SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

or

Commission file number 0-24975

EMDEON CORPORATION

(Exact name of registrant as specified in its charter)

669 River Drive, Center 2

Elmwood Park, New Jersey 07407-1361

(Address of principal executive offices, including zip code)

(201) 703-3400

(Registrant’s telephone number, including area code)

     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 (the “Exchange Act”) 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 þ     No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ     No o

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

As of November 8, 2005, there were 344,892,743 shares of the

registrant’s Common Stock outstanding.

EMDEON CORPORATION

QUARTERLY REPORT ON FORM 10-Q

For the period ended September 30, 2005

TABLE OF CONTENTS

WebMD®, WebMD Health®, dakota imaging^tm, Digital Office Manager®, DIM_DX®, Emdeon^tm, Emdeon Business Services^tm, Emdeon Practice Services^tm, Envoy®, ExpressBill®, Image Director^sm, Intergy®, MedicineNet®, Medifax®, Medifax-EDI®, Medpulse®, Medscape®, MEDPOR®, Physician Flow^sm, POREX®, Publishers’ Circle®, RxList®, The Little Blue Book^tm, The Medical Manager® and ViPS^tm are among the trademarks of Emdeon Corporation or its subsidiaries.

FORWARD-LOOKING STATEMENTS

      This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be, forward-looking statements. For example, statements concerning projections, predictions, expectations, estimates or forecasts and statements that describe our objectives, plans or goals are, or may be, forward-looking statements. These forward-looking statements reflect management’s current expectations concerning future results and events and can generally be identified by the use of expressions such as “may,” “will,” “should,” “could,” “would,” “likely,” “predict,” “potential,” “continue,” “future,” “estimate,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” and other similar words or phrases, as well as statements in the future tense.

      Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. The following important risks and uncertainties could affect future results, causing those results to differ materially from those expressed in our forward-looking statements:

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results.

      The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report. We expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.

PART I

FINANCIAL INFORMATION

EMDEON CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

See accompanying notes.

EMDEON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)

See accompanying notes.

EMDEON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

See accompanying notes.

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data, unaudited)

Basis of Presentation

      In October 2005, WebMD Corporation changed its name to Emdeon Corporation in connection with the initial public offering of equity securities of the Company’s WebMD Health subsidiary, WebMD Health Corp. (“WHC”). On September 28, 2005, WHC sold, in an initial public offering, shares of its Class A Common Stock representing approximately 14.2% of the aggregate number of its shares of Common Stock outstanding immediately following the offering. The accompanying consolidated financial statements include the consolidated accounts of Emdeon Corporation and its subsidiaries (the “Company”). The consolidated accounts include 100% of the assets and liabilities of the majority owned WHC and the ownership interests of minority shareholders of WHC are recorded as Minority Interest in WebMD Health Corp. in the accompanying consolidated balance sheets. The Company’s common stock continues to be traded on the Nasdaq National Market under the symbol “HLTH”.

      The unaudited consolidated financial statements of the Company have been prepared by management and reflect all adjustments (consisting of only normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. The results of operations for the three and nine months ended September 30, 2005 are not necessarily indicative of the results to be expected for any subsequent period or for the entire year ending December 31, 2005. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted under the Securities and Exchange Commission’s rules and regulations.

      The unaudited consolidated financial statements and notes included herein should be read in conjunction with the Company’s audited consolidated financial statements and notes for the year ended December 31, 2004, which were included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Accounting Estimates

      The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company is subject to uncertainties such as the impact of future events, economic, environmental and political factors and changes in the Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect: the allowance for doubtful accounts, the carrying value of inventory, the carrying value of prepaid advertising and distribution services, the carrying value of long-lived assets (including goodwill and intangible assets), the amortization period of long-lived assets (excluding goodwill), the carrying value, capitalization and amortization of software development costs, the carrying value of short-term and long-term investments, the provision for income taxes and related deferred tax accounts, certain accrued expenses, revenue recognition, contingencies, litigation and the value attributed to warrants issued for services.

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Inventory

      Inventory is stated at the lower of cost or market value using the first-in, first-out basis. Cost includes raw materials, direct labor and manufacturing overhead. Market value is based on current replacement cost for raw materials and supplies and on net realizable value for work-in-process and finished goods. Inventory consisted of the following:

Accounting for Stock-Based Compensation

      The Company accounts for its stock-based employee compensation plans using the intrinsic value method under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations. No stock-based employee compensation cost is reflected in net income with respect to options granted with an exercise price equal to the market value of the underlying common stock on the date of grant. Stock-based awards to non-employees are accounted for based on provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), and EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” The following table illustrates the effect on net income and net income per common share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:

      The pro forma results above are not intended to be indicative of or a projection of future results. Pro forma information regarding net income has been determined as if employee stock options granted subsequent to December 31, 1994 were accounted for under the fair value method of SFAS No. 123. The fair value for 2005 options was estimated at the date of grant using the Black-Scholes option pricing model employing weighted average assumptions that were substantially consistent with the 2004 assumptions

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

except with respect to the volatility assumption which was 0.5 for options granted during the nine months ended September 30, 2005. The 2004 assumptions were included in Note 14 to the consolidated financial statements contained in the Company’s 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Net Income Per Common Share

      Basic income per common share and diluted income per common share are presented in conformity with SFAS No. 128, “Earnings Per Share” (“SFAS No. 128”). In accordance with SFAS No. 128, basic income per common share has been computed using the weighted-average number of shares of common stock outstanding during the period, increased to give effect to the assumed conversion of the convertible redeemable exchangeable preferred stock. Diluted income per common share has been computed using the weighted-average number of shares of common stock outstanding during the period, increased to give effect to potentially dilutive securities. Additionally, for purposes of calculating diluted income per common share of the Company, the numerator has been adjusted to consider the effect of potentially dilutive securities of WHC, which can dilute the portion of WHC’s net income otherwise retained by the Company. See Note 3. The impact of WHC’s potentially dilutive securities on the calculation of diluted income per common share was not material during any of the periods presented. The following table presents the calculation of basic and diluted income per common share (shares in thousands):

      The Company has excluded convertible subordinated notes and convertible notes, as well as certain outstanding warrants and stock options, from the calculation of diluted income per common share because such securities were anti-dilutive during the periods presented. The following table presents the total number of shares that could potentially dilute basic income per common share in the future that were

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

not included in the computation of diluted income per common share during the periods presented (shares in thousands):

Recent Accounting Pronouncements

      In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123, “(Revised 2004): Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123 and supersedes APB No. 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the fiscal year that begins after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. The Company is required to adopt SFAS 123R in the first quarter of fiscal 2006, beginning January 1, 2006. Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R. The Company is evaluating the requirements of SFAS 123R and expects that the adoption of SFAS 123R will have a material impact on the consolidated results of operations and earnings per share. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123R.

Reclassifications

      Certain reclassifications have been made to the prior period financial statements to conform to the current year presentation, including the classification of auction rate securities as available-for-sale securities, which are reported as short-term investments, instead of cash and cash equivalents. The Company reclassified $13,400 of investments in auction rate securities that were previously included in cash and cash equivalents to short-term investments as of September 30, 2004. The Company has included purchases and sales of auction rate securities in the accompanying consolidated statements of cash flows as a component of its investing activities. This reclassification had no impact on the Company’s results of operations or cash flow from operations.

2005 Acquisition

      On March 14, 2005, the Company acquired HealthShare Technology, Inc. (“HealthShare”), a privately held company that provides online tools that compare cost and quality measures of hospitals for use by consumers, providers and health plans. The total purchase consideration of HealthShare was approximately $29,883, comprised of $29,533 in cash, net of cash acquired, and $350 of estimated acquisition costs. In addition, the Company has agreed to pay up to an additional $5,000 during the three months ended March 31, 2006 if HealthShare reaches certain revenue thresholds for the year ended December 31, 2005. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

liabilities assumed on the basis of their respective fair values. In connection with the preliminary allocation of the purchase price and intangible asset valuation, goodwill of $24,875 and intangible assets subject to amortization of $8,500 were recorded. The Company does not expect that the goodwill or intangible assets recorded will be deductible for tax purposes. The intangible assets are comprised of $7,500 relating to customer relationships with estimated useful lives of five years and $1,000 relating to acquired technology with an estimated useful life of three years. The results of operations of HealthShare have been included in the financial statements of the Company from March 14, 2005, the closing date of the acquisition, and are included in the WebMD Health segment.

