revenues consist of distribution of certain specialty drugs. PBS product
      revenues consist of revenues from certain specialty distribution activities,
      including sample card programs. PBM service revenue includes administrative
      fees
      associated with the administration of retail pharmacy networks contracted by
      certain clients, market research programs and informed decision counseling
      services. PBS service revenue includes revenues from certain specialty
      distribution services, and sample distribution and accountability
      services.





Revenues
      earned by our Canadian PBM totaled $9.0 million and $7.6 million for the three
      months ended March 31, 2006 and 2005, respectively. All other revenues are
      earned in the United States. Long-lived assets of our Canadian PBM (consisting
      primarily of fixed assets and goodwill) totaled $35.7 million and $36.0 million
      as of March 31, 2006 and December 31, 2005, respectively. All other long-lived
      assets are domiciled in the United States.








**Item
      2.** **Management’s
      Discussion And Analysis Of Financial Condition And Results Of
      Operations**





*Information
      that we have included or incorporated by reference in this Quarterly Report
      on
      Form 10-Q, and information that may be contained in our other filings with
      the
      Securities and Exchange Commission (the “SEC”) and our press releases or other
      public statements, contain or may contain forward-looking statements. These
      forward-looking statements include, among others, statements of our plans,
      objectives, expectations or intentions.*





*Our
      forward-looking statements involve risks and uncertainties. Our actual results
      may differ significantly from those projected or suggested in any
      forward-looking statements. We do not undertake any obligation to release
      publicly any revisions to such forward-looking statements to reflect events
      or
      circumstances occurring after the date hereof or to reflect the occurrence
      of
      unanticipated events. Factors that might cause such a difference to occur
      include, but are not limited to:*





•
            *risks
                associated with our acquisitions (including our acquisition of Priority
                Healthcare), which include integration risks and costs, risks of
                client
                retention and repricing of client contracts, and risks associated
                with the
                operations of acquired
                businesses*


•
            *costs
                of and**risks
                of adverse results in litigation, including a number of pending class
                action cases that challenge certain of our business
                practices*


•
            *risks
                arising from investigations of certain PBM practices and pharmaceutical
                pricing, marketing and distribution practices currently being conducted
                by
                the U.S. Attorney offices in Philadelphia and Boston, and by other
                regulatory agencies including the Department of Labor, and various
                state
                attorneys general*


•
            *risks
                and**uncertainties
                regarding the implementation of the Medicare Part D prescription
                drug
                benefit, including financial risks to us to the extent that we participate
                in the program on a risk-bearing basis, risks of client or member
                losses
                to other providers under Medicare Part D, and increased regulatory
                risk*


•
            *risks
                and**uncertainties
                associated with U.S. Centers for Medicare & Medicaid's ("CMS")
                implementation of the Medicare Part B Competitive Acquisition Program
                (“CAP”), including the potential loss of clients/revenues to providers
                choosing to participate in the
                CAP*


•
            *risks
                associated with our ability to maintain growth rates, or to control
                operating or capital costs*


•
            *continued
                pressure on margins resulting from client demands for lower prices,
                enhanced service offerings and/or higher service levels, and the
                possible
                termination of, or unfavorable modification to, contracts with key
                clients
                or providers*


•
            *competition
                in the PBM and specialty pharmacy industries, and our ability to
                consummate contract negotiations with prospective clients, as well
                as
                competition from new competitors offering services that may in whole
                or in
                part replace services that we now provide to our
                customers*


•
            *adverse
                results in regulatory matters, the adoption of new legislation or
                regulations (including increased costs associated with compliance
                with new
                laws and regulations), more aggressive enforcement of existing legislation
                or regulations, or a change in the interpretation of existing legislation
                or regulations*


•
            *increased
                compliance risks relating to our contracts with the DoD TRICARE Management
                Activity and various state governments and
                agencies*


•
            *the
                possible loss, or adverse modification of the terms, of relationships
                with
                pharmaceutical manufacturers, or changes in pricing, discount or
                other
                practices of pharmaceutical manufacturers or interruption of the
                supply of
                any pharmaceutical products*


•
            *risks
                associated with the possible loss, or adverse modification of the
                terms,
                of contracts with pharmacies in our retail pharmacy
                network*


•
            *risks
                associated with the use and protection of the intellectual property
                we use
                in our business*


•
            *risks
                associated with our leverage and debt service obligations, including
                the
                effect of certain covenants in our borrowing agreements*


•
            *risks
                associated with our ability to continue to develop new products,
                services
                and delivery channels*


•
            *general
                developments in the health care industry, including the impact of
                increases in health care costs, changes in drug utilization and cost
                patterns and introductions of new drugs*


•
            *increase
                in credit risk relative to our clients due to adverse economic
                trends*


*•*
            *risks
                associated with changes in average wholesale prices, which could
                reduce
                prices and margins*


•
            *risks
                associated with our ability to attract and retain qualified
                personnel* •
            *other risks described from time to time in
              our
              filings with the SEC*




*See
      the more comprehensive description of risk factors under the captions “Forward
      Looking Statements and Associated Risks” contained in Item 1 - “Business” and
      "Item 1A - Risk Factors" of our Annual Report on Form 10-K  for the year
      ended December 31, 2005.*





**OVERVIEW**





As
      one of
      the largest full-service pharmacy benefit management (“PBM”) companies we
      provide health care management and administration services on behalf of our
      clients, which include health maintenance organizations, health insurers,
      third-party administrators, employers, union-sponsored benefit plans and
      government health programs.  Our integrated PBM services include network
      claims processing, home delivery services, benefit design consultation, drug
      utilization review, formulary management, disease management, and drug data
      analysis services.  We provide specialty services, including patient care
      and direct specialty home delivery to patients; distribution of infusion drugs
      to patient homes, physician offices, and infusion centers; distribution of
      pharmaceuticals and medical supplies to providers and clinics; third party
      logistics services for contracted pharma clients; fertility services to
      providers and patients; and bio-pharma services including marketing,
      reimbursement and customized logistics solutions (“Specialty”).  Specialty
      services do not include the fulfillment of specialty prescriptions at retail
      pharmacies participating in our networks.  These prescriptions are
      reflected in PBM retail pharmacies participating in our networks.  We also
      provide services through our Pharma Business Solutions (“PBS”) unit, which
      include distribution of specialty pharmaceuticals requiring special handling
      or
      packaging where we have been selected by the pharmaceutical manufacturer as
      part
      of a limited distribution network; distribution of pharmaceuticals to low-income
      patients through manufacturer-sponsored and company-sponsored generic patient
      assistance programs, and distribution of sample units to physicians and
      verification of practitioner licensure.





