UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 0-51547
WebMD Health Corp.
(Exact name of registrant as
specified in its charter)
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Delaware
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20-2783228
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(State of
incorporation)
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(I.R.S. Employer Identification
No.)
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111 Eighth Avenue
New York, New York
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10011
(Zip code)
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(Address of principal executive
office)
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(212) 624-3700
(Registrants
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.01 per share
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The Nasdaq Stock Market LLC (Global Select Market)
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Securities registered pursuant to Section 12(g) of the
Act: Not Applicable
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference into
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting company
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act.) Yes
o No þ
As of June 30, 2009, the aggregate market value of the
registrants Common Stock held by non-affiliates of the
registrant was approximately $265,246,000 (based on the closing
price of the Common Stock of $29.92 per share on that date, as
reported on the Nasdaq Global Select Market and, for purposes of
this computation only, the assumption that all of the
registrants directors and executive officers are
affiliates).
As of February 25, 2010, there were 53,335,742 shares of Common
Stock outstanding (including unvested shares of restricted
Common Stock).
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information in the registrants definitive proxy
statement to be filed with the Commission relating to the
registrants 2010 Annual Meeting of Stockholders is
incorporated by reference into Part III.
TABLE OF
CONTENTS
WebMD®,
Medscape®,
CME
Circle®,
Medpulse®,
eMedicine®,
MedicineNet®,
theheart.org®,
RxList®,
Select Quality
Care®,
Summex®,
Medsite®
and WebMD Health and Benefits
Managersm
are among the trademarks of WebMD Health Corp. or its
subsidiaries.
i
FORWARD-LOOKING
STATEMENTS
This Annual Report on
Form 10-K
contains both historical and forward-looking statements. All
statements other than statements of historical fact are, or may
be, forward-looking statements. For example, statements
concerning projections, predictions, expectations, estimates or
forecasts and statements that describe our objectives, future
performance, plans or goals are, or may be, forward-looking
statements. These forward-looking statements reflect
managements current expectations concerning future results
and events and can generally be identified by the use of
expressions such as may, will,
should, could, would,
likely, predict, potential,
continue, future, estimate,
believe, expect, anticipate,
intend, plan, foresee, and
other similar words or phrases, as well as statements in the
future tense.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual
results, performance or achievements to be different from any
future results, performance and achievements expressed or
implied by these statements. The following important risks and
uncertainties could affect our future results, causing those
results to differ materially from those expressed in our
forward-looking statements:
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failure to achieve sufficient levels of usage of our public and
private portals;
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the inability to successfully deploy new or updated applications
or services;
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competition in attracting consumers and healthcare professionals
to our public portals and competition for advertisers and
sponsors for our public portals;
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events or conditions that have a negative effect on promotional
or educational spending by pharmaceutical and biotechnology
companies or on the portion of that spending used for
Internet-based services like ours;
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the inability to attract and retain qualified personnel;
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adverse economic conditions and disruptions in the capital
markets;
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adverse changes in general business or regulatory conditions
affecting the healthcare, information technology and Internet
industries; and
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the Risk Factors described in Item 1A of this Annual Report.
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These factors are not necessarily all of the important factors
that could cause actual results to differ materially from those
expressed in any of our forward-looking statements. Other
factors, including unknown or unpredictable ones, also could
have material adverse effects on our future results.
The forward-looking statements included in this Annual Report on
Form 10-K
are made only as of the date of this Annual Report. Except as
required by law or regulation, we do not undertake any
obligation to update any forward-looking statements to reflect
subsequent events or circumstances.
ii
DEFINITIONS
OF CERTAIN MEASURES
In this Annual Report, we provide information regarding usage of
The WebMD Health Network that we have determined using
internal technology that identifies and monitors usage by
individual computers and other electronic devices used to access
the Internet (which we refer to, collectively, as electronic
devices). As used in this Annual Report:
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A unique user or unique visitor during
any calendar month is an individual electronic device that
accesses a Web site in The WebMD Health Network during
the course of such calendar month, as determined by our tracking
technology. Accordingly, with respect to such calendar month,
once an individual electronic device accesses that Web site in
The WebMD Health Network, that electronic device will
generally be included in the total number of unique users or
visitors for that month. Similarly, with respect to any calendar
month, an electronic device accessing a specific Web site in
The WebMD Health Network may only be counted once as a
single unique user or visitor regardless of the number of times
such electronic device accesses that Web site or the number of
individuals who may use such electronic device. However, if that
electronic device accesses more than one site within The
WebMD Health Network during a calendar month, it will be
counted once for each such site. An electronic device that does
not access any of the Web sites in The WebMD Health Network
during a particular calendar month is not included in the
total number of unique users or visitors for that calendar
month, even if such electronic device has, in the past, accessed
one or more of these Web sites. In addition, if an electronic
device blocks our tracking technology, it will be counted as a
unique user or visitor in a particular month each time it visits
one of our Web sites.
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A page view is a Web page that is sent to the
browser of an electronic device upon a request made by such
electronic device and received by a server in The WebMD
Health Network. The number of page views in
The WebMD Health Network is not limited by its number of
unique users or visitors. Accordingly, each unique user or
visitor may generate multiple page views.
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With respect to any given time period, aggregate page
views are the total number of page views
during such time period on all of the Web sites in The WebMD
Health Network.
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Third party services that measure usage of Internet sites may
provide different usage statistics than those reported by our
internal tracking technology. These differences may occur as a
result of differences in methodologies applied and differences
in measurement periods. For example, third party services
typically apply their own proprietary methods of calculating
usage, which may include surveying users and estimating site
usage based on surveys, rather than based upon tracking such
usage.
Our private portals are licensed to employers and health plans
for use by their employees and members. These private portals
are not part of The WebMD Health Network, do not involve
advertising or sponsorship by third parties, and their users and
page views are not included in measurements of The WebMD
Health Networks traffic volume.
iii
PART I
INTRODUCTION
General
Information
WebMD Health Corp. is a Delaware corporation that was
incorporated on May 3, 2005 under the name WebMD Health
Holdings, Inc. Our principal executive offices are located at
111 Eighth Avenue, New York, New York 10011 and our telephone
number is
(212) 624-3700.
Our Class A Common Stock began trading on the NASDAQ
National Market under the symbol WBMD on
September 29, 2005 and later moved to the NASDAQ Global
Select Market. On October 23, 2009, we completed a merger
(which we refer to as the Merger) with HLTH Corporation, with
WebMD continuing as the surviving corporation and each share of
HLTH Common Stock being converted into 0.4444 shares of
WebMD Common Stock. In the Merger, the outstanding shares of
WebMDs Class B Common Stock (all of which were held
by HLTH) were cancelled. The shares of WebMD Class A Common
Stock were unchanged in the Merger and continue to trade on the
NASDAQ Global Select Market under the symbol WBMD;
however, they are no longer referred to as
Class A because the Merger eliminated both the
Class B Common Stock held by HLTH and the dual-class stock
structure that had existed at our company. For more information
regarding the Merger and a description of the accounting
treatment for the transaction, see Note 1 to the
Consolidated Financial Statements included in this Annual Report.
Overview
of Our Businesses
We are a leading provider of health information services to
consumers, physicians and other healthcare professionals,
employers and health plans through our public and private online
portals and health-focused publications. The online healthcare
information, decision-support applications and communications
services that we provide:
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enable consumers to obtain detailed information on a particular
disease or condition, to locate physicians, to store individual
healthcare information, to assess their personal health status,
to receive periodic
e-newsletters
and alerts on topics of individual interest, and to participate
in online communities with peers and experts;
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enable physicians and other healthcare professionals to access
clinical reference sources, to stay abreast of the latest
clinical information, to learn about new treatment options, to
earn continuing medical education (or CME) and continuing
education (or CE) credit and to communicate with peers; and
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enable employers and health plans to provide their employees and
plan members with access to personalized health and benefit
information and decision-support technology that helps them make
more informed benefit, provider and treatment choices.
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Public Portals. The WebMD Health Network
includes www.WebMD.com (which we sometimes refer to
as WebMD Health), our primary public portal for
consumers, and www.Medscape.com (which we sometimes refer
to as Medscape from WebMD), our primary public portal for
physicians and other healthcare professionals, as well as other
sites through which we provide our branded health and wellness
content, tools and services and select third party sites that
WebMD supports. The WebMD Health Network does not include
our private portals for employers and health plans, which are
described below. In 2009, The WebMD Health Network had an
average of approximately 61 million unique users per month
and generated approximately six billion aggregate page views,
and WebMD-owned sites accounted for approximately 95% of the
unique users and approximately 98% of the page views.
WebMD Health and our other consumer portals help
consumers take an active role in managing their health by
providing objective healthcare and lifestyle information. Our
content offerings for consumers include access to health and
wellness news articles and features and decision-support
services that help them make better informed decisions about
treatment options, health risks and healthcare providers.
Medscape from
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WebMD and our other portals for healthcare professionals
help them improve their clinical knowledge and practice of
medicine. The original content of our professional sites, which
includes daily medical news, commentary, conference coverage,
expert columns and CME activities, is written by authors from
widely respected clinical and academic institutions and edited
and managed by our in-house editorial staff.
Our public portals generate revenue primarily through the sale
of advertising and sponsorship products, as well as CME services
that are described below. We do not charge user fees for access
to our public portals. We develop sponsored programs that target
specific groups of health-involved consumers, clinically active
physicians and other healthcare professionals and place these
programs on the most relevant areas of The WebMD Health
Network so that our advertisers and sponsors are able to
reach, educate and inform these target audiences. Our
advertisers and sponsors consist primarily of pharmaceutical,
biotechnology and medical device companies and consumer products
companies whose products relate to health, wellness, diet,
fitness, lifestyle, safety and illness prevention. We also
publish WebMD the Magazine, a consumer publication that
we distribute free of charge to physicians for use in their
office waiting rooms.
Private Portals. Our private portal services
enable employees and health plan members to make more informed
benefit, treatment and provider decisions. We provide a secure,
personalized user experience by integrating individual user data
(including personal health information) and plan-specific data
from our employer or health plan clients with decision-support
applications and personal communication services. We also
integrate into our private portals much of the content that we
make available through our public portals. Our private portal
applications are typically accessed through a clients Web
site or intranet and provide secure access for employees and
plan members. We generate revenue from our private portals
primarily through the licensing of our products to employers and
health plans, either directly or through our distributors. We
also offer telephone coaching services on a per participant
basis across a population (employer or plan). Our private
portals do not display or generate revenue from advertising or
sponsorship.
Available
Information
We make available free of charge at www.wbmd.com (in the
Investor Relations section) copies of materials we
file with, or furnish to, the Securities and Exchange
Commission, or SEC, including our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and amendments to those reports, as soon as reasonably
practicable after we electronically file such materials with, or
furnish them to, the SEC.
2
PUBLIC
PORTALS
Overview
of The WebMD Health Network
Our content and services have made our public portals the
leading online health information destinations for consumers,
physicians and other healthcare professionals. In 2009, The
WebMD Health Network had an average of approximately
61 million unique users per month and generated
approximately six billion aggregate page views.
Owned Web Sites. During 2009,
WebMD-owned sites accounted for approximately 95% of The
WebMD Health Networks unique users and approximately
98% of its page views. The following provides a brief
description of the WebMD-owned public portals in The WebMD
Health Network:
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Consumer Portal Site
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Description
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www.webmd.com
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WebMD Health, our flagship consumer portal.
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www.medicinenet.com
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A health information site for consumers offering content that is
written and edited by practicing physicians, including an online
medical dictionary with thousands of medical terms.
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www.rxlist.com
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An online drug directory with over 2,000 drug monographs, which
are comprehensive descriptions of pharmaceutical products
(including chemical name, brand names, molecular structure,
clinical pharmacology, directions and dosage, side effects, drug
interactions and precautions).
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www.emedicinehealth.com
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A health information site for consumers offering articles
written and edited by physicians for consumers, including first
aid and emergency information that is also accessible at
firstaid.webmd.com.
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Professional Portal
Site
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www.medscape.com
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Medscape from WebMD, our flagship Web site for physicians
and other healthcare professionals.
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www.medscapecme.com
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The Web site through which Medscape, LLC distributes online CME
and CE to physicians and other healthcare professionals.
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www.theheart.org
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One of the leading cardiology Web sites, known for its depth and
breadth of content in this area.
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Third Party Sites. The WebMD Health
Network also includes certain third party Web sites that
WebMD supports. Those third party sites accounted for
approximately 2.0% of the total page views on The WebMD
Health Network during 2009. WebMD sells the advertising and
program content on the areas of the third party Web sites that
WebMD supports. Effective January 1, 2010, drugs.com
became part of The WebMD Health Network. drugs.com
provides free, accurate and independent information on
prescription drugs,
over-the-counter
medicines and natural products.
Consumer
Portals
Introduction. Healthcare consumers
increasingly seek to educate themselves online about their
healthcare-related issues, motivated in part by the continued
availability of new treatment options and in part by the larger
share of healthcare costs they are being asked to bear due to
changes in the benefit designs being offered by health plans and
employers. The Internet has fundamentally changed the way
consumers obtain information, enabling them to have immediate
access to searchable information and dynamic interactive
content. According to a study of health information technology
by the National Center for Health Statistics of the Centers for
Disease Control and Prevention (or CDC), approximately 51% of
United States adults aged
18-64 had
used the Internet to look up health information during the prior
12 months, based on a survey
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conducted in the first half of 2009. According to a June 2009
study by the Pew Internet & American Life Project, 61%
of U.S. adults (or 83% of those who use the Internet) had
searched for health information on the Internet, compared to 25%
of U.S. adults in a similar study in 2000, and
approximately 37% of U.S. adults had accessed social media
related to health.
Overview of Content and Service
Offerings. Our goal is to provide consumers
with an objective and trusted source of information that helps
them play an active role in managing their health. WebMD
Health and the other consumer portals in The WebMD Health
Network provide our users with information, tools and
applications in a variety of content formats. These content
offerings include access to news articles and features, special
reports, interactive guides, originally produced videos,
self-assessment questionnaires, expert led Q&As, community
discussions, and encyclopedic references. Our in-house staff,
which includes professional writers, editors, designers and
board-certified physicians, creates content for The WebMD
Health Network. Our in-house staff is supplemented by
medical advisors and authors from widely respected academic and
clinical institutions. The news stories and other original
content and reporting presented in The WebMD Health Network
are based on our editors selections of the most
important and relevant public health events occurring on any
given day, obtained from an array of credible sources, including
peer-reviewed medical journals, medical conferences, federal or
state government actions and materials derived from interviews
with medical experts. We offer searchable access to the full
content of our Web sites, including licensed content and
reference-based content.
We regularly make changes to the design of WebMD Health
and our other consumer portals in order to increase visitor
engagement with our content and to make it easier for users to
navigate within our sites and find information. We test
potential changes in design before they are made in order to
determine if such changes are likely to result in, among other
things, increased numbers of page views, video streams, slide
show views or searches in a visitor session and increased repeat
visits by our users.
Key Features of WebMD Health. WebMD
Health includes the following key features:
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Feature
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Description
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WebMD News Center
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Daily health news articles that are written by health
journalists and reviewed by our professional staff. Content
focuses on news you can use and the article topics
reflect national news stories of interest in the popular media
that day with original perspective from health and medical
experts.
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WebMD Editorial Features
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Comprehensive content focusing on major health issues that are
in the news or otherwise contemporary, with emphasis on health
trends and national health issues.
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WebMD Daily
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Originally produced multi-media content served on our custom
video player. WebMD Daily delivers a three to five minute
health-related video of real patient stories and expert
interviews, among other things, and includes narration, graphics
and links to additional content on a given health topic.
Sponsors are able to stream promotional messages within the
video feature itself and within the surrounding viewing area.
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Feature
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Description
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WebMD Health Centers
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WebMD Health Centers are centralized locations for content and
services for both WebMD Health editorial offerings and
sponsor offerings focusing on topics related to health, wellness
and lifestyle. Each Health Center features newly organized and
medically reviewed information and enables the user to easily
locate the top articles, news, community features and health
assessments for each topic. We also provide users an
alphabetical listing of all Health Centers and other collections
of articles, organized by specific health conditions and
concerns, known as Health A-Z.
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WebMD Health Guides
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Anchored within each Health Center, WebMD Health Guides are
designed to guide users through the most current symptom,
diagnosis, treatment and care information related to a
particular health topic. These unique guides were created by our
editorial staff of professional health writers in collaboration
with our proprietary physician network.
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WebMD Videos
A-Z
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Included in the Health Centers are broadcast-quality health
videos featuring real stories and expert interviews.
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Slideshows
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Our slideshows are designed to educate users on specific
conditions and other health topics in an engaging, visually rich
format.
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General Medical Information
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Our medical library allows consumers to research information
relating to diseases and common health conditions by providing
searchable access and easy-to-read content, including:
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self-care articles
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drug and supplement references from leading
publications, including First
DataBank®
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clinical trials and research study information
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a patients guide to medical tests
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interactive, illustrated presentations that visually
explain common health conditions and diseases
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a medical dictionary
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doctors views on important health topics
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WebMD Healthy Pets
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The WebMD Healthy Pets site on WebMD.com, launched
in October 2009, helps owners care for their cats and dogs with
veterinarian-reviewed information on pet diet and nutrition,
behavior and training, and preventive care. The site includes
the WebMD Healthy Pets online newsletter, as well as
interactive slideshows, videos and expert blogs to assist owners
with daily decisions for their pets well-being.
WebMDs pet wellness information allows owners to take an
active role in managing their pets health. WebMD
Healthy Pets also focuses on the human health benefits of
owning a pet, such as lower blood pressure and less anxiety, as
well as the impact pets can have on health conditions such as
allergies and asthma.
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Decision-Support Services and Other Online
Tools. Our decision-support services and
other online tools help consumers make better-informed decisions
about treatment options, health risks and healthcare providers,
and assist consumers in their management and monitoring, on an
ongoing basis, of personal health goals, specific conditions and
treatment regimens.
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Feature
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Description
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WebMD HealthCheck
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Clinical, algorithm-based self assessments for major conditions
yielding a personalized risk score based upon the users
individual characteristics (e.g., gender, age, behavioral risks,
heredity), along with customized recommendations for further
education, potential treatment alternatives and a summary report
to share with the users physician.
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Symptom Checker
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An interactive graphic interface with advanced clinical
decision-support rules that allow users to pinpoint potential
conditions associated with their physical symptoms, gender and
age. The Symptom Checker was created by an experienced group of
physicians trained in the development of clinical
decision-support applications.
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Healthy Eating and Diet
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An educational channel focusing on diet, food, and fitness,
designed to help users attain their goals in personal health,
fitness and weight management. The channel includes expert
interviews, diet assessment, a personal planner, a food database
for nutritional information, as well as calculators, portion
help, and a member area for discussion boards, blogs and user
support.
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First Aid & Emergencies
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Directs users to educational and treatment information that may
be useful in the event of certain medical emergencies. Also
included in this resource is a First Aid A-Z glossary of terms.
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Tests & Tools
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Provides access to interactive calculators and quizzes to assess
or demonstrate health topics, including a target heart rate
calculator, body mass index calculator, pregnancy calculator and
ovulation calendar.
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Drugs & Treatments
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Users can search for information about prescription and
over-the-counter medications by brand or generic name, or by
condition. We also recently launched Drug Insights, a
community product that allows consumers to anonymously review
and share their personal experiences with individual
prescription products.
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WebMD Physician Finder
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Enables users to find and make an appointment with a physician
based on the physician or practice name, specialty, zip code and
distance.
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WebMD Health Manager
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A free online service featuring a personal health record (a
secure application that assists consumers in gathering, storing,
and sharing essential health data in one centralized location),
secure message center, personal health risk assessments for
overall health, condition-specific trackers, medication
summaries, health calendar with reminders and alerts, printable
health emergency card, family member health record keeping,
weight loss, fitness and smoking cessation programs, and fully
personalized e-newsletter.
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WebMD Mobile. WebMD Mobile
allows consumers to access certain WebMD tools on an iPhone,
including Symptom Checker, First Aid, and Pill Identifier
applications, as well as other health information. It has been
downloaded more than 1.5 million times since launch and is
the leading free health application in the iTunes Store.
Membership; Online Communities. We also
provide interactive communication services to our registered
members. For example, members can opt-in to receive
e-newsletters
on health-related topics or specific conditions and to access
topic-specific events and online communities. Our online
communities allow our members to participate in real-time
discussions in chat rooms or on message boards, where they can
share experiences and exchange information with other members
who share common health conditions or concerns. There are no
membership fees and no usage charges for our consumer portals.
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Feature
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Description
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Community Centers
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Community Centers are designed to allow members to share their
experiences and exchange information with other members with
similar health conditions or concerns. Community Centers may
include blogs, moderated message boards and posted member
columns.
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e-Newsletters
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Our selection of e-Newsletters allows consumers to choose to
receive regular updates on topics targeted to their particular
health concerns and on general health-related subjects based on
their interests.
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Expert Blogs
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Expert healthcare professionals and non-healthcare professional
members alike chronicle their experience in these online
journals.
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Ask an Expert
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Health and wellness forums within which users can post their
health questions and receive support and information from health
experts, moderators and other members.
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We will be launching a major new initiative in social networking
called The WebMD Health Exchange in 2010. The WebMD Health
Exchange will build on the hundreds of health communities that
exist on WebMD Health today and will more closely integrate the
social experience throughout our core health content areas. The
WebMD Health Exchange will give consumers the opportunity to
explore a health or wellness topic on their own terms by
participating in WebMD expert moderated communities or by
creating their own public community or invitation-only private
community. The WebMD Health Exchange will leverage the knowledge
and credibility of leading experts from renowned medical
institutions where consumers can discuss personal challenges and
get responses, insights and support. We expect that The WebMD
Health Exchange will be an important new information source for
our users and a powerful new communications platform for our
sponsors.
WebMD the Magazine. WebMD the
Magazine is delivered free of charge to physicians in the
United States for use in their office waiting rooms and reaches
consumers right before they meet with their physicians. This
allows sponsors to extend their advertising reach and to deliver
their message when consumers are actively engaged in the
healthcare process, and allows us to extend the WebMD brand into
offline channels. The editorial format of WebMD the Magazine
is specifically designed for the physicians waiting
room. Its editorial features and highly interactive format of
assessments, quizzes and questions are designed to inform
consumers about important health and wellness topics. The
editorial content in the magazine is medically reviewed and
approved by WebMD staff physicians.
Professional
Portals
Introduction. The Internet has become a
primary source of information for physicians and other
healthcare professionals, and is growing relative to other
sources, such as conferences, meetings and offline journals. We
believe that our professional portals, which include Medscape
from WebMD, MedscapeCME and
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theheart.org, reach more physicians than any other
network of Web sites for healthcare professionals. We believe
that we are well positioned to increase usage by existing and
new members because we offer physicians and other healthcare
professionals a broad range of current clinical information and
resources. We expect that Medscape from WebMD, MedscapeCME
and our other professional portals will continue to benefit
from the general trend towards increased reliance on, and usage
of, the Internet by physicians and other healthcare
professionals.
There are no membership fees and no general usage charges for
our professional portals. However, users must register to access
the full array of content and features of our professional
portals. We generate revenue from our professional portals by
selling advertising and sponsorship programs primarily to
companies that wish to target physicians and other healthcare
professionals, and also through educational grants.
Medscape from WebMD. Medscape from
WebMD (www.medscape.com) enables physicians and other
healthcare professionals to stay abreast of the latest clinical
information through access to resources that include:
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timely medical news relating to a variety of specialty areas and
coverage of professional meetings and conferences;
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full-text medical journal articles and reference content,
including a comprehensive drug reference; and
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video and written commentary from leading medical experts.
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Medscape from WebMDs original content includes
daily medical news, commentary, conference coverage, and expert
columns written by our in-house news team and authors from
widely respected academic and clinical institutions and edited
and managed by our in-house editorial staff. We regularly
produce in-depth interviews with medical experts and newsmakers,
and provide alerts on critical clinical issues, including
pharmaceutical recalls and product advisories. Medscape from
WebMD also provides access to wire service stories and other
news-related content. Medscape from WebMD develops the
majority of its content internally and supplements that with
third party content in areas such as drug information and
full-text journal articles.
Medscape from WebMD is organized by physician specialty
and profession, and also includes areas for nurses, pharmacists,
medical students, and members interested in medical policy and
business of medicine topics. Registration by users enables us to
deliver targeted medical content based on such users
registration profiles. The registration process also enables
professional members to choose a home page tailored to their
medical specialty or interest. Medscape from WebMD offers
more than 30 specialty areas for its members. Medscape from
WebMD members receive
MedPulse®,
a weekly
e-mail
newsletter, which is published in more than 30
specialty-specific editions and highlights new information on
the Medscape from WebMD site.