2004 Acquisitions

      On December 24, 2004, the Company acquired MedicineNet, Inc. (“MedicineNet”), a privately held health information Web site for consumers. The total purchase consideration of MedicineNet was approximately $17,209 comprised of $16,732 in cash, net of cash acquired, and $477 of estimated acquisition costs. In addition, the Company has agreed to pay up to an additional $15,000 during the three months ended March 31, 2006 if the number of page views on MedicineNet’s Web sites exceeds certain thresholds for the year ended December 31, 2005. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the preliminary allocation of the purchase price and intangible asset valuation, goodwill of $9,104 and intangible assets subject to amortization of $7,200 were recorded. The Company does not expect that the goodwill or intangible asset recorded will be deductible for tax purposes. The intangible assets are comprised of $5,600 relating to content with an estimated useful life of three years, $900 relating to customer relationships with estimated useful lives of two years and $700 relating to acquired technology with an estimated useful life of three years. The results of operations of MedicineNet have been included in the WebMD Health segment.

      During October 2004, the Company acquired Esters Filtertechnik GmbH (“Esters”), a privately held distributor of porous plastic products and components. The total purchase consideration of Esters was approximately $3,333 comprised of $3,160 in cash, net of cash acquired, and $173 of estimated acquisition costs. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the preliminary allocation of the purchase price, goodwill of $1,798 and an intangible asset subject to amortization of $1,200 were recorded. The Company does not expect that the goodwill or intangible asset recorded will be deductible for tax purposes. The intangible asset is customer relationships with an estimated useful life of eleven years. The results of operations of Esters have been included in the financial statements of the Company from the closing date of the acquisition and are included in the Porex segment.

      On October 1, 2004, the Company acquired RxList, LLC (“RxList”), a privately held provider of an online drug directory for consumers and healthcare professionals. The total purchase consideration was approximately $5,455 comprised of $4,500 in cash, $500 to be paid in 2006 and $455 of estimated acquisition costs. In addition, the Company has agreed to pay up to an additional $2,500 during each of the three month periods ended March 31, 2006 and 2007, if the number of page views on RxList’s Web sites exceeds certain thresholds for each of the three month periods ended December 31, 2005 and 2006, respectively. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the allocation of the purchase price and intangible asset valuation, goodwill of $4,420 and an intangible asset subject to amortization of $1,054 were recorded. The Company expects that substantially all of the goodwill and intangible asset recorded will be deductible for tax purposes. The intangible asset is content with an estimated useful life of five years. The

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

results of operations of RxList have been included in the financial statements of the Company from October 1, 2004, the closing date of the acquisition, and are included in the WebMD Health segment.

      On August 11, 2004, the Company completed its acquisition of ViPS, Inc. (“ViPS”), a privately held provider of information technology, decision support solutions and consulting services to government, Blue Cross Blue Shield and commercial healthcare payers. ViPS develops and provides a broad range of solutions for claims processing, provider performance measurement, quality improvement, fraud detection, disease management and predictive modeling. The total purchase consideration for ViPS was approximately $166,588 comprised of $165,208 in cash, net of cash acquired, and $1,380 of acquisition costs. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the allocation of the purchase price, goodwill of $71,253 and intangible assets subject to amortization of $84,000 were recorded. The Company does not expect that the goodwill or intangible assets recorded will be deductible for tax purposes. The intangible assets are comprised of $38,800 relating to customer relationships with estimated useful lives ranging from ten to fifteen years, $34,800 relating to acquired technology with an estimated useful life of five years and $10,400 relating to a trade name with an estimated useful life of ten years. The results of operations of ViPS have been included in the financial statements of the Company from August 11, 2004, the closing date of the acquisition, and are included in the Emdeon Business Services (formerly known as WebMD Business Services) segment.

      On July 15, 2004, the Company acquired the assets of Epor, Inc. (“Epor”), a privately held company based in Los Angeles, California. Epor manufactures porous plastic implant products for use in aesthetic and reconstructive surgery of the head and face. The total purchase consideration for Epor was approximately $2,547 comprised of $2,000 in cash, $490 to be paid over five years, of which $90 has been paid as of September 30, 2005, and $57 of acquisition costs. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the allocation of the purchase price, goodwill of $2,324 and an intangible asset subject to amortization of $200 were recorded. The Company expects that substantially all of the goodwill and intangible asset recorded will be deductible for tax purposes. The intangible asset is a non-compete agreement with an estimated useful life of five years. The results of operations of Epor have been included in the financial statements of the Company from July 15, 2004, the closing date of the acquisition, and are included in the Porex segment.

      On April 30, 2004, the Company acquired Dakota Imaging, Inc. (“Dakota”), a privately held provider of automated healthcare claims processing technology and business process outsourcing services. Dakota’s technology and services assist its customers in reducing costly manual processing of healthcare documents and increase auto-payment of medical claims through advanced data scrubbing. The Company paid approximately $38,979 in cash, net of cash acquired, $527 of acquisition costs and has agreed to pay up to an additional $25,000 in cash over a three-year period beginning in April 2005 if certain financial milestones are achieved. No payment was made in April 2005 in connection with the first earn out year ending March 2005. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the allocation of the purchase price, goodwill of $28,266 and intangible assets subject to amortization of $13,100 were recorded. The Company does not expect that the goodwill or intangible assets recorded will be deductible for tax purposes. The intangible assets are comprised of $4,500 relating to customer relationships with estimated useful lives of ten years and $8,600 relating to acquired technology with an estimated useful life of five years. The results of operations of Dakota have been included in the financial statements of the Company

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

from April 30, 2004, the closing date of the acquisition, and are included in the Emdeon Business Services segment.

      In 2004, the Company acquired one practice services company for an aggregate cost of $70, which was paid in cash, and agreed to pay up to $30 beginning in 2005 if the acquired company met certain financial milestones. During the nine months ended September 30, 2005, the Company paid $30 in cash as a result of achieving these milestones. In connection with the allocation of the purchase price, intangible assets subject to amortization of $85 were recorded, principally related to customer relationships and non-compete agreements. The results of operations of this company have been included in the financial statements of the Company from the acquisition closing date, and are included in the Emdeon Practice Services (formerly known as WebMD Practice Services) segment.

Unaudited Pro Forma Information

      The following unaudited pro forma financial information for the nine months ended September 30, 2004 gives effect to the acquisition of ViPS including the amortization of intangible assets, as if it had occurred as of January 1, 2004. The information is provided for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transaction had been consummated on the date indicated, nor is it necessarily indicative of future operating results of the consolidated companies, and should not be construed as representative of these results for any future period. The remaining acquisitions in 2005 and 2004 have been excluded as the pro forma impact of such acquisitions was not significant to the period presented.

      In May 2005, the Company formed a wholly owned subsidiary in preparation for an initial public offering of equity in the Company’s WebMD Health segment. The subsidiary was later named WebMD Health Corp. (“WHC”) and, in September 2005, the Company contributed to WHC the subsidiaries, the assets and the liabilities included in the Company’s WebMD Health segment. On September 28, 2005, WHC sold, in an initial public offering, 7,935,000 shares of its Class A Common Stock at $17.50 per share. This resulted in proceeds, net of underwriting discounts, of approximately $129,142, which was retained by WHC to be used for working capital and general corporate purposes. WHC received these proceeds on October 4, 2005 and, accordingly, this amount has been classified as Stock Subscription Receivable in the accompanying consolidated balance sheets as of September 30, 2005. Additionally, the Company incurred approximately $5,600 of legal, accounting, printing and other expenses related to the offering.

      As of September 30, 2005, the Company owned 48,100,000 shares of WHC Class B Common Stock, representing ownership of approximately 85.8% of the outstanding WHC Common Stock. WHC Class A Common Stock has one vote per share while WHC Class B Common Stock has five votes per share. Therefore, as of September 30, 2005, the WHC Class B Common Stock owned by the Company represented 96.7% of the combined voting power of WHC’s outstanding Common Stock. Each share of

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

WHC Class B Common Stock is convertible at the Company’s option into one share of WHC Class A Common Stock. In addition, shares of WHC Class B Common Stock will automatically be converted, on a one-for-one basis, into shares of WHC Class A Common Stock on a transfer thereof to a person other than a majority owned subsidiary of the Company or a successor of the Company. On the fifth anniversary of the closing date of the initial public offering, all then outstanding shares of WHC Class B Common Stock will automatically be converted, on a one-for-one basis, into shares of WHC Class A Common Stock.