Effective
      October 2005, we began reporting three segments:  PBM, Specialty and PBS
      (see “—Results of Operations”).  We derive revenues primarily from the sale
      of PBM and Specialty services in the United States and Canada.  Revenue
      generated by our segments can be classified as either tangible product revenue
      or service revenue.  We earn tangible product revenue from the sale of
      prescription drugs by retail pharmacies in our retail pharmacy networks and
      from
      dispensing prescription drugs from our home delivery and specialty
      pharmacies.  Service revenue includes administrative fees associated with
      the administration of retail pharmacy networks contracted by certain clients,
      market research programs, medication counseling services, certain specialty
      distribution services, and sample fulfillment and sample accountability
      services.  Tangible product revenue generated by our PBM, Specialty and PBS
      segments represented 98.3% of revenues for the three months ended March 31,
      2006
      as compared to 98.4% for the same period of 2005.





On
      October 14, 2005, we purchased the capital stock of Priority Healthcare, Inc.
      (“Priority”) in a cash transaction for $28 per share, or approximately $1.3
      billion.  The acquisition was accomplished through the merger of one of our
      wholly-owned subsidiaries with and into Priority.  The $1.3 billion
      purchase price was financed with approximately $167.0 million of cash on hand
      and the remainder by adding $1.6 billion in Term A loans through a new credit
      facility which replaced our prior credit facility.  Consequently, our
      operating results include those of Priority from October 14, 2005.





**EXECUTIVE
      SUMMARY AND TREND FACTORS AFFECTING THE BUSINESS**





Prescription
      drug costs have increased considerably over the past several years, primarily
      due to brand-name product inflation, the introduction of new products by
      pharmaceutical manufacturers and higher utilization of drugs.  We face
      continuing pressures on margins resulting from client demands for better
      management of pharmacy trends, enhanced service offerings and/or higher service
      levels on contract renewals, and unfavorable modifications to contracts with
      key
      clients or providers.





Our
      business model is built around the alignment of interests with our clients
      and
      members in making the use of prescription drugs safer and more affordable. 
The improvement in our consolidated results of operations in the first quarter
      of 2006 over the same period of 2005 was primarily driven by factors which
      also
      reduce pharmacy trends for our clients.  In the first quarter of 2006 we
      benefited from higher generic utilization (56.3% in the first quarter of 2006
      compared to 54.0% in the first quarter of 2005), increased home delivery volume,
      growth in Specialty services and better management of ingredient costs resulting
      from renegotiation of certain supplier contracts, increased competition among
      generic manufacturers and other actions which helped to reduce ingredient
      costs.  In addition, our results of operations in the first quarter of 2006
      improved over the first quarter of 2005 as a result of the acquisition of
      Priority, increased labor efficiencies and the consolidation of certain of
      our
      facilities.  These positive trends were partially offset by a decrease in
      network claims volume due to client attrition in the first quarter of
      2006.  We believe the net effect of these factors will continue to generate
      improvement in our results of operations throughout the remainder of 2006.




**CRITICAL
      ACCOUNTING POLICIES**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period.  Our estimates and assumptions are
      based upon a combination of historical information and various other assumptions
      believed to be reasonable under the particular circumstances.  Actual
      results may differ from our estimates.  Certain of the accounting policies
      that most impact our consolidated financial statements and that require our
      management to make difficult, subjective or complex judgments are described
      below.  This should be read in conjunction with Note 1, “Summary of
      Significant Accounting Policies” and with the notes to the consolidated
      financial statements included in our Annual Report on Form 10-K for the year
      ended December 31, 2005, filed with the SEC on
      February 22, 2006.





***REBATE
      ACCOUNTING***





ACCOUNTING
      POLICY


We
      administer rebate programs through which we receive rebates and administrative
      fees from pharmaceutical manufacturers.  The portion of rebates payable to
      clients is estimated quarterly based on historical and/or anticipated sharing
      percentages.  These estimates are adjusted to actual when amounts are paid
      to clients.





FACTORS
      AFFECTING ESTIMATE


The
      factors that could impact our estimates of rebates, rebates receivable and
      rebates payable are as follows:


·
            Differences
                between estimated aggregate allocation percentages and actual rebate
                allocation percentages calculated on a client-by-client
                basis;


·
            Drug
                patent expirations; and


·
            Changes
                in drug utilization patterns.


Historically,
      adjustments to our original estimates have been relatively
      immaterial.




***UNBILLED
      REVENUE AND RECEIVABLES***





ACCOUNTING
      POLICY


We
      bill
      our clients based upon the billing schedules established in client contracts.
      At
      the end of a period, any unbilled revenues related to the sale of prescription
      drugs that have been adjudicated with retail pharmacies are estimated based
      on
      the amount we will pay to the pharmacies and historical gross
      margin.





FACTORS
      AFFECTING ESTIMATE


Unbilled
      amounts are estimated based on historical margin. Historically, adjustments
      to
      our original estimates have been immaterial. Significant differences between
      actual and estimated margin could impact subsequent adjustments.





***ALLOWANCE
      FOR DOUBTFUL ACCOUNTS***





ACCOUNTING
      POLICY


We
      provide an allowance for doubtful accounts equal to estimated uncollectible
      receivables.  This estimate is based on the current status of each
      customer’s receivable balance.





FACTORS
      AFFECTING ESTIMATE


We
      record
      allowances for doubtful accounts based on a variety of factors including the
      length of time the receivables are past due, the financial health of the
      customer and historical experience.   Our estimate could be impacted
      by changes in economic and market conditions as well as changes to our
      customers’ financial condition.




***SELF-INSURANCE
      RESERVES***





ACCOUNTING
      POLICY


We
      accrue
      self-insurance reserves based upon estimates of the aggregate liability of
      claim
      costs in excess of our insurance coverage.  Reserves are estimated using
      certain actuarial assumptions followed in the insurance industry and our
      historical experience.  The majority of these claims are legal claims and
      our liability estimate is primarily related to the cost to defend these
      claims.  We do not accrue for settlements, judgments, monetary fines or
      penalties until such amounts are probable and estimable, in compliance with
      Financial Accounting Standard (“FAS”) No. 5, “Accounting for
      Contingencies.”  Under FAS 5, if the range of possible loss is broad, the
      liability accrual should be based on the lower end of the range.