Medscape from WebMD also publishes online medical
reference information for physicians and other healthcare
professionals, at emedicine.medscape.com. Thousands of
attributed physician authors and editors contribute to the
Clinical Knowledge Base, which contains peer-reviewed articles
on over 6,500 diseases and disorders, many of which are
illustrated with multimedia files. The evidence-based content,
updated regularly by the physician authors and editors, provides
practice information covering most medical specialties.
theheart.org Cardiology Site. theheart.org
(www.theheart.org) is one of the leading cardiology
Web sites, known for its depth and breadth of content in this
area. theheart.orgs content includes the
award-winning Heartwire news service, which covers breaking news
across all the major subspecialties of cardiology.
theheart.org also provides extensive video commentary
from leading cardiologists, including in-depth panel discussions
at the conclusion of major cardiology meetings. CME activities
on theheart.org are developed and certified by Medscape
LLC.
Continuing Medical Education
(CME). MedscapeCME
(www.medscapecme.com) is the primary Web site through
which our ACCME-accredited CME provider, Medscape, LLC,
distributes online CME and CE to physicians and other healthcare
professionals. The ACCME (the Accreditation Council for
Continuing Medical Education) accredits and oversees providers
of CME credit, as described under Government Regulation,
Industry Standards and Related Matters Regulation
and Accreditation of Continuing Medical Education below.
Medscape is also accredited as a provider of continuing nursing
education by the American Nurses
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Credentialing Centers Commission on Accreditation and as a
provider of continuing pharmacy education by the Accreditation
Council for Pharmacy Education.
MedscapeCME offers a wide selection of free, regularly
updated online CME and CE activities designed to educate
healthcare professionals about important diagnostic and
therapeutic issues, including both original CME and CE
activities that it develops as well as activities developed by
accredited third parties. In 2009, approximately
6.5 million continuing education activities were completed
by physicians and other healthcare professionals on
MedscapeCME, an increase of approximately 24% over 2008.
MedscapeCME educational activities are supported by
independent educational grants provided by pharmaceutical and
medical device companies, as well as foundations and government
agencies. The following are some of the types of educational
activities on MedscapeCME:
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CME Circle. Third party CME activities,
including symposia, monographs and CD-ROMs that MedscapeCME
distributes online.
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CME Live. Original online events featuring
live streaming video, audio and synchronized visual
presentations by experts on key topics and conditions.
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CME Cases. Original CME activities presented
by healthcare professionals in a patient case format.
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Resource Centers. Grant-based collections of
CME-certified content on the diagnosis and treatment of medical
conditions.
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Physician Connect. In 2008, Medscape
from WebMD expanded its online physician interaction
resources by launching Physician Connect, an online
community for physicians. By the end of 2009, Physician
Connect had attracted more than 120,000 physician members.
The Physician Connect social networking platform allows
physicians to exchange information online on a range of topics,
including patient care, drug information, healthcare-related
legislation and practice management. Physicians can also create
polls to elicit tailored, constructive feedback from other
physicians. We also offer third parties the opportunity to
sponsor Physician Connect discussions and polls so that
they can gain insights into physicians perspectives and
areas of interest. Medscape from WebMD also offers a
variety of sponsored and unsponsored blogs where healthcare
professionals can share their thoughts and opinions with the
Medscape from WebMD community.
Medscape Mobile. Medscape Mobile
is a free medical application that provides physicians with
Medscapes industry-leading medical information in a
convenient mobile format that can be accessed on demand on the
iPhonetm
and iPod
touch®.
Medscape Mobile includes Medscapes
specialty-specific news, comprehensive drug information, and
clinical reference tools. Medscape Mobile also includes
CME activities organized by specialty and designed for use on a
mobile device. Medscape Mobile also provides access to
The WebMD Health Directory, which contains contact
information for over 400,000 physicians, 57,000 pharmacies, and
6,000 hospitals in a convenient search format. Medscape
Mobile is currently available on the
iPhonetm
and iPod
touch®
and will soon be offered on additional mobile platforms,
including
BlackBerry®.
WebMD Professional Services. We provide
e-detailing
services for pharmaceutical, medical device and consumer
products companies, including activity development, targeted
recruitment and online distribution and delivery. Traditional
details are in-person meetings between
pharmaceutical company sales representatives and physicians to
discuss particular products.
E-details
are promotional interactive online programs that provide
clinical education and information to physicians about medical
conditions, treatments and products. We provide our
pharmaceutical and medical device customers with a set of online
solutions that help increase the sales efficiencies of their own
direct detailing efforts. In an effort to improve operating
efficiencies, several pharmaceutical companies have been
reducing their field sales forces in the past several years. We
believe that, in their effort to achieve greater overall market
efficiency, pharmaceutical companies will increase their use of
online promotional marketing, including
e-detailing.
Advertising
and Sponsorship
We believe that The WebMD Health Network offers an
efficient means for advertisers and sponsors to reach a large
audience of health-involved consumers, clinically-active
physicians and other healthcare
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professionals. The WebMD Health Network enables
advertisers and sponsors to reach either our entire audience or
specific groups of consumers, physicians and other healthcare
professionals based on their interests or specialties.
Currently, the majority of our advertisers and sponsors are
pharmaceutical, biotechnology or medical device firms or
consumer products companies whose products relate to health,
wellness, diet, fitness, lifestyle, safety and illness
prevention. These companies currently spend only a very small
portion of their marketing and educational budgets on online
media. However, we expect their online spending to increase as a
result of increased recognition of its potential advantages over
offline marketing and educational activities. The WebMD
Health Network ran approximately 1,600 branded or sponsored
programs for its customers during 2009, approximately 1,400 such
programs during 2008, and approximately 1,000 such programs
during 2007.
Our public portals provide advertisers and sponsors with
customized marketing campaigns that go beyond traditional
Internet advertising media. We work with our advertisers and
sponsors to develop marketing programs that are appropriately
customized to target specific groups of consumers, physicians or
healthcare professionals. Our public portal services are
typically priced at an aggregate price that takes into account
the overall scope of the services provided, based upon the
amount of content, tools and features we supply as well as the
degree of customization that we provide for the program. In
addition, our contracts often include guarantees with respect to
the number of users that visit the client-sponsored area. We
also sell advertising on a CPM (cost per thousand impressions)
basis, where an advertiser can purchase a set amount of
impressions on a cost per thousand basis. An
impression is a single instance of an ad appearing
on a Web page. Our private portals do not generate revenue from
advertising or sponsorship. See Our Private
Portals: WebMD Health Services below.
We provide healthcare advertisers and other sponsors with the
means to communicate with targeted groups of consumers and
physicians by offering placements and programs in the most
relevant locations on our portals. The following are some of the
types of placements and programs we offer to advertisers and
sponsors:
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Media Solutions. These are traditional online
advertising solutions, such as banners, used to reach
health-involved consumers and physicians and other healthcare
professionals. In addition, customers can select targeted media
packages, including condition-specific or specialty-specific
e-newsletters,
keyword searches and educational programs.
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Sponsored Editorial Solutions. These are
customized collections of articles, topics, and decision-support
tools and applications, sponsored by clients and distributed
within WebMD Health.
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E-details. E-details
are promotional interactive online programs that provide
clinical education and information to physicians about medical
conditions, treatments and products.
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Key benefits that The WebMD Health Network offers
healthcare advertisers and other sponsors include:
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our display of approximately six billion pages of healthcare
information to users visiting our sites in 2009;
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our ability to help advertisers and sponsors reach specific
groups of consumers and physicians by specialty, product,
disease, condition or wellness topic, which typically produces a
more efficient and productive marketing campaign; and
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our ability to provide advertisers and other sponsors with
objective measures of the effectiveness of their online
marketing, such as activity levels within the sponsored content
area.
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Sales and
Marketing
Our sales, marketing and account management personnel work with
pharmaceutical, medical device, biotechnology and consumer
products companies to place their advertisements and other
sponsored products on our public portals and in some of our
publications. These individuals work closely with clients and
potential clients to develop innovative ways to bring their
companies and their products and services to the
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attention of targeted groups of consumers and healthcare
professionals, and to create channels of communication with
these audiences.
We have sole discretion for determining the types of advertising
that we accept on our Web sites. All advertisements,
sponsorships and promotions that appear on our Web sites must
comply with our advertising and promotions policies. We do not
accept advertising that, in our opinion, is not factually
accurate or is not in good taste. Under our sponsorship
policies, we take appropriate steps to identify content created
by, provided by or controlled by a sponsor, so users of our
sites can distinguish it from our editorial content and news
reporting.
Content-Sharing
and Marketing Relationships
FDA. We are working with the
U.S. Food and Drug Administration (or FDA) to expand
consumer access to timely and reliable health information from
the FDA.
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The collaboration includes an online consumer health information
resource on WebMD.com (www.webmd.com/fda), through which
consumers can access information on the safety of FDA-regulated
products, including food, medicine and cosmetics, as well as
learn how to report problems involving the safety of these
products directly to the FDA. There are also content and
multimedia tools on specific topics, such as allergies and
asthma, childrens health, diabetes, heart health and
vitamins and supplements.
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FDA information is also located within WebMDs homepage,
WebMD Health News, WebMD Health Search, RSS feeds, and targeted
WebMD Newsletters and Special Reports, and also included in
WebMD the Magazine.
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WebMD also provides FDA public health alerts to all WebMD
registered users and site visitors that request them. The
cross-linked joint resource also features the FDAs
Consumer Updates timely and
easy-to-read
articles that are also posted on the FDAs main consumer
Web page (www.fda.gov/consumer).
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This joint effort provides health-minded consumers with access
to the FDA as a source of timely health information focusing on
daily issues such as food safety and the safe use of
prescription drugs, over-the-counter medications, and cosmetics.
CDC. The Centers for Disease Control
and Prevention (CDC), part of the United States Department of
Health and Human Services, is collaborating with Medscape on a
special series of CDC Expert Commentaries, available at
http://www.medscape.com/partners/cdc/public/cdc-commentary.
In this series, experts from CDC offer video commentaries on
current topics important to practicing clinicians, including
regarding H1N1 and seasonal influenza, infection control and
travel medicine. These commentaries are designed to deliver
CDCs authoritative guidance directly to Medscapes
audience of physicians, nurses, pharmacists and other healthcare
professionals.
Yahoo! In November 2007, we entered
into a four year Service Agreement with a wholly owned
subsidiary of Yahoo! Inc., a global Internet company, pursuant
to which we have agreed to exclusively use Yahoo!s
sponsored search results product (which delivers paid
advertisements in search results) across WebMDs network of
consumer sites. We have also agreed to exclusively use
Yahoo!s algorithmic Web search product. Under this
agreement, we share revenues with Yahoo! based upon the amounts
received by Yahoo! from advertisers for sponsored search results
that appear on The WebMD Health Network, subject to
certain minimum payment guarantees. At the same time, we also
entered into a four year Distribution Agreement with Yahoo!
pursuant to which we sell advertisements to third parties for
display on Yahoo! owned and operated Web sites and certain
third-party Web sites (which we refer to as the Yahoo!
Properties). Our rights to sell such inventory are exclusive
against certain other online health publishers. The Distribution
Agreement includes mutual restrictions on the use of end-user
data of a party received by the other party. Under the
Distribution Agreement, we pay Yahoo! a specified percentage of
advertising revenues for advertisements that we sell and display
on the Yahoo! Properties. During the term of the Distribution
Agreement, if we do not achieve certain annual minimums, Yahoo!
may elect to terminate the exclusivity provisions.
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International Relationships. We see a
significant opportunity for international growth of our public
portal services. Generally, we expect that we would accomplish
this through alliances or joint ventures with other companies
having expertise in the specific country or region.
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During the third quarter of 2007, we announced an alliance with
the leading provider of online pharmaceutical and medical
information in Latin America, Spain and Portugal, pursuant to
which we are delivering Medscape from WebMDs
clinical information to these markets.
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In October 2009, we launched a new health information Website in
the United Kingdom with Boots UK, the United Kingdoms
leading pharmacy-led health and beauty retailer. The co-branded
Boots WebMD site at www.WebMD.boots.com features daily
health and wellness news, condition and healthy living centers,
interactive health tools, WebMDs symptom checker,
specialized health search, health videos and interactive slide
shows. Boots supported the launch with a national marketing and
consumer education effort to its large UK customer base to
promote the new site, through in-store marketing, in its health
and beauty magazines, on its heavily trafficked
e-commerce
site and to its large base of loyalty program members. In
addition, Boots UK has engaged its thousands of pharmacists to
create awareness of the site and its offerings during their
frequent patient interactions.
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We continue to evaluate opportunities for further international
growth.
PRIVATE
PORTALS
Introduction
According to data made available by The Centers for
Medicare & Medicaid Services (CMS) Office of the
Actuary in January 2010, healthcare spending in the United
States grew 4.4% in 2008, to $2.3 trillion (or an average of
$7,681 per person), and continued to outpace overall economic
growth. While the 2008 increase in healthcare spending was not
as large as those in the prior several years, healthcare
spending as a percentage of gross domestic product continued to
increase according to the CMS data, reaching 16.2% in 2008. In
response to increasing healthcare costs, employers and health
plans have been:
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changing benefit plan designs to increase deductibles,
co-payments and other
out-of-pocket
costs;
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enhancing health management and wellness programs and providing
incentives for participation in those programs; and
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taking other steps to motivate employees and plan members to use
healthcare in a cost-effective manner.
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In connection with shifting greater responsibility for
healthcare costs to consumers, employers and health plans are
making available more health and benefits information and
decision-support applications to help their employees and plan
members make informed decisions about treatment options, health
risks and healthcare providers. The goal is to encourage
employees and plan members to take a more active role in
managing their healthcare by providing relevant information,
including data related to healthcare costs and quality. Through
our WebMD Health Services business, we provide an integrated
health and benefits management platform that helps employers and
health plans present actionable information and applications
through a convenient, custom private portal. Our online
solutions complement the employers or payers
existing benefit-related services and offline educational
efforts. We also provide related services for use by employees
and plan members, including lifestyle education and personalized
telephonic health coaching.
Our private portals are not part of The WebMD Health Network
and do not involve advertising or sponsorship by third
parties; and we do not include private portal users or page
views when we measure The WebMD Health Networks
traffic volume. We generate revenue from our private portals
primarily through the licensing of our technology and content to
employers and health plans, either directly or through our
distributors. We offer our telephone coaching services on a per
participant basis across a population (employer or plan).
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The WebMD
Health and Benefits Manager
Our integrated health and benefits management solution suite,
known as the WebMD Health and Benefits
Managersm,
is delivered through private online portals that we host for our
employer and health plan clients. Membership for each of our
private portals is limited to the employees and members (and
their dependants) of the respective employer and health plan
clients. In some cases, retirees are also included in the
employee populations.
Our applications are typically accessed through a clients
Web site or intranet and provide secure access for registered
members. The portal is presented to each employee or health plan
member as a personal home page, with direct access to relevant
content, tools and other resources specific to the
individuals eligibility, coverage and health profile. Each
member must initially register on the private portal provided,
at which point a unique user identification name and passcode
are assigned. We personalize the user experience by integrating:
individual user data (including personal health information);
plan-specific data from clients; and WebMD content,
decision-support technology and personal communication services.
The WebMD Insight
Enginesm
is the platform we use to integrate third party applications, to
consolidate and analyze data from multiple sources, and to drive
the delivery of personalized information for each user of the
Health and Benefits Manager. The Insight Engine also powers
reporting services that help employers and plans identify
population health risks, track program utilization, document the
impact of health promotion initiatives, and measure results of
ongoing campaigns.
The Health and Benefits Manager enables registered members to
access health and benefits information and decision-support
technology in one location, with a common look and feel, and
with a single sign-on. The WebMD Health and Benefits Manager
includes the following product suites:
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The WebMD Health Management Suite gives employees and
plan members access to personalized content and tools that
empower them to evaluate and manage their healthcare, motivate
them to make healthier lifestyle choices, and help them improve
their overall health. The Health Management Suite incorporates
our WebMD
HealthQuotientsm
health risk assessment applications, which enable users to
assess their overall health risks and to understand their unique
risk factors with regard to specific conditions. The results of
the health risk assessment are then used, along with the
individuals health profile and usage patterns, to give
each user a personalized experience relevant to his or her
specific needs and interests. Users can get consistent
reinforcement from lifestyle improvement programs, health
management content, and targeted health messaging. We complement
our Health Management Suite with personalized telephonic health
coaching services. Health coaches work
one-on-one
with employees and plan members to motivate them to improve
their own health status by managing modifiable risk factors that
lead to health conditions, by pursuing health conscious
lifestyles, by actively seeking health and wellness knowledge
and by understanding the impact of lifestyle decisions.
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The WebMD Benefits & Financial Suite helps
employees and plan members understand the financial implications
of their benefits options and make more informed
benefits-related purchase decisions. Using WebMD Coverage
Advisorsm,
they can compare costs across available health plan options
based on personalized information regarding coverage
alternatives, along with cost-modeling and projection utilities.
WebMD HSA
Advisorsm
provides personalized resources to assist in determining
appropriate amounts for individuals to contribute to medical
savings accounts based on their profile. The
Benefits & Financial Suite is integrated with WebMD
Health Management Suite applications and content, so users can
align their benefits choices with their personal health profile
and individual financial circumstances. Cost-modeling and
projection tools help users to understand and adopt the right
health plan for their situation.
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The WebMD Provider & Treatment Suite gives
employees and plan members access to information and services
that can help them factor quality and cost into decisions about
care and treatment options. The Provider & Treatment
Suite helps users analyze provider quality, identify appropriate
drug and treatment choices, and understand the costs associated
with their care. This suite leverages multiple data sources for
cost and quality comparisons and provides a personalized,
consistent user experience across a full set of integrated
tools. The quality comparisons are based on evidence-based
measures,
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such as volume of patients treated for particular illnesses or
procedures, mortality rates, unfavorable outcomes for specific
problems, and average length of hospital stay. The WebMD
Provider Selection
Advisorsm
included in this Suite allows users to search for healthcare
providers (including physicians, hospitals, medical practices,
dental providers and others) by name, specialty, location or
healthcare need/situation and provides profiles and comparative
information on these providers.
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The WebMD Health Record Suite helps employees and plan
members gather, store, manage and share their essential health
data. The Health Record Suite provides a secure personal health
record for self-reported and professionally sourced health data,
and prompts the employee or plan member with secure,
personalized health alerts describing potential care or
medication issues. Medical and pharmacy claims data as well as
lab results can be automatically imported into individuals
health records. In addition, the WebMD Health Record Suite
allows individual users to authorize access by healthcare
providers. Provider access to electronic health records
encourages better communication and can reduce errors or
duplications. The WebMD Health Record Suite is integrated with
other suites in the WebMD Health and Benefits Manager and drives
personalization in those tools. An individuals health
record is portable, independent of the specific employer or
health plan. An individual can access their health record
through webmd.com or the WebMD private portal of a future
employer or benefit plan, using a single username/password as a
secure identifier.
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Whether used independently or as part of an integrated platform,
these product suites help employees and health plan members
become better-informed healthcare consumers. We also assist
employers and health plans to motivate their employees and
members through wellness incentive programs that encourage and
reward specific health behaviors. The Insight Engine enables
targeted communications campaigns that inform and motivate
employees and plan members to change their behaviors and improve
health status. Messages can be targeted based on health profile
characteristics, demographics, or site usage, and they can be
designed to raise awareness of specific resources and programs
and to motivate lifestyle changes.
Telephonic
Health Coaching
In addition to focusing on efforts to lower the cost of
healthcare services, employers and health plans are also
increasingly interested in influencing demand for healthcare
services by focusing on health and wellness initiatives for
their employees and plan members. A significant opportunity
exists to reduce healthcare spending by motivating healthier
behaviors and lifestyle choices, including in the areas of
nutrition, weight management, exercise, stress management and
smoking. These initiatives can also provide value for employers
by enhancing employee satisfaction and company culture.
Through WebMD Health Services, we offer WebMD Health Coach, our
one-on-one
telephonic coaching service, to private portals clients who want
to motivate employees and plan members with modifiable risk
factors to make lasting health improvements. We tailor WebMD
Health Coach programs to the goals of our clients, including by
offering different levels of coaching intensity and allowing
targeting of various risk factor profiles for coaching
eligibility. For example, a client might offer a health coaching
program for employees who have diabetes or are at risk for
diabetes. Individuals are notified about their eligibility to
participate in telephonic health coaching under programs
selected by their employer or health plan. Our telephonic health
coaching services, together with our private portal services,
not only can help high-risk individuals identify important risk
factors and change unhealthy behaviors, but also can help
moderate-risk individuals to lower their risks and those who are
healthy to stay that way.
Relationships
with Customers
Customers of WebMD Health Services include employers, such as
International Business Machines Corporation, Metropolitan Life
Insurance Company, Honda of America, The Kroger Co., Medtronic,
Inc., EMC Corporation, Starbucks Corporation, Dell Inc., Walmart
Stores, Inc., United Airlines and Hewlett-Packard Company, and
health plans, such as Wellpoint, Inc., Blue Cross Blue Shield of
Alabama, HealthNet, ConnecticutCare, Cigna and Horizon Blue
Cross and Blue Shield.
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A typical contract for a private portal license provides for a
multi-year term. The pricing of these contracts is generally
based on several factors, including the complexity involved in
installing and integrating our private portal platform, the
number of our private portal tools and applications licensed,
the services being provided, the degree of customization of the
services involved and the anticipated number of employees or
members covered by such license.
We believe that our private portals and related services provide
the following potential benefits to an employer or health plan:
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encouragement of healthy lifestyles and behaviors that help
reduce healthcare costs and improve employee productivity;
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reduced benefits administration, communication, and customer
service costs;
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reduced hospital, physician and drug costs through more informed
utilization of the benefit plan;
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increased enrollment in health management programs, including
disease management or health coaching;
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increased conformance with benefit plan and clinical
protocols; and
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enhanced health risk stratification that assists employers and
health plans in selecting health management programs that are
appropriate to the needs of their specific populations.
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In addition, we believe that our private portals and related
services provide the following potential benefits to employees
or plan members:
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increased tax savings through increased participation in FSAs
and HSAs;
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reduced benefit costs through more informed choice of benefit
plan options and more informed use of the chosen benefit plan;
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improved health outcomes, through more informed choices of
providers and treatments; and
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improved understanding and management of health conditions
through access to support tools and educational information.
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Relationship
with Fidelity Employer Services Company LLC
In February 2004, we entered into a relationship with Fidelity
Employer Services Company LLC, or FESCO, a provider of human
resources and benefits outsourcing administration services.
Pursuant to the agreement, FESCO serves as a distributor of our
private portal services, and in connection therewith, FESCO
integrates our products with FESCOs health and welfare
benefit products to offer employer customers of FESCO an
integrated solution through FESCOs
NetBenefits®
Web site. FESCOs integrated solutions provide employees
with employer-provided health plan information and our personal
health management tools allow employees to access a personalized
view of their healthcare options so that they can make more
informed healthcare decisions. In May 2006, we expanded our
agreement with FESCO to offer our online health care cost
planning tools with FESCOs 401(k) savings, pension and
retirement accounts.
The original agreement with FESCO terminated in August 2009 but
the relationship has continued under the transition provisions
while the parties negotiate a new agreement for FESCO to
continue to distribute our services. FESCO is an affiliate of
FMR LLC, which reported beneficial ownership of shares
representing approximately 15.6% of our Common Stock at
December 31, 2009.
Sales and
Marketing
We market our private online portals and health coaching
services to employers and health plans through a dedicated
sales, marketing and account management team and through
relationships with employee benefits consultants, distributors
and other companies that assist employers in purchasing or
managing employee
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benefits, including FESCO. See Relationship
with Fidelity Employer Services Company LLC above for more
information regarding our relationship with FESCO.
TECHNOLOGICAL
INFRASTRUCTURE
Our public portals and private portals are delivered through Web
sites designed to address the healthcare information needs of
their users with easy-to-use interfaces, search functions and
navigation capabilities. We use customized content management
and publishing technology to develop, edit, publish, manage, and
organize the content for our Web sites. We use ad-serving
technology to store, manage and serve online advertisements in a
contextually relevant manner to the extent possible. We also use
specialized software for delivering personalized content through
the WebMD Health and Benefits Manager and, for registered
members, through our public Web sites. We have invested and
intend to continue to invest in software and systems that allow
us to meet the demands of our users and sponsors.
Continued development of our technological infrastructure is
critical to our success. Our development teams work closely with
marketing and account management employees to create content
management capabilities, interactive tools and other
applications for use across all of our portals. The goal of our
current and planned investments is to further develop our
content and technology platform serving various end-users,
including consumers and physicians, and to create innovative
services that provide value for healthcare advertisers,
employers, payers, and other sponsors.
USER
PRIVACY AND TRUST
We have adopted internal policies and practices relating to,
among other things, content standards and user privacy, designed
to foster our relationships with our users. In addition, we
participate in the following external, independent verification
programs:
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URAC. We have been awarded
e-Health
accreditation from URAC, an independent accrediting body that
has reviewed and approved the WebMD.com site and our private
portals deployment of WebMD Personal Health Manager for
compliance with its quality and ethics standards.
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TRUSTe. WebMD.com and MedicineNet.com are
licensees of the TRUSTe Privacy Seal and our private portals
deployment of WebMD Personal Health Manager is a recipient of
the TRUSTe EU Safe Harbor programs. TRUSTe is an independent,
non-profit organization whose goal is to build users trust
and confidence in the Internet. Each year since 2005, TRUSTe and
the Ponemon Institute have sponsored an independently
administered user-based ranking of the most trusted companies in
America, and WebMD has consistently ranked among the most
trusted in each of those rankings.
