News Column

PREMIER, INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

September 4, 2014

The following discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report. This discussion is designed to provide the reader with information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our consolidated financial statements. In addition, the following discussion includes certain forward-looking statements. For a discussion of important factors, including the continuing development of our business and other factors which could cause actual results to differ materially from the results referred to in the forward-looking statements, see "Item 1A Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" contained in this Annual Report. Business Overview Our Business We are a leading healthcare improvement company, uniting an alliance of approximately 3,000 U.S. hospitals and 110,000 other providers to transform healthcare. We unite hospitals, health systems, physicians and other healthcare providers with the common goal of improving and innovating in the clinical, financial and operational areas of their business to meet the demands of a rapidly evolving healthcare industry. We deliver value through a comprehensive technology-enabled platform that offers critical supply chain services, clinical, financial, operational and population health SaaS informatics products, advisory services and performance improvement collaborative programs. As of June 30, 2014, we were controlled by 180 U.S. hospitals, health systems and other healthcare organizations that represent approximately 1,200 owned, leased and managed acute care facilities and other non-acute care organizations, through the holdings of Class B common stock, which they received upon the consummation of the Reorganization and IPO on October 1, 2013. The Class B common stock represents approximately 78% of the total of our outstanding Class A common stock and Class B common stock. Our Class A common stock is held by the public following the IPO. Our Business Segments Our business model and solutions are designed to provide our members access to scale efficiencies, spread the cost of their development, provide actionable intelligence derived from anonymized data in our data warehouse provided by our members, mitigate the risk of innovation and disseminate best practices that will help our member organizations succeed in their transformation to higher quality and more cost-effective healthcare. We deliver our integrated platform of solutions that address the areas of total cost management, quality and safety improvement and population health management through two business segments: supply chain services and performance services. Our supply chain services segment includes one of the largest healthcare GPOs in the United States, serving acute and alternate sites, a specialty pharmacy and our direct sourcing activities. Our performance services segment includes one of the largest informatics and advisory services businesses in the United States focused on healthcare providers. Our SaaS informatics products utilize our comprehensive data set to provide actionable intelligence to our members, enabling them to benchmark, analyze and identify areas of improvement across three main categories: cost management, quality and safety and population health management. This segment also includes our technology-enabled performance improvement collaboratives. Reorganization and IPO On October 1, 2013, we completed our IPO by issuing 32,374,751 shares of our Class A common stock, at a price of $27.00 per share, raising net proceeds of approximately $821.7 million, after underwriting discounts and commissions, but before expenses. In addition, on October 1, 2013, upon the consummation of the IPO, we completed the Reorganization. See Note 2 - Initial Public Offering and Reorganization to the audited consolidated financial statements contained herein for more information. We incurred strategic and financial restructuring expenses in connection with the Reorganization and IPO of approximately $3.8 million during fiscal year 2014 and $5.2 million during fiscal year 2013. Acquisitions On April 7, 2014, we completed the acquisition of MEMdata, LLC ("MEMdata"), an equipment planning, sourcing and analytics business focused on capital equipment needs for existing medical facilities, as well as those under construction, for $6.2 54 -------------------------------------------------------------------------------- million. We funded the acquisition with available cash on hand. The primary reason for our acquisition of MEMdata was to enhance our ability to drive meaningful supply chain savings for our hospital and health system members in the high-cost areas of construction and capital equipment acquisitions. On October 31, 2013 we completed the acquisition of Meddius, LLC for $8.1 million. Meddius is a data acquisition and integration-as-a-service company that spans multiple hospital transaction systems including enterprise resource planning, materials management, enterprise health records and patient accounting. We funded the acquisition with available cash on hand. The primary reason for our acquisition of Meddius was to augment our capabilities for automated data acquisition across the PremierConnect® platform and associated applications. We anticipate that the the acquisition will also allow us to explore new offerings in the market. On July 19, 2013, we completed the acquisition of SYMMEDRx, LLC ("SYMMEDRx") for $28.7 million. We funded the acquisition with credit facility borrowings. The primary reason for our acquisition of SYMMEDRx, a business with a track record of analyzing and reducing costs for health systems through the innovative use of data, was to continue to strengthen our ability to drive improvement in member cost savings.



See Note 4 - Business Acquisitions and Note 25 - Subsequent Events to the audited consolidated financial statements contained herein for more information regarding our acquisition activities.

Gain on Sale of Investment On March 11, 2014, a subsidiary of Thoma Bravo LLC, a private equity firm, acquired all the outstanding membership interests of Global Healthcare Exchange ("GHX"), in which we owned a 13% interest. Upon completion of the sale, we received proceeds of approximately $38.4 million, resulting in a gain on sale of investment of an equal amount. We expect to continue our business relationship with GHX.



Market and Industry Trends and Outlook

We expect that certain trends and economic or industry-wide factors will continue to affect our business, both in the short-term and long-term. We have based our expectations described below on assumptions made by us and on information currently available to us. To the extent our underlying assumptions about, or interpretation of, available information prove to be incorrect, our actual results may vary materially from our expected results. See "Cautionary Note Regarding Forward-Looking Statements." Trends in the U.S. healthcare market affect our revenues in the supply chain services and performance services segments. The trends we see affecting our current healthcare business include the implementation of healthcare reform legislation, expansion of insurance coverage, intense cost pressure, payment reform, provider consolidation, shift in care to the alternate site market and increased data availability and transparency. To meet the demands of this environment, there will be increased focus on scale and cost containment and healthcare providers will need to measure and report on, and bear financial risk for, outcomes. We believe these trends will result in increased demand for our supply chain services and performance services solutions in the areas of cost management, quality and safety, population health management and PremierConnect® Enterprise, a cloud-based data warehousing, collaboration and content management solution that allows our members to aggregate and share information on one common platform that is both payer and supplier neutral. Key Components of Our Results of Operations Net Revenue Net revenue consists of (i) service revenue, which includes net administrative fees revenue and other services and support revenue and (ii) product revenue. Net administrative fees revenue consists of GPO administrative fees in our supply chain services segment. Other services and support revenue consists primarily of fees generated by our performance services segment in connection with our SaaS informatics products subscriptions, advisory services and performance improvement collaborative subscriptions. Product revenue consists of specialty pharmacy and direct sourcing product sales, which are included in the supply chain services segment. Supply Chain Services Supply chain services revenue consists of GPO net administrative fees (gross administrative fees received from suppliers, reduced by the amount of any revenue share paid to members), specialty pharmacy revenue and direct sourcing revenue. The success of our supply chain services' revenue streams are influenced by the following factors: 55 --------------------------------------------------------------------------------



• Net administrative fee revenue - The number of members that utilize our

GPO supplier contracts and the volume of their purchases. • Specialty pharmacy revenue - The number of members that utilize our specialty pharmacy, as well as the impact of changes in the defined allowable reimbursement amounts determined by Medicare, Medicaid and other managed care plans.