FACTORS
      AFFECTING ESTIMATE


Self-insurance
      reserves are based on management’s estimates of the costs to defend legal
      claims.  We do not have significant experience with certain of these types
      of cases.  As such, differences between actual costs and management’s
      estimates could be significant.  In addition, actuaries do not have a
      significant history with the PBM industry.  Changes to assumptions used in
      the development of these reserves can affect net income in a given period. 
In addition, changes in the legal environment and the number and nature of
      claims could impact our estimate.




***REVENUE
      RECOGNITION***





We
      consider the following information about revenue recognition policies important
      for an understanding of our results of operations:





·
            Revenues
                from dispensing prescriptions from our home delivery pharmacies are
                recorded when prescriptions are shipped.  These revenues include the
                co-payment received from members of the health plans we
                serve.


·
            Revenues
                from the sale of prescription drugs by retail pharmacies are recognized
                when the claim is processed.  We do not include member co-payments to
                retail pharmacies in revenue or cost of
                revenue.


·
            When
                we independently have a contractual obligation to pay our network
                pharmacy
                providers for benefits provided to our clients’ member, we act as a
                principal in the arrangement and we include the total payments we
                have
                contracted to receive from these clients as revenue and the total
                payments
                we make to the network pharmacy providers as cost of
                revenue.


·
            When
                we merely administer a client’s network pharmacy contracts to which we are
                not a party and under which we do not assume credit risk, we earn
                an
                administrative fee for collecting payments from the client and remitting
                the corresponding amount to the pharmacies in the client’s network.
                 In these transactions, drug ingredient cost is not included in our
                revenues nor in our cost of
                revenues.


·
            We
                administer rebate programs through which we receive rebates and
                administrative fees from pharmaceutical manufacturers.


·
            Gross
                rebates and administrative fees earned for the administration of
                our
                rebate programs, performed in conjunction with claim processing services
                provided to clients, are recorded as a reduction of cost of revenue
                and
                the portion of the rebate payable to customers is treated as a reduction
                of revenue.


·
            When
                we earn rebates and administrative fees in conjunction with formulary
                management services, but do not process the underlying claims, we
                record
                rebates received from manufacturers, net of the portion payable to
                customers, in revenue.


·
            We
                distribute pharmaceuticals in connection with our management of patient
                assistance programs and earn a fee from the manufacturer for
                administrative and pharmacy services for the delivery of certain
                drugs
                free of charge to doctors for their low income
                patients.


·
            We
                earn a fee for the distribution of consigned pharmaceuticals requiring
                special handling or packaging where we have been selected by the
                pharmaceutical manufacturer as part of a limited distribution
                network.


·
            Discounts
                and contractual allowances related to our Specialty revenues are
                estimated
                based on historical collections over a recent period for the sales
                that
                are recorded at gross charges.  The percentage is applied to the
                applicable accounts receivable balance that contains gross charges
                for
                each period.  Any differences between the estimates and actual
                collections are reflected in operations in the year payment is received.
                 Differences may result in the amount and timing of revenues for any
                period if actual performance varies from estimates.  Allowances for
                returns are estimated based on historical return trends.


·
            Specialty
                product revenues include revenues earned through the distribution
                of
                specialty drugs to clients as well as supplies provided through the
                distribution business.


·
            Specialty
                service revenues include revenues earned through providing reimbursement
                solutions and product support to pharmaceutical manufacturers,
                biotechnology companies, and medical device companies, as well as
                revenues
                derived from our Group Purchasing Organization (“GPO”) development.


·
            PBS
                product revenues include revenues earned through administering sample
                card
                programs for certain manufacturers.  We include ingredient cost of
                those drug samples dispensed from retail pharmacies in our PBS revenues
                and the associated costs for these sample card programs in cost of
                revenues.


·
            PBS
                service revenues include administrative fees for the verification
                of
                practitioner licensure and the distribution of consigned drug samples
                to
                doctors based on orders received from pharmaceutical sales
                representatives.





**RESULTS
      OF OPERATIONS**




Effective
      in October 2005, we began managing our Specialty business as a separate
      operating segment. Previously, our Specialty business was part of our domestic
      PBM operating segment.  The change is primarily due to the acquisition of
      Priority (see “—Overview”) on October 14, 2005.  Our Specialty segment
      consists of our CuraScript (acquired in January 2004) and Priority businesses
      and 2005 data has been reclassified to reflect the change in our operating
      and
      reporting segments.




*PBM
        OPERATING INCOME*


**Three
                Months Ended March 31,*****(in
                millions)***
            **2006**
            
            ***Increase/***
              ***(Decrease)***
            **2005**Product
                revenuesNetwork
                revenues
            $
            2,152.8
            
            
            *(6.5*
            *%)*
            $
            2,301.3Home
                delivery revenues
            
            1,318.8
            
            
            *8.7*
            *%*
            
            1,213.3Service
                revenues
            
            39.8
            
            
            *17.8*
            *%*
            
            33.8Total
                PBM revenues
            
            3,511.4
            
            
            *(1.0*
            *%)*
            
            3,548.4Cost
                of PBM revenues
            
            3,231.1
            
            
            *(2.4*
            *%)*
            
            3,309.6PBM
                gross profit
            
            280.3
            
            
            *17.4*
            *%*
            
            238.8PBM
                SG&A expenses
            
            121.5
            
            
            *5.9*
            *%*
            
            114.7PBM
                operating income
            $
            158.8
            
            
            *28.0*
            *%*
            $
            124.1Total
                adjusted PBM Claims(1)
            
            133.3
            
            
            *(5.1*
            *%)*
            
            140.4





(1)
            PBM
                adjusted claims represent network claims plus home delivery claims,
                which
                are multiplied by 3, as home delivery claims are typically 90 day
                claims
                and network claims are generally 30 day claims. Excluded from the
                network
                claims are manual claims and drug formulary only claims where we
                only
                administer the clients formulary. We process approximately 2 million
                manual claims per year.








Network
      claims decreased by 8.7 million, or 7.8%, in the first quarter of 2006 from
      the
      same period of 2005, primarily due to the loss of lives resulting from the
      attrition of several clients.  Total home delivery claims increased by 0.6
      million, or 5.5%, in the first quarter of 2006 from the same period of
      2005.  The decrease in network claims resulted in an overall
      adjusted PBM claims decrease of 5.1%.