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Health on the Net Foundation. Our WebMD.com,
eMedicine.com, eMedicineHealth.com, and MedicineNet.com sites
and WebMD Personal Health Manager comply with the principles of
the HON Code of Conduct established by the Health on the Net
Foundation.
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We understand how important the privacy of personal information
is to our users. Our Privacy Policies are posted on our Web
sites and inform users regarding the information we collect
about them and about their use of our portals and our services.
Our Privacy Policies also explain the choices users have about
how their personal information is used and how we protect that
information.
COMPETITION
The markets we participate in are intensely competitive,
continually evolving and may, in some cases, be subject to rapid
change. Some of our competitors have greater financial,
technical, marketing and other resources than we do, and some
are better known than we are. We cannot provide assurance that
we will be able to compete successfully against these
organizations. We also compete, in some cases, with joint
ventures or other alliances formed by two or more of our
competitors or by our competitors with other third parties.
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Public
Portals
Our public portals face competition from numerous other
companies, both in attracting users and in generating revenue
from advertisers and sponsors, and we expect that additional
competitors will continue to enter the markets we participate
in. We compete with online services and Web sites that provide
health-related information, including both commercial sites and
not-for-profit
sites. These competitors include:
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general purpose consumer Web sites or search engines that offer
specialized health
sub-channels,
including yahoo.com, msn.com, AOL.com, Google and Bing; and
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other high traffic Web sites that include healthcare-related and
non-healthcare-related content and services.
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Our competitors also include advertising networks that aggregate
traffic from multiple Web sites, including advertising.com
(which is owned by AOL), Tribal Fusion, Undertone Networks, Ad
Blade and Everyday Health. Other competitors for advertising and
sponsorship revenue include:
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publishers and distributors of traditional offline media,
including television, radio, books, newspapers and magazines
targeted to consumers, as well as print journals and other
specialized media targeted to healthcare professionals, many of
which have established or may establish their own Web sites or
partner with other Web sites;
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offline medical conferences, CME programs and symposia;
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vendors of
e-detailing
services and our clients own in-house detailing
efforts; and
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vendors of healthcare information and related services
distributed through other means, including direct sales, mail
and fax messaging.
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Competitors for the attention of healthcare professionals and
consumers also include public sector, non-profit and other Web
sites that provide healthcare information without advertising or
sponsorships from third parties, such as NIH.gov, CDC.gov and
AHA.org.
Private
Portals
Our private portal services compete, directly or indirectly,
with various types of services provided by many different types
of companies, including:
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wellness and disease management vendors, including Mayo
Foundation for Medical Education and Research, StayWell
Productions/MediMedia USA, Inc., Healthways, Health Dialog
(which is owned by Bupa), and Alere (a division of Inverness
Medical Innovations);
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suppliers of online and offline electronic personal health
records and related applications and platforms, including Medem,
CapMed, Epic Systems, Microsoft, Google and a variety of other
companies;
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suppliers of other online and offline health management
applications, including HealthMedia (which is owned by
Johnson & Johnson), OptumHealth (which is owned by
United Healthcare), A.D.A.M. Inc., and Consumer Health
Interactive;
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health information services and health management offerings of
health plans and their affiliates, including those of Humana,
Aetna and United Healthcare; and
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other providers of health and benefits decision-support tools
and related services.
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GOVERNMENT
REGULATION, INDUSTRY STANDARDS AND RELATED MATTERS
Introduction
Healthcare Regulation. Most of our
revenue is derived either directly from the healthcare industry
or from other sources that could be affected by changes in
healthcare regulation. The healthcare industry is
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highly regulated and is subject to changing political,
regulatory and other influences. This section of the Annual
Report contains a description of laws and regulations applicable
to us, either directly or through their effect on our healthcare
industry customers, as well as healthcare industry standards
that serve a self-regulatory function, and related matters. Many
healthcare laws are complex, and their application to specific
products and services may not be clear. In particular, many
existing healthcare laws and regulations, when enacted, did not
anticipate the healthcare information services that we provide.
However, these laws, regulations and industry standards may
nonetheless be applied to our products and services. We cannot
provide assurance that we will be able to accurately anticipate
the application of these laws, regulations and industry
standards to our operations. Our failure to accurately
anticipate the application of these laws and regulations to our
businesses, or other failure to comply, could create liability
for us, result in adverse publicity and negatively affect our
businesses.
Federal and state legislatures and agencies periodically
consider programs to reform or revise aspects of the United
States healthcare system. Congress is currently considering
significant healthcare reform legislation. Healthcare reform
legislation, if enacted, may increase governmental involvement
in healthcare and health insurance, may change the way health
insurance is funded (including the role that employers play in
such funding), may change reimbursement rates and other terms of
such insurance coverage, may affect the way information
technology is used in healthcare, and may otherwise change the
environment in which healthcare industry participants operate
and the specific roles such participants play in the industry.
One important focus of healthcare reform is control of
healthcare costs over the long term. We believe that our
services can play an important role in efforts to reduce
healthcare costs. Accordingly, healthcare reform may create
opportunities for us, including with respect to personal health
record applications and health and benefits decision-support
tools and, more generally, with respect to our capabilities in
providing health and wellness information and education.
However, we are unable to predict future legislation or
proposals with any certainty or to predict the effect they could
have on our business, and healthcare industry participants may
respond to healthcare reform legislation or to the uncertainties
created by potential legislation by reducing their expenditures
or postponing expenditure decisions, including expenditures for
our services.
Other Applicable Regulation. This
section of the Annual Report also contains a description of
other laws and regulations, including general consumer
protection laws and Internet-related laws that may affect our
businesses. Laws and regulations have been adopted, and may be
adopted in the future, that address Internet-related issues,
including online content, privacy, online marketing, unsolicited
commercial email, taxation, pricing, and quality of products and
services. Some of these laws and regulations, particularly those
that relate specifically to the Internet, were adopted
relatively recently, and their scope and application may still
be subject to uncertainties. Interpretations of these laws, as
well as any new or revised laws or regulations, could decrease
demand for our services, increase our cost of doing business, or
otherwise cause our businesses to suffer.
Regulation
of Drug and Medical Device Advertising and Promotion
The FDA and the Federal Trade Commission, or FTC, regulate the
form, content and dissemination of labeling, advertising and
promotional materials prepared by, or for, pharmaceutical or
medical device companies. The FTC regulates
over-the-counter
drug advertising and, in some cases, medical device advertising.
Generally, based on FDA requirements, regulated companies must
limit advertising and promotional materials to discussions of
FDA-approved uses and claims. In limited circumstances,
regulated companies may disseminate certain non-promotional
scientific information regarding product uses or claims not yet
approved by the FDA.
Information on our Web sites that promotes the use of
pharmaceutical products or medical devices is subject to FDA and
FTC requirements as applicable and enforcement actions, and
information regarding other products and services is subject to
FTC requirements. If either agency finds that information on our
Web sites violates regulations or guidance, it may take
regulatory or judicial action against us or the advertiser or
sponsor of that information. State attorneys general may also
take similar action based on their states consumer
protection statutes. Areas of our Web sites that could be the
primary focus of regulators include pages and programs that
discuss use of a regulated product or that the regulators
believe may lack editorial
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independence from the influence of sponsoring pharmaceutical or
device companies. Our television broadcast advertisements may
also be subject to FTC and FDA regulation, depending on the
content. The agencies place the principal burden of compliance
with advertising and promotional regulations on advertisers and
sponsors to make truthful, substantiated claims.
The Federal Food, Drug, and Cosmetic Act, or FDC Act, and its
implementing regulations require that prescription drugs be
approved by the FDA prior to marketing. It is a violation to
market, advertise or otherwise commercialize such products prior
to approval. The FDA allows for preapproval exchange of
scientific information, provided it is non-promotional in nature
and does not draw conclusions regarding the ultimate safety or
effectiveness of the unapproved drug. Upon approval, the
FDAs regulatory authority extends to the labeling and
advertising of prescription drugs. Such products may be promoted
and advertised only for uses reviewed and approved by the FDA.
Drug labeling and advertising can be neither false nor
misleading and must present all material information, including
risk information, in a clear, conspicuous and neutral manner.
There are also requirements for certain information (the
prescribing information or package
insert for promotional labeling and the brief
summary for advertising) to be part of labeling and
advertising. Labeling and advertising that violate these legal
standards are subject to FDA enforcement action.
The FDA also regulates the safety, effectiveness, and labeling
of
over-the-counter
(OTC) drugs either through specific product approvals or through
regulations that define approved claims for specific categories
of such products. The FTC regulates the advertising of OTC drugs
under the section of the Federal Trade Commission Act that
prohibits unfair or deceptive trade practices. The FDA and FTC
regulatory framework requires that OTC drugs be formulated and
labeled in accordance with FDA approvals or regulations and
promoted in a manner that is truthful, adequately substantiated,
and consistent with the labeled uses. OTC drugs that do not meet
these requirements are subject to FDA or FTC enforcement action
depending on the nature of the violation. On October 5,
2009, the FTC issued final revisions to its Guides Concerning
the Use of Endorsements and Testimonials in Advertising. The FTC
Guides require that advertisers disclose material
connections, including payments and free products, between
advertisers and endorsers to social media outlets, including Web
sites and blogs. The new Guides also require advertisers to
clearly disclose results that consumers can reasonably expect
from a product. Finally, the Guides impose heightened disclosure
requirements for celebrity endorsers for representations made
outside of the context of traditional advertisements. In
addition, state attorneys general may bring enforcement actions
for alleged unfair or deceptive advertising.
There are several administrative, civil and criminal sanctions
available to the FDA for violations of the FDC Act or FDA
regulations as they relate to labeling and advertising.
Administrative sanctions include a written request that
violative advertising or promotion cease
and/or that
corrective action be taken, such as requiring a company to
provide to healthcare providers
and/or
consumers information to correct misinformation previously
conveyed. In the last year, FDA has increased enforcement of
labeling and advertising violations. In addition, the FDA may
use publicity, such as press releases, to warn the public about
false and misleading information concerning a drug or medical
device product. More serious civil sanctions include seizures,
injunctions, fines and consent decrees. Any of these enforcement
measures could prevent a company from introducing or maintaining
its product in the marketplace. Criminal penalties for severe
violations can result in a prison term
and/or
substantial fines. State attorneys general have similar
investigative tools and sanctions available to them.
Any increase in FDA regulation of the Internet or other media
used for direct-to-consumer (or DTC) advertisements of
prescription drugs could make it more difficult for us to obtain
advertising and sponsorship revenue. In the last 15 years,
the FDA has gradually relaxed its formerly restrictive policies
on DTC advertising of prescription drugs, allowing companies to
advertise prescription drugs to consumers in any medium,
provided that they satisfy FDA requirements. However,
legislators, physician groups and others have criticized the
FDAs current policies and have called for restrictions on
advertising of prescription drugs to consumers and increased FDA
enforcement. Congress and the FDA have shown interest in these
issues as well and there is a possibility that Congress, the FDA
or the FTC may alter present policies on DTC advertising of
prescription drugs or medical devices in a material way. In
addition, we received a letter from United States Senator
Charles Grassley, dated February 18, 2010, requesting our
response to questions and the delivery of
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certain documents regarding specific advertising programs. The
letter also seeks information regarding how we maintain the
independence of our editorial content. We believe that we have
appropriate editorial policies and processes in place to assure
the independence of the editorial content on our Web sites. We
will be providing a letter and documents in response to the
inquiry.
The FDA recently increased enforcement directed at Internet
advertising, issuing letters to advertisers addressing standards
for banner advertisements and sponsored links. Additionally, the
FDA has recently solicited input on the issue of promoting
FDA-regulated products using the internet and social media.
There is a possibility that the FDA may issue a policy
restricting or materially changing promotion using the Internet,
social media and other sponsored health content on the internet.
We cannot predict what effect any such changes would have on our
business.
Regulation
and Accreditation of Continuing Medical Education
Activities and information provided in the context of an
independent medical or scientific educational program, often
referred to as continuing medical education or CME,
usually are treated as non-promotional and fall outside the
FDAs jurisdiction. The FDA does, however, evaluate CME
activities to determine whether they are independent of the
promotional influence of the activities supporters. To
determine whether a CME providers activities are
sufficiently independent, the FDA looks at a number of factors
related to the planning, content, speakers and audience
selection of such activities. To the extent that the FDA
concludes that such activities are not independent, such content
must fully comply with the FDAs requirements and
restrictions regarding promotional activities.
Medscape, LLC distributes online CME to physicians and other
healthcare professionals and is accredited by the Accreditation
Council for Continuing Medical Education (ACCME), which oversees
providers of CME credit. MedscapeCME (www.medscapecme.com)
is the Web site through which Medscape, LLC distributes
online CME. If any CME activity that Medscape, LLC provides is
considered promotional, Medscape, LLC may face regulatory action
or the loss of accreditation by the ACCME. Supporters of CME
activities may also face regulatory action, potentially leading
to termination of support.
Medscape, LLCs current ACCME accreditation expires at the
end of July 2010. In order for Medscape, LLC to renew its
accreditation, it will be required to demonstrate to the ACCME
that it continues to meet ACCME requirements. If Medscape, LLC
fails to maintain its status as an accredited ACCME provider
(whether at the time of such renewal or at an earlier time as a
result of a failure to comply with existing or additional ACCME
standards), Medscape, LLC would not be permitted to accredit CME
activities for physicians and other healthcare professionals.
Instead, Medscape, LLC would be required to use third parties to
provide such CME-related services. That, in turn, could
discourage potential supporters from engaging Medscape, LLC to
develop CME or education-related activities, which could have a
material adverse effect on our business.
Medscape, LLCs CME activities are planned and implemented
in accordance with the Essential Areas and Elements and the and
Policies of the ACCME and other applicable accreditation
standards. The ACCMEs standards for commercial support of
CME are intended to ensure, among other things, that CME
activities of ACCME-accredited providers, such as Medscape, LLC,
are independent of commercial interests, which are
now defined as entities that produce, market, re-sell or
distribute health care goods and services, excluding certain
organizations. Commercial interests, and entities
owned or controlled by commercial interests, are
ineligible for accreditation by the ACCME. The standards also
provide that accredited CME providers may not place their CME
content on Web sites owned or controlled by a commercial
interest. In addition, accredited CME providers may not
ask commercial interests for speaker or topic
suggestions, and are also prohibited from asking
commercial interests to review CME content prior to
delivery.
From time to time, the ACCME revises its standards for
commercial support of CME. As a result of certain past ACCME
revisions, we adjusted our corporate structure and made changes
to our management and operations intended to allow Medscape, LLC
to provide CME activities that are developed independently from
those programs developed by its sister companies, which may not
be independent of commercial interests. We believe
that these changes allow Medscape, LLC to satisfy the applicable
standards.
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Recently, the ACCME and other organizations have been discussing
ways to assure that commercial interests do not bias CME
activities. The ACCME has published several proposals since
2008, including proposals to reduce communications between
commercial interests and CME providers and to create special
designations for CME activities that are not funded by
commercial interests. The ACCME also suggested creating an
independent CME funding entity to build a firewall between
commercial interests and CME activities. The ACCME has not
adopted these proposals but has revised its policies. It is
possible that adoption of additional proposals could
significantly affect Medscape, LLCs business model.
During the past several years, educational activities, including
CME, directed at physicians have been subject to increased
governmental scrutiny to ensure that sponsors do not influence
or control the content of the activities. For example, the
U.S. Senate Finance Committee conducted an investigation of
the sponsorship of CME activities, including an examination of
the ACCMEs role in ensuring that CME activities are
independent from the influence of their supporters. The
Department of Justice continues to examine CME sponsorship by
manufacturers. In response, companies have developed and
implemented internal controls and procedures that promote
adherence to applicable regulations and requirements. In
implementing these controls and procedures, supporters of CME
may interpret the regulations and requirements differently and
may implement varying procedures or requirements. These controls
and procedures:
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may discourage pharmaceutical companies from providing grants
for independent educational activities;
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may slow their internal approval for such grants;
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may reduce the volume of sponsored educational programs that
Medscape, LLC produces to levels that are lower than in the
past, thereby reducing revenue; and
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may require Medscape, LLC to make changes to how it offers or
provides educational programs, including CME.
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In addition, future changes to laws, regulations or
accreditation standards, or to the internal compliance programs
of supporters or potential supporters, may further discourage,
significantly limit, or prohibit supporters or potential
supporters from engaging in educational activities with
Medscape, LLC, or may require Medscape, LLC to make further
changes in the way it offers or provides educational activities.
HIPAA
Privacy Standards and Security Standards
The Privacy Standards and Security Standards under the Health
Insurance Portability and Accountability Act of 1996 (referred
to as HIPAA) establish a set of national privacy and security
standards for the protection of individually identifiable health
information by health plans, healthcare clearinghouses and
healthcare providers (sometimes referred to as covered
entities for purposes of HIPAA). Prior to
February 17, 2010, the Privacy Standards and Security
Standards did not apply directly to our businesses and only
covered entities were directly subject to potential civil and
criminal liability under the Privacy Standards and Security
Standards; as a business associate of covered
entities, we were bound only by our contracts and agreements
with those covered entities requiring us to use and disclose
protected health information in a manner consistent with the
Privacy Standards and Security Standards in providing services
to those covered entities. However, the American Recovery and
Reinvestment Act of 2009 (referred to as ARRA) strengthened and
expanded the HIPAA Privacy and Security Standards and made
certain provisions directly applicable to portions of our
business that operate as business associates, such as those
managing employee or plan member health information for
employers or health plans. In connection with the sale by HLTH
of its Emdeon Business Services business (or EBS), EBS agreed to
license, through February 2018, certain de-identified data
to HLTH for use in the development and commercialization of
certain information products that use clinical data. We are
currently using the data received under this license in our
information services products. These products are subject to
HIPAA.
With respect to our private portal business, ARRA requires us to
report any unauthorized use or disclosure of protected health
information, known as a breach, to our covered entity customers.
In addition, ARRA imposes similar data breach notification
requirements on vendors of personal health records that will
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require us to notify affected individuals and the FTC in the
event of a data breach involving the unsecured personal
information of users of our public portal services.
ARRA increased civil penalty amounts for violations of HIPAA and
significantly strengthens enforcement by requiring the
U.S. Department of Health and Human Services (HHS) to
conduct periodic audits to confirm compliance and authorizing
state attorneys general to bring civil actions seeking either
injunctions or damages in response to violations of HIPAA
Privacy and Security Standards that threaten the privacy of
state residents. These new Privacy and Security provisions will
require us to incur additional costs and may restrict our
business operations. These new provisions will also result in
additional regulations and guidance issued by HHS and will be
subject to interpretation by various courts and other
governmental authorities, thus creating potentially complex
compliance issues for us and our customers and strategic
partners.
Genetic
Information Nondiscrimination Act (GINA)
The Genetic Information Nondiscrimination Act (referred to as
GINA), enacted in May 2008, does not apply directly to WebMD
although it does apply to our private portal customers,
including both employers and group health plans. GINA was
enacted to prevent discrimination by group health plans, health
insurance issuers and employers on the basis of genetic
information. WebMDs Health Risk Assessment (HRA),
HealthQuotient, is typically offered to employees by their
employer or group health plan as a voluntary component of a
wellness program. The U.S. Departments of Labor, HHS and
Treasury published Interim Final Rules implementing Title I
of GINA, which apply to group health plans and health insurance
issuers for plan years that began on or after December 7,
2009. The Interim Final Rules prohibit health plans from
requesting, requiring or purchasing genetic information prior to
or in connection with enrollment, or at any time for
underwriting purposes, and state that underwriting
purposes includes any incentive or disincentive (such as
decreasing or increasing premiums) for completing an HRA.
Genetic information is defined broadly to include
information about an individuals family medical history.
The agencies have not finalized the regulations to date.
Title II of GINA prohibits employment discrimination based
on genetic information as well as the request or purchase of
genetic information of employees or their family members with
limited exceptions. The Equal Employment Opportunity Commission
issued proposed rules to implement Title II in March 2009.
The proposed rules specify that genetic information may be
collected in an HRA that is part of a wellness program only if
participation is voluntary, and suggest that the agency will
consider participation voluntary if the employer neither
requires participation nor penalizes employees who do not
participate. The agency has not finalized these regulations to
date, either.
While each customer is responsible for ensuring that the
wellness and benefit selections it offers are compliant with
GINA, WebMD may face challenges as a result of varying
interpretations of the law by the multiple enforcing agencies
and uncertainties over the final form of the rules.
Interpretations of the law may require us to modify the
HealthQuotient product and could result in increased operational
costs or decreased demand for our products.
Other
Restrictions Regarding Confidentiality, Privacy and Security of
Health Information
In addition to HIPAA, numerous other state and federal laws
govern the collection, dissemination, use, access to,
confidentiality and security of patient health and prescriber
information. In addition, Congress and some states are
considering new laws and regulations that further protect the
privacy and security of medical records or medical information.
In some cases, more protective state privacy and security laws
are not preempted by the HIPAA Standards and may be subject to
interpretation by various courts and other governmental
authorities, thus creating potentially complex compliance issues
for us and our customers and strategic partners.
These laws at a state or federal level, or new interpretations
of these laws, could create liability for us, could impose
additional operational requirements on our business, could
affect the manner in which we use and transmit patient
information and could increase our cost of doing business.
Claims of violations of privacy
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rights or contractual breaches, even if we are not found liable,
could be expensive and time-consuming to defend and could result
in adverse publicity that could harm our business.
Consumer
Protection Regulation
General. Advertising and promotional
activities presented to visitors on our Web sites are subject to
federal and state consumer protection laws that regulate unfair
and deceptive practices. We are also subject to various other
federal and state consumer protection laws, including the
specific ones described later in this section.
The FTC and many state attorneys general are applying federal
and state consumer protection laws to require that the online
collection, use and dissemination of data, and the presentation
of Web site content, comply with certain standards for notice,
choice, security and access. Courts may also adopt these
developing standards. In many cases, the specific limitations
imposed by these standards are subject to interpretation by
courts and other governmental authorities. We believe that we
are in compliance with the consumer protection standards that
apply to our Web sites, but a determination by a state or
federal agency or court that any of our practices do not meet
these standards could result in liability and adversely affect
our business. New interpretations of these standards could also
require us to incur additional costs and restrict our business
operations. In addition, claims that we are violating any such
standards could, even if we are not found liable, be expensive
and time-consuming to defend and could result in adverse
publicity that could harm our business.
In February 2009, the FTC published Self Regulatory Principles
for Online Behavioral Advertising to address consumer privacy
issues that may arise from so-called behavioral
advertising (i.e., the tracking of online activities) and
to encourage industry self-regulation. These principles serve as
guidelines to industry. In addition, there is the possibility,
supported by certain public statements, that the FTC may revise
or eliminate the principles in favor of a more restrictive
approach for companies that utilize behavioral advertising. In
addition, there is a possibility of legislation, regulations and
increased enforcement activities, relating to behavioral
advertising. To the extent that our existing practices are
inconsistent with any revised principles, new rules, new
legislation
and/or with
future enforcement activities, our business may become subject
to restrictions that could reduce our revenues or increase our
cost of doing business.
In October 2009, the FTC adopted revised Guides Concerning the
Use of Endorsements and Testimonials in Advertising. The Guides,
which were last updated in 1980, became effective
December 1, 2009. In addition to revising certain
provisions regarding disclosures relating to endorsements and
testimonials, the FTC clarified the Guides applicability
to online and social media forums. The revised Guides may be an
indication that the FTC may apply increased scrutiny to the use
of endorsements and testimonials online and through traditional
media. To the extent we rely on endorsements or testimonials, we
will review any relevant relationships for compliance with the
Guides.
Data Protection Regulation. With the
recent increase in publicity regarding data breaches resulting
in improper dissemination of consumer information, many states
have passed laws regulating the actions that a business must
take if it experiences a data breach, such as prompt disclosure
to affected customers. Generally, these laws are limited to
electronic data and make some exemptions for smaller breaches.
Congress has also been considering similar federal legislation
relating to data breaches. The FTC has also prosecuted some data
breach cases as unfair
and/or
deceptive acts or practices under the Federal Trade Commission
Act. In addition to data breach notification laws, some states
have enacted statutes and rules requiring businesses to
reasonably protect certain types of personal information they
hold or to otherwise comply with certain specified data security
requirements for personal information. These laws may apply
directly to our business or indirectly by contract when we
provide services to other companies. We intend to continue to
comprehensively protect all consumer data and to comply with all
applicable laws regarding the protection of this data.
CAN-SPAM Act. On January 1, 2004,
the Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003, or the CAN-SPAM Act, became effective.
