12. Supplemental Condensed Consolidating Financial Information

In lieu of providing separate annual and interim financial statements for each guarantor of the Senior Notes, Regulation S-X provides companies, if certain criteria are satisfied, with the option to instead provide condensed consolidating financial information for its issuers, guarantors and non-guarantors. In the case of the Company, the applicable criteria include the following: (i) the Senior Notes are fully and unconditionally guaranteed on a joint and several basis (subject to customary release provisions), (ii) each of the guarantors of the Senior Notes is a direct or indirect 100% owned subsidiary of the Company and (iii) any non-guarantors are considered minor as that term is defined in Regulation S-X. Because each of these criteria has been satisfied by the Company, condensed consolidating balance sheets as of September 30, 2016 and December 31, 2015, condensed consolidating statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2016 and 2015, respectively, and condensed consolidating statements of cash flows for the nine months ended September 30, 2016 and 2015, respectively, for the Company, segregating the issuer, the subsidiary guarantors and consolidating adjustments, are reflected below. Prior period amounts have been reclassified to conform to the current year presentation.

Condensed Consolidating Balance Sheet



	As of September 30, 2016
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	799	$	91,650	$	—	$	92,449
Accounts receivable, net of allowance for doubtful accounts		—		276,378		—		276,378
Prepaid expenses and other current assets		2,512		40,047		—		42,559
Total current assets		3,311		408,075		—		411,386
Property and equipment, net		1		227,669		—		227,670
Due from affiliates		75,473		—		(75,473)		—
Investment in consolidated subsidiaries		1,820,011		—		(1,820,011)		—
Goodwill		—		2,229,228		—		2,229,228
Intangible assets, net		99		1,638,555		—		1,638,654
Other assets, net		292,376		9,326		(291,926)		9,776
Total assets	$	2,191,271	$	4,512,853	$	(2,187,410)	$	4,516,714
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	284	$	26,032	$	—	$	26,316
Accrued expenses		21,471		156,325		—		177,796
Deferred revenues		—		18,189		—		18,189
Current portion of long-term debt		8,100		22,063		—		30,163
Total current liabilities		29,855		222,609		—		252,464
Due to affiliates		—		75,473		(75,473)		—
Long-term debt, excluding current portion		1,018,174		1,722,380		—		2,740,554
Deferred income tax liabilities		—		662,159		(291,926)		370,233
Tax receivable agreement obligations to related parties		184,139		—		—		184,139
Other long-term liabilities		5,952		10,221		—		16,173
Commitments and contingencies
Equity		953,151		1,820,011		(1,820,011)		953,151
Total liabilities and equity	$	2,191,271	$	4,512,853	$	(2,187,410)	$	4,516,714

Condensed Consolidating Balance Sheet



	As of December 31, 2015
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	738	$	65,917	$	—	$	66,655
Accounts receivable, net of allowance for doubtful accounts		—		280,858		—		280,858
Prepaid expenses and other current assets		2,234		33,179		—		35,413
Total current assets		2,972		379,954		—		382,926
Property and equipment, net		3		244,142		—		244,145
Due from affiliates		135,406		—		(135,406)		—
Investment in consolidated subsidiaries		1,790,964		—		(1,790,964)		—
Goodwill		—		2,230,100		—		2,230,100
Intangible assets, net		1,000		1,706,863		—		1,707,863
Other assets, net		253,960		8,050		(253,510)		8,500
Total assets	$	2,184,305	$	4,569,109	$	(2,179,880)	$	4,573,534
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	—	$	27,950	$	—	$	27,950
Accrued expenses		10,689		156,480		—		167,169
Deferred revenues		—		12,943		—		12,943
Current portion of long-term debt		8,099		24,676		—		32,775
Total current liabilities		18,788		222,049		—		240,837
Due to affiliates		—		135,406		(135,406)		—
Long-term debt, excluding current portion		1,015,243		1,725,935		—		2,741,178
Deferred income tax liabilities		—		683,893		(253,510)		430,383
Tax receivable agreement obligations to related parties		173,493		—		—		173,493
Other long-term liabilities		1,092		10,862		—		11,954
Commitments and contingencies
Equity		975,689		1,790,964		(1,790,964)		975,689
Total liabilities and equity	$	2,184,305	$	4,569,109	$	(2,179,880)	$	4,573,534