      The Company recorded a gain on the sale of WHC Class A Common Stock of approximately $82,385, which was reflected as an adjustment to additional paid-in capital in accordance with the requirements of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 51 “Accounting for Sales of Stock by a Subsidiary” (“SAB No. 51”). In connection with the SAB No. 51 gain, the Company recorded deferred tax liabilities of approximately $32,000 and reversed an equal amount of its deferred tax valuation allowance. Both the establishment of the deferred tax liabilities and related reversal of valuation allowance were recorded to additional paid-in-capital and, accordingly, had no impact on the consolidated statement of operations or consolidated balance sheet. As of September 30, 2005, the minority stockholders’ proportionate share of the equity in WHC of $41,506 is reflected as Minority Interest in WebMD Health Corp. in the accompanying consolidated balance sheets. The minority stockholders’ proportionate share of net income in WHC from the date of the initial public offering through September 30, 2005 was not material. In connection with the initial public offering, WHC granted to employees, on September 28, 2005, approximately 4,575,000 shares of WHC Class A Common Stock, of which approximately 4,200,000 were in the form of options to purchase shares of WHC Class A Common Stock with an exercise price equal to the initial public offering price per share of $17.50 and approximately 375,000 were in the form of restricted WHC Class A Common Stock.

      The Company entered into a number of agreements with WHC governing the future relationship of the companies, including a Services Agreement, a Tax Sharing Agreement and an Indemnity Agreement. These agreements cover a variety of matters, including responsibility for certain liabilities, including tax liabilities, as well as matters related to providing WHC with administrative services, such as payroll, accounting, tax, employee benefit plan, employee insurance, intellectual property, legal and information processing services. Under the Services Agreement, the Company will receive an amount that reasonably approximates its cost of providing services to WHC. The Company has agreed to make the services available to WHC for up to five years; however, WHC is not required, under the Services Agreement, to continue to obtain services from the Company and is able to terminate services, in whole or in part, at any time generally by providing, with respect to the specified services or groups of services, 60 days’ prior notice and, in some cases, paying a nominal termination fee to cover costs relating to the termination.

      On March 19, 2004, the Company issued $100,000 of Convertible Redeemable Exchangeable Preferred Stock (the “Preferred Stock”) in a private transaction to CalPERS/PCG Corporate Partners, LLC (“CalPERS/PCG Corporate Partners”). CalPERS/PCG Corporate Partners is a private equity fund managed by the Pacific Corporate Group and principally backed by California Public Employees’ Retirement System, or CalPERS.

      The Preferred Stock has a liquidation preference of $100,000 in the aggregate and is convertible into 10,638,297 shares of the Company’s common stock in the aggregate, representing a conversion price of $9.40 per share of common stock. The Company may not redeem the Preferred Stock prior to March 2007. Thereafter, the Company may redeem any portion of the Preferred Stock at 105% of its liquidation preference; provided that any redemption by the Company prior to March 2008 shall be subject to the condition that the average closing sale price of the Company’s common stock is at least $13.16 per share,

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

subject to adjustment. The Company is required to redeem all shares of the Preferred Stock then outstanding in March 2012, at a redemption price equal to the liquidation preference of the Preferred Stock, payable in cash or, at the Company’s option, in shares of the Company’s common stock. If the Company’s common stock is used to redeem the Preferred Stock, the number of shares to be issued will be determined by valuing the common stock at 90% of its closing price during the 15 trading days preceding redemption.

      If the average closing sales price of the Company’s common stock during the three-month period ended on the fourth anniversary of the issuance date is less than $7.50 per share, holders of the Preferred Stock will have a right to exchange the Preferred Stock into the Company’s 10% Subordinated Notes (“10% Notes”) due March 2010. The 10% Notes may be redeemed, in whole or in part, at any time thereafter at the Company’s option at a price equal to 105% of the principal amount of the 10% Notes being redeemed.

      Holders of the Preferred Stock will not receive any dividends unless the holders of common stock do, in which case holders of the Preferred Stock will be entitled to receive ordinary dividends in an amount equal to the ordinary dividends the holders of the Preferred Stock would have received had they converted such Preferred Stock into common stock immediately prior to the record date for such dividend distribution. So long as the Preferred Stock remains outstanding, the Company is required to pay to CalPERS/PCG Corporate Partners, on a quarterly basis, an aggregate annual fee of 0.35% of the face amount of the then outstanding Preferred Stock.

      Holders of the Preferred Stock have the right to vote, together with the holders of the Company’s common stock on an as converted to common stock basis, on matters that are put to a vote of the common stock holders. The Certificate of Designations for the Preferred Stock also provides that the Company will not, without the prior approval of holders of 75% of the shares of Preferred Stock then outstanding, voting as a separate class, issue any additional shares of the Preferred Stock, or create any other class or series of capital stock that ranks senior to or on a parity with the Preferred Stock.

      The Company incurred issuance costs related to the Preferred Stock of approximately $1,885, which have been recorded against the Preferred Stock in the accompanying consolidated balance sheets. The issuance costs are being amortized to accretion of convertible redeemable exchangeable preferred stock, using the effective interest method over the period from issuance through March 19, 2012. For the three and nine months ended September 30, 2005, $59 and $175, respectively, were recorded to accretion of convertible redeemable exchangeable preferred stock, included within stockholders’ equity.

      On August 24, 2005, the Company issued $300,000 aggregate principal amount of 3¹/8% Convertible Notes due 2025 (the “3¹/8% Notes”) in a private offering. Unless previously redeemed or converted, the 3¹/8% Notes will mature on September 1, 2025. Interest on the 3¹/8% Notes accrues at the rate of 3¹/8% per annum and is payable semiannually on March 1 and September 1, commencing March 1, 2006. The Company will also pay contingent interest of 0.25% per annum to the holders of the 3¹/8% Notes during specified six-month periods, commencing with the six-month period beginning on September 1, 2012, if the average trading price of a 3¹/8% Note for the specified period equals 120% or more of the principal amount of the 3¹/8% Note.

      Holders of the 3¹/8% Notes may require the Company to repurchase their 3¹/8% Notes on September 1, 2012, September 1, 2015 and September 1, 2020, at a price equal to 100% of the principal amount of the 3¹/8% Notes being repurchased, plus any accrued and unpaid interest, payable in cash. Additionally, the holders of the 3¹/8% Notes may require the Company to repurchase the 3¹/8% Notes upon

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

a change in control of the Company at a price equal to 100% of the principal amount of the 3¹/8% Notes, plus accrued and unpaid interest, payable in cash or, at the Company’s option, in shares of the Company’s common stock or in a combination of cash and shares of the Company’s common stock. On or after September 5, 2010, September 5, 2011 and September 5, 2012, the 3¹/8% Notes are redeemable at the option of the Company for cash at redemption prices of 100.893%, 100.446% and 100.0%, respectively, plus accrued and unpaid interest.

      The 3¹/8% Notes are convertible into an aggregate of 19,273,393 shares of the Company’s common stock (representing a conversion price of $15.57 per share).

      The Company has agreed, in a Registration Rights Agreement entered into for the benefit of holders of the 3¹/8% Notes and of the shares of the Company’s common stock issuable upon conversion of the 3¹/8% Notes: (a) to file with the SEC, within 120 days after the date the 3¹/8% Notes were originally issued, a shelf registration statement covering resales of 3¹/8% Notes and the shares issuable upon their conversion; (b) to use reasonable best efforts to cause the shelf registration statement to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”) within 180 days after the date the 3¹/8% Notes were originally issued; and (c) to use reasonable best efforts to keep the shelf registration statement effective until the earliest of (i) the sale of all securities registered under the shelf registration statement; (ii) the expiration of the period referred to in Rule 144(k) of the Securities Act with respect to 3¹/8% Notes held by persons who are not affiliates of the Company; and (iii) two years after the effective date of the shelf registration statement. The Company is permitted to suspend the use of the prospectus that is part of the shelf registration statement during certain prescribed periods of time for reasons relating to pending corporate developments, public filings with the SEC and other events.

      The Company incurred issuance costs related to the 3¹/8% Notes of approximately $11,500, which are included in other assets in the accompanying consolidated balance sheets. The issuance costs are being amortized to interest expense in the accompanying consolidated statements of operations, using the effective interest method over the period from issuance through September 1, 2012, the earliest date on which holders can demand repurchase.