The
      $148.5 million, or 6.5%, decrease in network pharmacy revenues in the first
      quarter of 2006 as compared to the first quarter of 2005 is attributable to
      the
      following factors:


·
            Network
                pharmacy revenues decreased $203.5 million due to a decrease in pharmacy
                claims, as described above.


·
            This
                decrease was partially offset by a $55.0 million increase in overall
                network pharmacy revenues, primarily due to inflation and a decrease
                in
                the average co-payment per retail pharmacy claim.  This increase was
                partially offset by a higher mix of generic claims.  As mentioned in
                our Critical Accounting Policies above, we do not include member
                co-payments to retail pharmacies in revenue or cost of revenue. 
                Generic claims made up 57.8% of total network claims for the first
                quarter
                of 2006 as compared to 54.6% of total network claims for the same
                period
                of 2005.





The
      $105.5 million, or 8.7%, increase in home delivery revenues in the first quarter
      of 2006 as compared to the first quarter of 2005 is attributable to the
      following factors:


·
            An
                increase in the average home delivery revenue per claim, primarily
                due to
                inflation, increased revenues by $54.6 million in the first quarter
                of
                2006 over the same period in 2005.  Our generic fill rate for
                home delivery claims remained consistent at 43.2% in the three months
                ended March 31, 2006 and 2005.  Our home delivery generic fill rate
                is lower than the retail generic fill rate as fewer generic substitutes
                are available among maintenance medications (e.g. therapies for diabetes,
                high cholesterol, etc.) commonly dispensed from home delivery pharmacies
                compared to acute medications that are dispensed primarily by pharmacies
                in our retail networks.


·
            We
                processed an additional 0.6 million claims, or 5.5%, in the first
                quarter of 2006 over the same period in 2005.  The increase in home
                delivery claim volume resulted in a $50.9 million increase in home
                delivery revenues.  The increase in home delivery volume is primarily
                due to the increased usage of our home delivery pharmacies by members
                of
                existing clients.





PBM
      service revenues include amounts received from clients for therapy management
      services such as prior authorization and step therapy protocols and
      administrative fees earned for processing claims for clients utilizing their
      own
      retail pharmacy networks.  The $6.0 million, or 17.8%, increase in PBM
      service revenues in the first quarter of 2006 as compared to the first quarter
      of 2005 is primarily due to the growth of the TRICARE contract which was
      implemented in June 2004.





Cost
      of
      PBM revenues decreased $78.5 million, or 2.4%, in the first quarter of 2006
      as
      compared to the same period in 2005 as a result of the following:


·
            The
                decrease in network claims volume (on an unadjusted basis) resulted
                in
                lowered PBM cost of revenues of $306.2 in the first quarter of 2006
                as
                compared to the first quarter of 2005.


·
            This
                decrease was offset by net increases in the average ingredient cost
                per
                claim, mainly due to inflation, which increased cost of revenues
                by $227.7
                million in the first quarter of 2006 over the same period of
                2005.





Our
      PBM
      gross profit increased $41.5 million, or 17.4%, in the first quarter of 2006
      over the same period of 2005.  Cost savings from  higher home
      delivery volumes and an increase in the aggregate generic fill rate were
      only partially offset by lower network claims volumes and margin pressures
      arising from the current competitive environment.





Selling,
      general and administrative expenses (“SG&A”) increased $6.8 million, or
      5.9%, in the first quarter of 2006 over the same period of 2005.  This is
      primarily due to stock option expense of $5.1 million recognized in the first
      quarter of 2006 due to the implementation of Financial Accounting Standard
      ("FAS") No. 123R, "Share-Based Payment."





PBM
      operating income increased $34.7 million, or 28.0%, in the first quarter of
      2006
      over the same period of 2005.











*SPECIALTY
      OPERATING INCOME*








**Three
                Months Ended March 31,*****(in
                millions)***
            **2006****(1)**
            
            ***Increase/***
              ***(Decrease)***
            **2005******Product
                revenues
            $
            866.8
            
            
            *283.2*
            *%*
            $
            226.2Service
                revenues
            
            9.8
            
            
            *NM*
            
            
            0.6Total
                Specialty revenues
            
            876.6
            
            
            *286.5*
            *%*
            
            226.8Cost
                of Specialty revenues
            
            821.6
            
            
            *286.8*
            *%*
            
            212.4Specialty
                gross profit
            
            55.0
            
            
            *281.9*
            *%*
            
            14.4Specialty
                SG&A expenses
            
            35.4
            
            
            *372.0*
            *%*
            
            7.5Specialty
                operating income
            $
            19.6
            
            
            *184.1*
            *%*
            $
            6.9




*NM -
      Not Meaningful*




(1)
      Includes the acquisition of Priority effective October 14, 2005.




Specialty
      revenues and cost of Specialty revenues increased $649.8 million, or 286.5%,
      and
      $609.2 million, or 286.8%, in the first quarter of 2006 over the same period
      of
      2005, respectively.  These increases are primarily due to the acquisition
      of Priority in the fourth quarter of 2005, which increased Specialty revenues
      and cost of Specialty revenues by $553.4 million and $520.2 million,
      respectively, during the first quarter of 2006.  The remaining increase is
      primarily due to the increased specialty penetration into the PBM book of
      business.





Our
      Specialty gross profit increased $40.6 million, or 281.9%, in the first quarter
      of 2006 over the same period of 2005, based on the factors described
      above.





SG&A
      for our Specialty segment increased $27.9 million, or 372.0%, in the first
      quarter of 2006 as compared to the same period of 2005.  The acquisition of
      Priority represents $24.1 million of the increase.  The remaining increase
      is due to the growth in the legacy CuraScript business.





Specialty
      operating income increased $12.7 million, or 184.1%, in the first quarter of
      2006 over the same period of 2005, based on the various factors described
      above.







