This Management's Discussion and Analysis (“MD&A”) of SXC Health Solutions Corp. (the “Company”) should be read in conjunction with the consolidated financial statements of the Company and the related notes thereto included in Item 8 of this Annual Report on Form 10-K. This MD&A also contains forward-looking statements and should be read in conjunction with the risk factors described in Item 1A “Risk Factors.”
On October 3, 2011, the Company completed its acquisitions of PTRX, a full-service PBM, and its exclusive mail-order pharmacy provider, SaveDirectRx, both based in San Antonio, Texas. The aggregate purchase price was $77.2 million in cash, subject to certain customary post-closing adjustments, with an opportunity for the former owners of SaveDirectRx to earn an additional $4.5 million, subject to the achievement of certain performance targets through 2012. The acquisitions of PTRX and SaveDirectRx are in line with the Company's strategy to acquire assets that currently utilize the Company's technology platform in order to ease the integration into the Company's business. Further, these acquisitions will allow the Company to extend, increase and expand its presence in the southwestern part of the U.S. and continue to expand its mail pharmacy business.
On June 1, 2011, the Company completed its acquisition of substantially all of the assets of MedMetrics, the full-service PBM subsidiary of Public Sector Partners, Inc., which is affiliated with a major medical school. The acquisition of MedMetrics is consistent with the Company's strategy to acquire assets that currently utilize the Company's technology platform, which allows for an efficient integration into the Company's business, and has provided the Company the opportunity to sell additional services, such as rebates, mail and specialty services, to MedMetrics'
was 8.7% and 10.3% for the years ended December 31, 2010 and 2009, respectively, which was lower in 2010 versus 2009 primarily due to newer business brought on at a lower gross profit percentage as compared to existing customers.
For the year ended December 31, 2011, the Company used $89.5 million of cash for investing activities, which consisted primarily of cash used to acquire PTRX, SaveDirectRx and Medmetrics. Additionally, the Company used $9.7 million for purchases of property and equipment to support increased transaction volume.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SXC Health Solutions Corp. as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011 in conformity with U.S. generally accepted accounting principles.
administrative fees, to customers and participants through the Company’s nationwide network of pharmacies. Revenue related to the sales of prescription drugs by the Company’s nationwide network of pharmacies is recognized when the claims are adjudicated. Claims are adjudicated at the point-of-sale using the Company’s on-line processing system. The Company records an offsetting reduction to revenue for any rebates earned from pharmaceutical manufacturers and third party administrators which are payable to the Company’s customers.
The quantitative impairment test is carried out in two steps for each of the Company's reporting units. In the first step, the carrying amount of the reporting unit is compared with its fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is unnecessary. The second step is carried out when the carrying amount of a reporting unit exceeds its fair value, in which case the implied fair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the value of goodwill is determined in a business combination using the fair value of the reporting unit as if it was the purchase price. When the carrying amount of reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess and is presented as a separate line item in the consolidated statements of operations.
The Company allocated stock-based compensation costs to the same statement of operations line item as the cash compensation to those employees. Accordingly, the allocation of the compensation costs is as follows for the years ended December 31, 2011, 2010, and 2009 (in thousands):
Revenues of the Company are primarily earned in the United States. The Company’s Canadian operations represented less than 1.0% of the Company’s consolidated revenues for the years ended December 31, 2011, 2010 and 2009.
During the year ended December 31, 2011, one customer accounted for 40% of total revenue. During the year ended December 31, 2010, one customer accounted for 10.5% of total revenue. During the year ended December 31, 2009, one customer accounted for 12.6% of total revenue and another for 11.7% of total revenue. In 2011, 2010 and 2009, these major customers were included in the PBM segment.