Condensed Consolidating Statement of Operations



	Three Months Ended September 30, 2016
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
Revenue:
Solutions revenue	$	—	$	307,586	$	—	$	307,586
Postage revenue		—		73,880		—		73,880
Total revenue		—		381,466		—		381,466
Costs and expenses:
Cost of operations (exclusive of depreciation and amortization below)		—		138,685		—		138,685
Development and engineering		—		16,494		—		16,494
Sales, marketing, general and administrative		1,043		68,470		—		69,513
Customer postage		—		73,880		—		73,880
Depreciation and amortization		301		65,598		—		65,899
Accretion		1,721		—		—		1,721
Impairment of long-lived assets		—		20		—		20
Operating income (loss)		(3,065)		18,319		—		15,254
Equity in earnings of consolidated subsidiaries		(13,956)		—		13,956		—
Interest expense, net		20,773		25,761		—		46,534
Income (loss) before income tax provision (benefit)		(9,882)		(7,442)		(13,956)		(31,280)
Income tax provision (benefit)		(12,367)		(21,398)		—		(33,765)
Net income (loss)	$	2,485	$	13,956	$	(13,956)	$	2,485

Condensed Consolidating Statement of Operations



	Three Months Ended September 30, 2015
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
Revenue:
Solutions revenue	$	—	$	287,946	$	—	$	287,946
Postage revenue		—		89,839		—		89,839
Total revenue		—		377,785		—		377,785
Costs and expenses:
Cost of operations (exclusive of depreciation and amortization below)		15		129,370		—		129,385
Development and engineering		—		11,651		—		11,651
Sales, marketing, general and administrative		1,974		54,745		—		56,719
Customer postage		—		89,839				89,839
Depreciation and amortization		33,133		52,684		—		85,817
Accretion		6,458		—		—		6,458
Impairment of long-lived assets		—		219		—		219
Operating income (loss)		(41,580)		39,277		—		(2,303)
Equity in earnings of consolidated subsidiaries		(7,126)		—		7,126		—
Interest expense, net		28,108		17,433		—		45,541
Contingent consideration		—		(4,660)		—		(4,660)
Income (loss) before income tax provision (benefit)		(62,562)		26,504		(7,126)		(43,184)
Income tax provision (benefit)		(29,656)		19,378		—		(10,278)
Net income (loss)	$	(32,906)	$	7,126	$	(7,126)	$	(32,906)

Condensed Consolidating Statement of Operations



	Nine Months Ended September 30, 2016
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
Revenue:
Solutions revenue	$	—	$	942,362	$	—	$	942,362
Postage revenue		—		234,205		—		234,205
Total revenue		—		1,176,567		—		1,176,567
Costs and expenses:
Cost of operations (exclusive of depreciation and amortization below)		—		430,216		—		430,216
Development and engineering		—		46,015		—		46,015
Sales, marketing, general and administrative		7,403		202,974		—		210,377
Customer postage		—		234,205		—		234,205
Depreciation and amortization		903		187,979		—		188,882
Accretion		10,645		—		—		10,645
Impairment of long-lived assets		—		251		—		251
Operating income (loss)		(18,951)		74,927		—		55,976
Equity in earnings of consolidated subsidiaries		(18,322)		—		18,322		—
Interest expense, net		62,470		77,250		—		139,720
Income (loss) before income tax provision (benefit)		(63,099)		(2,323)		(18,322)		(83,744)
Income tax provision (benefit)		(36,793)		(20,645)		—		(57,438)
Net income (loss)	$	(26,306)	$	18,322	$	(18,322)	$	(26,306)