• Direct sourcing revenue - The number of members that purchase products

through our direct sourcing activities and the impact of competitive

pricing. Performance Services Performance services revenue consists of SaaS informatics products subscriptions, performance improvement collaborative and other service subscriptions, professional fees for advisory services, and insurance services management fees and commissions from endorsed commercial insurance programs. Our performance services growth will depend upon the expansion of our SaaS informatics products, performance improvement collaboratives and advisory services to new and existing members and the renewal of existing subscriptions to our SaaS informatics products. Cost of Revenue Cost of service revenue includes expenses related to employees (including compensation and benefits) and outside consultants who directly provide services related to revenue-generating activities, including advisory services to members and implementation services related to SaaS informatics products. Cost of service revenue also includes expenses related to hosting services, related data center capacity costs, third-party product license expenses and amortization of the cost of internal use software. Cost of product revenue consists of purchase and shipment costs for specialty pharmaceuticals and direct sourced medical products. Our cost of product revenue will be influenced by the cost and availability of specialty pharmaceuticals and the manufacturing and transportation costs associated with direct sourced medical products. Operating Expenses Selling, general and administrative expenses consist of expenses directly associated with selling and administrative employees and indirect costs associated with employees that primarily support revenue-generating activities (including compensation and benefits) and travel-related expenses, as well as occupancy and other indirect costs, insurance costs, professional fees, and other general overhead expenses. General and administrative expenses have increased as a result of being a public company, including stock-based compensation expense related to the equity incentive plan established in connection with the Reorganization and IPO. Research and development expenses consist of employee-related compensation and benefits expenses, and third-party consulting fees of technology professionals, incurred to develop, support and maintain our software-related products and services. Amortization of purchased intangible assets includes the amortization of all identified intangible assets resulting from acquisitions. Other Income, Net Other income, net, consists primarily of equity in net income of unconsolidated affiliates that is generated from our 50% ownership interest in Innovatix. A change in the number of, and use by, members that participate in our GPO programs through Innovatix could have a significant effect on the amounts earned from this investment. Other income, net, also includes interest income, net, and realized gains and losses on our marketable securities as well as gains or losses on disposal of assets. Income Tax Expense Income tax expense includes the income tax expense attributable to Premier, PHSI and PSCI. The low effective tax rate is attributable to the flow through of Premier LP income, which is not subject to federal and state income taxes to Premier. For federal and state income tax purposes, income realized by Premier LP is taxable to its partners. Net Income Attributable to Noncontrolling Interest As of June 30, 2014, we owned an approximate 22% controlling general partner interest in Premier LP through Premier GP and a 60% voting and economic interest in S2S Global and therefore consolidate their operating results. Net income attributable 56 -------------------------------------------------------------------------------- to noncontrolling interest represents the portion of net income attributable to the limited partners of Premier LP (78%) and the portion of net income or loss attributable to the noncontrolling equity holders of S2S Global (40%). Our noncontrolling interest attributable to limited partners of Premier LP was reduced from 99% to approximately 78% upon the Reorganization. Other Key Business Metrics The other key business metrics we consider are Adjusted EBITDA, Segment Adjusted EBITDA and Adjusted Fully Distributed Net Income. We define EBITDA as net income before interest and investment income, net, income tax expense, depreciation and amortization and amortization of purchased intangible assets. We define Adjusted EBITDA as EBITDA before merger and acquisition related expenses and non-recurring, non-cash or non-operating items, and including equity in net income of unconsolidated affiliates. For all non-GAAP financial measures, we consider non-recurring items to be expenses that have not been incurred within the prior two years and are not expected to recur within the next two years. Such expenses include certain strategic and financial restructuring expenses. Non-operating items include gain or loss on disposal of assets. We define Segment Adjusted EBITDA as the segment's net revenue less operating expenses directly attributable to the segment excluding depreciation and amortization, amortization of purchased intangible assets, merger and acquisition related expenses and non-recurring or non-cash items, and including equity in net income of unconsolidated affiliates. Operating expenses directly attributable to the segment include expenses associated with sales and marketing, general and administrative and product development activities specific to the operation of each segment. General and administrative corporate expenses that are not specific to a particular segment are not included in the calculation of Segment Adjusted EBITDA. We define Adjusted Fully Distributed Net Income as net income attributable to Premier (i) excluding income tax expense, (ii) excluding the effect of non-recurring and non-cash items, (iii) assuming the exchange of all the Class B common units into shares of Class A common stock, which results in the elimination of noncontrolling interest in Premier LP and (iv) reflecting an adjustment for income tax expense on pro forma fully distributed net income before income taxes at our estimated effective income tax rate. Adjusted Fully Distributed Net Income is a non-GAAP financial measure because it represents net income attributable to Premier before merger and acquisition related expenses and non-recurring or non-cash items and the effects of noncontrolling interests in Premier LP. Adjusted EBITDA is a supplemental financial measure used by us and by external users of our financial statements. We consider Adjusted EBITDA an indicator of the operational strength and performance of our business. Adjusted EBITDA allows us to assess our performance without regard to financing methods and capital structure and without the impact of other matters that we do not consider indicative of the operating performance of our business. Segment Adjusted EBITDA is the primary earnings measure we use to evaluate the performance of our business segments. We use Adjusted EBITDA, Segment Adjusted EBITDA and Adjusted Fully Distributed Net Income to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP, provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. We believe Adjusted EBITDA and Segment Adjusted EBITDA assist our board of directors, management and investors in comparing our operating performance on a consistent basis from period to period because they remove the impact of our asset base (primarily depreciation and amortization) and items outside the control of our management team (taxes), as well as other non-cash (impairment of intangible assets, purchase accounting adjustments and stock-based compensation) and non-recurring items (strategic and financial restructuring expenses), from our operations. We believe Adjusted Fully Distributed Net Income assists our board of directors, management and investors in comparing our net income on a consistent basis from period to period because it removes non-cash (impairment of intangible assets, purchase accounting adjustments and stock-based compensation) and non-recurring items (strategic and financial restructuring expenses), and eliminates the variability of noncontrolling interest as a result of member owner exchanges of Class B common units into shares of Class A common stock (which exchanges are a member owner's cumulative right, but not obligation, beginning on October 31, 2014, and each year thereafter, and are limited to one-seventh of the member owner's initial allocation of Class B common units). Despite the importance of these non-GAAP financial measures in analyzing our business, determining compliance with certain financial covenants in our new revolving facility, measuring and determining incentive compensation and evaluating our operating performance relative to our competitors, Adjusted EBITDA and Adjusted Fully Distributed Net Income are not measurements of financial performance under GAAP, may have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income or any other measure of our performance derived in accordance with GAAP. Some of the limitations of Adjusted EBITDA and Segment Adjusted EBITDA include that they do not reflect: our capital expenditures or our future requirements for capital expenditures or contractual commitments; changes in, or cash requirements for, our working capital needs; the interest expense or the cash requirements to service interest or principal payments under our Revolving Facility; income tax payments we are required to make; and any cash requirements for replacements of assets being depreciated or amortized. In 57 -------------------------------------------------------------------------------- addition, Adjusted EBITDA and Segment Adjusted EBITDA are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flows from continuing operating activities. Some of the limitations of Adjusted Fully Distributed Net Income are that it does not reflect income tax expense or income tax payments we are required to make. In addition, Adjusted Fully Distributed Net Income is not a measure of profitability under GAAP. We also urge you to review the reconciliation of these non-GAAP measures included elsewhere in this Annual Report. To properly and prudently evaluate our business, we encourage you to review the audited consolidated financial statements and related notes included elsewhere in this Annual Report, and to not rely on any single financial measure to evaluate our business. In addition, because Adjusted EBITDA, Segment Adjusted EBITDA and Adjusted Fully Distributed Net Income are susceptible to varying calculations, the Adjusted EBITDA, Segment Adjusted EBITDA and Adjusted Fully Distributed Net Income measures, as presented in this Annual Report, may differ from, and may therefore not be comparable to, similarly titled measures used by other companies. Results of Operations Our consolidated operating results prior to October 1, 2013 do not reflect (i) the Reorganization, (ii) the IPO and the use of the proceeds from the IPO or (iii) additional expenses we incur as a public company. As a result, our consolidated operating results prior to the Reorganization and IPO are not indicative of what our results of operations are for periods after the Reorganization and IPO. In addition to presenting the historical actual results, we have presented pro forma results reflecting the following for all periods presented, to provide a more indicative comparison between current and prior periods: • The contractual requirement under the GPO participation agreements to pay



each member owner revenue share from Premier LP equal to 30% of all gross

administrative fees collected by Premier LP based upon purchasing by such

member owner's member facilities through Premier LP's GPO supplier

contracts. Historically, Premier LP did not generally have a contractual

requirement to pay revenue share to member owners participating in its GPO

programs, but paid semi-annual distributions of partnership income.



• Additional U.S. federal, state and local income taxes with respect to its

additional allocable share of any taxable income of Premier LP. • A decrease in noncontrolling interest in Premier LP from 99% to approximately 78%. 58

-------------------------------------------------------------------------------- Years Ended June 30, 2014 and 2013 The following table summarizes our actual and pro forma consolidated results of operations for the fiscal years ended June 30, 2014 and 2013 (in thousands): Year Ended June 30, Actual Pro Forma 2014 2013 2014 2013 Amount % of Net Revenue Amount % of Net Revenue Amount % of Net Revenue Amount % of Net Revenue Net revenue: Net administrative fees $ 464,837 51 % $ 519,219 60 % $ 423,574 49 % $ 414,207 54 % Other services and support 233,186 26 % 205,685 24 % 233,186 27 % 205,685 27 % Services 698,023 77 % 724,904 84 % 656,760 76 % 619,892 81 % Products 212,526 23 % 144,386 16 % 212,526 24 % 144,386 19 % Net revenue 910,549 100 % 869,290 100 % 869,286 100 % 764,278 100 % Cost of revenue: - % - % Services 115,740 13 % 103,795 12 % 115,740 13 % 103,795 14 % Products 191,885 21 % 133,618 15 % 191,885 22 % 133,618 17 % Cost of revenue 307,625 34 % 237,413 27 % 307,625 35 % 237,413 31 % Gross profit 602,924 66 % 631,877 73 % 561,661 65 % 526,865 69 % Operating expenses: - % - % Selling, general and administrative 294,421 33 % 248,301 29 % 294,421 35 % 248,301 33 % Research and development 3,389 - % 9,370 1 % 3,389 - % 9,370 1 % Amortization of purchased intangible assets 3,062 - % 1,539 - % 3,062 - % 1,539 - % Total operating expenses 300,872 33 % 259,210 30 % 300,872 35 % 259,210 34 % Operating income 302,052 33 % 372,667 43 % 260,789 30 % 267,655 35 % Other income, net 58,274 6 % 12,145 1 % 58,274 7 % 12,145 2 % Income before income taxes 360,326 40 % 384,812 44 % 319,063 37 % 279,800 37 % Income tax expense 27,709 3 % 9,726 1 % 24,470 3 % 32,539 4 % Net income 332,617 37 % 375,086 43 % 294,593 34 % 247,261 33 % Net (income) loss attributable to noncontrolling interest in S2S Global (949 ) - % 1,479 - % (949 ) - % 1,479 - % Net income attributable to noncontrolling interest in Premier LP (303,336 ) (33 )% (369,189 ) (42 )% (245,646 ) (28 )% (218,463 ) (29 )% Net income attributable to noncontrolling interest (304,285 ) (33 )% (367,710 ) (42 )% (246,595 ) (28 )% (216,984 ) (29 )% Net income attributable to shareholders $ 28,332 4 % $ 7,376 1 % $ 47,998 6 % $ 30,277 4 % Adjustment of redeemable limited partners' capital to redemption amount $ (2,741,588 ) nm $ - nm $ (2,741,588 ) nm $ -



nm

Net income (loss) attributable to shareholders after adjustment of redeemable partners' capital to redemption amount $ (2,713,256 ) nm $ 7,376 nm $ (2,693,590 ) nm $ 30,277



nm

Adjusted EBITDA (1) $ 392,288 43 % $ 419,025 48 % $ 351,025 40 % $ 314,013 41 % Adjusted Fully Distributed Net Income (2) na na na na $ 188,561 22 % $ 172,793 23 % nm - Not meaningful na - Not Applicable 59