      On June 25, 2003, the Company issued $300,000 aggregate principal amount of 1.75% Convertible Subordinated Notes due 2023 (the “1.75% Notes”) in a private offering. On July 7, 2003, the Company issued an additional $50,000 aggregate principal amount of the 1.75% Notes. Unless previously redeemed or converted, the 1.75% Notes will mature on June 15, 2023. Interest on the 1.75% Notes accrues at the rate of 1.75% per annum and is payable semiannually on June 15 and December 15, commencing December 15, 2003. The Company will also pay contingent interest of 0.25% per annum of the average trading price of the 1.75% Notes during specified six-month periods, commencing on June 20, 2010, if the average trading price of the 1.75% Notes for specified periods equals 120% or more of the principal amount of the 1.75% Notes.

      The 1.75% Notes are convertible into an aggregate of 22,742,040 shares of the Company’s common stock (representing a conversion price of $15.39 per share) if the sale price of the Company’s common stock exceeds 120% of the conversion price for specified periods and in certain other circumstances. The 1.75% Notes are redeemable by the Company after June 15, 2008 and prior to June 20, 2010, subject to certain conditions, including the sale price of the Company’s common stock exceeding certain levels for specified periods. If the 1.75% Notes are redeemed by the Company during this period, the Company will be required to make additional interest payments. After June 20, 2010, the 1.75% Notes are redeemable at any time for cash at 100% of their principal amount. Holders of the 1.75% Notes may require the Company to repurchase their 1.75% Notes on June 15, 2010, June 15, 2013 and June 15, 2018, for cash at 100% of the principal amount of the 1.75% Notes, plus accrued interest. Upon a change in control, holders

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

may require the Company to repurchase their 1.75% Notes for, at the Company’s option, cash or shares of the Company’s common stock, or a combination thereof, at a price equal to 100% of the principal amount of the 1.75% Notes being repurchased.

      The Company incurred issuance costs related to the 1.75% Notes of approximately $10,354, which are included in other assets in the accompanying consolidated balance sheets. The issuance costs are being amortized to interest expense in the accompanying consolidated statements of operations, using the effective interest method over the period from issuance through June 15, 2010, the earliest date on which holders can demand the repurchase of the 1.75% Notes.

      On April 1, 2002, the Company issued $300,000 aggregate principal amount of 3¹/4% Convertible Subordinated Notes due 2007 (the “3¹/4% Notes”) in a private offering. Interest on the 3¹/4% Notes accrued at the rate of 3¹/4% per annum and was payable semiannually on April 1 and October 1. At the time of issuance, the 3¹/4% Notes were convertible into an aggregate of approximately 32,386,916 shares of the Company’s common stock (representing a conversion price of $9.26 per share). During the three months ended June 30, 2003, $1 principal amount of the 3¹/4% Notes was converted into 107 shares of the Company’s common stock in accordance with the provisions of the 3¹/4% Notes.

      On June 2, 2005, the Company completed the redemption of all of the outstanding 3¹/4% Notes. During the three months ended June 30, 2005, holders of the 3¹/4% Notes converted a total of $214,880 principal amount of the 3¹/4% Notes into 23,197,650 shares of common stock of the Company, plus cash in lieu of fractional shares, at a price of $9.26 per share. The Company redeemed the balance of $85,119 principal amount of the 3¹/4% Notes at an aggregate redemption price, together with accrued interest and redemption premium, of $86,694. The write-off of the unamortized portion of the deferred issuance costs and the payment of the redemption premium resulted in a total charge of $1,902. This charge is included in other expense (income) in the accompanying consolidated statements of operations and in loss on redemption of convertible debt in the accompanying consolidated statements of cash flows.

      On March 29, 2001, the Company announced a stock repurchase program (the “Program”). Under the Program, the Company was originally authorized to use up to $50,000 to purchase shares of its common stock from time to time beginning on April 2, 2001, subject to market conditions. The maximum aggregate amount of purchases under the Program was subsequently increased to $100,000, $150,000 and $200,000 on November 2, 2001, November 7, 2002 and August 19, 2004, respectively. As of September 30, 2005, the Company had repurchased a total of 27,038,986 shares at a cost of approximately $143,064 under the Program, of which 453,000 shares were repurchased during the three and nine months ended September 30, 2005 for an aggregate purchase price of $4,596. These repurchased shares are reflected as treasury stock in the accompanying consolidated balance sheets. As of September 30, 2004, the Company had repurchased a total of 25,130,962 shares at a cost of approximately $128,625 under the Program, of which 2,817,606 shares were repurchased during the nine months ended September 30, 2004 for an aggregate purchase price of $22,267 and 2,271,356 shares were repurchased during the three months ended September 30, 2004 for an aggregate purchase price of $17,390. As of September 30, 2005, the Company had $56,936 available to repurchase shares of its common stock under the Program. On November 1, 2005, the Company increased the amount available to repurchase shares of its common stock under the Program by $145,000.

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Segment information has been prepared in accordance with Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”). The accounting policies of the segments are the same as the accounting policies for the consolidated Company. Inter-segment revenues primarily represent sales of Emdeon Business Services products into the Emdeon Practice Services customer base and are reflected at rates comparable to those charged to third parties for comparable products. To a lesser extent, inter-segment revenues include sales of certain WebMD Health services to the Company’s other operating segments. The performance of the Company’s business is monitored based on income or loss before restructuring, taxes, non-cash and other items. Non-cash and other items include depreciation, amortization, gain or loss on investments, redemption of the 3¹/4% Notes and sales of property and equipment, costs and expenses related to the investigation by the United States Attorney for the District of South Carolina and the SEC (“legal expense”), costs and expenses related to the settlement of the McKesson HBOC litigation (see Note 12), non-cash expenses related to advertising and distribution services acquired in exchange for the Company’s equity securities in acquisitions and strategic alliances, and stock compensation expense primarily related to stock options issued and assumed in connection with acquisitions and restricted stock issued to employees.

      The Company has aligned its business into four operating segments and one corporate segment as follows:

      Emdeon Business Services (formerly known as WebMD Business Services) provides revenue cycle management and clinical communications solutions that enable payers, providers and patients to improve healthcare business processes. Emdeon Business Services transmits transactions electronically between healthcare payers and providers and provides healthcare payers with transaction processing technology, consulting services and outsourcing services, including document management services for transaction processing and print-and-mail services for the distribution of checks, remittance advice and explanation of benefits. Emdeon Business Services also provides automated patient billing services to healthcare providers, including statement printing and mailing services. In addition, Emdeon Business Services provides software products, including decision support and data warehousing solutions, and related maintenance services to Blue Cross Blue Shield and commercial healthcare payers and performs software maintenance and consulting services for certain governmental agencies.

      Emdeon Practice Services (formerly known as WebMD Practice Services) develops and markets information technology systems for healthcare providers and related services, primarily under The Medical Manager, Intergy and Emdeon Network Services brands. These systems and services allow physician offices to automate their scheduling, billing and other administrative tasks, to transmit transactions electronically, to maintain electronic medical records and to automate documentation of patient encounters.

      WebMD Health provides health information services to consumers, physicians and healthcare professionals through online portals and specialized publications. WebMD Health’s public and private online portals provide access to news and articles, searchable in-depth information and dynamic interactive services. WebMD Health’s public portals sell advertising and sponsorship programs, including online continuing medical education (CME) services, to companies interested in reaching consumers and physicians online, including pharmaceutical, biotechnology, medical device and consumer products companies. WebMD Health’s private portals are licensed to employers and health plans for use by their employees and members. In addition, WebMD Health publishes medical reference textbooks, healthcare provider directories and WebMD the Magazine, a consumer magazine distributed to physician office waiting rooms.

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Porex develops, manufactures and distributes proprietary porous plastic products and components used in healthcare, industrial and consumer applications, as well as in finished products used in the medical device and surgical markets.

      Corporate includes corporate services across all segments, such as, legal, accounting, tax, treasury, human resource, certain information technology functions and other services. Corporate service costs include compensation related costs, insurance and audit fees, leased property, facilities cost, legal and other professional fees, software maintenance and telecommunication costs.

      Reclassification of Segment Information. On September 28, 2005, WHC sold, in an initial public offering, 7,935,000 shares of Class A Common Stock. Also during the three months ended September 30, 2005, the Company entered into a Services Agreement with WHC and modified its segment reporting. Descriptions of the initial public offering and the Services Agreement are included in Note 3. The Company’s segment reporting has been modified to reflect the services fee it charges to its WebMD Health segment as an increase to the expenses of the WebMD Health segment and an offsetting reduction to the expenses in the Corporate segment. In accordance with SFAS No. 131, the Company has reclassified all prior period segment information to conform to the current period presentation. The service fee charged to the WebMD Health segment was $1,243 and $4,421 for the three and nine months ended September 30, 2005 and $1,599 and $4,636 for the three and nine months ended September 30, 2004, respectively.