The CAN-SPAM Act regulates commercial emails, provides a right
on the part of the recipient to request the sender to stop
sending messages, and establishes penalties for the sending of
email messages that are intended to deceive the recipient as to
source or content. Under the CAN-SPAM Act, senders of commercial
emails (and other persons who initiate those
23
emails) are required to make sure that those emails do not
contain false or misleading transmission information. Commercial
emails are required to include a valid return email address and
other subject heading information so that the sender and the
Internet location from which the message has been sent are
accurately identified. Recipients must be furnished with an
electronic method of informing the sender of the
recipients decision to not receive further commercial
emails. In addition, the email must include a postal address of
the sender and notice that the email is an advertisement. We are
applying the CAN-SPAM requirements to these email
communications, and believe that our email practices comply with
the requirements of the CAN-SPAM Act, even though we believe
that FTC regulations issued in May 2008 confirmed our existing
understanding that these email newsletter communications are not
generally commercial emails. Many states have also enacted
anti-spam laws. The CAN-SPAM Act preempts many of these
statutes. To the extent that these laws are not preempted, we
believe that our email practices comply with these laws.
Regulation of Advertisements Sent by
Fax. Section 227 of the Communications
Act, which codifies the provisions of the Telephone Consumer
Protection Act of 1991 (or TCPA), prohibits the transmission of
an unsolicited advertisement via facsimile to a
third party without the consent of that third party. An
unsolicited advertisement is defined broadly to
include any material advertising the commercial availability or
quality of any property, goods or services. In 2005, the Junk
Fax Prevention Act (or JFPA) was signed into law. The JFPA
codified a previous interpretation of the TCPA by the Federal
Communications Commission (or FCC) that a commercial fax is not
unsolicited if the transmitting entity has an
established business relationship, as defined by the
JFPA and applicable FCC regulations, with the recipient.
In 2006, the FCC issued its final rules under the JFPA, which
became effective on August 1, 2006. In the rules, the FCC
confirmed that transactional faxes are permitted. It defined a
transactional fax as one that facilitates, completes or confirms
the commercial transaction that the recipient has previously
agreed to enter into with the sender. The FCC stated that these
faxes are not advertisements that are prohibited by the TCPA.
The FCC also recognized that, if a transactional fax has a de
minimis amount of advertising information on it, that alone does
not convert a transactional fax into an unsolicited
advertisement.
In addressing the so-called EBR exemption to the
TCPAs prohibition on unsolicited facsimile advertisements,
the FCC adopted the JFPAs definition of an
established business relationship or
EBR, which includes a voluntary two-way
communication between a person and a business. The FCC rules
specify that commercial faxes generally may be sent to those who
have made an inquiry of or application to a sender within a
prescribed period of time. The FCC rules do not prohibit faxed
communications that contain only information, such as news
articles, updates or other similar general information.
States from time to time have enacted, or have attempted to
enact, their own requirements pertaining to the transmission of
commercial faxes. These state requirements often, but not
always, track the terms of the TCPA, the JFPA, and the
FCCs regulations. To the extent state commercial fax
requirements have conflicted directly with federal requirements,
they have to date been successfully challenged. We cannot
predict the outcome of the FCCs future rulemaking
proceedings, the extent to which states may successfully enact
more restrictive commercial fax laws in the future, or the
outcomes of any judicial challenges to those laws.
We intend to comply with all applicable federal and state
requirements governing the transmission of such faxes.
COPPA. The Childrens Online
Privacy Protection Act, or COPPA, applies to operators of
commercial Web sites and online services directed to
U.S. children under the age of 13 that collect personal
information from children, and to operators of general audience
sites with actual knowledge that they are collecting information
from U.S. children under the age of 13. Our sites are not
directed at children and our general audience site, WebMD
Health, states that no one under the applicable age is
entitled to use the site. In addition, we employ a kick-out
procedure whereby users identifying themselves as being under
the age of 13 during the registration process are not allowed to
register for the sites member only services, such as
message boards and live chat events. We believe that we are in
compliance with COPPA.
Regulation of Contests and
Sweepstakes. We conduct contests and
sweepstakes in some of our marketing channels. The federal
Deceptive Mail Prevention and Enforcement Act and some state
prize, gift or
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sweepstakes statutes may apply to these promotions. We believe
that we are in compliance with any applicable law or regulation
when we run these promotions.
FACTA. In an effort to reduce the risk
of identity theft from the improper disposal of consumer
information, Congress passed the Fair and Accurate Credit
Transactions Act (or FACTA), which requires businesses to take
reasonable measures to prevent unauthorized access to such
information. FACTAs disposal standards are flexible and
allow businesses discretion in determining what measures are
reasonable based upon the sensitivity of the information, the
costs and benefits of different disposal methods and relevant
changes in technology. We believe that we are in compliance with
FACTA.
Medical
Professional Regulation
The practice of most healthcare professions requires licensing
under applicable state law. In addition, the laws in some states
prohibit business entities from practicing medicine, which is
referred to as the prohibition against the corporate practice of
medicine. We do not believe that we engage in the practice of
medicine, and we have attempted to structure our Web sites,
strategic relationships and other operations to avoid violating
these state licensing and professional practice laws. We do not
believe that we provide professional medical advice, diagnosis
or treatment. We employ and contract with physicians who provide
only health information to consumers, and we have no intention
to provide medical care or advice. A state, however, may
determine that some portion of our business violates these laws
and may seek to have us discontinue those portions or subject us
to penalties or licensure requirements. Any determination that
we are a healthcare provider and acted improperly as a
healthcare provider may result in liability to us.
Federal
False Claims Act
The Federal False Claims Act imposes liability on any person or
entity who, among other things, knowingly presents, or causes to
be presented, a false or fraudulent claim for payment by a
Federal healthcare program. The whistleblower (or qui
tam) provisions of the Federal False Claims Act allow
a private individual to bring actions on behalf of the Federal
government alleging that the defendant has submitted a false
claim to the federal government and to share in any monetary
recovery. After the filing of a qui tam suit, the Federal
government must determine whether it will intervene and control
the case and, if it does not, the private individual may pursue
the claim. In addition, various states have enacted false claim
laws analogous to the Federal False Claims Act, and many of
these state laws apply where a claim is submitted to any
third-party payor and not merely a federal healthcare program.
When an entity is determined to have violated the Federal False
Claims Act, it may be required to pay up to three times the
actual damages sustained by the government, plus civil
penalties. It is not clear whether there is a basis for the
application of the Federal False Claims Act to the types of
services that WebMD provides. However, Federal False Claims Act
cases have been brought against drug manufacturers, and have
resulted in significant monetary settlements and the imposition
of federally-supervised corporate integrity agreements in
circumstances that include allegations that company-sponsored
CME was unlawful off-label promotion.
Anti-Kickback
Laws
There are federal and state laws that govern patient referrals,
physician financial relationships and inducements to healthcare
providers and patients. The federal healthcare programs
anti-kickback law prohibits any person or entity from offering,
paying, soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare,
Medicaid and other federal healthcare programs or the leasing,
purchasing, ordering or arranging for or recommending the lease,
purchase or order of any item, good, facility or service covered
by these programs. Many states also have similar anti-kickback
laws that are not necessarily limited to items or services for
which payment is made by a federal healthcare program. These
laws are applicable to manufacturers and distributors and,
therefore, may restrict how we and some of our customers market
products to healthcare providers, including
e-details.
Also, in 2002, the Office of the Inspector General (or OIG) of
HHS, the federal government agency responsible for interpreting
the federal anti-kickback law, issued an advisory opinion that
concluded that the sale of advertising and sponsorships to
healthcare providers and vendors by Web-based information
services implicates the federal anti-kickback law.
25
However, the advisory opinion suggests that enforcement action
will not result if the fees paid represent fair market value for
the advertising/sponsorship arrangements, the fees do not vary
based on the volume or value of business generated by the
advertising and the advertising/sponsorship relationships are
clearly identified as such to users so as not to imply an
endorsement of the providers or vendors. We carefully review our
practices with regulatory experts in an effort to ensure that we
comply with all applicable laws. However, the laws in this area
are both broad and vague, and it is often difficult or
impossible to determine precisely how the laws will be applied,
particularly to new services. Penalties for violating the
federal anti-kickback law include imprisonment, fines and
exclusion from participating, directly or indirectly, in
Medicare, Medicaid and other federal healthcare programs. Any
determination by a state or federal regulatory agency that any
of our practices violate any of these laws could subject us to
civil or criminal penalties and require us to change or
terminate some portions of our business and could have an
adverse effect on our business. Even an unsuccessful challenge
by regulatory authorities of our practices could cause us
adverse publicity and be costly for us to respond to.
Regulation
of Wellness Incentive Programs
Certain provisions of HIPAA (commonly referred to as the HIPAA
nondiscrimination provisions) generally prohibit group health
plans from charging similarly situated individuals different
premiums or contributions or imposing different deductible,
co-payment, or other cost-sharing requirements based on a
health factor. Such differentials are, however,
acceptable under the HIPAA nondiscrimination provisions if the
differentials are applied through wellness programs.
The Department of Labor, in coordination with the Department of
the Treasury and HHS, has issued regulations that define
wellness programs for purposes of the HIPAA
nondiscrimination provisions, establishing specific requirements
for wellness programs that reward participants who satisfy a
standard related to a health factor. These requirements include
(1) limiting the amount of the wellness programs
rewards, (2) the wellness program being designed to promote
good health and prevent disease, (3) giving those eligible
to participate in the wellness program the opportunity to
qualify for the reward at least once a year, (4) providing
a reward that is available to all similarly situated
individuals, and (5) requiring disclosure of reasonable
alternative standards that must be available under the wellness
program.
Although HIPAA and its regulations state that certain excepted
benefits, including supplemental benefits, are not subject to
the wellness program rules, it does not define the term
similar supplemental coverage. On December 7,
2007, the Department of Labor, in coordination with the
Department of the Treasury and HHS, released Field Assistance
Bulletin No. 2007-04
(FAB
2007-04) in
response to the development of questionable health and wellness
programs that were marketed as similar supplemental
coverage. FAB
2007-04
clarifies the rules for supplemental programs and provides that
supplemental benefits under a wellness program cannot
discriminate on the basis of a health factor. With these new
requirements in place, wellness programs that require
individuals to meet certain health factors can no longer be
considered supplemental and thus have to comply with HIPAA
wellness program regulations described in the immediately
preceding paragraph. According to FAB
2007-04,
programs that do not meet these requirements may be subject to
enforcement actions.
The Americans with Disabilities Act (ADA) prohibits
discrimination on the basis of an employees disability or
perceived disability. Among other things, it limits employers
from inquiring about the disabilities of employees unless the
questions are job-related and consistent with business
necessity. The ADA also limits the circumstances in which an
employer may require physical examinations or answers to medical
inquiries. However, the ADA allows employers to conduct
voluntary medical examinations and activities, including
voluntary medical histories, as part of a voluntary wellness
program. A wellness program is voluntary if the
employer neither requires participation nor penalizes employees
who do not participate. Records acquired as part of a wellness
program must be kept confidential and may not be used for a
discriminatory purpose. Many states and localities provide
similar protections to employees.
We provide certain services related to wellness programs as part
of our private portals business. See Our Online
Services Our Private Portals: WebMD Health
Services above. We believe that we are in compliance with
the laws and regulations applicable to these services, to the
extent they apply to us.
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International
Regulation
The WebMD Health Network is not directed to
non-U.S. users;
and nearly all of the users of our private portals are
U.S. employees or plan members. As a result, we do not
believe that we currently conduct our business in a manner that
subjects us to international data regulation in any material
respect. However, one element of our growth strategy is to seek
to expand our online services to markets outside the United
States. Generally, we expect that we would accomplish this
through partnerships or joint ventures with other companies
having expertise in the specific country or region, as was the
case with our entry into the physician portal marketplace in
Latin America, Spain and Portugal in 2007 and our co-branded
Boots WebMD site launched in 2009 for consumers in the United
Kingdom.
Many countries and governmental bodies have, or are developing,
laws that may apply to online health information services of the
types we provide, or to Internet sites generally, including laws
regarding the collection, use, storage and dissemination of
personal information or patient data. To the extent our
operations are located within their jurisdiction or are directed
at individuals within their jurisdiction, these laws may apply
to us. In addition, those governments may attempt to apply such
laws extraterritorially or through treaties or other
arrangements with U.S. governmental entities. To the extent
we fail to accurately anticipate the application or
interpretation of these laws, we could be subject to liability
and adverse publicity, which could negatively affect our
business. In addition, these laws may impose additional
operational requirements or restrictions on our business, and
increase our cost of doing business.
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OTHER
INFORMATION
Employees
As of December 31, 2009, we had approximately
1,400 employees.
Intellectual
Property
We use trademarks, trade names and service marks for our
products and services, including those listed below the Table of
Contents of this Annual Report. We also use other registered and
unregistered trademarks and service marks for our products and
services. In addition, we have registered domain names,
including webmd.com and medscape.com and
the other domain names listed in this Annual Report. If we are
unable to protect our marks and domain names adequately, that
could have a material adverse effect on our business and hurt us
in establishing and maintaining our brands.
We rely upon a combination of patent, trade secret, copyright
and trademark laws, license agreements, confidentiality
procedures, employee and client nondisclosure agreements and
technical measures to protect intellectual property used in our
businesses. We also rely on a variety of intellectual property
rights licensed from third parties, including Internet server
software and healthcare content used on our Web sites. These
third-party licenses may not continue to be available to us on
commercially reasonable terms. Our loss of or inability to
maintain or obtain upgrades to any of these licenses could
significantly harm us. In addition, because we license content
from third parties, we may be exposed to copyright infringement
actions if those parties are subject to claims regarding the
origin and ownership of that content.
Seasonality
For a discussion of seasonality affecting our business, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Seasonality in Item 7 below.
Other
To the extent required by Item 1 of
Form 10-K,
the information contained in Item 7 of this Annual Report
is hereby incorporated by reference in this Item 1.
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This section describes circumstances or events that could have a
negative effect on our financial results or operations or that
could change, for the worse, existing trends in some or all of
our businesses. The occurrence of one or more of the
circumstances or events described below could have a material
adverse effect on our financial condition, results of operations
and cash flows or on the trading prices of our Common Stock and
Convertible Notes or of securities that we may issue in the
future. The risks and uncertainties described in this Annual
Report are not the only ones facing us. Additional risks and
uncertainties that are not currently known to us or that we
currently believe are immaterial may also adversely affect our
business and operations.
Risks
Related to Our Operations and the Healthcare Content We
Provide
If we
are unable to provide content and services that attract and
retain users to The WebMD Health Network on a consistent basis,
our advertising and sponsorship revenue could be
reduced
Users of The WebMD Health Network have numerous other
online and offline sources of healthcare information services.
Our ability to compete for user traffic on our public portals
depends upon our ability to make available a variety of health
and medical content, decision-support applications and other
services that meet the needs of a variety of types of users,
including consumers, physicians and other healthcare
professionals, with a variety of reasons for seeking
information. Our ability to do so depends, in turn, on:
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our ability to hire and retain qualified authors, journalists
and independent writers;
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our ability to license quality content from third
parties; and
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our ability to monitor and respond to increases and decreases in
user interest in specific topics.
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We cannot assure you that we will be able to continue to develop
or acquire needed content, applications and tools at a
reasonable cost. In addition, since consumer users of our public
portals may be attracted to The WebMD Health Network as a
result of a specific condition or for a specific purpose, it is
difficult for us to predict the rate at which they will return
to the public portals. Because we generate revenue by, among
other things, selling sponsorships of specific pages, sections
or events on The WebMD Health Network, a decline in user
traffic levels or a reduction in the number of pages viewed by
users could cause our revenue to decrease and could have a
material adverse effect on our results of operations.
Developing
and implementing new and updated applications, features and
services for our public and private portals may be more
difficult than expected, may take longer and cost more than
expected, and may not result in sufficient increases in revenue
to justify the costs
Attracting and retaining users of our public portals and clients
for our private portals requires us to continue to improve the
technology underlying those portals and to continue to develop
new and updated applications, features and services for those
portals. If we are unable to do so on a timely basis or if we
are unable to implement new applications, features and services
without disruption to our existing ones, we may lose potential
users and clients.
We rely on a combination of internal development, strategic
relationships, licensing and acquisitions to develop our portals
and related applications, features and services. Our development
and/or
implementation of new technologies, applications, features and
services may cost more than expected, may take longer than
originally expected, may require more testing than originally
anticipated and may require the acquisition of additional
personnel and other resources. There can be no assurance that
the revenue opportunities from any new or updated technologies,
applications, features or services will justify the amounts
spent.
We
face significant competition for our healthcare information
products and services
The markets for healthcare information products and services are
intensely competitive, continually evolving and, in some cases,
subject to rapid change.
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Our public portals face competition from numerous other
companies, both in attracting users and in generating revenue
from advertisers and sponsors. We compete for users with online
services and Web sites that provide health-related information,
including both commercial sites and
not-for-profit
sites. We compete for advertisers and sponsors with:
health-related Web sites; general purpose consumer Web sites
that offer specialized health
sub-channels;
other high-traffic Web sites that include both
healthcare-related and non-healthcare-related content and
services; search engines that provide specialized health search;
and advertising networks that aggregate traffic from multiple
sites. Our public portals also face competition from offline
publications and information services.
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Our private portals compete with: providers of healthcare
decision-support tools and online health management
applications, including personal health records; wellness and
disease management vendors; and health information services and
health management offerings of healthcare benefits companies and
their affiliates.
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Many of our competitors have greater financial, technical,
product development, marketing and other resources than we do.
These organizations may be better known than we are and have
more customers or users than we do. We cannot provide assurance
that we will be able to compete successfully against these
organizations or any alliances they have formed or may form. In
addition, we expect that competitors will continue to enter
these markets.
Failure
to maintain and enhance the WebMD brand could have a
material adverse effect on our business
We believe that the WebMD brand identity that we
have developed has contributed to the success of our business
and has helped us achieve recognition as a trusted source of
health and wellness information. We also believe that
maintaining and enhancing that brand is important to expanding
the user base for our public portals, to our relationships with
sponsors and advertisers, and to our ability to gain additional
employer and healthcare payer clients for our private portals.
We have expended considerable resources on establishing and
enhancing the WebMD brand and our other brands, and
we have developed policies and procedures designed to preserve
and enhance our brands, including editorial procedures designed
to provide quality control of the information we publish. We
expect to continue to devote resources and efforts to maintain
and enhance our brands. However, we may not be able to
successfully maintain or enhance awareness of our brands, and
events outside of our control may have a negative effect on our
brands. If we are unable to maintain or enhance awareness of our
brands, and do so in a cost-effective manner, our business could
be adversely affected.
Our
online businesses have a limited operating history
Our online businesses have a limited operating history and
participate in relatively new markets. These markets, and our
online businesses, have undergone significant changes during
their short history and can be expected to continue to change.
Many companies with business plans based on providing healthcare
information and related services through the Internet have
failed to be profitable and some have filed for bankruptcy or
ceased operations. Even if demand from users exists, we cannot
assure you that our businesses will continue to be profitable.
Our
failure to attract and retain qualified executives and employees
may have a material adverse effect on our business
Our business depends largely on the skills, experience and
performance of key members of our management team. We also
depend, in part, on our ability to attract and retain qualified
writers and editors, software developers and other technical
personnel and sales and marketing personnel. Competition for
qualified personnel in the healthcare information services and
Internet industries is intense. We cannot assure you that we
will be able to hire or retain a sufficient number of qualified
personnel to meet our requirements, or that we will be able to
do so at salary and benefit costs that are acceptable to us.
Failure to do so may have an adverse effect on our business.
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The
timing of our advertising and sponsorship revenue may vary
significantly from quarter to quarter and is subject to factors
beyond our control, including regulatory changes affecting
advertising and promotion of drugs and medical devices and
general economic conditions
Our advertising and sponsorship revenue may vary significantly
from quarter to quarter due to a number of factors, many of
which are not within our control, and some of which may be
difficult to forecast accurately, including potential effects on
demand for our services as a result of regulatory changes
affecting advertising and promotion of drugs and medical devices
and general economic conditions. The majority of our advertising
and sponsorship programs are for terms of approximately four to
twelve months. We have relatively few longer term advertising
and sponsorship programs. We cannot assure you that our current
advertisers and sponsors will continue to use our services
beyond the terms of their existing contracts or that they will
enter into any additional contracts.
The time between the date of initial contact with a potential
advertiser or sponsor regarding a specific program and the
execution of a contract with the advertiser or sponsor for that
program may be lengthy, especially for larger contracts, and may
be subject to delays over which we have little or no control,
including as a result of budgetary constraints of the advertiser
or sponsor or their need for internal approvals. Other factors
that could affect the timing of contracting for specific
programs with advertisers and sponsors, or receipt of revenue
under such contracts, include:
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the timing of FDA approval for new products or for new approved
uses for existing products;
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the timing of FDA approval of generic products that compete with
existing brand name products;
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the timing of withdrawals of products from the market;
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the timing of rollouts of new or enhanced services on our public
portals;
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seasonal factors relating to the prevalence of specific health
conditions and other seasonal factors that may affect the timing
of promotional campaigns for specific products; and
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the scheduling of conferences for physicians and other
healthcare professionals.
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We may
be unsuccessful in our efforts to increase advertising and
sponsorship revenue from consumer products
companies
Most of our advertising and sponsorship revenue has, in the
past, come from pharmaceutical, biotechnology and medical device
companies. We have been focusing on increasing sponsorship
revenue from consumer products companies that are interested in
communicating health-related or safety-related information about
their products to our audience. However, while many consumer
products companies are increasing the portion of their
promotional spending used on the Internet, we cannot assure you
that these advertisers and sponsors will find our consumer Web
sites to be as effective as other Web sites or traditional media
for promoting their products and services. If we encounter
difficulties in competing with the other alternatives available
to consumer products companies, this portion of our business may
develop more slowly than we expect or may fail to develop. In
addition, revenues from consumer products companies are more
likely to reflect general economic conditions, and to be reduced
to a greater extent during economic downturns or recessions,
than revenues from pharmaceutical, biotechnology and medical
device companies.
Lengthy
sales and implementation cycles for our private online portals
make it difficult to forecast our revenues from these
applications and may have an adverse impact on our
business
The period from our initial contact with a potential client for
a private online portal and the first purchase of our solution
by the client is difficult to predict. In the past, this period
has generally ranged from six to twelve months, but in some
cases has been longer. Potential sales may be subject to delays
or cancellations due to a clients internal procedures for
approving large expenditures and other factors beyond our
control, including the effect of general economic conditions on
the willingness of potential clients to commit to licensing our
private portals. The time it takes to implement a private online
portal is also difficult to predict and has lasted as long as
six months from contract execution to the commencement of live
operation.
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Implementation may be subject to delays based on the
availability of the internal resources of the client that are
needed and other factors outside of our control. As a result, we
have limited ability to forecast the timing of revenue from new
clients. This, in turn, makes it more difficult to predict our
financial performance from quarter to quarter.
During the sales cycle and the implementation period, we may
expend substantial time, effort and money preparing contract
proposals, negotiating contracts and implementing the private
online portal without receiving any related revenue. In
addition, many of the expenses related to providing private
online portals are relatively fixed in the short term, including
personnel costs and technology and infrastructure costs. Even if
our private portal revenue is lower than expected, we may not be
able to reduce related short-term spending in response. Any
shortfall in such revenue would have a direct impact on our
results of operations.
Our
ability to provide comparative information on hospital cost and
quality depends on our ability to obtain the required data on a
timely basis and, if we are unable to do so, our private portal
services would be less attractive to clients
We provide, in connection with our private portal services,
comparative information about hospital cost and quality. Our
ability to provide this information depends on our ability to
obtain comprehensive, reliable data. We currently obtain this
data from a number of public and private sources, including the
Centers for Medicare and Medicaid Services (CMS), many
individual states and the Leapfrog Group. We cannot provide
assurance that we would be able to find alternative sources for
this data on acceptable terms and conditions. Accordingly, our
business could be negatively impacted if CMS or our other data
sources cease to make such information available or impose terms
and conditions for making it available that are not consistent
with our planned usage. In addition, the quality of the
comparative information services we provide depends on the
reliability of the information that we are able to obtain. If
the information we use to provide these services contains errors
or is otherwise unreliable, we could lose clients and our
reputation could be damaged.
Our
ability to renew existing agreements with employers and health
plans will depend, in part, on our ability to continue to
increase usage of our private portal services by their employees
and plan members
In a healthcare market where a greater share of the
responsibility for healthcare costs and decision-making has been
increasingly shifting to consumers, use of information
technology (including personal health records) to assist
consumers in making informed decisions about healthcare has also
increased. We believe that through our WebMD Health and Benefits
Manager platform, including our personal health record
application, we are well positioned to play a role in this
consumer-directed healthcare environment. However, our ability
to renew existing agreements for these services depends, in
part, on increasing usage of our private portal services by our
employer and health plan clients employees and members.
Increasing usage of our services requires us to continue to
deliver and improve the underlying technology and develop new
and updated applications, features and services. In addition, we
face competition in the area of healthcare decision-support
tools and online health management applications and health
information services. Many of our competitors have greater
financial, technical, product development, marketing and other
resources than we do, and may be better known than we are. We
cannot provide assurance that we will be able to meet our
development and implementation goals or that we will be able to
compete successfully against other vendors offering competitive
services and, if we are unable to do so, we may experience
static or diminished usage for our private portal services and
possible non-renewals of our customer agreements.