--------------------------------------------------------------------------------



(1) The table that follows shows the reconciliation of net income to Adjusted

EBITDA and the reconciliation of Segment Adjusted EBITDA to operating income

for the periods presented (in thousands):

Year Ended June 30, Actual Pro Forma 2014 2013 2014 2013 Net income $ 332,617$ 375,086$ 294,593$ 247,261 Interest and investment income, net (a) (1,019 ) (965 ) (1,019 ) (965 ) Income tax expense 27,709 9,726 24,470 32,539 Depreciation and amortization 36,761 27,681 36,761 27,681 Amortization of purchased intangible assets 3,062 1,539 3,062 1,539 EBITDA 399,130 413,067 357,867 308,055 Stock-based compensation expense 19,476 - 19,476 - Acquisition related expenses (b) 2,014 - 2,014 - Strategic and financial restructuring expenses (c) 3,760 5,170 3,760 5,170 Gain on sale of investment (d) (38,372 ) - (38,372 ) - Adjustment to tax receivable agreement liability (e) 6,215 - 6,215 - Other (income) expense, net (f) 65 788 65 788 Adjusted EBITDA $ 392,288$ 419,025$ 351,025$ 314,013 Segment Adjusted EBITDA: Supply Chain Services $ 396,470$ 431,628$ 355,207$ 326,616 Performance Services 73,898 56,456 73,898 56,456 Corporate (g) (78,080 ) (69,059 ) (78,080 ) (69,059 ) Adjusted EBITDA 392,288 419,025 351,025 314,013 Depreciation and amortization (36,761 ) (27,681 ) (36,761 ) (27,681 ) Amortization of purchased intangible assets (3,062 ) (1,539 ) (3,062 ) (1,539 ) Stock-based compensation expense (19,476 ) - (19,476 ) - Acquisition related expenses (b) (2,014 ) - (2,014 ) - Strategic and financial restructuring expenses (c) (3,760 ) (5,170 ) (3,760 ) (5,170 ) Adjustment to tax receivable liability (e) (6,215 ) - (6,215 ) - Equity in net income of unconsolidated affiliates (16,976 ) (11,968 ) (16,976 ) (11,968 ) Deferred compensation plan expense (1,972 ) - (1,972 ) - Operating income 302,052 372,667 260,789 267,655



(a) Represents interest income and realized gains and losses on our marketable

securities.

(b) Represents legal, accounting and other expenses related to acquisition

activities. (c) Represents legal, accounting and other expenses directly related to strategic and financial restructuring expenses.



(d) Represents the gain on sale of GHX.

(e) Represents adjustment to tax receivable agreement liability for the Premier LP change in tax accounting method approved by the Internal Revenue Service subsequent to the original recording of the TRA liability.



(f) Represents gains and losses on investments and other assets.

(g) Corporate consists of general and administrative corporate expenses that are not specific to either of our segments. 60

--------------------------------------------------------------------------------



(2) The table that follows shows the reconciliation of net income attributable to

shareholders to pro forma Adjusted Fully Distributed Net Income for the periods presented (in thousands): Year Ended June 30, 2014



2013

Pro Forma Adjusted Fully Distributed Net Income Net income attributable to shareholders $ 28,332 $



7,376

Pro forma adjustment for revenue share post-IPO (41,263 ) (105,012 ) Income tax expense 27,709



9,726

Stock-based compensation expense 19,476



-

Acquisition related expenses (a) 2,014



-

Strategic and financial restructuring expenses (b) 3,760



5,170

Gain on sale of investment (c) (38,372 )



-

Adjustment to tax receivable agreement liability 6,215



-

Amortization of purchased intangible assets 3,062



1,539

Net income attributable to noncontrolling interest in Premier LP (d)

303,336



369,189

Pro forma fully distributed income before income taxes 314,269

287,988

Income tax expense on fully distributed income before income taxes (e)

125,708



115,195

Pro Forma Adjusted Fully Distributed Net Income $ 188,561 $



172,793

(a) Represents legal, accounting and other expenses related to acquisition

activities. (b) Represents legal, accounting and other expenses directly related to the Reorganization and IPO.



(c) Represents the gain on sale of GHX.

(d) Reflects the elimination of the noncontrolling interest in Premier LP as if all member owners of Premier LP had fully exchanged their Class B common units for shares of Class A common stock.



(e) Reflects income tax expense at an estimated effective income tax rate of

40% of income before income taxes assuming the conversion of all Class B

common units into shares of Class A common stock and the tax impact of

excluding strategic and financial restructuring expenses.

Net Revenue The following table summarizes our actual net revenue for the year ended June 30, 2014 and 2013, respectively, and our pro forma net revenue for the years then ended, indicated both in dollars (in thousands) and as a percentage of net revenue: Year Ended June 30, Actual Pro Forma 2014 2013 2014 2013 % of Net % of Net % of Net % of Net Amount Revenue Amount Revenue



Amount Revenue Amount Revenue Supply Chain Services: Net administrative fees $ 464,837 51 % $ 519,219 60 %

$ 423,574 49 % $ 414,207 54 % Other services and support 778 - %

471 - % 778 - % 471 - % Services 465,615 51 % 519,690 60 % 424,352 49 % 414,678 54 % Products 212,526 23 % 144,386 16 %



212,526 24 % 144,386 19 % Total Supply Chain Services 678,141 74 % 664,076 76 %

636,878 73 % 559,064 73 % Performance Services: Other services and support 232,408 26 % 205,214 24 %