      Summarized financial information for each of the Company’s four operating segments and corporate segment and reconciliation to net income are presented below:

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      As of September 30, 2005 and December 31, 2004, the Company’s short-term investments and marketable debt securities consisted of certificates of deposit, auction rate securities, municipal bonds, asset backed securities, Federal Agency Notes, U.S. Treasury Notes and marketable equity securities in publicly traded companies. All marketable securities are classified as available-for-sale. The following table summarizes the amortized cost basis and estimated fair value of the Company’s investments:

      The amortized cost and estimated fair value by maturity of securities are shown in the following table. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. Accordingly, actual maturities may differ from contractual maturities.

      Comprehensive income is comprised of net income and other comprehensive (loss) gain. Other comprehensive (loss) gain includes certain changes in equity that are excluded from net income, such as changes in unrealized holding gains (losses) on available-for-sale marketable securities and foreign

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

currency translation adjustments. The following table presents the components of other comprehensive (loss) gain for the three and nine months ended September 30, 2005 and 2004:

      The foreign currency translation losses are not currently adjusted for income taxes as they relate to permanent investments in non-U.S. subsidiaries.

      Accumulated other comprehensive income includes the following:

      During the three months ended March 31, 2005, the Company recorded a loss on investments of $4,251 related to marketable debt securities which were identified by the Company as securities to be liquidated in the event funds were needed for redemption of the 3¹/4% Notes. The loss represents the excess of the original book value of those investments over the market value at March 31, 2005. Prior to the recognition of this loss, any excess of book value over the market value of these investments was reflected in accumulated other comprehensive income in the accompanying consolidated balance sheets. In addition, during the nine months ended September 30, 2005, the Company recognized gains on the sale of certain of its investments of $609. Both of the above amounts are included in other expense (income) in the accompanying consolidated statements of operations.

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The changes in the carrying amount of goodwill for the year ended December 31, 2004 and the nine months ended September 30, 2005 are as follows:

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Intangible assets subject to amortization consist of the following:

      Amortization expense was $9,051 and $27,782 for the three and nine months ended September 30, 2005, respectively, and $7,949 and $20,089 for the three and nine months ended September 30, 2004, respectively. Aggregate amortization expense for intangible assets is estimated to be:

      In April 2004, the Company, through its Emdeon Business Services segment, acquired Dakota, a provider of automated healthcare claims processing technology and business process outsourcing services.

      As previously reported in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005 and June 30, 2005, on April 6, 2005, the Company’s Dakota subsidiary terminated, for cause, the employment of Sandeep Goel, who was its President, and Pradeep Goel, who was its Chief Operating Officer and Chief Technology Officer, each of whom was also a shareholder of Dakota prior to its acquisition by Emdeon Business Services. In addition, Dakota filed a complaint in the Delaware Court of Chancery against Sandeep Goel and Pradeep Goel alleging breach of their respective employment agreements and related causes of action.

      On May 9, 2005, the defendants filed an Answer and Counterclaim against Dakota. In the Answer and Counterclaim, defendants allege that Dakota did not have the right to terminate them for cause and that Dakota violated provisions of their employment agreements. Defendants seek damages for the alleged breaches of their employment agreements. Defendants also allege that Dakota, as well as the Company and Envoy Corporation, a subsidiary of the Company, violated the Merger Agreement pursuant to which Envoy acquired Dakota. Defendants allege that the terminations and other actions taken by the Company, Envoy and Dakota interfered with the defendants’ rights with respect to potential contingent “earn-out” consideration under provisions contained in the Merger Agreement. The Merger Agreement provides for contingent consideration based on achievement of certain financial milestones in specified time periods and

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

defendants seek damages in excess of $25,000, the maximum aggregate amount of contingent consideration that could be earned under the earn-out provisions of the merger agreement.

      The Company, Envoy and Dakota have filed motions to dismiss the counterclaims in whole or in part. The Court has not yet ruled on the motions. The Company believes that the counterclaims are without merit and intends to vigorously defend itself against them.

      The amount of the contingent payment for the first year of the earn-out under the Merger Agreement is also in dispute between Envoy and Sandeep Goel and Pradeep Goel, as representatives for the former shareholders of Dakota. Envoy believes that no payment is due for that period. In accordance with the provisions of the Merger Agreement, that dispute has been submitted for arbitration before a designated accounting firm.

      On August 18, 2005, a lawsuit was filed by M.D. On-Line, Inc. in the U.S. District Court for the District of New Jersey against the Company and two of its subsidiaries. The complaint alleges claims of Federal trademark infringement, unfair competition and false designation of origin and state trademark infringement and unfair competition as a result of use of the name “Emdeon” by the Company and its subsidiaries. The complaint seeks monetary damages in excess of $150 and an injunction to cause the Company and its subsidiaries to cease using the name Emdeon. A hearing on M.D. On-Line’s preliminary injunction application was held on September 22, 2005. After hearing arguments from both parties, the Court denied M.D.On-Line’s application. The Court issued a written opinion and Order denying the preliminary injunction application on October 6, 2005. The Company intends to vigorously defend this claim.

      On September 24, 2005, the Company’s subsidiary Porex Corporation filed a complaint in the Superior Court of Fulton County, Georgia against two former employees of Porex, Dean Haldopoulos and Benjamin Hirokawa, and their corporation, Micropore Plastics, Inc., alleging misappropriation of Porex’s trade secrets and breaches of Haldopoulos’ and Hirokawa’s employment agreements, seeking monetary and injunctive relief. The lawsuit was subsequently transferred to the Superior Court of DeKalb County, Georgia. On October 24, 2005, the defendants filed an Answer and Counterclaims against Porex. In the Answer and Counterclaims, the defendants allege that Porex breached non-disclosure and standstill agreements in connection with a proposed transaction between Porex and Micropore and engaged in fraud. The defendants seek punitive damages and expenses of litigation. The Company believes that the counterclaims are without merit and intends to vigorously defend itself against them.

      In the normal course of business, the Company and its subsidiaries are involved in various other claims and legal proceedings. While the ultimate resolution of these matters, including those discussed in Part II, Item 1 of this Quarterly Report and the Company’s 2004 Annual Report on Form 10-K under the heading “Legal Proceedings,” has yet to be determined, the Company does not believe that their outcome will have a material adverse effect on the Company’s consolidated financial position or results of operations.

      As previously reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, the Company was named as a defendant in the action Merrill Lynch Fundamental Growth Fund,

EMDEON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Inc., et al. v. McKesson HBOC, Inc., et al., Case No. 405792, in the San Francisco Superior Court. The original complaint in this matter alleged that McKesson HBOC (now known as McKesson Corp.), HBO and Company (which we refer to as HBOC), certain officers and directors of those firms, Arthur Andersen LLP, and Bear Stearns & Co. engaged in a number of practices whereby HBOC and later McKesson HBOC improperly recognized revenues. When these practices were discovered, McKesson HBOC eliminated more than $327 million in revenues that HBOC had recognized over the prior three years. The plaintiffs claim to have lost more than $150 million as a result of the decline in McKesson HBOC’s share value after the accounting practices came to light in April 1999.

      On September 26, 2003, the plaintiffs filed a fourth amended complaint, naming the Company and other additional defendants for the first time. The complaint alleged that the Company aided and abetted alleged fraud by certain defendants and conspired with those defendants in relation to HBOC’s and McKesson HBOC’s alleged improper recognition of approximately $14 million in revenue on two software transactions. The plaintiffs also alleged that the Company made certain negligent misrepresentations with respect to these transactions.

      In March 2004, McKesson filed cross-complaints against certain defendants, including the Company, for declaratory relief and indemnification, alleging that, if the plaintiffs allegations were true, each of these cross-defendants was obligated to indemnify McKesson for any damages, judgment or other awards recovered by the plaintiffs against McKesson.