*PBS
      OPERATING INCOME*





**Three
                Months Ended March 31,*****(in
                millions)***
            **2006**
            
            ***Increase/***
              ***(Decrease)***
            **2005**Product
                revenues
            $
            29.7
            
            
            *(16.1*
            *%)*
            $
            35.4Service
                revenues
            
            26.9
            
            
            *(5.6*
            *%)*
            
            28.5Total
                PBS revenues
            
            56.6
            
            
            *(11.4*
            *%)*
            
            63.9Cost
                of PBS revenues
            
            47.3
            
            
            *(9.4*
            *%)*
            
            52.2PBS
                gross profit
            
            9.3
            
            
            *(20.5*
            *%)*
            
            11.7PBS
                SG&A expense
            
            4.2
            
            
            *(4.5*
            *%)*
            
            4.4PBS
                operating income
            $
            5.1
            
            
            *(30.1*
            *%)*
            $
            7.3








PBS
      product revenues decreased $5.7 million, or 16.1%, in the first quarter of
      2006
      from the same period of 2005, mainly due to fewer Patient Assistance Program
      shipments and other activities as patients have shifted to the government funded
      benefit, Medicare Part D.  PBS service
      revenues decreased $1.6 million, or 5.6%, in the first quarter of 2006 from
      the
      same period of 2005.  The decrease reflects client attrition and the impact
      of Medicare Part D on our Patient Assistance Programs.





Cost
      of
      PBS revenues decreased $4.9 million, or 9.4%, in the first quarter of 2006
      from
      the same period of 2005, mainly due to the impact of Medicare Part D on our
      Patient Assistance Programs, as described above.  Gross profit decreased
      $2.4 million, or 20.5%, in the first quarter of 2006 from the same period of
      2005.





PBS
      SG&A remained relatively consistent, slightly decreasing $0.2 million, or
      4.5%, in the first quarter of 2006 from the same period of 2005.  PBS
      operating income decreased $2.2 million, or 30.1%, in the first quarter of
      2006
      from the same period of 2005.








*OTHER
      (EXPENSE) INCOME*





In
      February 2001, we entered into an agreement with AdvancePCS (now owned by
      CareMark, Inc.) and Medco Health Solutions, Inc. (formerly, “Merck-Medco,
      L.L.C.”) to form RxHub, an electronic exchange enabling physicians who use
      electronic prescribing technology to link to pharmacies, PBMs and health
      plans.  We own one-third of the equity of RxHub (as do each of the other
      two founders) and have invested approximately $20.0 million in the joint
      venture.  We have recorded our investment in RxHub under the equity method
      of accounting, which requires our percentage interest in RxHub’s results to be
      recorded in our Unaudited Consolidated Statement of Operations.  Our
      percentage of RxHub’s loss for the first quarter of 2006 was $0.5 million ($0.3
      million, net of tax) compared to $0.7 million ($0.4 million, net of tax) for
      the
      same period of 2005.





The
      $12.4
      million, or 400.0% increase in net interest expense in the first quarter of
      2006
      as compared to the same period in 2005 resulted from the refinancing our entire
      credit facility during the fourth quarter of 2005 (see “—Bank Credit Facility”).





*PROVISION
      FOR INCOME TAXES*





Our
      effective tax rate increased to 37.5% for the first quarter of 2006 as compared
      to 36.6% for the same period of 2005.  This increase reflects a
      non-recurring net tax benefit of $2.3 million recorded in the first quarter
      of
      2005 from the recognition of the expected state tax benefit associated with
      certain subsidiary losses generated in 2004.





*NET
      INCOME AND EARNINGS PER SHARE*





Net
      income increased $19.4 million, or 22.7%, for the first quarter of 2006 over
      the
      same period of 2005.  Basic and diluted earnings per share increased 22.4%
      and 22.8%, respectively for the first quarter of 2006 over the same period
      of
      2005.





**LIQUIDITY
      AND CAPITAL RESOURCES**





*OPERATING
      CASH FLOW AND CAPITAL EXPENDITURES*





For
        the
        three months ended March 31, 2006, net cash provided by operations decreased
        $97.2 million to $41.0 million from $138.2 million during the three months
        ended March 31, 2005. This decrease is due to several factors:
  ·
            The
                $147.6 million decrease in claims and rebates payable (which is a
                use of
                cash) was only partially offset by a $57.5 million decrease in accounts
                receivable (which is a source of cash) resulting in a net $90.1 million
                use of cash for the quarter.  This net decrease is partially due
                to the timing of collections and disbursements surrounding the end
                of 2005
                which resulted in positive cash flows occurring in the fourth quarter
                of
                2005 instead of the first quarter of 2006. The decrease is also a
                result
                of lower claim volumes. Our business naturally operates in a negative
                working capital position. As volume declines, the negative net working
                capital balance also declines, resulting in a consumption of cash.
                First
                quarter network claim volume decreased 7.8% as compared to the fourth
                quarter of 2005. In contrast, network claim volume increased 3.2%
                in the
                first quarter of 2005 as compared to the fourth quarter of 2004.
                Due to
                the lag of certain payments, we expect this effect to carry over
                into the
                second quarter of 2006, though to a lesser extent. We expect cash
                flows to
                return to historical levels in the third and fourth quarter of
                2006. ·
            The
                decrease in other current liabilities in the first quarter of 2006
                reduced
                operating cash flows by approximately $30.0 million, mainly due to
                the
                payout of management incentive bonuses. ·
            As
                a result of the adoption of FAS 123R January 1, 2006, tax benefits
                from
                the exercise of stock options are now classified as financing cash
                flows,
                rather than operating cash flows. In the first quarter of 2005, cash
                flow
                from operating activities included a cash inflow of $9.8 million
                related
                to tax benefits from the exercise of stock options. This reconciliation
                will continue throughout 2006. ·
            These
                decreases were partially offset by other positive changes in certain
                working capital components as well as increases in earnings and in
                depreciation and amortization. 
 Our
        capital expenditures for the three months ended March 31, 2006 increased
        $2.8
        million, or 47.1%, as compared to the same period of 2005. We intend to continue
        to invest in infrastructure and technology that we believe will provide
        efficiencies in operations and facilitate growth and enhance the service
        we
        provide to our clients. We expect future anticipated capital expenditures
        will
        be funded primarily from operating cash flow or, to the extent necessary,
        with
        borrowings under our revolving credit facility, discussed
        below.


*CHANGES
      IN BUSINESS*





On
      October 14, 2005, we acquired the capital stock of Priority in a cash
      transaction for $28 per share, or approximately $1.3 billion.  The
      acquisition was accomplished through the merger of one of our wholly-owned
      subsidiaries with and into Priority.  Priority, headquartered in Lake Mary,
      Florida, is among the nation’s largest Specialty and distribution companies,
      with approximately $1.7 billion in annual revenue during 2004 and approximately
      $1.1 billion in revenue for the six months ended July 2, 2005.  This
      acquisition is expected to enhance our Specialty business.  The $1.3
      billion purchase price was financed with approximately $167.0 million of cash
      on
      hand and the remainder by adding $1.6 billion in Term A loans through a new
      credit facility which replaced our prior credit facility.  As a result of
      this refinancing, we wrote-off approximately $3.6 million in deferred financing
      fees relating to our prior credit facility in the fourth quarter of
      2005.