We may
be subject to claims brought against us as a result of content
we provide
Consumers access health-related information through our online
services, including information regarding particular medical
conditions and possible adverse reactions or side effects from
medications. If our content, or content we obtain from third
parties, contains inaccuracies, it is possible that consumers,
employees, health plan members or others may sue us for various
causes of action. Although our Web sites contain terms and
conditions, including disclaimers of liability, that are
intended to reduce or eliminate our liability, the law governing
the validity and enforceability of online agreements and other
electronic transactions is evolving. We could be subject to
claims by third parties that our online agreements with
consumers and physicians that
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provide the terms and conditions for use of our public or
private portals are unenforceable. A finding by a court that
these agreements are invalid and that we are subject to
liability could harm our business and require costly changes to
our business.
We have editorial procedures in place to provide quality control
of the information that we publish or provide. However, we
cannot assure you that our editorial and other quality control
procedures will be sufficient to ensure that there are no errors
or omissions in particular content. Even if potential claims do
not result in liability to us, investigating and defending
against these claims could be expensive and time consuming and
could divert managements attention away from our
operations. In addition, our business is based on establishing
the reputation of our portals as trustworthy and dependable
sources of healthcare information. Allegations of impropriety or
inaccuracy, even if unfounded, could harm our reputation and
business.
Expansion
to markets outside the United States will subject us to
additional risks
One element of our growth strategy is to seek to expand our
online services to markets outside the United States. Generally,
we expect that we would accomplish this through partnerships or
joint ventures with other companies having expertise in the
specific country or region. However, our participation in
international markets will still be subject to certain risks
beyond those applicable to our operations in the United States,
such as:
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challenges caused by language and cultural differences;
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difficulties in staffing and managing operations from a distance;
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uncertainty regarding liability for services and content;
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burdens of complying with a wide variety of legal, regulatory
and market requirements;
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variability of economic and political conditions, including the
extent of the impact of adverse economic conditions in markets
outside the United States;
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tariffs or other trade barriers;
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fluctuations in currency exchange rates;
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potentially adverse tax consequences, including restrictions on
repatriation of earnings; and
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difficulties in protecting intellectual property.
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Risks
Related to the Internet and Our Technological
Infrastructure
Any
service interruption or failure in the systems that we use to
provide online services could harm our business
Our online services are designed to operate 24 hours a day,
seven days a week, without interruption. However, we have
experienced and expect that we will in the future experience
interruptions and delays in services and availability from time
to time. We rely on internal systems as well as third-party
vendors, including data center providers and bandwidth
providers, to provide our online services. We may not maintain
redundant systems or facilities for some of these services. In
the event of a catastrophic event with respect to one or more of
these systems or facilities, we may experience an extended
period of system unavailability, which could negatively impact
our relationship with users. In addition, system failures may
result in loss of data, including user registration data,
content, and other data critical to the operation of our online
services, which could cause significant harm to our business and
our reputation.
To operate without interruption or loss of data, both we and our
service providers must guard against:
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damage from fire, power loss and other natural disasters;
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communications failures;
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software and hardware errors, failures and crashes;
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security breaches, computer viruses and similar disruptive
problems; and
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other potential service interruptions.
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Any disruption in the network access or co-location services
provided by third-party providers to us or any failure by these
third-party providers or our own systems to handle current or
higher volume of use could significantly harm our business. We
exercise little control over these third-party vendors, which
increases our vulnerability to problems with services they
provide.
Any errors, failures, interruptions or delays experienced in
connection with these third-party technologies and information
services or our own systems could negatively impact our
relationships with users and adversely affect our brand and our
business and could expose us to liabilities to third parties.
Although we maintain insurance for our business, the coverage
under our policies may not be adequate to compensate us for all
losses that may occur. In addition, we cannot provide assurance
that we will continue to be able to obtain adequate insurance
coverage at an acceptable cost.
Implementation
of additions to or changes in hardware and software platforms
used to deliver our online services may result in performance
problems and may not provide the additional functionality that
was expected
From time to time, we implement additions to or changes in the
hardware and software platforms we use for providing our online
services. During and after the implementation of additions or
changes, a platform may not perform as expected, which could
result in interruptions in operations, an increase in response
time or an inability to track performance metrics. In addition,
in connection with integrating acquired businesses, we may move
their operations to our hardware and software platforms or make
other changes, any of which could result in interruptions in
those operations. Any significant interruption in our ability to
operate any of our online services could have an adverse effect
on our relationships with users and clients and, as a result, on
our financial results. We rely on a combination of purchasing,
licensing, internal development, and acquisitions to develop our
hardware and software platforms. Our implementation of additions
to or changes in these platforms may cost more than originally
expected, may take longer than originally expected, and may
require more testing than originally anticipated. In addition,
we cannot provide assurance that additions to or changes in
these platforms will provide the additional functionality and
other benefits that were originally expected.
If the
systems we use to provide online portals experience security
breaches or are otherwise perceived to be insecure, our business
could suffer
We retain and transmit confidential information, including
personal health records, in the processing centers and other
facilities we use to provide online services. It is critical
that these facilities and infrastructure remain secure and be
perceived by the marketplace as secure. A security breach could
damage our reputation or result in liability. We may be required
to expend significant capital and other resources to protect
against security breaches and hackers or to alleviate problems
caused by breaches. Despite the implementation of security
measures, this infrastructure or other systems that we interface
with, including the Internet and related systems, may be
vulnerable to physical break-ins, hackers, improper employee or
contractor access, computer viruses, programming errors,
denial-of-service
attacks or other attacks by third parties or similar disruptive
problems. Any compromise of our security, whether as a result of
our own systems or the systems that they interface with, could
reduce demand for our services and could subject us to legal
claims from our clients and users, including for breach of
contract or breach of warranty.
Our
online services are dependent on the development and maintenance
of the Internet infrastructure
Our ability to deliver our online services is dependent on the
development and maintenance of the infrastructure of the
Internet by third parties. The Internet has experienced a
variety of outages and other delays as a result of damages to
portions of its infrastructure, and it could face outages and
delays in the
34
future. The Internet has also experienced, and is likely to
continue to experience, significant growth in the number of
users and the amount of traffic. If the Internet continues to
experience increased usage, the Internet infrastructure may be
unable to support the demands placed on it. In addition, the
reliability and performance of the Internet may be harmed by
increased usage or by
denial-of-service
attacks. Any resulting interruptions in our services or
increases in response time could, if significant, result in a
loss of potential or existing users of and advertisers and
sponsors on our Web sites and, if sustained or repeated, could
reduce the attractiveness of our services.
Customers who utilize our online services depend on Internet
service providers and other Web site operators for access to our
Web sites. All of these providers have experienced significant
outages in the past and could experience outages, delays and
other difficulties in the future due to system failures
unrelated to our systems. Any such outages or other failures on
their part could reduce traffic to our Web sites.
Third
parties may challenge the enforceability of our online
agreements
The law governing the validity and enforceability of online
agreements and other electronic transactions is evolving. We
could be subject to claims by third parties that the online
terms and conditions for use of our Web sites, including
disclaimers or limitations of liability, are unenforceable. A
finding by a court that these terms and conditions or other
online agreements are invalid could harm our business.
We
could be subject to breach of warranty or other claims by
clients of our online portals if the software and systems we use
to provide them contain errors or experience
failures
Errors in the software and systems we use could cause serious
problems for clients of our online portals. We may fail to meet
contractual performance standards or client expectations.
Clients of our online portals may seek compensation from us or
may seek to terminate their agreements with us, withhold
payments due to us, seek refunds from us of part or all of the
fees charged under those agreements or initiate litigation or
other dispute resolution procedures. In addition, we could face
breach of warranty or other claims by clients or additional
development costs. Our software and systems are inherently
complex and, despite testing and quality control, we cannot be
certain that they will perform as planned.
We attempt to limit, by contract, our liability to our clients
for damages arising from our negligence, errors or mistakes.
However, contractual limitations on liability may not be
enforceable in certain circumstances or may otherwise not
provide sufficient protection to us from liability for damages.
We maintain liability insurance coverage, including coverage for
errors and omissions. However, it is possible that claims could
exceed the amount of our applicable insurance coverage, if any,
or that this coverage may not continue to be available on
acceptable terms or in sufficient amounts. Even if these claims
do not result in liability to us, investigating and defending
against them would be expensive and time consuming and could
divert managements attention away from our operations. In
addition, negative publicity caused by these events may delay or
hinder market acceptance of our services, including unrelated
services.
Risks
Related to the Healthcare Industry, Healthcare Regulation and
Internet Regulation
Developments
in the healthcare industry could adversely affect our
business
Most of our revenue is derived from the healthcare industry and
could be affected by changes affecting healthcare spending. We
are particularly dependent on pharmaceutical, biotechnology and
medical device companies for our advertising and sponsorship
revenue. General reductions in expenditures by healthcare
industry participants could result from, among other things:
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government regulation or private initiatives that affect the
manner in which healthcare providers interact with patients,
payers or other healthcare industry participants, including
changes in pricing or means of delivery of healthcare products
and services;
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consolidation of healthcare industry participants;
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reductions in governmental funding for healthcare; and
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adverse changes in business or economic conditions affecting
healthcare payers or providers, pharmaceutical, biotechnology or
medical device companies or other healthcare industry
participants.
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Federal and state legislatures and agencies periodically
consider reforming aspects of the United States healthcare
system and Congress is currently considering significant
healthcare reform legislation. Healthcare reform legislation, if
enacted, may increase governmental involvement in healthcare and
health insurance, may change the way health insurance is funded
(including the role that employers play in such funding), may
change reimbursement rates and other terms of such insurance
coverage, may affect the way information technology is used in
healthcare, and may otherwise change the environment in which
healthcare industry participants operate and the specific roles
such participants play in the industry. Healthcare industry
participants may respond to healthcare reform legislation or to
the uncertainties created by potential legislation by reducing
their expenditures or postponing expenditure decisions,
including expenditures for WebMDs services. We are unable
to predict future legislation or proposals with any certainty or
to predict the effect they could have on WebMD.
Even if general expenditures by industry participants remain the
same or increase, developments in the healthcare industry may
result in reduced spending in some or all of the specific market
segments that we serve or are planning to serve. For example,
use of our products and services could be affected by:
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changes in the design of health insurance plans;
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a decrease in the number of new drugs or medical devices coming
to market; and
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decreases in marketing expenditures by pharmaceutical or medical
device companies, including as a result of governmental
regulation or private initiatives that discourage or prohibit
advertising or sponsorship activities by pharmaceutical or
medical device companies.
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In addition, our customers expectations regarding pending
or potential industry developments may also affect their
budgeting processes and spending plans with respect to products
and services of the types we provide.
The healthcare industry has changed significantly in recent
years, and we expect that significant changes will continue to
occur. However, the timing and impact of developments in the
healthcare industry are difficult to predict. We cannot assure
you that the markets for our products and services will continue
to exist at current levels or that we will have adequate
technical, financial and marketing resources to react to changes
in those markets.
Government
regulation of healthcare creates risks and challenges with
respect to our compliance efforts and our business
strategies
The healthcare industry is highly regulated and is subject to
changing political, legislative, regulatory and other
influences. Existing and new laws and regulations affecting the
healthcare industry could create unexpected liabilities for us,
could cause us to incur additional costs and could restrict our
operations. Many healthcare laws are complex, and their
application to specific products and services may not be clear.
In particular, many existing healthcare laws and regulations,
when enacted, did not anticipate the healthcare information
services that we provide. However, these laws and regulations
may nonetheless be applied to our products and services. Our
failure to accurately anticipate the application of these laws
and regulations, or other failure to comply, could create
liability for us, result in adverse publicity and negatively
affect our businesses. Some of the risks we face from healthcare
regulation are as follows:
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Regulation of Drug and Medical Device Advertising and
Promotion. The WebMD Health Network
provides services involving advertising and promotion of
prescription and
over-the-counter
drugs and medical devices. If the Food and Drug Administration
(FDA) or the Federal Trade Commission (FTC) finds that any
information on The WebMD Health Network or in WebMD
the Magazine violates applicable regulations, they may take
regulatory or judicial action against us
and/or the
advertiser or sponsor of that information. State attorneys
general may also take similar action based on their states
consumer protection statutes. Any increase or change in
regulation of drug or medical device
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advertising and promotion could make it more difficult for us to
contract for sponsorships and advertising. We cannot predict
what actions the FDA or industry participants may take in the
future, but the FDAs enforcement against pharmaceutical
advertising increased in 2009 from 2008 levels. It is also
possible that new laws would be enacted that impose restrictions
on such advertising. In addition, recent private industry
initiatives have resulted in voluntary restrictions, which
advertisers and sponsors have agreed to follow. Our advertising
and sponsorship revenue could be materially reduced by
additional restrictions on the advertising of prescription drugs
and medical devices to consumers, whether imposed by law or
regulation or required under policies adopted by industry
members.
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Anti-kickback Laws. There are federal and
state laws that govern patient referrals, physician financial
relationships and inducements to healthcare providers and
patients. The federal healthcare programs anti-kickback
law prohibits any person or entity from offering, paying,
soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare,
Medicaid and other federal healthcare programs or the leasing,
purchasing, ordering or arranging for or recommending the lease,
purchase or order of any item, good, facility or service covered
by these programs. Many states also have similar anti-kickback
laws that are not necessarily limited to items or services for
which payment is made by a federal healthcare program. These
laws are applicable to manufacturers and distributors and,
therefore, may restrict how we and some of our customers market
products to healthcare providers, including
e-details.
Any determination by a state or federal regulatory agency that
any of our practices violate any of these laws could subject us
to civil or criminal penalties and require us to change or
terminate some portions of our business and could have an
adverse effect on our business. Even an unsuccessful challenge
by regulatory authorities of our practices could result in
adverse publicity and be costly for us to respond to.
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False Claims Laws. The Federal False Claims
Act imposes liability on any person or entity who, among other
things knowingly presents, or causes to be presented, a false or
fraudulent claim for payment by a Federal healthcare program. In
addition, various states have enacted false claim laws analogous
to the Federal False Claims Act, and many of these states laws
apply where a claim is submitted to any third-party payor and
not merely a federal healthcare program. When an entity is
determined to have violated the Federal False Claims Act, it may
be required to pay up to three times the actual damages
sustained by the government plus civil penalties. In recent
years an increasing number of Federal False Claims Act cases
have been brought against drug manufacturers and resulted in
significant monetary settlements and imposition of federally
supervised corporate integrity agreements in circumstances that
include allegations that company-sponsored CME was unlawful
off-label promotion. Any action against us for violation of
these laws could cause us to incur significant legal expenses
and may adversely affect our ability to operate our business.
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Medical Professional Regulation. The practice
of most healthcare professions requires licensing under
applicable state law. In addition, the laws in some states
prohibit business entities from practicing medicine. If a state
determines that some portion of our business violates these
laws, it may seek to have us discontinue those portions or
subject us to penalties or licensure requirements. Any
determination that we are a healthcare provider and have acted
improperly as a healthcare provider may result in liability to
us.
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GINA. The Genetic Information
Nondiscrimination Act (GINA) prohibits discrimination based on
genetic information in employment and in health insurance
coverage. The law applies to our private portal customers
including both employers and group health plans. WebMDs
Health Risk Assessment (or HRA), HealthQuotient, is typically
offered to employees as a voluntary component of their
employer-sponsored wellness program. Title I of GINA can
have significant implications for wellness programs offered by
group health plans in that it prohibits the collection of
genetic information, which includes an individuals family
medical history, prior to or in connection with enrollment or
for underwriting purposes. Underwriting purposes includes
providing incentives or rewards for completion of an HRA that
requests genetic information. Title II of GINA prohibits
employment discrimination based on genetic information as well
as the request or purchase of genetic information of employees
or their family members with limited exceptions, including a
limited exception for voluntary wellness
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programs. WebMD may face challenges as a result of varying
interpretations of the law by the multiple enforcing agencies
including the U.S. Departments of Health and Human Services
(HHS), Labor and Treasury and the Equal Employment
Opportunity Commission. It is possible that the final
regulations may require modifications to our HealthQuotient
product to either eliminate or revise the family history
section. Interpretations of the law may increase operational
costs or decrease demand for our product.
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Congress is currently considering significant healthcare reform
legislation. Healthcare reform legislation, if enacted, may
increase governmental involvement in healthcare and health
insurance, may change the way health insurance is funded
(including the role that employers play in such funding), may
change reimbursement rates and other terms of such insurance
coverage, may affect the way information technology is used in
healthcare, and may otherwise change the environment in which
healthcare industry participants operate and the specific roles
such participants play in the industry. One important focus of
healthcare reform is control of healthcare costs over the long
term. We believe that our services can play an important role in
efforts to reduce healthcare costs. Accordingly, healthcare
reform may create opportunities for us, including with respect
to personal health record applications and health and benefits
decision-support tools and, more generally, with respect to our
capabilities in providing health and wellness information and
education. However, we are unable to predict future legislation
or proposals with any certainty or to predict the effect they
could have on our business, and healthcare industry participants
may respond to healthcare reform legislation or to the
uncertainties created by potential legislation by reducing their
expenditures or postponing expenditure decisions, including
expenditures for our services.
Government
regulation of the Internet could adversely affect our
business
The Internet and its associated technologies are subject to
government regulation. However, whether and how existing laws
and regulations in various jurisdictions, including privacy and
consumer protection laws, apply to the Internet is still
uncertain. Our failure, or the failure of our business partners
or third-party service providers, to accurately anticipate the
application of these laws and regulations to our products and
services and the manner in which we deliver them, or any other
failure to comply with such laws and regulations, could create
liability for us, result in adverse publicity and negatively
affect our business. In addition, new laws and regulations, or
new interpretations of existing laws and regulations, may be
adopted with respect to the Internet and online services,
including in areas such as: user privacy, confidentiality,
consumer protection, marketing, pricing, content, copyrights and
patents, and characteristics and quality of products and
services. We cannot predict how these laws or regulations will
affect our business.
Internet user privacy, personal data security and the use of
consumer information to track online activities are major issues
both in the United States and abroad. For example, in February
2009, the FTC published Self-Regulatory Principles to govern the
tracking of consumers activities online in order to
deliver advertising targeted to the interests of individual
consumers (sometimes referred to as behavioral advertising).
These principles serve as guidelines to industry. In addition,
there is the possibility supported by certain public statements,
that the FTC may revise or eliminate the principles in favor of
a more restrictive approach for companies that utilize
behavioral advertising. In addition, there is a possibility of
legislation, regulations and increased enforcement activities
relating to behavioral advertising. We have privacy policies
posted on our Web sites that we believe comply with applicable
laws requiring notice to users about our information collection,
use and disclosure practices. We also notify users about our
information collection, use and disclosure practices relating to
data we receive through offline means such as paper health risk
assessments. Moreover, we take steps to reasonably protect
certain sensitive personal information we hold. We cannot assure
you that the privacy policies and other statements we provide to
users of our products and services, or our practices will be
found sufficient to protect us from liability or adverse
publicity in this area. A determination by a state or federal
agency or court that any of our practices do not meet applicable
standards, or the implementation of new standards or
requirements, could adversely affect our business.
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Failure
to comply with laws relating to privacy and security of personal
information, including personal health information, could result
in liability to us and concerns about privacy-related issues
could damage our reputation and our business
Privacy and security of personal information stored or
transmitted electronically, including personal health
information, is a major issue in the United States. While we
strive to comply with all applicable privacy and security laws
and regulations, as well as our own posted privacy policies, any
failure or perceived failure to comply may result in proceedings
or actions against us by government entities or others, or could
cause us to lose users and customers, which could have a
material adverse effect on our business. In addition, we are
unable to predict what additional legislation or regulation in
the area of privacy of personal information, including personal
health information, could be enacted and what effect that could
have on our operations and business. Concerns about our
practices with regard to the collection, use, disclosure, or
security of personal information or other privacy related
matters, even if unfounded and even if we are in compliance with
applicable laws, could damage our reputation and harm our
business.
The Privacy Standards and Security Standards under the Health
Insurance Portability and Accountability Act of 1996 (or HIPAA)
establish a set of national privacy and security standards for
the protection of individually identifiable health information
by health plans, healthcare clearinghouses and healthcare
providers (referred to as covered entities) and their business
associates. Currently, only covered entities are directly
subject to potential civil and criminal liability under these
Standards. However, the American Recovery and Reinvestment Act
of 2009 (ARRA) amends the HIPAA Privacy and Security Standards
and makes certain provisions applicable to those portions of our
business, such as those managing employee or plan member health
information for employers or health plans, that are business
associates of covered entities. Currently, we are bound by
certain contracts and agreements to use and disclose protected
health information in a manner consistent with the Privacy
Standards and Security Standards. Beginning on February 17,
2010, some provisions of the HIPAA Privacy and Security
Standards began to apply directly to us. For periods prior to
that, depending on the facts and circumstances, we could
potentially be subject to criminal liability for aiding and
abetting or conspiring with a covered entity to violate the
Privacy Standards or Security Standards. As of February 17,
2010, we became directly subject to HIPAAs criminal and
civil penalties. ARRA increased civil penalty amounts for
violations of HIPAA and significantly strengthens enforcement by
requiring HHS to conduct periodic audits to confirm compliance
and authorizing state attorneys general to bring civil actions
seeking either injunctions or damages in response to violations
of HIPAA Privacy and Security Standards that threaten the
privacy of state residents. We cannot assure you that we will
adequately address the risks created by these Standards. In
addition, we are unable to predict what changes to these
Standards might be made in the future or how those changes, or
other changes in applicable laws and regulations, could affect
our business.
Failure
to maintain CME accreditation could adversely affect Medscape,
LLCs ability to provide online CME offerings
Medscape, LLCs continuing medical education (or CME)
activities are planned and implemented in accordance with the
current Essential Areas and Elements and the Policies of the
Accreditation Council for Continuing Medical Education, or
ACCME, which oversees providers of CME credit, and other
applicable accreditation standards. ACCMEs standards for
commercial support of CME are intended to assure, among other
things, that CME activities of ACCME-accredited providers, such
as Medscape, LLC, are independent of commercial
interests, which are defined as entities that produce,
market, re-sell or distribute healthcare goods and services,
excluding certain organizations. Commercial
interests, and entities owned or controlled by
commercial interests, are ineligible for
accreditation by the ACCME.
From time to time, the ACCME revises its standards for
commercial support of CME. As a result of certain past ACCME
revisions, we adjusted our corporate structure and made changes
to our management and operations intended to allow Medscape, LLC
to provide CME activities that are developed independently from
programs developed by its sister companies, which may not be
independent of commercial interests. We believe that
these changes allow Medscape, LLC to satisfy the applicable
standards.
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Medscape, LLCs current ACCME accreditation expires at the
end of July 2010. In order for Medscape, LLC to renew its
accreditation, it will be required to demonstrate to the ACCME
that it continues to meet ACCME requirements. If Medscape, LLC
fails to maintain its status as an accredited ACCME provider
(whether at the time of such renewal or at an earlier time as a
result of a failure to comply with existing or additional ACCME
standards), it would not be permitted to accredit CME activities
for physicians and other healthcare professionals. Instead,
Medscape, LLC would be required to use third parties to provide
such CME-related services. That, in turn, could discourage
potential supporters from engaging Medscape, LLC to develop CME
or education-related activities, which could have a material
adverse effect on our business.
Government
regulation and industry initiatives could adversely affect the
volume of sponsored online CME programs implemented through our
Web sites or require changes to how Medscape, LLC offers
CME
CME activities may be subject to government oversight or
regulation by Congress, the FDA, HHS, and by state regulatory
agencies. Medscape, LLC
and/or the
sponsors of the CME activities that Medscape, LLC accredits may
be subject to enforcement actions if any of these CME activities
are deemed improperly promotional, potentially leading to the
termination of sponsorships.
During the past several years, educational activities, including
CME, directed at physicians have been subject to increased
governmental scrutiny to ensure that sponsors do not influence
or control the content of the activities. In response,
pharmaceutical and medical device companies have developed and
implemented internal controls and procedures that promote
adherence to applicable regulations and requirements. In
implementing these controls and procedures, supporters of CME
may interpret the regulations and requirements differently and
may implement varying procedures or requirements. These controls
and procedures:
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may discourage pharmaceutical companies from providing grants
for independent educational activities;
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may slow their internal approval for such grants;
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may reduce the volume of sponsored educational programs that
Medscape, LLC produces to levels that are lower than in the
past, thereby reducing revenue; and
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may require Medscape, LLC to make changes to how it offers or
provides educational programs, including CME.
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In addition, future changes to laws, regulations or
accreditation standards, or to the internal compliance programs
of supporters or potential supporters, may further discourage,
significantly limit, or prohibit supporters or potential
supporters from engaging in educational activities with
Medscape, LLC, or may require Medscape, LLC to make further
changes in the way it offers or provides educational activities.