      In the fall of 2004, in response to demurrers filed by the Company, the court dismissed the plaintiffs’ claims against the Company and McKesson’s cross-complaint against the Company. The plaintiffs and McKesson each appealed the dismissal of their respective claims. In addition, on August 12, 2004, the original plaintiffs in the California lawsuit, Merrill Lynch Fundamental Growth Fund, Inc. and Merrill Lynch Global Value Fund, Inc., filed a separate lawsuit in Superior Court in New Jersey, alleging substantially the same claims as they did in the California lawsuit. In response to the Company’s motion to dismiss, plaintiffs filed a First Amended Complaint on January 4, 2005, dropping claims against the Company, but asserting the same claims against the Company’s subsidiary WebMD, Inc., the company that engaged in the two software transactions.

      On October 28, 2005, with the California appeals pending and the New Jersey action stayed and in order to avoid the costs and uncertainty of further litigation, the Company entered into a settlement with the plaintiffs, McKesson, and several of the co-defendants. The terms of the settlement are confidential. Pursuant to that settlement, plaintiffs, McKesson and the Company each stipulated to the dismissal of their respective appeals, plaintiffs stipulated to dismissal with prejudice of the New Jersey lawsuit against WebMD, Inc., and the parties released the Company and WebMD, Inc. from claims related to the California and New Jersey lawsuits. As a result of the settlement, the Company recorded, during the three months ended September 30, 2005, a charge of $1,863, which is included in other expense (income) in the accompanying consolidated statements of operations.

      On November 1, 2005, the Company entered into an Asset Purchase Agreement with Conceptis Technologies Inc. (“Conceptis”), a Canadian corporation, pursuant to which the Company agreed to purchase substantially all of the assets of Conceptis and agreed to assume certain liabilities. Conceptis provides online and offline medical education and promotion aimed at physicians and other healthcare professionals. The purchase price for the acquisition is $19,000 in cash plus the assumed liabilities. The closing of the acquisition is subject to standard closing conditions, including the receipt of shareholder approval by the shareholders of Conceptis. The results of operations of Conceptis will be included in our WebMD Health segment.

      This Item 2 contains forward-looking statements with respect to possible events, outcomes or results that are, and are expected to continue to be, subject to risks, uncertainties and contingencies, including those identified in this Item. See “Forward-Looking Statements” on page 3.

Overview

      Management’s discussion and analysis of financial condition and results of operations, or MD&A, is provided as a supplement to the consolidated financial statements and notes thereto included elsewhere in this Quarterly Report and to provide an understanding of our results of operations, financial condition, and changes in financial condition. Our MD&A is organized as follows:

In this MD&A, dollar amounts are in thousands, unless otherwise noted.

Introduction

      Emdeon Corporation is a Delaware corporation that was incorporated in December 1995 and commenced operations in January 1996 as Healtheon Corporation. We changed our name to Healtheon/WebMD Corporation in November 1999 and to WebMD Corporation in September 2000. Furthermore, we changed our name to Emdeon Corporation in October 2005 in connection with the initial public offering of our WebMD Health subsidiary. See the Recent Developments section elsewhere in this MD&A. Our common stock has traded on the Nasdaq National Market under the symbol “HLTH” since February 11, 1999.

      We have aligned our business into four operating segments and a corporate segment as follows:

      WebMD Health Corp. IPO. In May 2005, we formed a wholly owned subsidiary in preparation for an initial public offering of equity in our WebMD Health segment. The subsidiary was later named WebMD Health Corp. (which we refer to as “WHC”) and, in September 2005, we contributed to WHC the subsidiaries, the assets and the liabilities included in our WebMD Health segment. On September 28, 2005, WHC sold, in an initial public offering, 7,935,000 shares of its Class A Common Stock at $17.50 per share. WHC Class A Common Stock began trading under the symbol “WBMD” on September 29, 2005. As of September 30, 2005, we owned 48,100,000 shares of WHC Class B Common Stock, representing ownership of approximately 85.8% of the outstanding WHC Common Stock. WHC Class A Common Stock has one vote per share while WHC Class B Common Stock has five votes per share. Therefore, as of September 30, 2005, the WHC Class B Common Stock owned by us represented 96.7% of the combined voting power of WHC’s outstanding Common Stock. In addition, WHC granted to

employees approximately 4,575,000 shares of WHC Class A Common Stock, of which approximately 4,200,000 were in the form of options to purchase shares of WHC Class A Common Stock with an exercise price equal to the initial public offering price per share of $17.50 and approximately 375,000 were in the form of restricted WHC Class A Common Stock.

      We have entered into a number of agreements with WHC governing the future relationship of the companies, including a Services Agreement, a Tax Sharing Agreement, and an Indemnity Agreement. These agreements cover a variety of matters, such as the responsibility for certain liabilities, including tax liabilities, as well as matters related to providing WHC with administrative services, such as payroll, accounting, tax, employee benefit plan, employee insurance, intellectual property, legal and information processing services. Under the Services Agreement, we will receive an amount that reasonably approximates our cost of providing services to WHC. We have agreed to make the services available to WHC for up to five years; however, WHC is not required, under the Services Agreement, to continue to obtain services from us and is able to terminate services, in whole or in part, at any time generally by providing, with respect to the specified services or groups of services, 60 days’ prior notice and, in some cases, paying a nominal termination fee to cover costs relating to the termination.

      Redemption of 3¹/4% Convertible Subordinated Notes. On June 2, 2005, we completed the redemption of all of our outstanding 3¹/4% Convertible Subordinated Notes due 2007 (the “3¹/4 Notes”). During the three months ended September 30, 2005, holders of the 3¹/4% Notes converted a total of $214,880 principal amount of the 3¹/4% Notes into 23,197,650 shares of our common stock, plus cash in lieu of fractional shares, at a price of $9.26 per share. We redeemed the balance of $85,119 principal amount of the 3¹/4% Notes at an aggregate redemption price, together with accrued interest and redemption premium, of $86,694. The write-off of the unamortized portion of the deferred issuance costs and the payment of the redemption premium resulted in a total charge of $1,902. This charge is included in other expense (income) in the accompanying consolidated statements of operations and in loss on redemption of convertible debt in the accompanying consolidated statements of cash flows.

      Issuance of 3¹/8% Convertible Notes Due 2025. On August 24, 2005, we issued $300,000 aggregate principal amount of 3¹/8% Convertible Notes due 2025 (the “3¹/8% Notes”) in a private offering. Unless previously redeemed or converted, the 3¹/8% Notes will mature on September 1, 2025. Interest on the 3¹/8% Notes accrues at the rate of 3¹/8% per annum and is payable semiannually on March 1 and September 1 of each year, commencing March 1, 2006. We will also pay contingent interest of 0.25% per annum to the holders of the 3¹/8% Notes during specified six-month periods, commencing with the six-month period beginning on September 1, 2012, if the average trading price of a 3¹/8% Note for the specified period equals 120% or more of the principal amount of the 3¹/8% Note.

      Holders of the 3¹/8% Notes may require us to repurchase their 3¹/8% Notes on September 1, 2012, September 1, 2015 and September 1, 2020, at a price equal to 100% of the principal amount of the 3¹/8% Notes being repurchased, plus any accrued and unpaid interest, payable in cash. Additionally, the holders of the 3¹/8% Notes may require us to repurchase the 3¹/8% Notes upon a change in control of our company at a price equal to 100% of the principal amount of the 3¹/8% Notes, plus accrued and unpaid interest, payable in cash, or, at our option, in shares of our common stock or in a combination of cash and shares of our common stock. On or after September 5, 2010, September 5, 2011 and September 5, 2012, the 3¹/8% Notes are redeemable, at our option, for cash at redemption prices of 100.893%, 100.446% and 100.0%, respectively, plus accrued and unpaid interest.

      The 3¹/8% Notes are convertible into an aggregate of 19,273,393 shares of our common stock (representing a conversion price of $15.57 per share).

      Transaction Processing Infrastructure Investments. Our electronic transaction services automate the data exchange between healthcare providers and payers for patient eligibility and benefits information, claims transactions, remittance information, referrals, claim status information and other processes. During 2003 and 2004, the key area of focus for Emdeon Business Services, with respect to its operational and technological

infrastructure, was preparing for and implementing the transaction standards of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and working with our customers on their own implementations. We incurred significant costs in these HIPAA implementation efforts. Our goal during the remainder of 2005 and in 2006 is to implement infrastructure improvements that enable us to provide our services more efficiently, to consolidate and integrate the infrastructure used by the companies we have acquired and to create additional value-added services for healthcare payers and providers. We expect to make significant capital expenditures on Emdeon Business Services infrastructure improvements in 2005 and 2006.