232,408 27 % 205,214 27 % Total net revenue

$ 910,549 100 % $ 869,290 100 %



$ 869,286 100 % $ 764,278 100 %

Total net revenue for the year ended June 30, 2014 was $910.5 million, an increase of $41.2 million, or 5%, from $869.3 million for the year ended June 30, 2013. Total pro forma net revenue was $869.3 million for the year ended June 30, 2014, an increase of $105.0 million, or 14%, from pro forma net revenue of $764.3 million for the year ended June 30, 2013. 61 -------------------------------------------------------------------------------- Supply Chain Services Our supply chain services segment net revenue for the year ended June 30, 2014 was $678.1 million, an increase of $14.0 million, or 2%, from $664.1 million for the year ended June 30, 2013. Our supply chain services segment pro forma net revenue for the year ended June 30, 2014 was $636.9 million, an increase of $77.8 million, or 14%, from pro forma supply chain services segment net revenue of $559.1 million for the year ended June 30, 2013. Net administrative fees revenue in our supply chain services segment for the year ended June 30, 2014 was $464.8 million, a decrease of $54.4 million, or 10%, from $519.2 million for the year ended June 30, 2013. Gross administrative fees increased $10.1 million or 2%. Revenue share increased $64.5 million, primarily as a result of $128.3 million of 30% revenue share to member owners following the Reorganization and IPO on October 1, 2013, offset by a decrease in revenue share of $59.3 million, as a result of the conversion of certain members with higher contractual revenue share agreements to member owners during fiscal 2013. Pro forma net administrative fees revenue for the year ended June 30, 2014 was $423.6 million, an increase of $9.4 million, or 2%, from pro forma net administrative fees revenue of $414.2 million for the year ended June 30, 2013. Product revenue in our supply chain services segment for the year ended June 30, 2014, was $212.5 million, an increase of $68.1 million, or 47%, from $144.4 million for the year ended June 30, 2013. Product revenue in our supply chain services segment increased for the year ended June 30, 2014, due to increased direct sourcing revenue as a result of growth in our members purchasing our products through our direct sourcing program, and increased specialty pharmacy revenue as a result of growth of historical patient prescriptions, the expansion of specialty pharmacy product sales to our members and the availability and associated sales of additional limited-distribution drugs available in the portfolio. We expect our direct sourcing and specialty pharmacy program revenue to continue to grow to the extent we are able to expand our product sales to existing members and additional members begin to utilize our products. Performance Services Other services and support revenue in our performance services segment for the year ended June 30, 2014 was $232.4 million, an increase of $27.2 million, or 13%, from $205.2 million for the year ended June 30, 2013. The increase was primarily attributable to $12.1 million of new SaaS informatics products, including population health management tools, $8.0 million of advisory services, and revenue generated from performance improvement collaboratives. Pro forma adjustments do not impact financial results for our performance services segment. Cost of Revenue The following table summarizes our cost of revenue for the periods indicated both in dollars (in thousands) and as a percentage of net revenue: Year Ended June 30, Actual 2014 2013 Amount % of Net Revenue Amount % of Net Revenue Cost of revenue: Products $ 191,885 21 % $ 133,618 15 % Services 115,740 13 % 103,795 12 % Total cost of revenue $ 307,625 34 % $ 237,413 27 % Cost of revenue by segment: Supply Chain Services $ 194,689 21 % $ 138,781 16 % Performance Services 112,936 13 % 98,632 11 % Total cost of revenue $ 307,625 34 % $ 237,413 27 % Cost of revenue for the year ended June 30, 2014 was $307.6 million, an increase of $70.2 million, or 30%, from $237.4 million for the year ended June 30, 2013. Cost of product revenue increased by $58.3 million, which was primarily attributable to the increases in direct sourcing and specialty pharmacy revenue. We expect our cost of product revenue to increase as we sell additional direct-sourced medical products and specialty pharmaceuticals to new and existing members. Cost of service revenue increased by $11.9 million primarily due to an increase in amortization of internally-developed software applications and expenses related to population health management SaaS informatics products under reseller agreements. We expect cost of service revenue 62 -------------------------------------------------------------------------------- to increase to the extent we expand our performance improvement collaboratives and advisory services to members, increase sales of our population health management SaaS informatics products under reseller agreements, and continue to develop new and existing internally-developed software applications. Cost of revenue for the supply chain services segment for the year ended June 30, 2014 was $194.7 million, an increase of $55.9 million, or 40%, from $138.8 million for the year ended June 30, 2013. The increase is primarily attributable to the growth in direct sourcing and specialty pharmacy, which have higher associated cost of revenue as compared to group purchasing. As a result, there is a higher increase in cost of revenue relative to net revenue because product revenue is growing at a higher rate than net administrative fees. Cost of revenue for the performance services segment for the year ended June 30, 2014 was $112.9 million, an increase of $14.3 million, or 15%, from $98.6 million for the year ended June 30, 2013. The increase is primarily attributable to the increase in amortization of internally-developed software applications and expenses related to population health management SaaS informatics products under reseller agreements. Operating Expenses The following table summarizes our operating expenses for the periods indicated both in dollars (in thousands) and as a percentage of net revenue: Year Ended June 30, Actual 2014 2013 % of Net % of Net Amount Revenue Amount Revenue Operating expenses: Selling, general and administrative $ 294,421 33 % $ 248,301 29 % Research and development 3,389 - % 9,370 1 % Amortization of purchased intangible assets 3,062 - % 1,539 - % Total operating expenses 300,872 33 % 259,210 30 % Operating expenses by segment: Supply Chain Services $ 105,544 12 % $ 106,889 12 % Performance Services 80,808 9 % 74,133 9 % Total segment operating expenses 186,352 21 % 181,022 21 % Corporate 114,520 12 % 78,188 9 % Total operating expenses $ 300,872 33 % $ 259,210 30 % Selling, General and Administrative Selling, general and administrative expenses for the year ended June 30, 2014 were $294.4 million, an increase of $46.1 million, or 19%, from $248.3 million for the year ended June 30, 2013. The increase was attributable to $19.5 million of stock-based compensation expense in fiscal 2014, a $6.2 million adjustment to the tax receivable agreement liability related to a change in tax accounting method approved by the IRS in the fourth quarter of 2014 and $2.0 million of acquisition-related expenses recognized during the year ended June 30, 2014, as well as higher employee-related expenses due to increased selling and service personnel headcount and other general and administrative expenses attributable to operating as a public company. Research and Development Research and development expenses for the year ended June 30, 2014 were $3.4 million, a decrease of $6.0 million, or 64%, from $9.4 million for the year ended June 30, 2013. The decrease was primarily a result of a higher level of capitalized expenses in the current fiscal year from software in the development stages of production and higher non-capitalizable outside contractor expenses in the prior fiscal year related to the development and testing activities associated with our PremierConnect™ platform and associated applications. We experience fluctuations in our research and development expenditures across reportable periods due to the timing of our software development lifecycles, with new product features and functionality, new technologies and upgrades to our service offerings. 63 -------------------------------------------------------------------------------- Amortization of Purchased Intangible Assets Amortization of purchased intangible assets for the year ended June 30, 2014 was $3.0 million, an increase of $1.5 million, or 100%, from $1.5 million for the year ended June 30, 2013. The increase was as a result of the additional amortization of purchased intangible assets obtained in the acquisition of SYMMEDRx in July 2013, Meddius in October 2013 and MEMdata in April 2014. As we execute on our growth strategy and deploy capital from our IPO, we expect further increases in amortization of purchased intangible assets in connection with future potential acquisitions. Other Non-operating Income and Expense Other Income, Net Other income, net, for the year ended June 30, 2014 was $58.3 million, an increase of $46.2 million from $12.1 million for the year ended June 30, 2013. This increase is primarily attributable to the $38.4 million gain recognized in connection with the sale of our 13% equity interest in GHX, as well as a $5.0 million increase in equity in net income of unconsolidated affiliates that is generated from our 50% ownership interest in Innovatix. Income Tax Expense Income tax expense for the year ended June 30, 2014 was $27.7 million, an increase of $18.0 million from $9.7 million for the year ended June 30, 2013, which is primarily attributable to additional taxable income from the increase in net income attributable to shareholders as a result of the Reorganization and IPO to approximately 22% from 1% for the periods prior to the Reorganization and IPO. Our effective tax rate was 7.7% and 2.5% for the year ended June 30, 2014 and 2013, respectively. The low effective tax rate compared to the statutory rate for both periods is attributable to the flow through of partnership income which is not subject to federal and state income taxes to the Company. On a pro forma basis, income tax expense of $24.5 million for the year ended June 30, 2014 reflects the effect of the Reorganization and IPO for the first three months of the year ended June 30, 2014 and represents a decrease of $8.0 million from income tax expense of $32.5 million for the year ended June 30, 2013 which reflects the effect of the Reorganization and IPO for the entire year. The decrease in tax expense is primarily attributable to a one-time tax benefit of $2.4 million recorded in the year ended June 30, 2014, in connection with a Premier LP change in tax accounting method as well as decreases in taxable income in the Company, PHSI and PSCI compared to the prior year. The pro forma effective tax rate was 7.7% and 11.6% for the year ended June 30, 2014 and 2013, respectively. The low effective tax rate compared to the statutory rate for both periods is attributable to the flow through of partnership income which is not subject to federal and state income taxes to the Company. Net Income Attributable to Noncontrolling Interest Net income attributable to noncontrolling interest for the year ended June 30, 2014 was $304.3 million, a decrease of $63.4 million, or 17%, from $367.7 million for the year ended June 30, 2013, primarily as a result of the change in ownership of the limited partners of Premier LP from approximately 99% to 78% in connection with the Reorganization. On a pro forma basis, net income attributable to noncontrolling interest was $246.6 million for the year ended June 30, 2014, an increase of $29.6 million, or 14%, from $217.0 million for the year ended June 30, 2013. This increase was attributable to higher income of Premier LP, driven by the $38.4 million gain recognized on the sale of our investment in GHX for the year ended June 30, 2014, of which 78% was allocated to the limited partners of Premier LP. Adjusted EBITDA Year Ended June 30, Actual Pro Forma 2014 2013 2014 2013 Amount % of Net Revenue Amount % of Net Revenue Amount % of Net Revenue Amount % of Net Revenue Adjusted EBITDA by segment: Supply Chain Services 396,470 44 % 431,628 50 % 355,207 41 % 326,616 43 % Performance Services 73,898 8 % 56,456 6 % 73,898 9 % 56,456 7 % Total Segment Adjusted EBITDA 470,368 52 % 488,084 56 % 429,105 49 % 383,072 50 % Corporate (78,080 ) (9 )% (69,059 ) (8 )% (78,080 ) (9 )% (69,059 ) (9 )%



Total Adjusted EBITDA $ 392,288 43 % $ 419,025

48 % $ 351,025 40 % $ 314,013 41 % 64

-------------------------------------------------------------------------------- Adjusted EBITDA for the year ended June 30, 2014 was $392.3 million, a decrease of $26.7 million, or 6%, from $419.0 million for the year ended June 30, 2013. Pro forma Adjusted EBITDA for the year ended June 30, 2014 was $351.0 million an increase of $37.0 million, or 12%, from pro forma Adjusted EBITDA of $314.0 million for the year ended June 30, 2013. Segment Adjusted EBITDA for the supply chain services segment of $396.5 million for the year ended June 30, 2014 reflects a decrease of $35.1 million, or 8%, compared to $431.6 million for the year ended June 30, 2013, primarily driven by the 30% revenue share payable to member owners after the Reorganization on October 1, 2013. Pro forma segment Adjusted EBITDA for the supply chain services segment of $355.2 million for the year ended June 30, 2014 reflects an increase of $28.6 million, or 9%, compared to pro forma Segment Adjusted EBITDA of $326.6 million for the year ended June 30, 2013, primarily as a result of the growth in direct sourcing, increased net administrative fees revenue and lower operating expenses due to ongoing efforts to control costs. Segment Adjusted EBITDA for the performance services segment of $73.9 million for the year ended June 30, 2014 reflects an increase of $17.4 million, or 31%, compared to $56.5 million for the year ended June 30, 2013, as a result of growth from advisory services engagements, the sale of new SaaS informatics products and performance improvement collaboratives. 65 -------------------------------------------------------------------------------- Years Ended June 30, 2013 and 2012 The following table summarizes our consolidated results of operations for the fiscal years ended June 30, 2013 and 2012 (in thousands): Year Ended June 30, 2013 2012 Amount % of Net Revenue Amount % of Net Revenue Net revenue: Net administrative fees $ 519,219 60 % $ 473,249 62 % Other services and support 205,685 24 % 178,552 23 % Services 724,904 84 % 651,801 85 % Products 144,386 16 % 116,484 15 % Net revenue 869,290 100 % 768,285 100 % Cost of revenue: Services 103,795 12 % 83,021 11 % Products 133,618 15 % 106,698 14 % Cost of revenue 237,413 27 % 189,719 25 % Gross profit 631,877 73 % 578,566 75 % Operating expenses: Selling, general and administrative 248,301 29 % 240,748 31 % Research and development 9,370 1 % 12,583 2 % Amortization of purchased intangible assets 1,539 - % 3,146 - % Total operating expenses 259,210 30 % 256,477 33 % Operating income 372,667 43 % 322,089 42 % Other income, net 12,145 1 % 12,808 2 % Income before income taxes 384,812 44 % 334,897 44 % Income tax expense 9,726 1 % 8,229 1 % Net income 375,086 43 % 326,668 43 %