Other
Risks Applicable to Our Company and to Ownership of Our
Securities
Negative
conditions in the market for certain auction rate securities may
result in WebMD incurring a loss on such
investments
As of December 31, 2009, WebMD had a total of approximately
$352.7 million (face value) of investments in certain
auction rate securities (ARS), including investments in ARS
originally made by HLTH. The ARS had a carrying value of
$279.7 million as of December 31, 2009. The types of
ARS investments that we own are backed by student loans, 97% of
which are guaranteed under the Federal Family Education Loan
Program (FFELP), and all of which had credit ratings of AAA or
Aaa when purchased. We do not own any other type of ARS
investments.
Since February 2008, negative conditions in the regularly held
auctions for these securities have prevented holders from being
able to liquidate their holdings through that type of sale. In
the event that we need to or want to sell our ARS investments,
we may not be able to do so until a future auction on these
types of investments is successful or until a buyer is found
outside the auction process. If potential buyers are
40
unwilling to purchase the investments at their carrying amount,
we would incur a loss on any such sales. In addition, the credit
ratings on approximately half of the ARS investments in our
portfolio have been downgraded, and there may be additional such
rating downgrades in the future. If uncertainties in the credit
and capital markets continue, these markets deteriorate further
or ARS investments in our portfolio experience additional credit
rating downgrades, there could be further fair value adjustments
or
other-than-temporary
impairments in the carrying value of our ARS investments.
Provisions
in our organizational documents and Delaware law may inhibit a
takeover, which could adversely affect the value of our Common
Stock
Our Restated Certificate of Incorporation and Bylaws, as well as
Delaware corporate law, contain provisions that could delay or
prevent a change of control or changes in our management and
Board of Directors that holders of our Common Stock might
consider favorable and may prevent them from receiving a
takeover premium for their shares. These provisions include, for
example, our classified board structure and the authorization of
our Board of Directors to issue up to 50 million shares of
preferred stock without a stockholder vote. In addition, our
Restated Certificate of Incorporation provides that stockholders
may not act by written consent and may not call special
meetings. These provisions apply even if an offer to purchase
our company may be considered beneficial by some of our
stockholders. If a change of control or change in management is
delayed or prevented, the market price of our Common Stock could
decline.
If
certain transactions occur with respect to our capital stock,
limitations may be imposed on our ability to utilize net
operating loss carryforwards and tax credits to reduce our
income taxes
WebMD has substantial accumulated net operating loss (NOL)
carryforwards and tax credits available to offset taxable income
in future tax periods. If certain transactions occur with
respect to WebMDs capital stock (including issuances,
redemptions, recapitalizations, exercises of options,
conversions of convertible debt, purchases or sales by
5%-or-greater shareholders and similar transactions) that result
in a cumulative change of more than 50% of the ownership of
capital stock over a three-year period (as determined under
rules prescribed by the U.S. Internal Revenue Code and
applicable Treasury regulations), an annual limitation would be
imposed with respect to the ability to utilize WebMDs NOL
carryforwards and federal tax credits.
In November 2008, HLTH repurchased shares of its common stock in
a tender offer. The tender offer resulted in a cumulative change
of more than 50% of the ownership of HLTHs capital, as
determined under the applicable rules and regulations. As a
result of this ownership change, there is an annual limitation
imposed on the ability to utilize our NOL carryforwards and
federal tax credits.
Because substantially all of WebMDs NOL carryforwards have
already been reduced by a valuation allowance for financial
accounting purposes, we would not expect an annual limitation on
the utilization of the NOL carryforwards to significantly reduce
the net deferred tax asset, although the timing of cash flows
may be impacted to the extent any such annual limitation
deferred the utilization of NOL carryforwards to future tax
years.
We may
not be successful in protecting our intellectual property and
proprietary rights
Our intellectual property and proprietary rights are important
to our businesses. The steps that we take to protect our
intellectual property, proprietary information and trade secrets
may prove to be inadequate and, whether or not adequate, may be
expensive. We rely on a combination of trade secret, patent and
other intellectual property laws and confidentiality procedures
and non-disclosure contractual provisions to protect our
intellectual property. We cannot assure you that we will be able
to detect potential or actual misappropriation or infringement
of our intellectual property, proprietary information or trade
secrets. Even if we detect misappropriation or infringement by a
third party, we cannot assure you that we will be able to
enforce our rights at a reasonable cost, or at all. In addition,
our rights to intellectual property, proprietary information and
trade secrets may not prevent independent third-party
development and commercialization of competing products or
services.
41
Third
parties may claim that we are infringing their intellectual
property, and we could suffer significant litigation or
licensing expenses or be prevented from providing certain
services, which may harm our business
We could be subject to claims that we are misappropriating or
infringing intellectual property or other proprietary rights of
others. These claims, even if not meritorious, could be
expensive to defend and divert managements attention from
our operations. If we become liable to third parties for
infringing these rights, we could be required to pay a
substantial damage award and to develop non-infringing
technology, obtain a license or cease selling the products or
services that use or contain the infringing intellectual
property. We may be unable to develop non-infringing products or
services or obtain a license on commercially reasonable terms,
or at all. We may also be required to indemnify our customers if
they become subject to third-party claims relating to
intellectual property that we license or otherwise provide to
them, which could be costly.
Acquisitions,
business combinations and other transactions may be difficult to
complete and, if completed, may have negative consequences for
our business and our security holders
WebMD has been built, in part, through acquisitions. We intend
to continue to seek to acquire or to engage in business
combinations with companies engaged in complementary businesses.
In addition, we may enter into joint ventures, strategic
alliances or similar arrangements with third parties. These
transactions may result in changes in the nature and scope of
our operations and changes in our financial condition. Our
success in completing these types of transactions will depend
on, among other things, our ability to locate suitable
candidates and negotiate mutually acceptable terms with them,
and to obtain adequate financing. Significant competition for
these opportunities exists, which may increase the cost of and
decrease the opportunities for these types of transactions.
Financing for these transactions may come from several sources,
including:
|
|
|
|
|
cash and cash equivalents on hand and marketable securities;
|
|
|
|
proceeds from the incurrence of indebtedness; and
|
|
|
|
proceeds from the issuance of common stock, preferred stock,
convertible debt or of other securities.
|
The issuance of additional equity or debt securities could:
|
|
|
|
|
cause substantial dilution of the percentage ownership of our
stockholders at the time of the issuance;
|
|
|
|
cause substantial dilution of our earnings per share;
|
|
|
|
subject us to the risks associated with increased leverage,
including a reduction in our ability to obtain financing or an
increase in the cost of any financing we obtain;
|
|
|
|
subject us to restrictive covenants that could limit our
flexibility in conducting future business activities; and
|
|
|
|
adversely affect the prevailing market price for our outstanding
securities.
|
We do not intend to seek security holder approval for any such
acquisition or security issuance unless required by applicable
law, regulation or the terms of then existing securities.
Our
business will suffer if we fail to successfully integrate
acquired businesses and technologies or to assess the risks in
particular transactions
We have in the past acquired, and may in the future acquire,
businesses, technologies, services, product lines and other
assets. The successful integration of the acquired businesses
and assets into our operations, on a cost-effective basis, can
be critical to our future performance. The amount and timing of
the expected benefits of any acquisition, including potential
synergies between our company and the acquired business, are
subject to significant risks and uncertainties. These risks and
uncertainties include, but are not limited to, those relating to:
|
|
|
|
|
our ability to maintain relationships with the customers of the
acquired business;
|
42
|
|
|
|
|
our ability to retain or replace key personnel;
|
|
|
|
potential conflicts in sponsor or advertising relationships or
in relationships with strategic partners;
|
|
|
|
our ability to coordinate organizations that are geographically
diverse and may have different business cultures; and
|
|
|
|
compliance with regulatory requirements.
|
We cannot guarantee that any acquired businesses will be
successfully integrated with our operations in a timely or
cost-effective manner, or at all. Failure to successfully
integrate acquired businesses or to achieve anticipated
operating synergies, revenue enhancements or cost savings could
have a material adverse effect on our business, financial
condition and results of operations.
Although our management attempts to evaluate the risks inherent
in each transaction and to value acquisition candidates
appropriately, we cannot assure you that we will properly
ascertain all such risks or that acquired businesses and assets
will perform as we expect or enhance the value of our company as
a whole. In addition, acquired companies or businesses may have
larger than expected liabilities that are not covered by the
indemnification, if any, that we are able to obtain from the
sellers.
We may
not be able to raise additional funds when needed for our
business or to exploit opportunities
Our future liquidity and capital requirements will depend upon
numerous factors, including the success of our service
offerings, market developments, and repurchases of our common
stock. We may need to raise additional funds to support
expansion, develop new or enhanced applications and services,
respond to competitive pressures, acquire complementary
businesses or technologies or take advantage of unanticipated
opportunities. If required, we may raise such additional funds
through public or private debt or equity financing, strategic
relationships or other arrangements. There can be no assurance
that such financing will be available on acceptable terms, if at
all, or that such financing will not be dilutive to our
stockholders.
As widely reported, financial markets experienced extreme
disruption during portions of 2008 and 2009, including
volatility in the prices of securities and severely diminished
liquidity and availability of credit. Financing may continue to
be difficult to obtain on acceptable terms, and we could be
forced to cancel or delay investments or transactions that we
would otherwise have made.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
Not applicable.
We believe that our companys offices and other facilities
are, in general, in good operating condition and adequate for
our current operations and that additional leased space in
appropriate locations can be obtained on acceptable terms if
needed.
We lease approximately 100,000 square feet of office space
in New York City for our corporate headquarters and our
editorial and marketing operations under a lease that expires in
November 2015. We also lease additional office space in New York
City and lease office space and operational facilities in:
Elmwood Park, New Jersey; Atlanta, Georgia; Montreal, Canada;
Chicago, Illinois; Herndon, Virginia; Indianapolis, Indiana;
Omaha, Nebraska; Portland, Oregon; and San Clemente,
California.
|
|
Item 3.
|
Legal
Proceedings
|
The information relating to legal proceedings contained in
Note 11 to the Consolidated Financial Statements included
in this Annual Report is incorporated herein by this reference.
43
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information
We completed the initial public offering of our Class A
Common Stock on September 28, 2005. Our Class A Common
Stock began trading on the Nasdaq National Market under the
symbol WBMD on September 29, 2005. Upon
completion of our merger with HLTH Corporation in October 2009
and the resulting cancellation of our Class B Common Stock
(all of which had been owned by HLTH), our Class A Common
Stock began being referred to simply as Common Stock. Our Common
Stock now trades on the Nasdaq Global Select Market. The high
and low prices of our Common Stock for each quarterly period
during the last two fiscal years are as follows:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
2008
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
41.99
|
|
|
$
|
23.15
|
|
Second quarter
|
|
|
35.40
|
|
|
|
21.86
|
|
Third quarter
|
|
|
35.00
|
|
|
|
23.80
|
|
Fourth quarter
|
|
|
29.99
|
|
|
|
13.63
|
|
2009
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
25.20
|
|
|
$
|
19.37
|
|
Second quarter
|
|
|
30.70
|
|
|
|
20.15
|
|
Third quarter
|
|
|
34.43
|
|
|
|
28.73
|
|
Fourth quarter
|
|
|
38.97
|
|
|
|
31.00
|
|
The market price of our Common Stock has fluctuated in the past
and is likely to fluctuate in the future. Changes in the market
price of our Common Stock may result from, among other things:
|
|
|
|
|
quarter-to-quarter
variations in operating results;
|
|
|
|
operating results being different from analysts estimates
or opinions;
|
|
|
|
changes in analysts earnings estimates;
|
|
|
|
changes in financial guidance or other forward-looking
information;
|
|
|
|
announcements or performance of products, services, pricing
policies or business strategies by us or our competitors;
|
|
|
|
announcements or performance of acquisitions or strategic
partnerships by us or our competitors;
|
|
|
|
developments in existing customer or strategic relationships;
|
|
|
|
actual or perceived changes in our business strategy;
|
|
|
|
developments in new or pending litigation and claims;
|
|
|
|
sales of large amounts of our Common Stock;
|
|
|
|
changes in general business or regulatory conditions affecting
the healthcare, information technology or Internet industries;
|
|
|
|
changes in general economic conditions; and
|
|
|
|
fluctuations in the securities markets in general.
|
In addition, the market prices of our Common Stock and of the
stock of other Internet-related companies have experienced large
fluctuations, sometimes quite rapidly. These fluctuations often
may be unrelated to or disproportionate to operating performance.
44
Holders
On February 25, 2010, there were approximately 2,750
holders of record of our Common Stock. Because many of these
shares are held by brokers and other institutions on behalf of
stockholders, we are unable to determine the total number of
stockholders represented by these record holders, but we believe
there are more than 35,000 holders of our Common Stock.
Dividends
We have never declared or paid any cash dividends on our Common
Stock, and we do not anticipate paying cash dividends in the
foreseeable future.
Repurchases
of Equity Securities During the Fourth Quarter of 2009
The following table provides information about purchases by
WebMD during the three months ended December 31, 2009 of
equity securities that are registered by us pursuant to
Section 12 of the Exchange Act:
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Approximate
|
|
|
|
|
|
|
|
|
Number of
|
|
Dollar Value of
|
|
|
|
|
Total
|
|
|
|
Shares Purchased as
|
|
Shares that May Yet
|
|
|
|
|
Number of
|
|
|
|
Part of Publicly
|
|
Be Purchased Under
|
|
|
|
|
Shares
|
|
Average Price
|
|
Announced Plans or
|
|
the Plans or
|
|
|
Period
|
|
Purchased(1)
|
|
Paid per Share
|
|
Programs(2)
|
|
Programs(3)
|
|
|
|
10/01/09 10/31/09
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
30,000,000
|
|
|
|
|
|
11/01/09 11/30/09
|
|
|
65,300
|
|
|
$
|
35.54
|
|
|
|
|
|
|
$
|
240,900,000
|
|
|
|
|
|
12/01/09 12/31/09
|
|
|
6,370,938
|
(2)
|
|
$
|
37.00
|
|
|
|
6,339,227
|
|
|
$
|
30,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,436,238
|
|
|
$
|
36.98
|
|
|
|
6,339,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes the following number of shares withheld from WebMD
Restricted Common Stock that vested during the respective
periods in order to satisfy withholding tax requirements related
to the vesting of the awards: 65,300 in November and 31,711 in
December. The value of these shares was determined based on the
closing price of WebMD Common Stock on the date of vesting.
|
|
(2)
|
WebMD purchased 6,339,227 shares of WebMD Common Stock at
$37.00 per share pursuant to a tender offer announced in
November 2009 and completed in December 2009. For additional
information, see Note 14 to the Consolidated Financial
Statements included in this Annual Report.
|
|
(3)
|
In each period, $30 million relates to the repurchase
program that WebMD announced in December 2008, at which time
WebMD was authorized to use up to $30 million to purchase
shares of its Common Stock from time to time. As of
December 31, 2009, no shares had been purchased under this
repurchase program. For additional information, see Note 14
to the Consolidated Financial Statements included in this Annual
Report. The remainder relates to the authorization to purchase,
at $37.00 per share, 5,700,000 shares of WebMD Common Stock
pursuant to the tender offer referred to above in footnote 2 to
this table, for a total purchase price of $210,900,000. That
amount was later increased to 6,339,227 shares of WebMD
Common Stock, for a total purchase price of $234,551,399.
|
45
Performance
Graph
The following graph compares the cumulative total stockholder
return on WebMD Common Stock with the comparable cumulative
return of the NASDAQ Stock Market (U.S. and Foreign) Index
and the Research Data Group (RDG) Internet Composite Index over
the period of time covered in the graph. The graph assumes that
$100 was invested in WebMD Common Stock on September 29,
2005 (the date of the initial public offering of WebMD Common
Stock) and in each index on September 30, 2005. The stock
price performance on the following graph is not necessarily
indicative of future stock price performance.
COMPARISON
OF 51 MONTH CUMULATIVE TOTAL RETURN*
among WebMD Health Corp., the NASDAQ Composite Index
and the RDG Internet Composite Index
|
|
* |
$100 Invested on 9/29/05 in stock or 9/30/05 in Index, including
reinvestment of dividends.
Fiscal year ending December 31.
|
46
|
|
Item 6.
|
Selected
Financial Data
|
The following selected consolidated financial data should be
read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and with the consolidated financial statements and notes
thereto, which are included elsewhere in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,(1)
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006(2)(3)
|
|
|
2005(4)
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
438,536
|
|
|
$
|
373,462
|
|
|
$
|
319,232
|
|
|
$
|
899,585
|
|
|
$
|
842,660
|
|
Cost of operations
|
|
|
165,753
|
|
|
|
135,138
|
|
|
|
114,000
|
|
|
|
542,723
|
|
|
|
525,405
|
|
Sales and marketing
|
|
|
112,101
|
|
|
|
106,080
|
|
|
|
91,035
|
|
|
|
116,258
|
|
|
|
101,939
|
|
General and administrative
|
|
|
89,620
|
|
|
|
88,053
|
|
|
|
102,661
|
|
|
|
130,056
|
|
|
|
116,589
|
|
Depreciation and amortization
|
|
|
28,185
|
|
|
|
28,410
|
|
|
|
27,808
|
|
|
|
44,073
|
|
|
|
43,013
|
|
Interest income
|
|
|
9,149
|
|
|
|
35,300
|
|
|
|
42,035
|
|
|
|
32,339
|
|
|
|
21,527
|
|
Interest expense
|
|
|
23,515
|
|
|
|
26,428
|
|
|
|
25,887
|
|
|
|
25,472
|
|
|
|
18,442
|
|
Severance and other transaction expenses
|
|
|
11,066
|
|
|
|
6,941
|
|
|
|
2,527
|
|
|
|
|
|
|
|
|
|
Gain on repurchases of convertible notes
|
|
|
10,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of EBS Master LLC
|
|
|
|
|
|
|
538,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
7,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of auction rate securities
|
|
|
|
|
|
|
60,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on 2006 EBS Sale
|
|
|
|
|
|
|
|
|
|
|
399
|
|
|
|
352,297
|
|
|
|
|
|
Other (expense) income, net
|
|
|
(1,369
|
)
|
|
|
992
|
|
|
|
5,933
|
|
|
|
(4,252
|
)
|
|
|
(27,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax (benefit)
provision
|
|
|
26,196
|
|
|
|
489,204
|
|
|
|
3,681
|
|
|
|
421,387
|
|
|
|
30,834
|
|
Income tax (benefit) provision
|
|
|
(45,491
|
)
|
|
|
26,638
|
|
|
|
(9,053
|
)
|
|
|
50,033
|
|
|
|
(2,461
|
)
|
Equity in earnings of EBS Master LLC
|
|
|
|
|
|
|
4,007
|
|
|
|
28,566
|
|
|
|
763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from continuing operations
|
|
|
71,687
|
|
|
|
466,573
|
|
|
|
41,300
|
|
|
|
372,117
|
|
|
|
33,295
|
|
Consolidated income (loss) from discontinued operations, net of
tax
|
|
|
49,354
|
|
|
|
94,682
|
|
|
|
(18,048
|
)
|
|
|
393,527
|
|
|
|
34,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income inclusive of noncontrolling interest
|
|
|
121,041
|
|
|
|
561,255
|
|
|
|
23,252
|
|
|
|
765,644
|
|
|
|
67,465
|
|
Income attributable to noncontrolling interest
|
|
|
(3,705
|
)
|
|
|
(1,032
|
)
|
|
|
(10,667
|
)
|
|
|
(405
|
)
|
|
|
(775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
117,336
|
|
|
$
|
560,223
|
|
|
$
|
12,585
|
|
|
$
|
765,239
|
|
|
$
|
66,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Company stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
67,018
|
|
|
$
|
465,725
|
|
|
$
|
31,845
|
|
|
$
|
371,844
|
|
|
$
|
32,725
|
|
Income (loss) from discontinued operations
|
|
|
50,318
|
|
|
|
94,498
|
|
|
|
(19,260
|
)
|
|
|
393,395
|
|
|
|
33,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
117,336
|
|
|
$
|
560,223
|
|
|
$
|
12,585
|
|
|
$
|
765,239
|
|
|
$
|
66,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.40
|
|
|
$
|
5.99
|
|
|
$
|
0.40
|
|
|
$
|
3.00
|
|
|
$
|
0.22
|
|
Income (loss) from discontinued operations
|
|
|
1.05
|
|
|
|
1.22
|
|
|
|
(0.24
|
)
|
|
|
3.17
|
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
2.45
|
|
|
$
|
7.21
|
|
|
$
|
0.16
|
|
|
$
|
6.17
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.21
|
|
|
$
|
4.92
|
|
|
$
|
0.36
|
|
|
$
|
2.69
|
|
|
$
|
0.21
|
|
Income (loss) from discontinued operations
|
|
|
0.86
|
|
|
|
0.96
|
|
|
|
(0.23
|
)
|
|
|
2.67
|
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
2.07
|
|
|
$
|
5.88
|
|
|
$
|
0.13
|
|
|
$
|
5.36
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding used in computing per share
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
47,400
|
|
|
|
77,738
|
|
|
|
79,694
|
|
|
|
124,092
|
|
|
|
151,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
57,740
|
|
|
|
97,824
|
|
|
|
83,886
|
|
|
|
147,382
|
|
|
|
156,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December
31,(1)
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006(2)
|
|
2005(4)
|
|
|
(In thousands)
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
|
|
$
|
808,144
|
|
|
$
|
917,897
|
|
|
$
|
830,120
|
|
|
$
|
651,464
|
|
|
$
|
427,433
|
|
Working capital (excluding assets and liabilities of
discontinued operations)
|
|
|
159,539
|
|
|
|
633,462
|
|
|
|
860,181
|
|
|
|
617,101
|
|
|
|
397,555
|
|
Total assets
|
|
|
1,288,548
|
|
|
|
1,501,734
|
|
|
|
1,651,481
|
|
|
|
1,469,795
|
|
|
|
2,213,558
|
|
Long-term convertible notes, net of discount
|
|
|
227,659
|
|
|
|
614,018
|
|
|
|
605,776
|
|
|
|
598,121
|
|
|
|
590,987
|
|
Convertible redeemable exchangeable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,768
|
|
|
|
98,533
|
|
Noncontrolling interest
|
|
|
|
|
|
|
134,223
|
|
|
|
131,353
|
|
|
|
101,860
|
|
|
|
43,096
|
|
Stockholders equity
|
|
|
564,768
|
|
|
|
496,698
|
|
|
|
642,809
|
|
|
|
422,853
|
|
|
|
1,118,237
|
|
|
|
(1)
|
On October 23, 2009, WebMD Health Corp. completed a merger
with HLTH Corporation (the Merger), with WebMD
Health Corp. continuing as the surviving company. The accounting
treatment for the Merger results in HLTH Corporation being
treated as the acquiring entity and the pre-acquisition
consolidated financial statements of HLTH Corporation being
treated as the historical financial statements of WebMD Health
Corp. for all historical periods presented. In addition, the
weighted-average shares outstanding used in computing income per
common share have been adjusted by multiplying the historical
weighted-average shares outstanding for HLTH by the 0.4444
exchange ratio in the Merger for all historical periods
presented. Basic and diluted income per common share also have
been recalculated to reflect the adjusted weighted-average
shares outstanding for all historical periods presented. See
Introduction Basis of Presentation; Accounting
Treatment of the Merger within Managements
Discussion and Analysis of Financial Condition and Results of
Operations, which is included in Item 7 of this Annual
Report.
|
|
(2)
|
For the year ended December 31, 2006, the consolidated
financial position and results of operations reflect the sale of
a 52% interest in our Emdeon Business Services business (which
we refer to as EBS), as of November 16, 2006. Accordingly,
the consolidated balance sheet as of December 31, 2006
excludes the assets and liabilities of EBS and includes an
investment in EBS Master LLC accounted for under the equity
method of accounting related to our 48% ownership, and the
consolidated statement of operations for the year ended
December 31, 2006 includes the operations of EBS for the
period January 1, 2006 through November 16, 2006 and
our 48% equity in earnings of EBS Master LLC from
November 17, 2006 through December 31, 2006.
|
|
(3)
|
On January 1, 2006, we adopted the new authoritative guidance
which requires all share-based payments to employees, including
grants of employee stock options, to be recognized as
compensation expense over the service period based on their fair
values. This resulted in additional non-cash stock-based
compensation expense beginning in 2006 and subsequent periods.
See Results of Operations within Managements Discussion
and Analysis of Financial Condition and Results of Operations,
which is included in Item 7 of this Annual Report.
|
|
(4)
|
The selected financial data for the year ended December 31,
2005 does not reflect the retrospective application of
authoritative guidance for our
31/4%
Convertible Notes, which were outstanding during this period and
were fully redeemed or converted to equity during June 2005. The
authoritative guidance requires cash settled convertible debt to
be separated into debt and equity components at issuance and a
value to be assigned to each.
|
48
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This Item 7 contains forward-looking statements that
involve risks and uncertainties. Please see
Forward-Looking Statements for a discussion of the
uncertainties, risks and assumptions associated with these
statements. The results of operations for the periods reflected
herein are not necessarily indicative of results that may be
expected for future periods, and our actual results may differ
materially from those discussed in our forward-looking
statements as a result of various factors, including but not
limited to those listed under Risk Factors in
Item 1A of this Annual Report and those included elsewhere
in this Annual Report. In this MD&A, dollar amounts (other
than per share amounts) are stated in thousands, unless
otherwise noted.