      Continued Rapid Increases in Healthcare Costs. In response to rising healthcare costs, employers and health plans have been changing benefit plan designs to increase consumer out-of-pocket costs and have taken other steps to motivate their members and employees to evaluate their healthcare decisions more carefully in order to be more cost effective. This has led employers and health plans to enhance wellness programs and to take steps to provide healthcare information and education to employees and members, including through the use of online services of the types WebMD Health provides through its private portals. We expect the efforts to control healthcare costs to continue and to create opportunities for additional revenue for WebMD Health from providing existing and new products and services through its private portals and its public portals.

      Governmental Initiatives Relating to Healthcare Information Technology. There are currently numerous federal, state and private initiatives seeking ways to increase the use of information technology in healthcare. These initiatives are generally intended to foster improvements in the quality of care, while reducing costs. A key focus of many of these initiatives is creating incentives for healthcare providers to make investments in information technology or reducing the costs of doing so. Most significantly, in April 2004, Executive Order 13335 directed the appointment of a National Coordinator for Health Information Technology to coordinate programs and policies regarding health information technology across the federal government. The National Coordinator is responsible for directing the health information technology programs within the Department of Health and Human Services, or HHS, and coordinating them with those of other relevant Executive Branch agencies. We believe that we are a good candidate to work with HHS on its initiatives and projects as a result of our experience working with parties throughout the healthcare industry, including:

Governmental initiatives to support the adoption of healthcare information technology also create risks for us, including by encouraging additional companies to enter the markets in which we compete and by encouraging the development of additional technology solutions that compete against ours.

Critical Accounting Policies and Estimates

      Our discussion and analysis of Emdeon’s financial condition and results of operations are based upon our Consolidated Financial Statements and Notes to Consolidated Financial Statements, which were prepared in conformity with U.S. generally accepted accounting principles. The preparation of financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience, current business factors, and various other assumptions that we believe are necessary to form a basis for making judgments about the carrying values of assets and liabilities and disclosure of contingent assets and liabilities. We are subject to uncertainties such as the impact of future events, economic, environmental and political factors, and changes in our business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in preparation of our financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as

our operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to our consolidated financial statements.

      We evaluate our estimates on an ongoing basis, including those related to revenue recognition, short-term and long-term investments, deferred tax assets, income taxes, collectibility of customer receivables, prepaid advertising and distribution services, long-lived assets including goodwill and other intangible assets, software development costs, inventory valuation, certain accrued expenses, contingencies, litigation and the value attributed to warrants issued for services.

      We believe the following reflects our critical accounting policies and our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Results of Operations

      The following table sets forth our consolidated statements of operations data and expresses that data as a percentage of revenue for the periods presented (amounts in thousands):

      Revenue is derived from our four business segments: Emdeon Business Services, Emdeon Practice Services, WebMD Health and Porex. Emdeon Business Services provides: electronic transmission services for medical, dental and pharmacy transactions and related technology solutions, consulting services and outsourcing services for healthcare payers, including document management services for transaction processing and print-and-mail services for the distribution of checks, remittance advice and explanation of benefits; and automated patient billing services for healthcare providers, including statement printing and mailing services. Additionally, Emdeon Business Services provides software products including decision support and data warehousing, and related maintenance services to Blue Cross Blue Shield and commercial healthcare payers, and performs software maintenance and consulting services for certain governmental agencies. A significant portion of Emdeon Business Services revenue is generated from the country’s largest national and regional healthcare payers. Emdeon Practice Services provides information

technology systems for healthcare providers, including administrative, financial and clinical applications, primarily under The Medical Manager, Intergy and Emdeon Network Services brands. Emdeon Practice Services also provides support and maintenance services related to the hardware and software associated with our practice management systems and other applications. WebMD Health services include advertising, sponsorship, CME, content syndication and distribution, and licenses of private online portals to employers and healthcare payers for use by their employees and plan members. Our customers include pharmaceutical companies, biotech companies, medical device companies and media companies. Our Porex revenue includes the sale of porous plastic components used to control the flow of fluids and gases for use in healthcare, industrial and consumer applications, as well as in finished products used in the medical device and surgical markets.

      Cost of operations consists of costs related to services and products we provide to customers and costs associated with the operation and maintenance of our networks. These costs include salaries and related expenses for network operations personnel and customer support personnel, telecommunication costs, maintenance of network equipment, cost of postage related to our automated print-and-mail services and paid-claims communication services, cost of hardware related to the sale of practice management systems, a portion of facilities expenses, leased personnel and facilities costs, sales commissions paid to certain distributors of our Emdeon Business Services products and non-cash expenses related to content and distribution services. In addition, cost of operations includes raw materials, direct labor and manufacturing overhead, such as fringe benefits and indirect labor related to our Porex segment.

      Development and engineering expense consists primarily of salaries and related expenses associated with the development of applications and services. Expenses include compensation paid to development and engineering personnel, fees to outside contractors and consultants, and the maintenance of capital equipment used in the development process.

      Sales, marketing, general and administrative expense consists primarily of advertising, product and brand promotion, salaries and related expenses for sales, administrative, finance, legal, information technology, human resources and executive personnel. These expenses include items related to account management and marketing personnel, commissions, costs and expenses for marketing programs and trade shows, and fees for professional marketing and advertising services, as well as fees for professional services, costs of general insurance and costs of accounting and internal control systems to support our operations. Also included are non-cash expenses related to advertising and distribution services acquired in exchange for our equity securities and non-cash stock compensation expense.

      Legal expense consists of costs and expenses incurred related to the investigation by the United States Attorney for the District of South Carolina and the SEC.

      Our discussions throughout MD&A make references to certain non-cash expenses. We consider non-cash expenses to be those expenses that result from the issuance of our equity instruments. The following is a summary of our principal non-cash expenses:

      The following discussion includes a comparison of the results of operations for the three and nine months ended September 30, 2005 to the three and nine months ended September 30, 2004.

      Revenues for the three months ended September 30, 2005 were $323,153, compared to $299,615 a year ago. The Emdeon Business Services, WebMD Health and Porex segments were responsible for $15,859, $8,077 and $1,025, respectively, of the revenue increase for the quarter, which was partially offset by a decrease in revenue of $1,425 in Emdeon Practice Services.

      Revenues for the nine months ended September 30, 2005 were $949,643, compared to $852,710 a year ago. The Emdeon Business Services, WebMD Health, Emdeon Practice Services and Porex segments were responsible for $63,290, $23,956, $7,410 and $2,120, respectively, of the revenue increase for the nine months ended September 30, 2005. In addition, there was a decrease of $157 in inter-segment eliminations.

      Revenue from customers acquired through the 2005 Acquisition and 2004 Acquisitions contributed $13,691, of the overall increase in revenue of $23,538 for the three months ended September 30, 2005, and $65,521 of the overall increase in revenue of $96,933 for the nine months ended September 30, 2005. We integrate acquisitions as quickly as practicable and only revenue recognized during the first twelve months following the quarter in which the acquisition closed is considered to be revenue from acquired customers. In connection with such acquisitions, only revenue from customers of the acquired business existing on the date of the acquisition is considered to be revenue from acquired customers. The remaining increase in revenues is largely attributable to increased revenues in our WebMD Health segment from increased advertising and sponsorship revenues related to WebMD Health’s public portals and licensing revenues from WebMD Health’s private online portals. In addition, revenues increased in our Emdeon Business Services segment related to growth in our paid-claims communication services and our patient statement services, as well as additional consulting services we provided to our governmental agency customers.

      Cost of Operations. Cost of operations was $182,910 and $537,023 for the three and nine months ended September 30, 2005, compared to $168,571 and $495,174 in the prior year periods. Our cost of operations represented 56.6% of revenue for both the three and nine months ended September 30, 2005, compared to 56.3% and 58.1% for the three and nine months ended September 30, 2004. The increase in cost of operations as a percentage of revenue and in dollars for the three months ended September 30, 2005 is the result of the inclusion of our ViPS operations, which have lower gross margins as compared to the gross margins of our other operations, increased compensation related costs in our WebMD Health segment due to increased headcount for information technology for our Web site operations and development, as well as higher costs associated with our launch of WebMD the Magazine. Offsetting these items for the three months ended September 30, 2005 and favorably impacting cost of operations as a percentage of revenue for the nine months ended September 30, 2005 compared to a year ago, was the impact of productivity gains as a result of streamlining our delivery and service infrastructure within the Emdeon Practice Services operating segment. Also favorably impacting cost of operations for the three and nine months ended September 30, 2005 were lower sales commissions paid to our channel partners and lower data communication expenses in our Emdeon Business Services segment. Included in cost of operations were non-cash expenses related to advertising services of $74 and $291 for the three and nine months ended September 30, 2005, compared to $104 and $705 in the prior year periods.