Net loss attributable to noncontrolling interest in S2S Global

1,479 - % 608 - %



Net income attributable to noncontrolling interest in Premier LP

(369,189 ) (42 )% (323,339 ) (42 )% Net income attributable to noncontrolling interest (367,710 ) (42 )% (322,731 ) (42 )% Net income attributable to shareholders $ 7,376 1 % $ 3,937 1 %



Adjustment of redeemable limited partners' capital to redemption amount

$ - nm $ - nm Net income (loss) attributable to shareholders after adjustment of redeemable partners' capital to redemption amount $ 7,376 nm $ 3,937 nm Adjusted EBITDA (1) $ 419,025 48 % $ 359,609 47 % Adjusted Fully Distributed Net Income na na na na nm - Not Meaningful na - Not Applicable 66

--------------------------------------------------------------------------------



(1) The table that follows shows the reconciliation of net income to Adjusted

EBITDA and the reconciliation of Segment Adjusted EBITDA to operating income

for the periods presented (in thousands): Year Ended June 30, 2013 2012 Net income $ 375,086$ 326,668 Interest and investment income, net (a) (965 ) (874 ) Income tax expense 9,726 8,229 Depreciation and amortization 27,681 22,252 Amortization of purchased intangible assets 1,539 3,146 EBITDA 413,067 359,421 Strategic and financial restructuring expenses (b) 5,170 - Other (income) expense, net 788 188 Adjusted EBITDA $ 419,025$ 359,609 Segment Adjusted EBITDA: Supply Chain Services $ 431,628$ 385,331 Performance Services 56,456 42,153 Corporate (c) (69,059 ) (67,875 ) Adjusted EBITDA 419,025 359,609 Depreciation and amortization (27,681 ) (22,252 ) Amortization of purchased intangible assets (1,539 ) (3,146 )



Strategic and financial restructuring expenses (b) (5,170 ) - Equity in net income of unconsolidated affiliates (11,968 ) (12,122 )

372,667 322,089 Pro forma adjustment for revenue share post-IPO - - Operating income $ 372,667$ 322,089



(a) Represents interest income and realized gains and losses on our marketable

securities. (b) Represents legal, accounting and other expenses directly related to the Reorganization and IPO. (c) Corporate consists of general and administrative corporate expenses that are not specific to either of our segments. Net Revenue The following table summarizes our net revenue for the years ended June 30, 2013 and 2012, indicated both in dollars (in thousands) and as a percentage of net revenue: Year Ended June 30, 2013 2012 Amount % of Net Revenue Amount % of Net Revenue Supply Chain Services: Net administrative fees $ 519,219 60 % $ 473,249 62 % Other services and support 471 - % 1,296 - % Services 519,690 60 % 474,545 62 % Products 144,386 16 % 116,484 15 % Total Supply Chain Services 664,076 76 % 591,029 77 % Performance Services: Other services and support 205,214 24 % 177,256 23 % Total net revenue $ 869,290 100 % $ 768,285 100 %



Total net revenue for the year ended June 30, 2013 was $869.3 million, an increase of $101.0 million, or 13%, from $768.3 million for the year ended June 30, 2012.

67 -------------------------------------------------------------------------------- Supply Chain Services Our supply chain services segment net revenue for the year ended June 30, 2013 was $664.1 million, an increase of $73.1 million, or 12%, from $591.0 million for the year ended June 30, 2012. Net administrative fees revenue in our supply chain services segment for the year ended June 30, 2013 was $519.2 million, an increase of $46.0 million, or 10%, from $473.2 million for the year ended June 30, 2012. Gross administrative fees increased $23.5 million reflecting an increase in gross administrative fees from member owners. Revenue share decreased $22.5 million. Net administrative fees revenue benefited as a result of the conversion of certain members with contractual fee share agreements to member owners during the year ended June 30, 2013, which increased gross administrative fees from member owners and decreased revenue share as compared to the prior year. Product revenue in our supply chain services segment for the year ended June 30, 2013 was $144.4 million, an increase of $27.9 million, or 24%, from $116.5 million for the year ended June 30, 2012, due to increased direct sourcing revenue, as a result of growth in our members purchasing our products through our direct sourcing program, and increased specialty pharmacy revenue, as a result of growth of historical patient prescriptions, the expansion of specialty pharmacy product sales to our members and the availability and associated sales of additional limited-distribution drugs available in the portfolio. Performance Services Other services and support revenue in our performance services segment for the year ended June 30, 2013 was $205.2 million, an increase of $27.9 million, or 16%, from $177.3 million for the year ended June 30, 2012. The increase was primarily attributable to $11.9 million from the renewal of existing Saas informatics products subscriptions at generally higher subscription prices, $4.1 million from new Saas informatics products subscriptions and $6.7 million from a significant two-year performance improvement collaborative contract that commenced in January 2012, resulting in 12 months of revenue for the year ended June 30, 2013, compared to six months of revenue for the year ended June 30, 2012, as well as increased revenue from advisory and research services. Cost of Revenue The following table summarizes our cost of revenue for the periods indicated both in dollars (in thousands) and as a percentage of net revenue: Year Ended June 30, 2013 2012 Amount % of Net Revenue Amount % of Net Revenue Cost of revenue: Products $ 133,618 15 % $ 106,698 14 % Services 103,795 12 % 83,021 11 % Total cost of revenue $ 237,413 27 % $ 189,719 25 % Cost of revenue by segment: Supply Chain Services $ 138,781 16 % $ 108,122 14 % Performance Services 98,632 11 % 81,597 11 % Total cost of revenue $ 237,413 27 % $ 189,719 25 % Cost of revenue for the year ended June 30, 2013 was $237.4 million, an increase of $47.7 million, or 25%, from $189.7 million for the year ended June 30, 2012. Cost of product revenue increased by $26.9 million, which was primarily attributable to the increase specialty pharmacy revenue as well as an increase in direct sourcing revenue as a result of our 60% ownership interest in S2S Global acquired in December 2011. Cost of service revenue increased by $20.8 million primarily due to labor associated with advisory services engagements, including a significant two-year performance improvement collaborative contract that commenced in January 2012, resulting in 12 months of cost of service revenue for the year ended June 30, 2013, compared to six months of cost of service revenue for the year ended June 30, 2012, as well as an increase in amortization of internally-developed software applications. Cost of revenue for the supply chain services segment for the year ended June 30, 2013 was $138.8 million, an increase of $30.7 million, or 28%, from $108.1 million for the year ended June 30, 2012. The increase is primarily attributable to the growth in direct sourcing and specialty pharmacy, which have a higher associated cost of revenue as compared to group purchasing. As a result, there is a higher increase in cost of revenue relative to net revenue because net administrative fees represents the majority 68 -------------------------------------------------------------------------------- of supply chain services net revenue and product revenue from direct sourcing and specialty pharmacy is growing at a higher rate than net administrative fees. Cost of revenue for the performance services segment for the year ended June 30, 2013 was $98.6 million, an increase of $17.0 million, or 21%, from $81.6 million for the year ended June 30, 2012. The increase is primarily attributable to labor associated with advisory services engagements and the increase in amortization of internally-developed software applications. Operating Expenses The following table summarizes our operating expenses for the periods indicated both in dollars (in thousands) and as a percentage of net revenue: Year Ended June 30, 2013 2012 % of Net % of Net Amount Revenue Amount Revenue Operating expenses: Selling, general and administrative $ 248,301 29 % $ 240,748 31 % Research and development 9,370 1 % 12,583 2 % Amortization of purchased intangible assets 1,539 - % 3,146 - % Total operating expenses 259,210 30 % 256,477 33 % Operating expenses by segment: Supply Chain Services 106,889 12 % 110,911 14 % Performance Services 74,133 9 % 73,547 10 % Total segment operating expenses 181,022 21 % 184,458 24 % Corporate 78,188 9 % 72,019 9 % Total operating expenses $ 259,210 30 % $ 256,477 33 % Selling, General and Administrative Selling, general and administrative expenses for the year ended June 30, 2013 were $248.3 million, an increase of $7.6 million, or 3%, from $240.7 million for the year ended June 30, 2012. The increase was primarily attributable to legal, accounting and other expenses directly related to the Reorganization and IPO of $5.2 million for the year ended June 30, 2013 as well as increased headcount, employee-related expenses and travel-related expenses. Research and Development Research and development expenses for the year ended June 30, 2013 were $9.4 million, a decrease of $3.2 million, or 25%, from $12.6 million for the year ended June 30, 2012. The decrease was primarily a result of higher outside contractor expenses for the year ended June 30, 2012 related to the development and testing activities associated with PremierConnect™, our underlying payer/provider joint data model and associated applications. We experience fluctuations in our research and development expenditures across reportable periods due to the timing of our software development lifecycles, with new product features and functionality, new technologies and upgrades to our service offerings. Amortization of Purchased Intangible Assets Amortization of purchased intangible assets for the year ended June 30, 2013 was $1.5 million, a decrease of $1.6 million, or 52%, from $3.1 million for the year ended June 30, 2012. The decrease was attributable to certain intangible assets that were fully amortized during the year ended June 30, 2012, associated with CareScience, Inc., an acquisition that occurred in 2007. Other Non-operating Income and Expense Other Income, Net Other income, net, for the year ended June 30, 2013 was $12.1 million, a decrease of $0.7 million, or 5%, from $12.8 million for the year ended June 30, 2012. This decrease is primarily attributable to an increase in the loss on disposal of assets. 69 -------------------------------------------------------------------------------- Income Tax Expense Income tax expense for the year ended June 30, 2013 was $9.7 million, an increase of $1.5 million from $8.2 million for the year ended June 30, 2012, which is primarily attributable to additional taxable income. Our effective tax rate was 2.5% for the years ended June 30, 2013 and 2012. The low effective tax rate compared to the statutory rate for both periods is attributable to the flow through of partnership income which is not subject to federal income taxes to the Company. Net Income Attributable to Noncontrolling Interest Net income attributable to noncontrolling interest for the year ended June 30, 2013 was $367.7 million, an increase of $45.0 million, or 14%, from $322.7 million for the year ended June 30, 2012, primarily due to higher income of Premier LP, of which 99% was allocated to the limited partners of Premier LP. Adjusted EBITDA Year Ended June 30, 2013 2012 Amount % of Net Revenue Amount % of Net Revenue Adjusted EBITDA by segment: Supply Chain Services 431,628 50 % 385,331 50 % Performance Services 56,456 6 % 42,153 6 % Total Segment Adjusted EBITDA 488,084 56 % 427,484 56 % Corporate (69,059 ) (8 )% (67,875 ) (9 )% Total Adjusted EBITDA $ 419,025 48 % $ 359,609 47 % Adjusted EBITDA for the year ended June 30, 2013 was $419.0 million, an increase of $59.4 million, or 17%, from $359.6 million for the year ended June 30, 2012. Segment Adjusted EBITDA for the supply chain services segment of $431.6 million for the year ended June 30, 2013 reflects an increase of $46.3 million, or 12%, compared to $385.3 million for the year ended June 30, 2012, primarily as a result of growth in net administrative fees revenue. Segment Adjusted EBITDA for the performance services segment of $56.5 million for the year ended June 30, 2013 reflects an increase of $14.3 million, or 34%, compared to $42.2 million for the year ended June 30, 2012, as a result of revenue growth from the sale of new, and renewal of existing, SaaS informatics subscriptions, a significant two-year performance improvement collaborative contract and other advisory services engagements. Off-Balance Sheet Arrangements As of June 30, 2014, we did not have any off-balance sheet arrangements. Emerging Growth Company We are an "emerging growth company" as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). As such, we are eligible and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, delayed application of newly adopted or revised accounting standards, exemption from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We have elected to take advantage of these benefits until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting and regulatory standards. We will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year during which we had total annual gross revenues of at least $1 billion (as indexed for inflation), (ii) the last day of the fiscal year following the fifth anniversary of our IPO, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion 70 -------------------------------------------------------------------------------- in non-convertible debt or (iv) the date on which we are deemed to be a "large accelerated filer," as defined under the Exchange Act. Accordingly, we could remain an "emerging growth company" until as late as June 30, 2019. Critical Accounting Policies and Estimates Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Estimates are evaluated on an ongoing basis, including those related to reserves for bad debts, useful lives of property and equipment, value of investments not publicly traded, the valuation allowance on deferred tax assets and the fair value of purchased intangible assets and goodwill. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We believe that our most critical accounting policies are the following: Revenue Recognition