Condensed Consolidating Statement of Operations



	Nine Months Ended September 30, 2015
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
Revenue
Solutions revenue	$	—	$	810,162	$	—	$	810,162
Postage revenue		—		268,119		—		268,119
Total revenue		—		1,078,281		—		1,078,281
Costs and expenses:
Cost of operations (exclusive of depreciation and amortization below)		15		371,844		—		371,859
Development and engineering		—		32,600		—		32,600
Sales, marketing, general and administrative		7,828		144,127		—		151,955
Customer postage		—		268,119		—		268,119
Depreciation and amortization		37,633		145,813		—		183,446
Accretion		15,254		—		—		15,254
Impairment of long-lived assets		—		1,180		—		1,180
Operating income (loss)		(60,730)		114,598		—		53,868
Equity in earnings of consolidated subsidiaries		(47,865)		—		47,865		—
Interest expense, net		74,697		46,988		—		121,685
Contingent consideration		—		(4,825)		—		(4,825)
Income (loss) before income tax provision (benefit)		(87,562)		72,435		(47,865)		(62,992)
Income tax provision (benefit)		(56,834)		24,570		—		(32,264)
Net income (loss)	$	(30,728)	$	47,865	$	(47,865)	$	(30,728)

Condensed Consolidating Statement of Comprehensive Income (Loss)



	Three Months Ended September 30, 2016
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
Net income (loss)	$	2,485	$	13,956	$	(13,956)	$	2,485
Other comprehensive income (loss):
Changes in fair value of interest rate swap, net of taxes		330		—		—		330
Foreign currency translation adjustment		—		(70)		—		(70)
Equity in other comprehensive earnings		(70)		—		70		—
Other comprehensive income (loss)		260		(70)		70		260
Total comprehensive income (loss)	$	2,745	$	13,886	$	(13,886)	$	2,745

Condensed Consolidating Statement of Comprehensive Income (Loss)



	Three Months Ended September 30, 2015
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
Net income (loss)	$	(32,906)	$	7,126	$	(7,126)	$	(32,906)
Other comprehensive income (loss):
Changes in fair value of interest rate swap, net of taxes		6		—		—		6
Foreign currency translation adjustment		—		(347)		—		(347)
Equity in other comprehensive earnings		(347)		—		347		—
Other comprehensive income (loss)		(341)		(347)		347		(341)
Total comprehensive income (loss)	$	(33,247)	$	6,779	$	(6,779)	$	(33,247)

Condensed Consolidating Statement of Comprehensive Income (Loss)



	Nine Months Ended September 30, 2016
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
Net income (loss)	$	(26,306)	$	18,322	$	(18,322)	$	(26,306)
Other comprehensive income (loss):
Changes in fair value of interest rate swap, net of taxes		(2,303)		—		—		(2,303)
Foreign currency translation adjustment		—		240		—		240
Equity in other comprehensive earnings		240		—		(240)		—
Other comprehensive income (loss)		(2,063)		240		(240)		(2,063)
Total comprehensive income (loss)	$	(28,369)	$	18,562	$	(18,562)	$	(28,369)

Condensed Consolidating Statement of Comprehensive Income (Loss)



	Nine Months Ended September 30, 2015
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
Net income (loss)	$	(30,728)	$	47,865	$	(47,865)	$	(30,728)
Other comprehensive income (loss):
Changes in fair value of interest rate swap, net of taxes		(445)		—		—		(445)
Foreign currency translation adjustment		—		(531)		—		(531)
Equity in other comprehensive earnings		(531)		—		531		—
Other comprehensive income (loss)		(976)		(531)		531		(976)
Total comprehensive income (loss)	$	(31,704)	$	47,334	$	(47,334)	$	(31,704)