Overview
Managements discussion and analysis of financial condition
and results of operations, or MD&A, is provided as a
supplement to the consolidated financial statements and notes
thereto included elsewhere in this Annual Report and is intended
to provide an understanding of our results of operations,
financial condition and changes in our results of operations and
financial condition. Our MD&A is organized as follows:
|
|
|
|
|
Introduction. This section provides: a general
description of our company and its business; a description of
our merger with HLTH Corporation (which we refer to as the
Merger) and the accounting treatment of the Merger; background
information on certain trends, transactions and other
developments affecting our company; and a discussion of how
seasonal factors may impact the timing of our revenue.
|
|
|
|
Critical Accounting Estimates and
Policies. This section discusses those accounting
policies that are considered important to the evaluation and
reporting of our financial condition and results of operations,
and whose application requires us to exercise subjective and
often complex judgments in making estimates and assumptions. In
addition, all of our significant accounting policies, including
our critical accounting policies, are summarized in Note 2
to the Consolidated Financial Statements included in this Annual
Report.
|
|
|
|
Results of Operations and Supplemental Financial and
Operating Information. These sections provide our
analysis and outlook for the significant line items on our
statements of operations, as well as other information that we
deem meaningful to understand our results of operations on a
consolidated basis.
|
|
|
|
Liquidity and Capital Resources. This section
provides an analysis of our liquidity and cash flows, as well as
a discussion of our commitments that existed as of
December 31, 2009.
|
|
|
|
Recent Accounting Pronouncements. This section
provides a summary of the most recent authoritative accounting
standards and guidance that have either been recently adopted by
our company or may be adopted in the future.
|
Introduction
Our Company. WebMD Health Corp. is a
Delaware corporation that was incorporated on May 3, 2005.
We completed an initial public offering on September 28,
2005. Our common stock trades under the symbol WBMD
on the Nasdaq Global Select Market. From the completion of our
initial public offering through the completion of the Merger on
October 23, 2009, we were more than 80% owned by HLTH
Corporation (which we refer to as HLTH). On October 23,
2009, stockholders of HLTH and WebMD approved the Merger and the
transaction was completed later that day, with HLTH merging into
WebMD and WebMD continuing as the surviving
corporation. WebMD automatically succeeded to all of HLTHs
assets, liabilities and commitments upon completion of the
Merger (other than the shares of WebMD Class B common stock
owned by HLTH which were cancelled in the Merger). In the
Merger, each share of HLTH common stock was converted into
0.4444 shares of WebMD common stock. The shares of
WebMDs Class A common stock were unchanged in the
Merger and continue to trade on the NASDAQ Global Select Market
under the symbol WBMD; however, they are no longer
referred to as Class A because the Merger
eliminated both WebMDs Class B common stock and the
dual-class stock structure that had existed at WebMD. The key
reasons for the Merger
49
included allowing HLTHs stockholders to participate
directly in the ownership of WebMD, while eliminating
HLTHs controlling interest in WebMD and the inefficiencies
associated with having two separate public companies, increasing
the ability of WebMD to raise capital and to obtain financing,
and improving the liquidity of WebMD common stock by
significantly increasing the number of shares held by public
stockholders.
WebMD was the only operating business of HLTH at the time the
Merger closed. Accordingly, the completion of the Merger did not
have a significant effect on the operations of WebMD since there
were no HLTH business operations to combine with WebMDs
business operations and, while HLTH had previously been
providing certain corporate services to WebMD under a services
agreement and had certain other agreements with WebMD, those
agreements ceased when WebMD acquired HLTH. The employees and
resources of HLTH used to provide services to WebMD under the
services agreement became employees and resources of WebMD upon
completion of the Merger.
Basis of Presentation; Accounting Treatment of the
Merger. The applicable accounting treatment
for the Merger results in HLTH being considered the acquiring
entity of the WebMD non-controlling interest. Therefore, the
pre-acquisition consolidated financial statements of HLTH became
the historical financial statements of WebMD following the
completion of the Merger. For all prior periods presented in the
Consolidated Financial Statements included in this Annual
Report, the weighted-average shares outstanding used in
computing income per common share have been adjusted by
multiplying the historical weighted-average shares outstanding
for HLTH by the 0.4444 exchange ratio in the Merger.
Additionally, basic and diluted income per common share have
been recalculated to reflect the adjusted weighted-average
shares outstanding for the prior year periods presented. For the
year ended December 31, 2009, these adjustments only apply
to the portion of the year prior to the completion of the Merger
on October 23, 2009.
The consolidated accounts of HLTH included, until the completion
of the Merger, 100% of the assets and liabilities of WebMD,
which was more than 80% owned by HLTH until the Merger. The
ownership interests of the noncontrolling stockholders of WebMD
are recorded as noncontrolling interest in the
December 31, 2008 Consolidated Balance Sheet included in
the Consolidated Financial Statements in this Annual Report. In
the Consolidated Statements of Operations included in the
Consolidated Financial Statements in this Annual Report,
Net income attributable to Company stockholders
reflects an adjustment for the noncontrolling stockholders
share of the net income of WebMD until completion of the Merger.
Our Business. We are a leading provider
of health information services to consumers, physicians and
other healthcare professionals, employers and health plans
through our public and private online portals and health-focused
publications. Our public portals for consumers enable them to
obtain health and wellness information (including information on
specific diseases or conditions), check symptoms, locate
physicians, store individual healthcare information, receive
periodic
e-newsletters
on topics of individual interest and participate in online
communities with peers and experts. Our public portals for
physicians and healthcare professionals make it easier for them
to access clinical reference sources, stay abreast of the latest
clinical information, learn about new treatment options, earn
continuing medical education (which we refer to as CME) credit
and communicate with peers. We generate revenue from our public
portals primarily through the sale of advertising and
sponsorship products, including CME services. We also distribute
our online content and services to other entities and generate
revenue from these arrangements through the sale of advertising
and sponsorship products and content syndication fees. We also
provide
e-detailing
promotion and physician recruitment services, information
services and provide print services including the publication of
WebMD the Magazine, a consumer magazine distributed to
physician office waiting rooms. The sponsors and advertisers of
our public portals include pharmaceutical, biotechnology,
medical device and consumer products companies. Our private
portals enable employers and health plans to provide their
employees and members with access to personalized health and
benefit information and decision-support technology that helps
them to make more informed benefit, treatment and provider
decisions. In addition, we offer, clients of our private
portals, telephonic health coaching services on a per
participant basis across an employee or plan population. We
generate revenue from our private portals through the licensing
of these portals and related services to employers and health
plans either directly or through distributors.
50
Background Information on Certain Trends Influencing the
Use of Our Services. Several key trends in
the healthcare and Internet industries are influencing the use
of healthcare information services of the types we provide or
are developing. Those trends are described briefly below:
|
|
|
|
|
Use of the Internet by Consumers and
Physicians. The Internet has emerged as a major
communications medium and has already fundamentally changed many
sectors of the economy, including the marketing and sales of
financial services, travel, and entertainment, among others. The
Internet is also changing the healthcare industry and has
transformed how consumers and physicians find and utilize
healthcare information.
|
|
|
|
|
|
Healthcare consumers increasingly seek to educate themselves
online about their healthcare related issues, motivated in part
by the continued availability of new treatment options and in
part by the larger share of healthcare costs they are being
asked to bear due to changes in the benefit designs being
offered by health plans and employers. The Internet has
fundamentally changed the way consumers obtain health and
wellness information, enabling them to have immediate access to
searchable information and dynamic interactive content to check
symptoms, assess risks, understand diseases, find providers and
evaluate treatment options. According to a study of health
information technology by the National Center for Health
Statistics of the Centers for Disease Control and Prevention (or
CDC), approximately 51% of United States adults aged
18-64 had
used the Internet to look up health information during the prior
12 months, based on a survey conducted in the first half of
2009. According to a June 2009 study by the Pew
Internet & American Life Project, 61% of
U.S. adults have searched for health information on the
Internet (compared to 25% in a similar study in 2000) and
approximately 37% of U.S. adults have accessed social media
related to health.
|
|
|
|
The Internet has also become a primary source of information for
physicians seeking to improve clinical practice and is growing
relative to traditional information sources, such as
conferences, meetings and offline journals.
|
|
|
|
|
|
Increased Online Marketing and Education Spending for
Healthcare Products. Pharmaceutical,
biotechnology and medical device companies spend large amounts
each year marketing their products and educating consumers and
physicians about them; however, only a small portion of this
amount is currently spent on online services. We believe that
these companies, which comprise the majority of the advertisers
and sponsors of our public portals, are becoming increasingly
aware of the effectiveness of the Internet relative to
traditional media in providing health, clinical and
product-related information to consumers and physicians, and
this increasing awareness will result in increasing demand for
our services. However, notwithstanding our general expectation
for increased demand, our advertising and sponsorship revenue
may vary significantly from quarter to quarter due to a number
of factors, including general economic conditions and the
following:
|
|
|
|
|
|
The majority of our advertising and sponsorship contracts are
for terms of approximately four to twelve months. We have
relatively few longer term advertising and sponsorship contracts.
|
|
|
|
The time between the date of initial contact with a potential
advertiser or sponsor regarding a specific program and the
execution of a contract with the advertiser or sponsor for that
program may be subject to delays over which we have little or no
control, including as a result of budgetary constraints of the
advertiser or sponsor or their need for internal approvals.
|
Other factors that may affect the timing of contracting for
specific programs with advertisers and sponsors, or receipt of
revenue under such contracts, include: the timing of FDA
approval for new products or for new approved uses for existing
products; the timing of FDA approval of generic products that
compete with existing brand name products; the timing of
withdrawals of products from the market; the timing of roll-outs
of new or enhanced services on our public portals; seasonal
factors relating to the prevalence of specific health conditions
and other seasonal factors that may affect the timing of
promotional campaigns for specific products; and the scheduling
of conferences for physicians and other healthcare professionals.
51
|
|
|
|
|
Changes in Health Plan Design; Health Management
Initiatives. In a healthcare market where a
greater share of the responsibility for healthcare costs and
decision-making has been increasingly shifting to consumers, use
of information technology (including personal health records) to
assist consumers in making informed decisions about healthcare
has also increased. We believe that through our WebMD Health and
Benefits Manager tools, including our personal health record
application, we are well positioned to play a role in this
environment. However, our strategy depends, in part, on
increasing usage of our private portal services by our employer
and health plan clients employees and members,
respectively. Increasing usage of our services requires us to
continue to deliver and improve the underlying technology and
develop new and updated applications, features and services. In
addition, we face competition in the area of healthcare
decision-support tools and online health management applications
and health information services. Many of our competitors have
greater financial, technical, product development, marketing and
other resources than we do, and may be better known than we are.
We also expect that, for clients and potential clients in the
industries most adversely affected by recent general economic
conditions (including those in the financial services and
automotive industries), we may continue to experience some
reductions in initial contracts, contract expansions and
contract renewals for our private portal services, as well as
reductions in the size of existing contracts.
|
|
|
|
Developments in Social Media and Other Internet
Applications. In the past several years, video
and multimedia applications have become an increasingly
important part of what users expect from Internet sites. In
addition, consumers are increasingly using the Internet to
access social media as a means to communicate and exchange
information, including regarding health and wellness. Similarly,
physicians and other healthcare professionals are increasingly
participating in condition or topic specific community groups
and other interactive applications. Consumers and healthcare
professionals are also increasingly using handheld devices to
access the Internet, with physicians increasingly using handheld
devices in diagnosis and treatment at the point of care. We have
invested and intend to continue to invest in software and
systems that allow us to meet the demands of our users and
sponsors, including customized content management and publishing
technology to deliver interactive content, multimedia
programming and personalized health applications that engage our
users. The following are some of our recent and current
initiatives to improve the user experience on our Web sites,
expand our services and increase our user base:
|
|
|
|
|
|
Physician Connect, our social networking platform for
physicians, allows them to exchange information online on a
range of topics, including patient care, drug information,
healthcare-related legislation and practice management.
Physicians can also create polls to elicit tailored,
constructive feedback from other physicians. We also offer third
parties the opportunity to sponsor Physician Connect
discussions and polls so that they can gain insights into
physicians perspectives and areas of interest. By the end
of 2009, Physician Connect had attracted more than
120,000 physician members. Medscape from WebMD also
offers a variety of sponsored and unsponsored blogs where
healthcare professionals can share their thoughts and opinions
with the Medscape from WebMD community.
|
|
|
|
We plan to launch the WebMD Health Exchange, a social
networking initiative that will build on the hundreds of health
communities that exist on WebMD Health today and will more
closely integrate the social experience throughout each of our
core content areas, in 2010. The WebMD Health Exchange will give
consumers the opportunity to explore a health or wellness topic
on their own terms, by participating in WebMD expert moderated
communities or by creating their own public community or
invitation-only private community.
|
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Medscape Mobile is a free medical application that can be
accessed on the
iPhonetm
and iPod
touch®.
Medscape Mobile includes Medscapes
specialty-specific news, comprehensive drug information and
clinical reference tools. Medscape Mobile also includes
CME activities organized by specialty and designed for use on a
mobile device. Medscape Mobile is currently available on
the
iPhonetm
and iPod
touch®
and will soon be offered on additional mobile platforms,
including
BlackBerry®.
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WebMD Mobile is a free consumer application that allows
consumers to access certain WebMD tools on an iPhone, including
Symptom Checker, First Aid, and Pill Identifier applications, as
well as other health information. It has been downloaded more
than 1.5 million times since launch and is the leading free
health application in the iTunes Store.
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We are pursuing opportunities to expand the reach of our brands
outside the United States. In October 2009, we launched our
first major consumer portal outside the United States in
partnership with Boots, the UKs leading pharmacy-led
health and beauty retailer.
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Healthcare Reform Legislation. Congress is
currently considering significant healthcare reform legislation.
Healthcare reform legislation, if enacted, may increase
governmental involvement in healthcare and health insurance, may
change the way health insurance is funded (including the role
that employers play in such funding), may change reimbursement
rates and other terms of such insurance coverage, may affect the
way information technology is used in healthcare, and may
otherwise change the environment in which healthcare industry
participants operate and the specific roles such participants
play in the industry. One important focus of healthcare reform
is control of healthcare costs over the long term. We believe
that our services can play an important role in efforts to
reduce healthcare costs. Accordingly, healthcare reform may
create opportunities for us, including with respect to personal
health record applications and health and benefits
decision-support tools and, more generally, with respect to our
capabilities in providing health and wellness information and
education. However, we are unable to predict future legislation
or proposals with any certainty or to predict the effect they
could have on our business, and healthcare industry participants
may respond to healthcare reform legislation or to the
uncertainties created by potential legislation by reducing their
expenditures or postponing expenditure decisions, including
expenditures for our services.
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The healthcare industry in the United States and relationships
among healthcare payers, providers and consumers are very
complicated. In addition, the Internet and the market for online
services are relatively new and still evolving. Accordingly,
there can be no assurance that the trends identified above will
continue or that the expected benefits to our businesses from
our responses to those trends will be achieved. In addition, the
market for healthcare information services is highly competitive
and not only are our existing competitors seeking to benefit
from these same trends, but the trends may also attract
additional competitors.
Background
Information on Certain Transactions and Other Significant
Developments
2009 Tender Offer. On December 10, 2009,
we completed a tender offer for our common stock and repurchased
6,339,227 shares at a price of $37.00 per share. In this
MD&A, we refer to this tender offer as the 2009 Tender
Offer. The total cost of the 2009 Tender Offer was $235,220,
which includes $670 of costs directly attributable to the
purchase. The 2009 Tender Offer represented an opportunity for
WebMD to return capital to stockholders who elected to tender
their shares of WebMD common stock, while stockholders who chose
not to participate in the 2009 Tender Offer automatically
increased their relative percentage interest in our company at
no additional cost to them.
Sale of Porex; Senior Secured Notes. SNTC
Holding, Inc., a wholly-owned subsidiary of the Company, entered
into a stock purchase agreement, dated as of September 17,
2009, for the sale of our Porex business (which we refer to as
Porex) for which we received $74,378 in cash at closing, subject
to customary adjustment based on the amount of Porexs
working capital, received $67,500 in senior secured notes (which
we refer to as the Senior Secured Notes) and incurred
approximately $4,900 of transaction expenses. The sale was
completed on October 19, 2009. The Senior Secured Notes are
secured by certain assets of the acquirer. The Senior Secured
Notes accrue interest at a rate of 8.75% per annum, payable
quarterly. The Senior Secured Notes were issued in four series:
the Senior Secured Notes of the first, second and third series
have an aggregate principal amount of $10,000 each and mature on
the first, second and third anniversaries of the closing,
respectively; and the Senior Secured Notes of the fourth series
have an aggregate principal amount of $37,500 and matures on the
fourth anniversary of the closing. The historical financial
information for Porex is reflected as discontinued operations
within the consolidated financial statements contained elsewhere
in this Annual Report.
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Divestiture of the Little Blue Book Print Directory
Business. In March 2009, we decided to divest the
Little Blue Book print directory business (which we refer to as
LBB). As a result, the historical financial information for LBB
has been reflected as discontinued operations within the
consolidated financial statements contained elsewhere in this
Annual Report. During the three months ended June 30, 2009,
we recorded an impairment charge of $8,300 to reduce the
carrying value of LBB to its current estimated fair value. On
September 30, 2009, we completed the sale of LBB in which
we received cash proceeds of $2,590. The revenue and operating
results of LBB had previously been reflected within our former
publishing and other services operating segment. As a result of
our decision to divest LBB, we eliminated the separate segment
presentation for publishing and other services. We are currently
reporting revenue in the following two categories: public portal
advertising and sponsorship and private portal services.
Non-Recourse Credit Facilities. On May 6,
2008 we entered into two substantially similar non-recourse
credit facilities (which we refer to as the 2008 Credit
Facilities) with an affiliate of Citigroup, secured by our
auction rate securities (including, in some circumstances,
interest payable on the auction rate securities), that would
allow us to borrow up to 75% of the face amount of the auction
rate securities pledged as collateral under the 2008 Credit
Facilities. No borrowings were made under the 2008 Credit
Facilities. A description of our auction rate securities (which
we refer to as ARS) is included under Critical
Accounting Estimates and Policies Critical
Accounting Policies Fair Value of Investments in
Auction Rate Securities (ARS) below.
On April 28, 2009, we entered into amended and restated
credit facilities with an affiliate of Citigroup (which we refer
to as the 2009 Credit Facilities), replacing the 2008 Credit
Facilities. As of the date of this Annual Report, no borrowings
have been made under the 2009 Credit Facilities. The 2009 Credit
Facilities are secured by our ARS holdings (including, in some
circumstances, interest payable on the ARS holdings). We can
make borrowings under the 2009 Credit Facilities until
April 27, 2010. Any borrowings outstanding under these 2009
Credit Facilities after February 26, 2010 become demand
loans, subject to 60 days notice, with recourse only to the
pledged collateral. Loan proceeds may be used for general
working capital purposes or other lawful business purposes
(including repurchases of our own securities), but not for
purposes of buying, trading or carrying other securities. The
interest rate applicable to borrowings under the 2009 Credit
Facilities will be the Open Federal Funds Rate plus 3.95%. The
maximum that can be borrowed under the 2009 Credit Facilities is
75% of the face amount of the pledged ARS holdings. As of
December 31, 2009, the maximum that we would be able to
borrow under these credit facilities would be $264,525. Removals
of ARS from the pledged collateral (including upon their
redemption or sale) will reduce the amount available for
borrowing under the 2009 Credit Facilities. The 2009 Credit
Facilities are governed by amended and restated loan agreements,
which contain customary representations and warranties of our
Company, as borrower, and certain affirmative covenants and
negative covenants relating to the pledged collateral. Under the
loan agreements, our Company and the lender may, in certain
circumstances, cause the pledged collateral to be sold, with the
proceeds of any such sale required to be applied in full
immediately to repayment of amounts borrowed.
2008 Tender Offer. On November 25, 2008,
we completed a tender offer for our common stock and repurchased
37,196,245 shares at a price of $19.80 per share. The total
cost of the 2008 Tender Offer was $737,324, which includes $765
of costs directly attributable to the purchase. The 2008 Tender
Offer represented an opportunity to return capital to
stockholders who elected to tender their shares of common stock,
while stockholders who chose not to participate in the 2008
Tender Offer automatically increased their relative percentage
interest in our company at no additional cost to them.
2008 EBSCo Sale. On November 16, 2006, we
completed the sale of a 52% interest in the business that
constituted our Emdeon Business Services segment, excluding our
ViPS business unit (which we refer to as EBS) to an affiliate of
General Atlantic LLC (which we refer to as GA). We refer to this
transaction as the 2006 EBS Sale. From the closing of the 2006
EBS Sale to the closing of the 2008 EBSCo Sale on
February 8, 2008, we owned 48% of EBS Master LLC (which we
refer to as EBSCo), the entity that acquired EBS in the 2006 EBS
Sale and accounted for that 48% ownership interest as an equity
investment in our consolidated financial statements. On
February 8, 2008, we entered into a Securities Purchase
Agreement and simultaneously completed the sale of our 48%
noncontrolling ownership interest in EBSCo for $574,617 in
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cash, net of professional fees and other expenses, to an
affiliate of GA and affiliates of Hellman & Friedman,
LLC.
ViPS Sale. On July 22, 2008, we completed
the sale of our ViPS business to an affiliate of General
Dynamics Corporation. We received cash proceeds of $223,175, net
of the working capital adjustment, professional fees and other
expenses associated with the ViPS Sale. In connection with the
ViPS Sale, we entered into a transition services agreement with
ViPS whereby we provided ViPS with certain administrative
services for a short period following the sale. The historical
financial information of ViPS has been reflected as discontinued
operations within the consolidated financial statements
contained elsewhere in this Annual Report.
Directors & Officers Liability Insurance Coverage
Litigation. On July 23, 2007, HLTH commenced
litigation (which we refer to as the Coverage Litigation) in the
Court of Chancery of the State of Delaware in and for New Castle
County against ten insurance companies in which HLTH was seeking
to compel the defendant companies (which we refer to
collectively as the Defendants) to honor their obligations under
certain directors and officers liability insurance policies
(which we refer to as the Policies). WebMD succeeded to HLTH as
plaintiff in this action as a result of the Merger. HLTH was
seeking an order requiring the Defendants to advance
and/or
reimburse expenses that HLTH has incurred and expected to
continue to incur for the advancement of the reasonable defense
costs of initially ten, and now four, former officers and
directors of the HLTHs former EPS subsidiary who were
indicted in connection with the investigation by United States
Attorney for the District of South Carolina (which we refer to
as the Investigation) described in Note 11,
Commitments and Contingencies located in the Notes
to the Consolidated Financial Statements included in this Annual
Report.
Pursuant to a stipulation among the parties, the Coverage
Litigation was transferred on September 13, 2007 to the
Superior Court of the State of Delaware in and for New Castle
County. The Policies were issued to HLTH and to EPS, which is a
co-plaintiff with WebMD in the Coverage Litigation (which we
refer to collectively as the Plaintiffs). EPS was sold in
September 2006 to Sage Software and has changed its name to Sage
Software Healthcare, Inc. (which we refer to as SSHI). In
connection with HLTHs sale of EPS to Sage Software, HLTH
retained certain obligations relating to the Investigation and
agreed to indemnify Sage Software and SSHI with respect to
certain expenses in connection with the Investigation and we
assumed those obligations as a result of the Merger. HLTH
retained (and we succeeded to as a result of the Merger) the
right to assert claims and recover proceeds under the Policies
on behalf of SSHI.
Prior to the filing of the Second Amended Complaint which is
discussed below, the Policies at issue in the Coverage
Litigation consisted of two separate groups of insurance
policies. Each group of policies consists of several layers of
coverage, with different insurers having agreed to provide
specified amounts of coverage at various levels. The first group
of policies was issued to EPS in the amount of $20,000 (which we
refer to as the EPS Policies) and the second group of policies
was issued to Synetic, Inc. (the former parent of EPS, which
merged into HLTH) in the amount of $100,000, of which
approximately $3,600 was paid by the primary carrier with
respect to another unrelated matter (which we refer to as the
Synetic Policies).
The carrier with the third level of coverage in the Synetic
Policies filed a motion for summary judgment in the Coverage
Litigation, which most of the carriers who have issued the
Synetic Policies joined, which sought summary judgment that any
liability to pay defense costs should be allocated among the
three sets of policies available to us (including the policies
with respect to which the Coverage Litigation relates and a
third set of policies the issuers of which had not yet been
named by us) such that the Synetic Policies would only be liable
to pay about $23,000 of the $96,400 total coverage available
under such policies. HLTH filed its opposition to the motion
together with its motion for summary judgment against such
carrier and several other carriers who have issued the Synetic
Policies seeking to require such carriers to advance payment of
the defense costs that we are obligated to pay while the
Coverage Litigation is pending. On July 31, 2008, the
Superior Court for the State of Delaware denied the motion filed
by the carriers seeking allocation and granted HLTHs
motion for partial summary judgment to enforce the duty of such
carriers to advance and reimburse these costs. Pursuant to the
Courts order, the issuers of the Synetic Policies have
been reimbursing us for our costs as described above.