Net Revenue

Net revenue consists of (i) service revenue which includes net administrative fees revenue and other services and support revenue and (ii) product revenue. Net administrative fees revenue consists of GPO administrative fees in our supply chain services segment. Other services and support revenue consists primarily of fees generated in our performance services segment in connection with our SaaS informatics products subscriptions, advisory services and performance improvement collaborative subscriptions. Product revenue consists of specialty pharmacy and direct sourcing product sales, which are included in the supply chain segment. We recognize revenue when (i) there is persuasive evidence of an arrangement, (ii) the fee is fixed or determinable, (iii) services have been rendered and payment has been contractually earned, and (iv) collectability is reasonably assured.



Net Administrative Fees Revenue

Net administrative fees revenue is generated through administrative fees received from suppliers based on the total dollar volume of supplies purchased by our members.

Through our group purchasing program, we aggregate the purchasing power of our members to negotiate pricing discounts and improve contract terms with suppliers. Contracted suppliers pay administrative fees to us which generally represent 1% to 3% of the purchase price of goods and services sold to members under the contracts we have negotiated. Administrative fees are recognized as revenue in the period in which the respective supplier reports member purchasing data, usually a month or a quarter in arrears of actual member purchase activity. The supplier report proves that the delivery of product or service has occurred, the administrative fees are fixed and determinable based on reported purchasing volume, and collectability is reasonably assured. Member and supplier contracts substantiate persuasive evidence of an arrangement. We do not take title to the underlying equipment or products purchased by members through our GPO supplier contracts. We partner with certain members, including regional GPOs, to extend our network base to their members and pay a revenue share equal to a percentage of gross administrative fees that we collect based upon purchasing by such members and their member facilities through our GPO supplier contracts. Revenue share is recognized according to the members' contractual agreements with us as the related administrative fees revenue is recognized. Considering GAAP relating to principal agent considerations under revenue recognition, revenue share is recorded as a reduction to gross administrative fees revenue to arrive at net administrative fees revenue in the accompanying consolidated statements of income.



Other Services and Support Revenue

Other services and support revenue consists of SaaS informatics products subscriptions, performance improvement collaborative and other service subscriptions, professional fees for advisory services, and insurance services management fees and commissions from group-sponsored insurance programs.

SaaS informatics products subscriptions include the right to use our proprietary hosted technology on a SaaS basis, training and member support to deliver improvements in cost management, quality and safety, population health management and provider analytics. Pricing varies by subscription and size of the subscriber. Informatics subscriptions are generally three to five year agreements with automatic renewal clauses and annual price escalators that typically do not allow for early termination. These agreements do not allow for physical possession of the software. Subscription fees are typically billed on a monthly basis and 71 -------------------------------------------------------------------------------- revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation. Implementation involves the completion of data preparation services that are unique to each member's data set and, in certain cases, the installation of member site-specific software, in order to access and transfer member data into our hosted SaaS informatics products. Implementation is generally 110 to 160 days following contract execution before the SaaS informatics products can be fully utilized by the member. Revenue from performance improvement collaboratives and other service subscriptions that support our offerings in cost management, quality and safety and population health management is recognized over the service period, which is generally one year. Professional fees for advisory services are sold under contracts, the terms of which vary based on the nature of the engagement. Fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed and deliverables are provided. In situations where the contracts have significant contract performance guarantees or member acceptance provisions, revenue recognition occurs when the fees are fixed and determinable and all contingencies, including any refund rights, have been satisfied.



Our other services and support revenue growth will be dependent upon the expansion of our SaaS informatics products, performance improvement collaboratives and advisory services to new and existing members and the renewal of existing subscriptions to our SaaS informatics products and performance improvement collaboratives.

Certain administrative and/or patient management specialty pharmacy services are provided in situations where prescriptions are sent back to member health systems for dispensing. Additionally, we derive revenue from pharmaceutical manufacturers for providing patient education and utilization data. Revenue is recognized as these services are provided.



Product Revenue

Specialty pharmacy revenue is recognized when a product is accepted and is recorded net of the estimated contractual adjustments under agreements with Medicare, Medicaid and other managed care plans. Payments for the products provided under such agreements are based on defined allowable reimbursements rather than on the basis of standard billing rates. The difference between the standard billing rate and allowable reimbursement rate results in contractual adjustments which are recorded as deductions from net revenue.



Direct sourcing revenue is recognized upon delivery of medical products to members once the title and risk of loss have been transferred.

Multiple Deliverable Arrangements

We occasionally enter into agreements where the individual deliverables discussed above, such as SaaS subscriptions and advisory services, are bundled into a single service arrangement. These agreements are generally provided over a time period ranging from approximately three months to five years after the applicable contract execution date. Revenue is allocated to the individual elements within the arrangement based on their relative selling price using vendor specific objective evidence, or VSOE, third-party evidence, or TPE, or the estimated selling price, or ESP, provided that the total arrangement consideration is fixed and determinable at the inception of the arrangement. We establish VSOE, TPE, or ESP for each element of a service arrangement based on the price charged for a particular element when it is sold separately in a stand-alone arrangement. All deliverables which are fixed and determinable are recognized according to the revenue recognition methodology described above. Certain arrangements include performance targets or other contingent fees that are not fixed and determinable at the inception of the arrangement. If the total arrangement consideration is not fixed and determinable at the inception of the arrangement, we allocate only that portion of the arrangement that is fixed and determinable to each element. As additional consideration becomes fixed, it is similarly allocated based on VSOE, TPE or ESP to each element in the arrangement and recognized in accordance with each element's revenue recognition policy.