Condensed Consolidating Statement of Cash Flows



	Nine Months Ended September 30, 2016
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
Operating activities
Net income (loss)	$	(26,306)	$	18,322	$	(18,322)	$	(26,306)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		903		187,979		-		188,882
Accretion		10,645		-		-		10,645
Equity compensation		286		7,803		-		8,089
Deferred income tax expense (benefit)		(36,793)		(20,920)		-		(57,713)
Amortization of debt discount and issuance costs		3,250		6,974		-		10,224
Impairment of long-lived assets		-		251		-		251
Equity in earnings of consolidated subsidiaries		(18,322)		-		18,322		-
Other		(1,497)		80		-		(1,417)
Changes in operating assets and liabilities:
Accounts receivable		-		3,489		-		3,489
Prepaid expenses and other		(323)		(8,021)		-		(8,344)
Accounts payable		284		(4,123)		-		(3,839)
Accrued expenses, deferred revenue and other liabilities		12,372		8,679		-		21,051
Due to/from affiliates		60,648		(60,648)		-		-
Net cash provided (used in) by operating activities		5,147		139,865		-		145,012
Investing activities
Purchases of property and equipment		-		(53,830)		-		(53,830)
Payments for acquisitions, net of cash acquired		-		1,502		-		1,502
Purchases of technology-based intangible assets		-		(43,495)		-		(43,495)
Investment in subsidiaries, net		(2,930)		-		2,930		-
Net cash provided by (used in) investing activities		(2,930)		(95,823)		2,930		(95,823)
Financing activities
Distributions from (to) Change Healthcare Holdings, Inc., net		-		2,930		(2,930)		-
Payments on Term Loan Facility		(272)		(13,618)		-		(13,890)
Payments of deferred financing obligations		-		(7,621)		-		(7,621)
Repurchase of Parent common stock		(1,884)		-		-		(1,884)
Net cash provided by (used in) financing activities		(2,156)		(18,309)		(2,930)		(23,395)
Net increase (decrease) in cash and cash equivalents		61		25,733		-		25,794
Cash and cash equivalents at beginning of period		738		65,917		-		66,655
Cash and cash equivalents at end of period	$	799	$	91,650	$	-	$	92,449

Condensed Consolidating Statement of Cash Flows



	Nine Months Ended September 30, 2015
	Change Healthcare		Guarantor		Consolidating
	Holdings, Inc.		Subsidiaries		Adjustments		Consolidated
Operating activities
Net income (loss)	$	(30,728)	$	47,865	$	(47,865)	$	(30,728)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		37,633		145,813		-		183,446
Accretion		15,254		-		-		15,254
Equity compensation		229		6,585		-		6,814
Deferred income tax expense (benefit)		(26,160)		(2,677)		-		(28,837)
Amortization of debt discount and issuance costs		2,353		5,088		-		7,441
Contingent consideration		-		(4,825)		-		(4,825)
Impairment of long-lived assets		-		1,180		-		1,180
Equity in earnings of consolidated subsidiaries		(47,865)		-		47,865		-
Other		(1,488)		14		-		(1,474)
Changes in operating assets and liabilities:
Accounts receivable		-		6,147		-		6,147
Prepaid expenses and other		(30,546)		18,872		-		(11,674)
Accounts payable		-		10,517		-		10,517
Accrued expenses, deferred revenue and other liabilities		16,627		(17,545)		-		(918)
Due to/from affiliates		(347,949)		347,949		-		-
Net cash provided by (used in) operating activities		(412,640)		564,983		-		152,343
Investing activities
Purchases of property and equipment		-		(39,175)		-		(39,175)
Payments for acquisitions, net of cash acquired		-		(717,669)		-		(717,669)
Purchased of technology-based intangible assets		-		(3,676)		-		(3,676)
Investment in subsidiaries, net		1,019		-		(1,019)		-
Net cash provided by (used in) investing activities		1,019		(760,520)		(1,019)		(760,520)
Financing activities
Distributions from (to) Change Healthcare Holdings, Inc., net		-		(1,019)		1,019		-
Proceeds from Term Loan Facility		8,274		377,137		-		385,411
Proceeds from Senior Notes		243,453		-		-		243,453
Payments on Term Loan Facility		(229)		(11,641)		-		(11,870)
Proceeds from Revolving Facility		-		60,000		-		60,000
Payments on Revolving Facility		-		(60,000)		-		(60,000)
Payment of debt assumed from acquisition		-		(154,469)		-		(154,469)
Payments of deferred financing obligations		-		(6,173)		-		(6,173)
Repurchase of Parent common stock		(4,351)		-		-		(4,351)
Capital contribution from Investor Group and management		166,881		-		-		166,881
Payment of contingent consideration		-		(5,553)		-		(5,553)
Other		(2,500)		-		-		(2,500)
Net cash provided by (used in) financing activities		411,528		198,282		1,019		610,829
Net increase (decrease) in cash and cash equivalents		(93)		2,745		-		2,652
Cash and cash equivalents at beginning of period		796		81,510		-		82,306
Cash and cash equivalents at end of period	$	703	$	84,255	$	-	$	84,958