Aetna
      Specialty Pharmacy, a joint venture existing between Priority and Aetna, Inc.
      (“Aetna”), was 60% owned by Priority and 40% by Aetna.  Upon a change in
      control of Priority, the joint venture agreement provided Aetna with an option
      to purchase Priority’s 60% ownership share of the joint venture.  Aetna
      exercised its option and on December 30, 2005 purchased Priority’s 60% ownership
      share of Aetna Specialty Pharmacy.  The gain on the assets sold, which was
      not material, reduced the amount of goodwill we recorded through the Priority
      acquisition.





We
      regularly review potential acquisitions and affiliation opportunities.  We
      believe available cash resources, bank financing or the issuance of additional
      common stock or other securities could be used to finance future acquisitions
      or
      affiliations.  There can be no assurance we will make new acquisitions or
      establish new affiliations in 2006 or thereafter.





In
      January 2004, we entered into an agreement to provide PBM services for the
      Medicare discount program of Pharmacy Care Alliance, Inc. (“PCA”), a nonstock,
      not-for-profit entity jointly controlled by the National Association of Chain
      Drugstores (“NACDS”) and us.  Our PBM services include the negotiation of
      discounts from individual retailers and pharmaceutical manufacturers, the
      enrollment of cardholders and the processing of prescription claims.
 During 2004, we entered into a lending agreement with PCA, whereby we
      committed to lend up to $17.0 million to PCA in the form of a revolving
      line of credit to fund its operating activities.  As of
      March 31, 2006, PCA owed $12.6 million under the credit facility
      including interest and principal.  The credit agreement has been extended
      until May 31, 2006 and we do not expect any additional borrowings from
      PCA.





The
      Medicare discount program is scheduled to end by June of 2006. In regard to
      the
      revolving line of credit extended to PCA, the collectibility of any unsecured
      borrowings will be a function of PCA’s costs in closing out the program. 
Because enrollment and utilization was lower than expected, the outstanding
      balance of our receivable from PCA was fully reserved in a prior
      year.




*BANK
      CREDIT FACILITY*





In
      October 2005, we refinanced our entire credit facility with a new
      $2.2 billion credit facility which includes $1.6 billion of Term A loans
      and a $600.0 million revolving credit facility.  The proceeds from the
      $2.2 billion credit facility were used to finance the Priority acquisition
      and to prepay borrowings on the Term A Loan and Term B Loans outstanding under
      our previous credit facility.  The newly established $600.0 million
      revolving credit facility (none of which was outstanding as of March 31, 2006)
      is also available for general corporate purposes.  In the three months
      ended March 31, 2006, we made scheduled payments of $40.0 million on our
      Term A Loans.





Our
      credit facility requires us to pay interest periodically on the London Interbank
      Offered Rates (“LIBOR”) or base rate options, plus a margin.  The margin
      over LIBOR will range from 0.50% to 1.125%, depending on our consolidated
      leverage ratio or our credit rating.  The margin over the base rate will
      range from 0% to 0.125% depending upon our consolidated leverage ratio. 
Under our credit facility we are required to pay commitment fees on the unused
      portion of the $600.0 million revolving credit facility.  The
      commitment fee will range from 0.10% to 0.25% depending on our consolidated
      leverage ratio or our credit rating.





At
      March
      31, 2006, the weighted average interest rate on the new facility was 5.4%. 
Our credit facility contains covenants that limit the indebtedness we may incur,
      the common shares we may repurchase, and dividends we may pay.  The
      repurchase and dividend covenant applies if certain leverage thresholds are
      exceeded.  The covenants also include a minimum interest coverage ratio and
      a maximum leverage ratio.  At March 31, 2006, we were in
      compliance with all covenants associated with our credit facility.





*CONTRACTUAL
      OBLIGATIONS*





The
      following table sets forth our schedule of maturities of our long-term debt
      and
      future minimum lease payments due under noncancellable operating leases as
      of
      March 31, 2006 (in millions):





**Payments
                Due by Period as of March 31,****Contractual
                obligations**
            **Total**
            **2006**
            **2007
                - 2008**
            **2009
                - 2010**
            **After
                2010**Long-term
                debt
            $
            1,470.5
            
            $
            70.1
            
            $
            440.1
            
            $
            960.1
            
            $
            0.2Future
                minimum lease
              payments(1)
            
            114.6
            
            
            21.3
            
            
            43.9
            
            
            16.2
            
            
            33.2Total
                contractual cash
              obligations
            $
            1,585.1
            
            $
            91.4
            
            $
            484.0
            
            $
            976.3
            
            $
            33.4





(1) 
      In July 2004, we entered into a capital lease with the Camden County Joint
      Development Authority in association with the development of our new Patient
      Care Contact Center in St. Marys, Georgia. At March 31, 2006, our
      lease obligation is $13.5 million. In accordance with FASB Interpretation No.
      39, “Offsetting of Amounts Related to Certain Contracts,” our lease obligation
      has been offset against $13.5 million of industrial revenue bonds issued to
      us
      by the Camden County Joint Development Authority.





**OTHER
      MATTERS**





We
      make
      available through our website (www.express-scripts.com), access to our annual
      report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
      8-K, all amendments to those reports (when applicable), and other filings with
      the SEC.  Such access is free of charge and is available as soon as
      reasonably practicable after such information is filed with the SEC.  In
      addition, the SEC maintains an internet site (www.sec.gov) containing reports,
      proxy and information statements, and other information regarding issuers filing
      electronically with the SEC (which includes us). Information included on our
      website is not part of this annual report.





**IMPACT
      OF INFLATION**





Changes
      in prices charged by manufacturers and wholesalers for pharmaceuticals affect
      our revenues and cost of revenues.  Most of our contracts provide that we
      bill clients based on a generally recognized price index for pharmaceuticals,
      and accordingly we have been able to recover price increases from our clients
      under the terms of our agreements.