Performance Guarantees

On limited occasions, we may enter into an agreement which provides for guaranteed performance levels to be achieved by the member over the term of the agreement. In situations with significant performance guarantees, we defer revenue recognition until the amount is fixed and determinable and all contingencies, including any refund rights, have been satisfied. In the event that guaranteed savings levels are not achieved, we may have to pay the difference between the savings that were guaranteed and the actual achieved savings. 72 -------------------------------------------------------------------------------- Deferred Revenue Deferred revenue consists of unrecognized revenue related to advanced member invoicing or member payments received prior to fulfillment of the Company's revenue recognition criteria. Substantially all deferred revenue consists of deferred subscription fees and deferred advisory fees. Subscription fees for company-hosted SaaS applications are deferred until the member's unique data records have been incorporated into the underlying software database, or until member site-specific software has been implemented and the member has access to the software. Deferred advisory fees arise when cash is received from members prior to delivery of service. When the fees are contingent upon meeting a performance target that has not yet been achieved, the advisory fees are deferred until the performance target is met.



Software Development Costs

Costs to develop internal use computer software that are incurred in the preliminary project stage are expensed as incurred. During the development stage, direct consulting costs and payroll and payroll-related costs for employees that are directly associated with each project are capitalized and amortized over the estimated useful life of the software, once it is placed into operation. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the related software applications of up to five years and amortization is included in depreciation and amortization expense. Replacements and major improvements are capitalized, while maintenance and repairs are expensed as incurred. Some of the more significant estimates and assumptions inherent in this process involve determining the stages of the software development project, the direct costs to capitalize and the estimated useful life of the capitalized software.



Goodwill

Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill is not amortized, but we evaluate for impairment annually on the first day of the last fiscal quarter of the fiscal year or whenever there is an impairment indicator. Under the accounting rules, we can elect to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. This qualitative assessment requires an evaluation of any excess of fair value over the carrying value for a reporting unit and significant judgment regarding potential changes in valuation inputs, including a review of our most recent long-range projections, analysis of operating results versus the prior year, changes in market values, changes in discount rates and changes in terminal growth rate assumptions. If it is determined that an impairment is more likely than not to exist, then we are required to perform a quantitative assessment to determine whether or not goodwill is impaired and to measure the amount of goodwill impairment, if any. Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of each of our reporting units to its carrying amount, including goodwill. In performing the first step, we determine the fair value of a reporting unit using a discounted cash flow analysis that is corroborated by a market-based approach. Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. The cash flows employed in the discounted cash flow analyses are based on our most recent budget and long-term forecast. The discount rates used in the discounted cash flow analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with its goodwill carrying amount to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment charge is recognized in an amount equal to that excess. Our most recent annual impairment testing, which consisted of both qualitative and quantitative assessments, did not result in any goodwill impairment charges during the fourth quarter of the fiscal year ended June 30, 2014. Further, the results of our quantitative assessment indicated that the estimated fair value of each reporting unit evaluated substantially exceeded its respective carrying amount. 73

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Business Combinations

We account for acquisitions using the acquisition method. All of the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration are recognized at their fair value on the acquisition date. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related costs are recorded as expenses in the consolidated financial statements. Several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets, we typically use the income method. This method starts with a forecast of all of the expected future net cash flows for each asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows and the assessment of the asset's life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry. Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives.



Income Taxes

We account for income taxes under the asset and liability approach. Deferred tax assets or liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. We provide a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. We prepare and file tax returns based on interpretations of tax laws and regulations. In the normal course of business our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. In determining our tax provision for financial reporting purposes we establish a reserve for uncertain income tax positions unless it is determined to be "more likely than not" that such tax positions would be sustained upon examination, based on their technical merits. That is, for financial reporting purposes, we only recognize tax benefits taken on the tax return if we believe it is "more likely than not" that such tax position would be sustained. There is considerable judgment involved in determining whether it is "more likely than not" that such tax positions would be sustained. We adjust our tax reserve estimates periodically because of ongoing examinations by, and settlements with, varying taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated tax provision of any given year includes adjustments to prior year income tax accruals and related estimated interest charges that are considered appropriate. Our policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of income tax expense.



Tax Receivable Agreements

We record a liability related to the tax receivable agreements based on 85% of the estimated amount of tax savings we expect to receive, generally over a 15-year period, in connection with the additional tax benefits created in connection with the Reorganization and IPO. Tax payments under the tax receivable agreements will be made to our member owners as we realize tax benefits attributable to the initial purchase of Class B common units from the member owners in the Reorganization and subsequent exchanges of Class B common units into Class A common stock or cash between us and the member owners. Determining the estimated amount of tax savings we expect to receive requires judgment as deductibility of goodwill amortization expense is not assured and the estimate of tax savings is dependent upon the actual realization of the tax benefit and the tax rates in effect at that time.



Changes in the estimated tax receivable agreement liability are recorded in selling, general and administrative expense in the consolidated statements of income.

Marketable Securities We invest our excess cash in commercial paper, corporate debt securities, government securities and other securities with maturities generally ranging from three months to five years from the date of purchase. Marketable securities, classified as available-for-sale, are carried at fair market value, with the unrealized gains and losses on such investments reported in comprehensive income as a separate component of stockholders' equity or redeemable limited partners' capital as appropriate. Realized gains and losses, and other-than-temporary declines in investments, are included in other income, net in the 74 --------------------------------------------------------------------------------



accompanying consolidated statements of income. We use the specific-identification method to determine the cost of securities sold. We do not hold publicly traded equity investments.

New Accounting Standards In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the update is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The update will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. The update allows for either full retrospective or modified retrospective adoption. We are currently evaluating the transition method that will be elected as well as the impact of the adoption of the update on its consolidated financial statements and related disclosures. Liquidity and Capital Resources Our principal source of cash has historically been cash provided by operating activities and more recently, net proceeds from our IPO. From time-to-time we have used, and expect to use in the future, borrowings under our lines of credit as a source of liquidity. Our primary cash requirements involve operating expenses, working capital fluctuations, capital expenditures and acquisitions. Our capital expenditures typically consist of internally-developed software costs, software purchases and computer hardware purchases. Historically, the vast majority of our excess cash has been distributed to our member owners. As of June 30, 2014 and June 30, 2013, we had cash and cash equivalents totaling $131.8 million and $198.3 million, respectively, and marketable securities with maturities ranging from three months to five years totaling $408.6 million and $57.3 million, respectively. The increase in marketable securities is primarily due to the investment of the net proceeds from our IPO. For the years ended June 30, 2014 and 2013, we financed our operations primarily through internally generated cash flows. As of June 30, 2014, there were no outstanding borrowings under our new $750.0 million, five year revolving credit facility, which we entered into on June 24, 2014. Concurrently with the closing of our new revolving credit facility, we terminated our existing $100.0 million credit facility. On July 18, 2013, we made a $30.0 million draw on our prior revolving facility and on September 16, 2013, we made an additional $30.0 million draw on the prior revolving facility. On October 11, 2013, we repaid $30.0 million of the balance outstanding on the prior revolving facility and repaid the remaining balance of $30.0 million on October 18, 2013. See Note 12 - Lines of Credit to the audited consolidated financial statements contained herein for more information regarding our credit facilities. Since the Reorganization and IPO, we have been retaining and intend to continue to retain a significantly greater portion of our earnings to provide additional liquidity to fund operations and future growth, including through acquisitions. We expect earnings, remaining proceeds from our IPO and occasional credit facility borrowings to provide us with liquidity to fund our working capital requirements, revenue share obligations, tax payments, capital expenditures and growth for the foreseeable future. Our capital requirements depend on numerous factors, including funding requirements for our product and service development and commercialization efforts, our information technology requirements and the amount of cash generated by our operations. We currently believe that we have adequate capital resources at our disposal to fund currently anticipated capital expenditures, business growth and expansion, and current and projected debt service requirements; however, strategic growth initiatives will likely require the use of a portion of the proceeds from the IPO, as well as proceeds from the issuance of additional equity or debt securities. Discussion of Cash Flow A summary of net cash flows follows (in thousands): Year ended June 30, 2014 2013 Net cash provided by (used in): Operating activities $ 368,122$ 378,269 Investing activities (397,103 ) 14,830 Financing activities (37,529 ) (335,625 )



