Medco Health Solutions Inc. (MHS) | Analysis of Investments

Investment Accounting Policy

Cash and Cash Equivalents

Cash includes currency on hand and time deposits with banks or other financial institutions. Cash equivalents represent money market mutual funds, a form of highly liquid investments with original maturities of less than three months. As a result of Medco Health Solutions Inc.'s normal payment cycle, cash disbursement accounts representing outstanding checks not yet presented for payment of $1,693.1 million and $1,155.3 million are included in claims and other accounts payable, and client rebates and guarantees payable at December 31, 2011 and December 25, 2010, respectively, including certain amounts reclassified from cash. No overdraft or unsecured short-term loan exists in relation to these negative balances.

Short-Term and Long-Term Investments

Medco Health Solutions Inc. holds short-term and long-term investments in U.S. government securities to satisfy the statutory capital requirements for Medco Health Solutions Inc.'s insurance subsidiaries. The majority of these long-term and short-term investments are classified as held-to-maturity securities and reported at amortized cost. Medco Health Solutions Inc. has no exposure to or investments in any instruments associated with the sub-prime loan market.

Source: Medco Health Solutions Inc., Annual Report

Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities

Medco Health Solutions Inc., adjustment to Net Income

	12 months ended	Dec 31, 2011	Dec 25, 2010	Dec 26, 2009	Dec 27, 2008	Dec 29, 2007
	Net income (as reported)
	Add: Unrealized loss on investments, net of tax
	Net income (adjusted)

Adjusted Ratios: Mark to Market Available-for-sale Securities (Summary)

Medco Health Solutions Inc., adjusted ratios

		Dec 31, 2011	Dec 25, 2010	Dec 26, 2009	Dec 27, 2008	Dec 29, 2007
	Net Profit Margin
	Reported net profit margin	%	%	%	%	%
	Adjusted net profit margin	%	%	%	%	%
	Return on Equity (ROE)
	Reported ROE	%	%	%	%	%
	Adjusted ROE	%	%	%	%	%
	Return on Assets (ROA)
	Reported ROA	%	%	%	%	%
	Adjusted ROA	%	%	%	%	%

Adjusted Net Profit Margin

		Dec 31, 2011	Dec 25, 2010	Dec 26, 2009	Dec 27, 2008	Dec 29, 2007
	As Reported
	Net income (USD $ in thousands)
	Net revenues (USD $ in thousands)
	Net profit margin1	%	%	%	%	%
	Adjusted: Mark to Market Available-for-sale Securities
	Adjusted net income (USD $ in thousands)
	Net revenues (USD $ in thousands)
	Adjusted net profit margin2	%	%	%	%	%

2011 Calculations

Adjusted Return On Equity (ROE)

		Dec 31, 2011	Dec 25, 2010	Dec 26, 2009	Dec 27, 2008	Dec 29, 2007
	As Reported
	Net income (USD $ in thousands)
	Stockholders’ equity (USD $ in thousands)
	ROE1	%	%	%	%	%
	Adjusted: Mark to Market Available-for-sale Securities
	Adjusted net income (USD $ in thousands)
	Stockholders’ equity (USD $ in thousands)
	Adjusted ROE2	%	%	%	%	%

2011 Calculations

Adjusted Return On Assets (ROA)

		Dec 31, 2011	Dec 25, 2010	Dec 26, 2009	Dec 27, 2008	Dec 29, 2007
	As Reported
	Net income (USD $ in thousands)
	Total assets (USD $ in thousands)
	ROA1	%	%	%	%	%
	Adjusted: Mark to Market Available-for-sale Securities
	Adjusted net income (USD $ in thousands)
	Total assets (USD $ in thousands)
	Adjusted ROA2	%	%	%	%	%

2011 Calculations