**Item
      3.** **Quantitative
      and Qualitative Disclosures About Market Risk**





We
      are
      exposed to market risk from changes in interest rates related to debt
      outstanding under our credit facility.  Our earnings are subject to change
      as a result of movements in market interest rates.  At March 31, 2006, we
      had $961.1 million of obligations, net of cash, which were subject to variable
      rates of interest under our credit facility.  A hypothetical increase in
      interest rates of 1% would result in an increase in annual interest expense
      of
      approximately $9.6 million (pre-tax), presuming that obligations subject to
      variable interest rates remained constant.





**Item
      4.** **Controls
      and Procedures** ****





We
      maintain a comprehensive set of disclosure controls and procedures (as defined
      in Rules 13a-15(e) and under the Securities Exchange Act of 1934 (“Exchange
      Act”)) designed to provide reasonable assurance that information required to be
      disclosed in our filings under the Exchange Act is recorded, processed,
      summarized and reported accurately and within the time periods specified in
      the
      SEC’s rules and forms.  Under the supervision and with the participation of
      our management, including our President and Chief Executive Officer and our
      Senior Vice President and Chief Financial Officer, we have evaluated the
      effectiveness of the design and operation of our disclosure controls and
      procedures as of the end of the period covered by this report.  Based upon
      this evaluation, the President and Chief Executive Officer and the Senior Vice
      President and Chief Financial Officer concluded that the design and operation
      of
      these disclosure controls and procedures are effective in providing reasonable
      assurance of the achievement of the objectives described above.





During
      the fiscal quarter ended March 31, 2006, there was no change in our internal
      control over financial reporting that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial reporting.








PART
      II. OTHER INFORMATION








**Item
      1.** **Legal
      Proceedings**





We
      and/or
      our subsidiaries are defendants in a number of lawsuits that purport
      to be class actions or have been certified as such. Each case seeks damages
      in
      an unspecified amount.  We cannot ascertain with any certainty at this time
      the monetary damages or injunctive relief that any of the plaintiffs may seek
      to
      recover.  In addition, we are the subject of several governmental
      investigations described below.  Such investigations could result in civil
      damages, criminal penalties, or other sanctions, the nature and amount of which
      we cannot currently estimate.  We cannot, however, provide any assurance
      that the outcome of any of these matters, or some number of them in the
      aggregate, will not be materially adverse to our financial condition,
      consolidated results of operations or business prospects.  In addition, the
      expenses of defending these cases may have a material effect on our financial
      results.  The following developments have occurred since the Annual
      Report:





·
            North
                Jackson Pharmacy, Inc., et al. v. Express Scripts(Civil Action No. CV-03-B-2696-NE, United States District Court for
                the
                Northern District of Alabama). This action was filed on October 1,
                2003.
                This case purports to be a class action against us on behalf of
                independent pharmacies within the United States. The complaint alleges
                that certain of our business practices violate the Sherman Antitrust
                Act,
                15 U.S.C §1, et. seq. The suit seeks unspecified monetary damages
                (including treble damages) and injunctive relief. Plaintiffs’ motion for
                class certification was granted. A motion has been filed by the plaintiffs
                in an antitrust matter against Medco and Merck in the Eastern District
                of
                Pennsylvania before the Judicial Panel on Multi-District Litigation
                requesting transfer of this case and others to the Eastern District
                of
                Pennsylvania for MDL treatment.





·
            Pearson’s
                Pharmacy, Inc. and Cam Enterprises, Inc. d/b/a Altadena Pharmacy
                v.
                Express Scripts, Inc.(Case No. 3:06-CV-00073-WKW, United States District Court for the
                Middle
                District of Alabama). On February 15, 2006, a class action on behalf
                of
                all pharmacies reimbursed based upon Average Wholesale Price was
                filed
                alleging that Express Scripts fails to properly reimburse pharmacies
                for
                filling prescriptions. Plaintiffs seek unspecified monetary damages
                and
                injunctive relief. Express Scripts has filed a motion to dismiss
                the
                complaint.





·
            Inola
                Drug, Inc. v. Express Scripts, Inc.(Case No. 06-CV-117-TCK-SAJ, United States District Court for the
                Northern
                District of Oklahoma). On February 22, 2006, a class action lawsuit
                was
                filed alleging that Express Scripts’ reimbursement to pharmacies violates
                the Oklahoma Third Party Prescriptions Act. The complaint also alleges
                that Express Scripts fails to properly reimburse pharmacies for filling
                prescriptions based on Average Wholesale Price. The proposed classes
                include all pharmacies in the United States who contract with Express
                Scripts and all pharmacies in Oklahoma who contract with Express
                Scripts.
                Express Scripts has filed a motion to dismiss the complaint.





In
      addition, in the ordinary course of our business there have arisen various
      legal
      proceedings, investigations or claims now pending against our subsidiaries
      and
      us.  The effect of these actions on future financial results is not subject
      to reasonable estimation because considerable uncertainty exists about the
      outcomes.  Where insurance coverage is not available for such claims, or in
      our judgment, is not cost-effective, we maintain self-insurance reserves to
      reduce our exposure to future legal costs, settlements and judgments related
      to
      uninsured claims.  Our self-insured reserves are based upon estimates of
      the aggregate liability for the costs of uninsured claims incurred and the
      retained portion of insured claims using certain actuarial assumptions followed
      in the insurance industry and our historical experience.  It is not
      possible to predict with certainty the outcome of these claims, and we can
      give
      no assurance that any losses in excess of our insurance and any self-insurance
      reserves will not be material.





**Item
      2.** **Unregistered
      Sales of Equity Securities and Use of Proceeds**





The
      following is a summary of our stock repurchasing activity during the three
      months ended March 31, 2006 (share data in millions):





Period
            
            Shares
              purchased
            
            Average
              price
              per
                share
            
            Shares
                purchased
              as
                part of a
              publicly
              announced
              program
            Maximum
                shares
              that
                may yet be purchased under
              the
                program1/1/2006
                - 1/31/2006
            
            
            -
            
            $
            -
            
            
            -
            
            
            8.12/1/2006
                - 2/29/2006
            
            
            -
            
            
            -
            
            
            -
            
            
            8.13/1/2006
                - 3/31/2006
            
            
            -
            
            
            -
            
            
            -
            
            
            8.12006
                Total
            
            
            -
            
            $
            -
            
            
            -








We
      have a
      stock repurchase program, originally announced on October 25, 1996, under which
      our Board of Directors has approved the repurchase of a total of 38.0 million
      shares.  There is no limit on the duration of the program. 
Approximately 29.9 million of the 38.0 million total shares have been
      repurchased through September 30, 2005.  Additional share
      purchases, if any, will be made in such amounts and at such times as we deem
      appropriate based upon prevailing market and business conditions, subject to
      restrictions on the amount of stock repurchases contained in our bank credit
      facility.