Net (decrease) increase in cash $ (66,510 )$ 57,474

75 -------------------------------------------------------------------------------- Discussion of cash flows for the year ended June 30, 2014 and 2013 Net cash provided by operating activities was $368.1 million for the year ended June 30, 2014, a decrease of $10.2 million compared to $378.3 million for the year ended June 30, 2013. Operating cash flows decreased primarily due to changes in working capital. Net cash used in investing activities was $397.1 million for the year ended June 30, 2014 compared to net cash provided by investing activities of $14.8 million for the year ended June 30, 2013. Our investing activities for the year ended June 30, 2014 primarily consisted of (i) the net purchases of marketable securities of $352.8 million due to a decision to invest the proceeds from the IPO in longer term marketable securities, (ii) the acquisitions of SYMMEDRx, Meddius and Memdata, net of cash acquired, for a total of $42.6 million and (iii) capital expenditures of $55.7 million for property and equipment, partially offset by proceeds from the sale of our investment in GHX of $38.4 million and distributions from Innovatix of $15.7 million. Our investing activities for the year ended June 30, 2013, primarily consisted of the sale of marketable securities which resulted in proceeds of $115.1 million and distributions received from our 50% ownership interest in Innovatix of $12.5 million, partly offset by the purchase of marketable securities of $69.3 million and capital expenditures of $42.4 million for property and equipment. Net cash used in financing activities was $37.5 million for the year ended June 30, 2014, compared to $335.6 million for the year ended June 30, 2013. Our financing activities for the year ended June 30, 2014 primarily included (i) net proceeds of $277.8 million in connection with the IPO, (ii) proceeds of $66.0 million from withdrawals on our lines of credit and (iii) proceeds from notes receivable from partners of $12.7 million, offset by (i) net cash payments to Premier LP limited partners of $319.7 million, (ii) payments on the line of credit of $60.0 million and (iii) payments made on notes payable of $9.3 million. Our financing activities for the year ended June 30, 2013 were primarily comprised of (i) net cash payments to Premier LP limited partners of $183.2 million in September 2012 and $131.7 million in February 2013, (ii) cash distribution payments to Premier LP members with contractual fee share agreements who converted to member owners during fiscal year 2013 of $14.1 million, and (iii) payments to departed member owners of $17.8 million, partly offset by proceeds from the issuance of redeemable limited partnership interests of $8.1 million and proceeds of $5.6 million from withdrawal on our revolving lines of credit. Contractual Obligations At June 30, 2014, we had material commitments for obligations under notes payable, our non-cancellable office space lease agreements, and estimated payments due to limited partners under tax receivable agreements. Future payments for notes payable, operating lease obligations due under long-term contractual obligations, and estimated payments to limited partners under tax receivable agreements as of June 30, 2014 are as follows: Payments Due by Period Description of Contractual Less than 1 Greater than Obligations (In Thousands) Total year 1-3 years 3-5 years 5 years Notes payable (1) $ 33,747$ 17,696$ 7,542$ 8,255$ 254 Operating lease obligations (2) 100,222 7,937 15,834 15,973 60,478 Tax receivable agreement liability (3) 192,291 11,035 18,823 30,140 132,293 Total $ 326,260$ 36,668$ 42,199$ 54,368$ 193,025 (1) Notes payable represent an aggregate principal amount of $20.0 million owed to departed member owners, payable over five years, and $13.7 million outstanding on a revolving line of credit held by S2S Global. (2) Future contractual obligations for leases represent future minimum payments under non-cancellable operating leases primarily for office space. (3) Estimated payments due to limited partners under tax receivable agreements are based on 85% of the estimated amount of tax savings we expect to receive, generally over a 15-year period, in connection with the additional tax benefits created in connection with the Reorganization and IPO. On June 24, 2014, we entered into our new credit facility. The credit facility has a maturity date of June 24, 2019. The new credit facility provides for borrowings of up to $750.0 million with (i) a $25.0 million subfacility for standby letters of credit and (ii) a $75.0 million subfacility for swingline loans. At our request, the credit facility may be increased from time to time up to an additional aggregate of $250.0 million, subject to the approval of the lenders providing such increase. The credit facility includes an unconditional and irrevocable guaranty of all obligations under the credit facility by Premier GP, certain domestic subsidiaries of Premier GP and future guarantors, if any. Premier, Inc. is not a guarantor under the credit facility. 76 -------------------------------------------------------------------------------- The new credit facility replaced our prior $100 million credit facility, which was terminated on the closing date of the new credit facility. The prior credit facility was scheduled to mature on December 16, 2014. At the time of its termination, there were no outstanding borrowings under the prior credit facility. The new credit facility permits us to prepay amounts outstanding without premium or penalty provided, however, we are required to compensate the lenders for losses and expenses incurred as a result of the prepayment of any Eurodollar Rate Loan, as defined in the credit facility. Committed loans may be in the form of Eurodollar Rate Loans or Base Rate Loans, as defined in the credit facility, at our option. Eurodollar Rate Loans bear interest at the Eurodollar Rate (defined as the London Interbank Offer Rate, or LIBOR, plus the Applicable Rate (defined as a margin based on the Consolidated Total Leverage Ratio (as defined in the credit facility)). Base Rate Loans bear interest at the Base Rate (defined as the highest of the prime rate announced by the Administrative Agent, the federal funds effective rate plus 0.50% or the one-month LIBOR plus 1.0%) plus the Applicable Rate. The Applicable Rate ranges from 1.125% to 1.75% for Eurodollar Rate Loans and 0.125% to 0.750% for Base Rate Loans. At June 30, 2014, the interest rate for three-month Eurodollar Rate Loans was 1.356% and the interest rate for Base Rate Loans was 3.375%. We are required to pay a commitment fee ranging from 0.125% to 0.250% per annum on the actual daily unused amount of commitments under the credit facility. At June 30, 2014, the commitment fee was 0.125%. The credit facility contains customary representations and warranties as well as customary affirmative and negative covenants, including, among others, limitations on liens, indebtedness, fundamental changes, dispositions, restricted payments and investments. Under the terms of the credit facility, Premier GP is not permitted to allow its Consolidated Total Leverage Ratio (as defined in the credit facility) to exceed 3.00 to 1.00 for any period of four consecutive fiscal quarters. In addition, Premier GP must maintain a minimum Consolidated Interest Coverage Ratio (as defined in the credit facility) of 3.00 to 1.00 at the end of every fiscal quarter. We were compliance with all such covenants at June 30, 2014. The credit facility also contains customary events of default including, among others, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults of any indebtedness or guarantees in excess of $30.0 million, bankruptcy and other insolvency events, judgment defaults in excess of $30.0 million, and the occurrence of a change of control (as defined in the credit facility). If any event of default occurs and is continuing, the Administrative Agent under the credit facility may, with the consent, or shall, at the request, of the required lenders, terminate the commitments and declare all of the amounts owed under the credit facility to be immediately due and payable. Proceeds from borrowings under the credit facility may generally be used to finance ongoing working capital requirements, including permitted acquisitions and other general corporate purposes. As of June 30, 2014, we had no outstanding borrowings under our new credit facility. The credit facility is governed by a Credit Agreement that is filed as an exhibit to this Annual Report. The above summary does not purport to be complete, and is subject to, and qualified in its entirety by reference to, the complete text of the Credit Agreement which is filed as an exhibit to this Annual Report. See also, Note 12 - Lines of Credit to our audited consolidated financial statement contained in the Annual Report. On August 17, 2012, S2S Global obtained a revolving line of credit with a one-year term for up to $10.0 million with an interest rate which is generally the prime rate plus 0.25% or LIBOR plus 1.25%, as elected by S2S Global, which replaced its revolving line of credit from the prior year. This revolving line of credit is guaranteed by Premier LP and PSCI and is secured by substantially all of the assets of S2S Global. On August 2, 2013, S2S Global renewed and amended its revolving line of credit to include a $15.0 million credit limit and a $5.0 million accordion feature. On January 30, 2014, S2S Global further amended its revolving line of credit to increase the credit limit to $20.0 million. The S2S Global revolving line of credit has customary covenants, which include, but are not limited to those regarding: the use of proceeds, provision of financial information, restriction on other debts and liens, maintenance of assets, investments, taxes, nature of business, mergers, transactions with affiliates, restricted payments, insurance and compliance with laws. S2S Global was in compliance with all such covenants at June 30, 2014. The amended revolving line of credit has a maturity date of December 16, 2014. The unused commitment fee on the revolving line of credit is 0.225% per annum. At June 30, 2014 and June 30, 2013, S2S Global had $13.7 million and $7.7 million, respectively, outstanding on the revolving line of credit. In connection with the Reorganization and IPO, we entered into a tax receivable agreements with the member owners, pursuant to which we agreed to pay to the member owners, generally over a 15-year period (under current law), 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local income and franchise tax that we actually realize (or are deemed to realize, in the case of payments required to be made upon certain occurrences under such tax receivable agreements) as a result of the increases in tax basis resulting from the initial sale of Class B common units by the member owners in connection with the Reorganization, as well as subsequent exchanges by such member owners pursuant to the exchange agreement, and of certain other tax benefits related to our entering into the tax receivable agreements, including tax benefits attributable to payments under the tax receivable agreements. 77



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Certain Contractual Arrangements with Our Member Owners In connection with the Reorganization, we entered into several agreements to define and regulate the governance and control relationships among us, Premier LP and the member owners. Note 2 - Initial Public Offering and Reorganization to our audited consolidated financial statements contained herein provides a summary of the material provisions of these agreements. These summaries do not purport to be complete, and they are subject to, and qualified in their entirety by reference to, the complete text of the agreements which are filed as exhibits to this Annual Report. These agreements should be carefully read before making any investment decisions regarding our Class A common stock.


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