      Development and Engineering. Development and engineering expense was $14,681 and $43,778 for the three and nine months ended September 30, 2005, compared to $14,392 and $38,479 in the prior year periods. Our development and engineering expenses represented 4.5% and 4.6% of revenue for the three and nine months ended September 30, 2005, compared to 4.8% and 4.5% for the three and nine months ended September 30, 2004. The increase in development and engineering expense was primarily attributable to the ViPS and HealthShare operations which, due to the timing of these acquisitions, were excluded or partially excluded from our results for the three and nine months ended September 30, 2004. The Dakota operations had a similar impact on development and engineering expense during the nine months ended September 30, 2004, compared to a year ago. Also contributing to the increase in development and engineering expense for the nine months ended September 30, 2005, compared to a year ago, was the increased investment in our product development efforts within the Emdeon Practice Services segment.

      Sales, Marketing, General and Administrative. Sales, marketing, general and administrative expense was $82,386 and $248,056 for the three and nine months ended September 30, 2005, compared to $84,762 and $245,054 in the prior year periods. Our sales, marketing, general and administrative expense represented 25.5% and 26.1% of revenue for the three and nine months ended September 30, 2005, compared to 28.3% and 28.7% of revenue for the three and nine months ended September 30, 2004. Included in sales, marketing, general and administrative expense are non-cash expenses related to advertising services, distribution services and stock compensation. Non-cash expenses related to advertising and distribution services were $1,912 and $6,708 for the three and nine months ended September 30, 2005, compared to $3,505 and $14,188 in the prior year periods. The decrease in non-cash advertising and distribution expense for the three and nine months ended September 30, 2005 was due to lower utilization of our prepaid advertising inventory. Additionally, for the nine months ended September 30, 2005, the decrease in non-cash advertising and distribution expense was the result of a decline in the expense related to our distribution arrangement with AOL which was fully amortized in May of 2004. Non-cash stock compensation was $1,120 and $3,487 for the three and nine months ended September 30, 2005, compared to $2,800 and $7,241 in the prior year periods. The decrease in non-cash stock-based compensation is primarily related to the vesting schedule of options issued and assumed in connection with business combinations and the restricted stock issued to certain employees in March 2004.

      Sales, marketing, general and administrative expense, excluding the non-cash expenses discussed above, was $79,354 and $237,861 or 24.6% and 25.0% of revenue, for the three and nine months ended September 30, 2005, compared to $78,457 and $223,625 or 26.2% of revenue in both prior year periods. The decrease in sales, marketing, general and administrative expense, excluding the non-cash expenses discussed above, as a percentage of revenue, was due to lower professional service costs related to our implementation efforts with respect to the HIPAA transaction standards, which were substantially completed in the fourth quarter of 2004. Also contributing to the decrease in our sales, marketing, general and administrative expense, as a percentage of revenue, was the partial inclusion and inclusion of the ViPS operations for the three and nine months ended September 30, 2005, which have lower administrative expenses. Partially offsetting this decrease in expense, as a percentage of revenue for the nine months ended September 30, 2005 was approximately $3,100 of severance and recruiting expenses within our WebMD Health segment.

      Depreciation and Amortization. Depreciation and amortization expense was $18,895 and $52,940 for the three and nine months ended September 30, 2005, compared to $15,189 and $40,922 in the prior year periods. Depreciation and amortization expense represented 5.9% and 5.6% of revenue for the three and nine months ended September 30, 2005, compared to 5.1% and 4.8% of revenue in the prior year periods. The increase was due to additional depreciation and amortization expense relating to the 2005 Acquisition and 2004 Acquisitions, capital expenditures made in our Emdeon Practice Services segment during the later part of 2004 and additional depreciation expense resulting from the leasehold improvements to our WebMD Health segment’s New York City headquarters. These increases were slightly offset by a decrease in amortization expense as a result of the intangible asset for Medifax’s trade name becoming fully amortized since the beginning of the prior year periods.

      Legal Expense. Legal expense was $5,904 and $14,347 for the three and nine months ended September 30, 2005, compared to $2,325 and $6,577 in the prior year periods. Legal expense represents the costs and expenses incurred related to the investigation by the United States Attorney for the District of South Carolina and the SEC. Over the course of the investigation, we expect that these costs may continue to be significant.

      Interest Income. Interest income was $5,125 and $13,382 during the three and nine months ended September 30, 2005, compared to $4,512 and $14,506 in the prior year periods. The increase for the three months ended September 30, 2005 was primarily due to the additional interest earned on the proceeds received from the issuance of our 3¹/8% Notes on August 24, 2005. The decrease in interest income for the nine months ended September 30, 2005 was primarily due to lower average investment balances for the nine months ended September 30, 2005, compared to the prior year period.

      Interest Expense. Interest expense was $2,996 and $11,672 for the three and nine months ended September 30, 2005, compared to $4,843 and $14,429 in the prior year periods. The decrease for both periods is due to the redemption of the 3¹/4% Notes on June 2, 2005, partially offset by higher interest expense related to the interest and amortization of debt issuance costs for the 3¹/8% Notes issued on August 24, 2005.

      Other Expense (Income), Net. Other expense (income) for the three and nine months ended September 30, 2005 represents a loss of $1,863 and $7,407, compared to a gain of $94 and $578 for the three and nine months ended September 30, 2004. During the three months ended September 30, 2005, other expense (income) includes a charge of $1,863 related to the settlement of the McKesson HBOC litigation. Other expense (income) during the three months ended June 30, 2005 includes a loss of $1,902 related to the redemption of the 3¹/4% Notes on June 2, 2005. Additionally, during the three months ended March 31, 2005, we recorded $4,251 for unrealized losses on marketable securities that we identified as securities to be liquidated in the event funds were needed for redemption of our 3¹/4% Notes. Also, included in other expense (income) for the nine months ended September 30, 2005 is $609, compared to $94 and $578 for the three and nine months ended September 30, 2004, related to net gains on the sale of marketable securities and on the sale of property and equipment.

      Income Tax Provision. The income tax provision of $4,536 and $7,680 for the three and nine months ended September 30, 2005, compared to $1,435 and $2,979 in the prior year periods, includes tax expense for operations that are profitable in certain state and foreign jurisdictions. In addition, the three and nine months ended September 30, 2005 includes a provision for federal taxes that has not been reduced by the decrease in valuation allowance as these tax benefits were acquired through business combinations.

Results of Operations by Operating Segment

      We evaluate the performance of our business segments based upon income or loss before restructuring, taxes, non-cash and other items. Non-cash and other items include depreciation, amortization, gain or loss on investments, redemption of the 3¹/4% Notes and sales of property and equipment, costs and expenses related to the investigation by the United States Attorney for the District of South Carolina and the SEC (“legal expense”), costs and expenses related to the settlement of the McKesson HBOC litigation, non-cash expenses related to advertising and distribution services acquired in exchange for our equity securities in acquisitions and strategic alliances, and stock compensation expense primarily related to stock options issued and assumed in connection with acquisitions and restricted stock issued to employees. The accounting policies of the segments are consistent with those described in the summary of significant accounting policies in Note 1 to the consolidated financial statements contained in our 2004 Annual Report on Form 10-K. We record inter-segment revenues at rates comparable to those charged to third parties for comparable services. Inter-segment revenues are eliminated in consolidation.

      On September 28, 2005, WHC sold, in an initial public offering, 7,935,000 shares of its Class A Common Stock. Also during the three months ended September 30, 2005, we entered into a Services Agreement with WHC and modified our segment reporting. A description of the Services Agreement is

included in the “Recent Developments” section, above, in this MD&A. Our segment reporting has been modified to reflect the services fee we charge to WHC as an increase to the expenses of the WebMD Health segment and an offsetting reduction to the expenses in the Corporate segment. We have reclassified all prior period segment information to conform to the current period presentation. The service fee charged to WHC was $1,243 and $4,421 for the three and nine months ended September 30, 2005 and $1,599 and $4,636 for the three and nine months ended September 30, 2004, respectively.

      Summarized financial information for each of our four operating segments and corporate segment and reconciliation to net income are presented below (amounts in thousands):