**Item
      6.** **Exhibits**





(a) See
      Index
      to Exhibits below.








**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.








EXPRESS
      SCRIPTS,
      INC.


(Registrant)











Date:  April
      27,
      2006 By: /s/
      George
      Paz


George
      Paz, Chief
      Executive Officer and President











Date:  April
      27,
      2006 By:  /s/
      Edward
      Stiften_____


Edward
      Stiften, Sr. Vice
      President and


Chief
      Financial
      Officer











INDEX
      TO
      EXHIBITS


(Express
      Scripts, Inc. - Commission File Number 0-20199)


Exhibit
              Number
            Exhibit2.11
            Stock
                Purchase Agreement, dated December 19, 2003, by and among the Company,
                CPS
                Holdings, LLC, CuraScript Pharmacy, Inc. and CuraScript PBM Services,
                Inc,
                incorporated by reference to Exhibit No. 2.1 to the Company’s Current
                Report on Form 8-K filed December 24, 2003.2.21
            Agreement
                and Plan of Merger, dated July 21, 2005, by and among the Company,
                Pony
                Acquisition Corporation, and Priority Healthcare Corporation, incorporated
                by reference to Exhibit No. 2.1 to the Company’s Current Report on Form
                8-K filed July 22, 2005.3.1
            Amended
                and Restated Certificate of Incorporation of the Company, incorporated
                by
                reference to the Company’s Annual Report on Form 10-K for the year ending
                December 31, 2001, incorporated by reference to Exhibit No. 3.2 to
                the
                Company’s Quarterly Report on Form 10-Q for the quarter ending June 30,
                2004.3.2
            Certificate
                of Amendment to the Certificate of Incorporation of the Company dated
                June
                2, 2004, incorporated by reference to Exhibit No. 3.3 to the Company’s
                Quarterly Report on Form 10-Q for the quarter ending June 30,
                2004.3.3
            Third
                Amended and Restated Bylaws, incorporated by reference to Exhibit
                No. 3.2
                to the Company’s Annual Report on Form 10-K for the year ending December
                31, 2000.4.1
            Form
                of Certificate for Common Stock, incorporated by reference to Exhibit
                No.
                4.1 to the Company’s Registration Statement on Form S-1 filed June 9, 1992
                (No. 33-46974) (the “Registration Statement”).4.2
            Stockholder
                and Registration Rights Agreement dated as of October 6, 2000 between
                the
                Company and New York Life Insurance Company, incorporated by reference
                to
                Exhibit No. 4.2 to the Company's Amendment No. 1 to Registration
                Statement
                on Form S-3 filed October 17, 2000 (Registration Number
                333-47572).4.3
            Asset
                Acquisition Agreement dated October 17, 2000, between NYLIFE Healthcare
                Management, Inc., the Company, NYLIFE LLC and New York Life Insurance
                Company, incorporated by reference to Exhibit No. 4.3 to the Company's
                amendment No. 1 to the Registration Statement on Form S-3 filed October
                17, 2000 (Registration Number 333-47572).4.4
            Rights
                Agreement, dated as of July 25, 2001, between the Corporation and
                American
                Stock Transfer & Trust Company, as Rights Agent, which includes the
                Certificate of Designations for the Series A Junior Participating
                Preferred Stock as Exhibit A, the Form of Right Certificate as Exhibit
                B
                and the Summary of Rights to Purchase Preferred Shares as Exhibit
                C,
                incorporated by reference to Exhibit No. 4.1 to the Company's Current
                Report on Form 8-K filed July 31, 2001.4.5
            Amendment
                dated April 25, 2003 to the Stockholder and Registration Rights Agreement
                dated as of October 6, 2000 between the Company and New York Life
                Insurance Company, incorporated by reference to Exhibit No. 4.8 to
                the
                Company’s Quarterly Report on Form 10-Q for the period ending March 31,
                2003.4.6
            Amendment
                No. 1 to the Rights Agreement between the Corporation and American
                Stock
                Transfer & Trust Company, as Rights Agent, dated May 25, 2005,
                incorporated by reference to Exhibit No. 10.1 to the Company’s Current
                Report on Form 8-K filed May 31, 2005.10.
                13
            Form
                of Performance Share Award Agreement under the Express Scripts, Inc.
                2000
                Long-Term Incentive Plan, incorporated by reference to Exhibit No.
                10.2 to
                the Company’s Current Report on Form 8-K filed March 7, 2006.10.
                23
            Form
                of Stock Appreciation Right Award Agreement under the Express Scripts,
                Inc. 2000 Long-Term Incentive Plan, incorporated by reference to
                Exhibit
                No. 10.3 to the Company’s Current Report on Form 8-K filed March 7,
                2006.10.
                33
            Third
                Amendment to the Express Scripts, Inc. 2000 Long-Term Incentive Plan,
                incorporated by reference to Exhibit A to the Company’s Proxy Statement
                filed April 18, 2006.10.
                43
            Summary of Named Executive Officer 2006 Salaries,
                2005
                Bonus Awards, 2006 Bonus Potential and 2006 Equity and Pro Forma
                Awards,
                incorporated by reference to Exhibit 10.1 to the Company's Current
                report
                on Form 8-K filed March 7, 2006.31.12
            Certification
                by George Paz, as President and Chief Executive Officer of Express
                Scripts, Inc., pursuant to Exchange Act Rule 13a-14(a).31.22
            Certification
                by Edward Stiften, as Senior Vice President and Chief Financial Officer
                of
                Express Scripts, Inc., pursuant to Exchange Act Rule
                13a-14(a).32.12
            Certification
                by George Paz, as President and Chief Executive Officer of Express
                Scripts, Inc., pursuant to 18 U.S.C. § 1350 and Exchange Act Rule
                13a-14(b).32.22
            Certification
                by Edward Stiften, as Senior Vice President and Chief Financial Officer
                of
                Express Scripts, Inc., pursuant to 18 U.S.C. § 1350 and Exchange Act Rule
                13a-14(b).





1
            The
                Company agrees to furnish supplementally a copy of any omitted schedule
                to
                this agreement to the Commission upon
                request.


2
            Filed
                herein.


3
            Management
                contract or compensatory plan or
                arrangement