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On September 9, 2008 and February 4, 2009,
respectively, the eighth and ninth level carriers of the Synetic
Policies notified HLTH that they believe that they were not
bound by the Courts July 31, 2008 order regarding the
duty of the Synetic carriers to advance and reimburse defense
costs. This resulted in HLTH making a motion to the Court on
February 23, 2009 to require such eighth and ninth level
carriers to advance and reimburse defense costs. HLTH later
settled with the eighth level carrier. Under the terms of the
settlement such carrier will pay, in full and final settlement,
an
agreed-upon
percentage of the policy amount against each payment of defense
costs made by us as such policy continues to be implicated. On
April 15, 2009, the ninth level carrier made a cross-motion
for summary judgment claiming that, in light of a policy
endorsement applicable only to the ninth level carrier, because
of the time period during which the conspiracy charged in the
Second Superseding Indictment is alleged to have taken place,
the Synetic Policy issued by such carrier does not cover
HLTHs indemnification obligations. HLTH believed that such
carriers motion was without merit and responded to the
motion. On July 15, 2009, the Court granted summary
judgment in favor of the ninth level carrier and unless and
until we successfully appeal such decision, the ninth level
carrier is not liable to pay any portion of the $10,000 total
coverage of its policy with respect to our indemnification
obligations. As of December 31, 2009, $83,100 has been paid
by insurance companies representing the EPS Policies and the
Synetic Policies through a combination of payment under the
terms of the Policies, payment under reservation of rights or
through settlement. Of this amount, $61,700 represents the
portion received through settlement.
On November 17, 2008, HLTH filed a Second Amended Complaint
which added four new insurance companies as defendants in the
Coverage Action. These carriers are the issuers of a third set
of policies (which we refer to as the Emdeon Policies) that
provide coverage with respect to HLTHs indemnification
obligations to the former officers and directors of HLTHs
former EPS subsidiary who were indicted in connection with the
Investigation. All but one of the carriers who issued the Emdeon
Policies moved for summary judgment asserting that exclusions in
the Emdeon Policies preclude coverage for HLTHs
indemnification obligations and HLTH filed motions seeking to
compel such carriers to advance defense costs that HLTH was
obligated to indemnify. On August 31, 2009, the Court
issued two opinions. In the first opinion, the Court granted
summary judgment in favor of HLTH with respect to one of the
exclusions asserted by the carriers who issued the Emdeon
Policies. In the second opinion, the Court granted summary
judgment in favor of the carriers with respect to the other
exclusion asserted by such carriers. One of the carriers only
joined in the first motion with respect to which HLTH prevailed,
although the policy issued by such carrier also contains
language with respect to which the other carriers prevailed. We
have made a motion to compel such carrier to advance defense
costs and also asking the Court to rule that we have satisfied
the $10,000 retention amount with respect to the Emdeon Policies
and the Court has stayed a ruling on this motion pending the
outcome of the appeals to the Supreme Court of Delaware
discussed below. The implication of these opinions, when
considered together, is that unless and until we successfully
appeal the second opinion described above, we have (with the
possible exception of the carrier who only joined in the motion
regarding the first exclusion) effectively exhausted our
insurance with respect to our obligation to indemnify the
indicted individuals. We and the carriers who issued the Emdeon
Policies (with the exception of the second level carrier with
whom we have settled) have each appealed the trial Courts
August 31, 2009 rulings to the Supreme Court of Delaware
and the Supreme Court has agreed to hear both appeals, which
have been consolidated. The Supreme Court heard oral argument on
both appeals on February 24, 2010.
The insurance carriers assert that our insurance policies
provide that under certain circumstances, amounts advanced by
the insurance companies in connection with the defense costs of
the indicted individuals may have to be repaid by us, although
the amounts that we have received in settlement from certain
carriers is not subject to being repaid. We have obtained an
undertaking from each indicted individual pursuant to which,
under certain circumstances, such individual has agreed to repay
defense costs advanced on such individuals behalf.
In addition to the Coverage Litigation, on December 22,
2009, TIG Specialty Insurance Company (which we refer to as
TIG), the second level issuer of the EPS Policies commenced an
action against us (which we refer to as the TIG Action) to
recover the $5,000 that TIG advanced to us in 2006. We have not
yet answered the TIG Action but intend to vigorously defend our
rights.
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There can be no assurance that we will ultimately prevail in the
Coverage Litigation or the TIG Action or that the Defendants in
the Coverage Action will be required to provide funding on an
interim basis pending the resolution of the Coverage Litigation.
We intend to continue to satisfy our legal obligations to the
indicted individuals with respect to advancement of amounts for
their defense costs.
Indemnification Obligations to Former Officers and Directors
of EPS. HLTH had certain indemnity obligations to
advance amounts for reasonable defense costs for initially ten,
and now four, former officers and directors of EPS, who were
indicted in connection with the Investigation. In connection
with the sale of EPS, HLTH agreed to indemnify Sage Software
relating to these indemnity obligations and we also assumed that
obligation in the Merger. During 2007, based on information
available at that time, we determined a reasonable estimate of
the range of probable costs with respect to its indemnification
obligation and accordingly, recorded an aggregate pre-tax charge
of $73,347, which represented our estimate of the low end of the
probable range of costs related to this matter. We reserved the
low end of the probable range of costs because no estimate
within the range was a better estimate than any other amount.
That estimate included assumptions as to the duration of the
trial and pre-trial periods, and the defense costs to be
incurred during these periods. During 2008 and 2009 we updated
the estimated range of our indemnification obligation based on
new information received during those periods, and as a result,
recorded additional pre-tax charges of $29,078 and $14,367,
respectively. The probable future costs with respect to this
matter is estimated to be approximately $25,000, as of
December 31, 2009 which includes costs that have been
incurred prior to, but were not yet paid, as of
December 31, 2009. The ultimate outcome of this matter is
still uncertain, and the estimate of future costs includes
assumptions as to the duration of the trial and the defense
costs to be incurred during the remainder of the pre-trial
period and during the trial period. Accordingly, the amount of
cost we may ultimately incur could be substantially more than
the reserve we have currently provided. If the recorded reserves
are insufficient to cover the ultimate cost of this matter, we
will need to record additional charges to our results of
operations in future periods.
Seasonality
The timing of our revenue is affected by seasonal factors. Our
public portal advertising and sponsorship revenue is seasonal,
primarily due to the annual spending patterns of the advertising
and sponsorship clients of our public portals. This portion of
our revenue is usually the lowest in the first quarter of each
calendar year, and increases during each consecutive quarter
throughout the year. The timing of revenue in relation to our
expenses, much of which do not vary directly with revenue, has
an impact on cost of operations, sales and marketing and general
and administrative expenses as a percentage of revenue in each
calendar quarter.
Critical
Accounting Estimates and Policies
Critical
Accounting Estimates
Our MD&A is based upon our consolidated financial
statements and notes to consolidated financial statements, which
were prepared in conformity with U.S. generally accepted
accounting principles. The preparation of the consolidated
financial statements requires us to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. We base our
estimates on historical experience, current business factors,
and various other assumptions that we believe are necessary to
consider to form a basis for making judgments about the carrying
values of assets and liabilities, the recorded amounts of
revenue and expenses and the disclosure of contingent assets and
liabilities. We are subject to uncertainties such as the impact
of future events, economic and political factors, and changes in
our business environment; therefore, actual results could differ
from these estimates. Accordingly, the accounting estimates used
in the preparation of our financial statements will change as
new events occur, as more experience is acquired, as additional
information is obtained and as our operating environment
changes. Changes in estimates are made when circumstances
warrant. Such changes in estimates and refinements in estimation
methodologies are reflected in reported results of operations;
if material, the effects of changes in estimates are disclosed
in the notes to our consolidated financial statements.
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We evaluate our estimates on an ongoing basis, including those
related to revenue recognition, the allowance for doubtful
accounts, the carrying value of prepaid advertising, the
carrying value of long-lived assets (including goodwill and
indefinite lived intangible assets), the amortization period of
long-lived assets (excluding goodwill and indefinite lived
intangible assets), the carrying value, capitalization and
amortization of software and Web site development costs, the
carrying value of investments including investments in auction
rate securities, the provision for income taxes and related
deferred tax accounts, certain accrued expenses, contingencies,
litigation and related legal accruals and the value attributed
to employee stock options and other stock-based awards.
Critical
Accounting Policies
We believe the following reflects our critical accounting
policies and our more significant judgments and estimates used
in the preparation of our Consolidated Financial Statements:
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Revenue Recognition. Revenue from advertising
is recognized as advertisements are delivered or as publications
are distributed. Revenue from sponsorship arrangements, content
syndication and distribution arrangements, information services
and licenses of healthcare management tools and private portals
as well as related health coaching services, are recognized
ratably over the term of the applicable agreement. Revenue from
the sponsorship of CME is recognized over the period we
substantially complete our contractual deliverables as
determined by the applicable agreements. When contractual
arrangements contain multiple elements, revenue is allocated to
each element based on its relative fair value determined using
prices charged when elements are sold separately. In certain
instances where fair value does not exist for all the elements,
the amount of revenue allocated to the delivered elements equals
the total consideration less the fair value of the undelivered
elements. In instances where fair value does not exist for the
undelivered elements, revenue is recognized when the last
element is delivered.
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Long-Lived Assets. Our long-lived assets
consist of property and equipment, goodwill and other intangible
assets. Goodwill and other intangible assets arise from the
acquisitions we have made. The amount assigned to intangible
assets is subjective and based on fair value using exit price
and market participant view, such as discounted cash flow and
replacement cost models. Our long-lived assets, excluding
goodwill and indefinite lived intangible assets, are amortized
over their estimated useful lives, which we determine based on
the consideration of several factors including the period of
time the asset is expected to remain in service. We evaluate the
carrying value and remaining useful lives of long-lived assets,
excluding goodwill and indefinite lived intangible assets,
whenever indicators of impairment are present. We evaluate the
carrying value of goodwill and indefinite lived intangible
assets annually, or whenever indicators of impairment are
present. We use a discounted cash flow approach to determine the
fair value of goodwill and indefinite lived intangible assets.
Long-lived assets held for sale are reported at the lower of
cost or fair value less cost to sell. There was no impairment of
goodwill or indefinite lived intangible assets noted as a result
of our impairment testing in 2009 for any of our continuing
operations.
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Fair Value of Investments in Auction Rate Securities
(ARS). We hold investments in ARS which are
backed by student loans, 97% guaranteed under the Federal Family
Education Loan Program (FFELP), and had credit ratings of AAA or
Aaa when purchased. Historically, the fair value of our ARS
holdings approximated par value due to the frequent auction
periods, generally every 7 to 28 days, which provided
liquidity to these investments. However, since February 2008,
all auctions involving these securities have failed. The result
of a failed auction is that these ARS holdings will continue to
pay interest in accordance with their terms at each respective
auction date; however, liquidity of the securities will be
limited until there is a successful auction, the issuer redeems
the securities, the securities mature or until such time as
other markets for our ARS holdings develop. We cannot be certain
regarding the amount of time it will take for an auction market
or other markets to develop. Additionally, approximately
one-half of the auction rate securities we hold were, during
2009, either downgraded below AAA or placed on watch
status by one or more of the major credit rating agencies.
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We estimate the fair value of our ARS holdings using an income
approach valuation technique. Using this approach, expected
future cash flows are calculated over the expected life of each
security and are discounted to a single present value using a
market required rate of return. Some of the more significant
assumptions made in the present value calculations include
(i) the estimated weighted average lives for the loan
portfolios underlying each individual ARS and (ii) the
required rates of return used to discount the estimated future
cash flows over the estimated life of each security, which
consider both the credit quality for each individual ARS and the
market liquidity for these investments. Additionally, effective
April 1, 2009, we adopted new authoritative guidance which
required us to separate losses associated with our ARS into two
categories, the portion of the loss which is considered credit
loss and the portion of the loss which is due to other factors.
As discussed above, certain of the auction rate securities we
hold were, during 2009, downgraded below AAA by one or more of
the major credit rating agencies. These revised credit ratings
were a significant consideration in determining the estimated
credit loss associated with our ARS.
Our ARS have been classified as Level 3 assets as their
valuation, including the portion of their valuation attributable
to credit losses, requires substantial judgment and estimation
of factors that are not currently observable in the market due
to the lack of trading in the securities. If different
assumptions were used for the various inputs to the valuation
approach including, but not limited to, assumptions involving
the estimated lives of the ARS holdings the estimated cash flows
over those estimated lives, and the estimated discount rates
applied to those cash flows, the estimated fair value of these
investments could be significantly higher or lower than the fair
value we determined. We continue to monitor the market for
auction rate securities as well as the individual ARS holdings
we own. We may be required to record losses in future periods,
either realized or unrealized, if the fair value of our ARS
deteriorates further. See Note 16 located within the Notes
to the Consolidated Financial Statements included elsewhere in
this Annual Report for additional information regarding our ARS.
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Stock-Based Compensation. Effective
January 1, 2006, we adopted authoritative guidance which
requires all share-based payments to employees, including grants
of employee stock options, to be recognized as compensation
expense over the service period (generally the vesting period)
in the consolidated financial statements based on their fair
values. The fair value of each option granted is estimated on
the date of grant using the Black-Scholes option pricing model.
The assumptions used in this model are expected dividend yield,
expected volatility, risk-free interest rate and expected term.
Unvested stock options and restricted stock awards that were
granted prior to January 1, 2006 continued to be accounted
for using the same grant date fair value and same expense
attribution method used under previously issued authoritative
guidance, except that all awards are recognized in the results
of operations over the remaining vesting periods. As of
December 31, 2009, there was approximately
$63.5 million of unrecognized stock-based compensation
expense (net of estimated forfeitures) related to unvested stock
options and restricted stock awards held by employees, which is
expected to be recognized over a weighted-average period of
approximately 3.1 years, related to the Companys
stock-based compensation plans.
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Deferred Taxes. Our deferred tax assets are
comprised primarily of net operating loss carryforwards. These
net operating loss carryforwards may be used to offset taxable
income in future periods, reducing the amount of taxes we might
otherwise be required to pay. A significant portion of our net
deferred tax assets, including the portion related to excess tax
benefits of stock-based awards, are reserved for by a valuation
allowance as required by relevant accounting literature. The
remaining portion of our net deferred tax assets are no longer
reserved for by a valuation allowance. Management determines the
need for a valuation allowance by assessing the probability of
realizing deferred tax assets, taking into consideration factors
including historical operating results, expectations of future
earnings and taxable income. Management will continue to
evaluate the need for a valuation allowance in the future.
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Tax Contingencies. Our tax contingencies are
recorded to address potential exposures involving tax positions
we have taken that could be challenged by tax authorities. These
potential exposures result from applications of various
statutes, rules, regulations and interpretations. Our estimates
of tax contingencies reflect assumptions and judgments about
potential actions by taxing jurisdictions. We
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believe that these assumptions and judgments are reasonable.
However, our accruals may change in the future due to new
developments in each matter and the ultimate resolution of these
matters may be greater or less than the amount that we have
accrued. Consistent with our historical financial reporting, we
have elected to reflect interest and penalties related to
uncertain tax positions as part of the income tax provision.
|
Results
of Operations
The following table sets forth our consolidated statements of
operations data and expresses that data as a percentage of
revenue for the periods presented (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Revenue
|
|
$
|
438,536
|
|
|
|
100.0
|
|
|
$
|
373,462
|
|
|
|
100.0
|
|
|
$
|
319,232
|
|
|
|
100.0
|
|
Cost of operations
|
|
|
165,753
|
|
|
|
37.8
|
|
|
|
135,138
|
|
|
|
36.2
|
|
|
|
114,000
|
|
|
|
35.7
|
|
Sales and marketing
|
|
|
112,101
|
|
|
|
25.6
|
|
|
|
106,080
|
|
|
|
28.4
|
|
|
|
91,035
|
|
|
|
28.5
|
|
General and administrative
|
|
|
89,620
|
|
|
|
20.4
|
|
|
|
88,053
|
|
|
|
23.6
|
|
|
|
102,661
|
|
|
|
32.2
|
|
Depreciation and amortization
|
|
|
28,185
|
|
|
|
6.4
|
|
|
|
28,410
|
|
|
|
7.6
|
|
|
|
27,808
|
|
|
|
8.7
|
|
Interest income
|
|
|
9,149
|
|
|
|
2.1
|
|
|
|
35,300
|
|
|
|
9.5
|
|
|
|
42,035
|
|
|
|
13.2
|
|
Interest expense
|
|
|
23,515
|
|
|
|
5.4
|
|
|
|
26,428
|
|
|
|
7.1
|
|
|
|
25,887
|
|
|
|
8.1
|
|
Severance and other transaction expenses
|
|
|
11,066
|
|
|
|
2.5
|
|
|
|
6,941
|
|
|
|
1.9
|
|
|
|
2,527
|
|
|
|
0.8
|
|
Gain on repurchases of convertible notes
|
|
|
10,120
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of EBS Master LLC
|
|
|
|
|
|
|
|
|
|
|
538,024
|
|
|
|
144.1
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
7,416
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
Impairment of auction rate securities
|
|
|
|
|
|
|
|
|
|
|
60,108
|
|
|
|
16.1
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
|
|
(1,369
|
)
|
|
|
(0.3
|
)
|
|
|
992
|
|
|
|
0.3
|
|
|
|
6,332
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax (benefit)
provision
|
|
|
26,196
|
|
|
|
6.0
|
|
|
|
489,204
|
|
|
|
131.0
|
|
|
|
3,681
|
|
|
|
1.2
|
|
Income tax (benefit) provision
|
|
|
(45,491
|
)
|
|
|
(10.3
|
)
|
|
|
26,638
|
|
|
|
7.2
|
|
|
|
(9,053
|
)
|
|
|
(2.8
|
)
|
Equity in earnings of EBS Master LLC
|
|
|
|
|
|
|
|
|
|
|
4,007
|
|
|
|
1.1
|
|
|
|
28,566
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from continuing operations
|
|
|
71,687
|
|
|
|
16.3
|
|
|
|
466,573
|
|
|
|
124.9
|
|
|
|
41,300
|
|
|
|
12.9
|
|
Consolidated income (loss) from discontinued operations
|
|
|
49,354
|
|
|
|
11.3
|
|
|
|
94,682
|
|
|
|
25.4
|
|
|
|
(18,048
|
)
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income inclusive of noncontrolling interest
|
|
|
121,041
|
|
|
|
27.6
|
|
|
|
561,255
|
|
|
|
150.3
|
|
|
|
23,252
|
|
|
|
7.3
|
|
Income attributable to noncontrolling interest
|
|
|
(3,705
|
)
|
|
|
(0.8
|
)
|
|
|
(1,032
|
)
|
|
|
(0.3
|
)
|
|
|
(10,667
|
)
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
117,336
|
|
|
|
26.8
|
|
|
$
|
560,223
|
|
|
|
150.0
|
|
|
$
|
12,585
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from our public portal advertising and sponsorship is
derived from online advertising, sponsorship (including online
CME services),
e-detailing
promotion and physician recruitment services, content
syndication and distribution, information services and other
print services (including advertisements in WebMD the
Magazine). Revenue from our private portal services is
derived from licensing our private online portals to employers,
healthcare payers and others, along with related services
including lifestyle education and personalized telephonic
coaching. Our customers include pharmaceutical, biotechnology,
medical device and consumer products companies, as well as
employers and health plans.
60
Cost of operations consists of salaries and related expenses,
and non-cash stock-based compensation expense related to
providing and distributing services and products we provide to
customers and costs associated with the operation and
maintenance of our public and private portals. Cost of
operations also consists of editorial and production costs, Web
site operations costs, non-capitalized Web site development
costs, costs we pay to our distribution partners, costs
associated with our lifestyle education and personalized
telephonic coaching services, and costs related to the
production and distribution of our publications, including costs
related to creating and licensing content, telecommunications,
leased properties and printing and distribution.
Sales and marketing expense consists primarily of advertising,
product and brand promotion, as well as selling expenses
including salaries and related expenses, and non-cash
stock-based compensation for account executives and account
management. These expenses include items related to salaries and
related expenses of marketing personnel, costs and expenses for
marketing programs, and fees for professional marketing and
advertising services. Also included in sales and marketing
expense are the non-cash advertising expenses discussed below.
General and administrative expense consists primarily of
salaries, non-cash stock-based compensation and other
salary-related expenses of administrative, finance, legal,
information technology, human resources and executive personnel.
Also included in general and administrative expense are general
insurance and costs of accounting and internal control systems
to support our operations.
Our discussions throughout MD&A make references to certain
non-cash expenses. The following is a summary of our principal
non-cash expenses:
|
|
|
|
|
Non-cash advertising expense. Expense related
to the use of our prepaid advertising inventory that we received
from News Corporation in exchange for equity instruments that we
issued in connection with an agreement we entered into with News
Corporation in 1999 and subsequently amended in 2000. This
non-cash advertising expense is included in sales and marketing
expense as we use the asset for promotion of our brand.
|
|
|
|
Non-cash stock-based compensation
expense. Expense related to the awards of all
share-based payments to employees and non-employee directors,
such as grants of employee stock options and restricted stock.
Non-cash stock-based compensation expense is reflected in the
same expense captions as the related salary cost of the
respective employee.
|
The following table is a summary of our non-cash expenses
included in the respective statements of operations captions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Advertising expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
1,753
|
|
|
$
|
5,097
|
|
|
$
|
5,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
6,723
|
|
|
$
|
3,818
|
|
|
$
|
5,027
|
|
Sales and marketing
|
|
|
8,069
|
|
|
|
3,591
|
|
|
|
4,868
|
|
General and administrative
|
|
|
24,620
|
|
|
|
17,223
|
|
|
|
22,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
39,412
|
|
|
$
|
24,632
|
|
|
$
|
32,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
and 2008
The following discussion is a comparison of our results of
operations for the year ended December 31, 2009, to the
year ended December 31, 2008.
Revenue. Our total revenue increased 17.4% to
$438,536 in 2009 from $373,462 in 2008. The increase was
primarily due to higher advertising and sponsorship revenue from
our public portals. A more detailed
61
discussion regarding changes in revenue is included below under
Supplemental Financial and Operating
Information.
Cost of Operations. Cost of operations was
$165,753 in 2009, compared to $135,138 in 2008. Our cost of
operations represented 37.8% of revenue in 2009, compared to
36.2% of revenue in 2008. Included in cost of operations were
non-cash expenses related to stock-based compensation of $6,723
in 2009, compared to $3,818 in 2008. The increase in non-cash
stock-based compensation expense for 2009, compared to 2008,
resulted primarily from a broad-based equity grant made to
employees during the end of 2008. As a result of the timing of
this grant, the related non-cash stock based compensation
expense was only partially included in 2008, but included during
the full year of 2009.
Cost of operations, excluding the non-cash stock-based
compensation expense discussed above, was $159,030, or 36.3% of
revenue in 2009, compared to $131,320, or 35.2% of revenue in
2008. The increase in absolute dollars, as well as the increase
as a percentage of revenue in 2009 compared to 2008, was
primarily attributable to an increase of approximately $11,200
in development and distribution expense, and an increase of
approximately $15,300 of website operations expense associated
with the delivery of our advertising and sponsorship
arrangements and increased traffic to our Web sites.
Sales and Marketing. Sales and marketing
expense was $112,101 in 2009, compared to $106,080 in 2008. Our
sales and marketing expense represented 25.6% of revenue in
2009, compared to 28.4% in 2008. Included in sales and marketing
expense were non-cash expenses related to advertising of $1,753
in 2009, compared to $5,097 in 2008. Non-cash advertising
expense was lower in 2009 when compared to 2008 as we fully
utilized the balance or our prepaid advertising inventory during
2009. Also included in sales and marketing expense were non-cash
expenses related to stock-based compensation of $8,069 in 2009,
compared to $3,591 in 2008. The increase in non-cash stock-based
compensation expense for 2009, compared to 2008, resulted
primarily from a broad-based equity grant made to employees
during the end of 2008. As a result of the timing of this grant,
the related non-cash stock based compensation expense was only
partially included in 2008, but included during the full year of
2009.
Sales and marketing expense, excluding the non-cash expenses
discussed above, was $102,279 or 23.3% of revenue, in 2009,
compared to $97,392, or 26.1% of revenue in 2008. The increase
in absolute dollars in 2009 compared to 2008 was primarily
attributable to an increase in compensation and other
personnel-related costs due to increased staffing and sales
commissions related to higher revenue. The decrease as a
percentage of revenue, excluding the non-cash expenses discussed
above, for 2009 compared to 2008, was primarily due to our
ability to achieve the increase in revenue without incurring a
proportional increase in sales and marketing expense.
General and Administrative. General and
administrative expense was $89,620 in 2009, compared to $88,053
in 2008. Our general and administrative expenses represented
20.4% of revenue in 2009, compared to 23.6% of revenue in 2008.
Included in general and administrative expense was non-cash
stock-based compensation expense of $24,620 in 2009, compared to
$17,223 in 2008. The increase in non-cash stock-based
compensation expense for 2009, compared to 2008, resulted
primarily from a broad-based equity grant made to employees
during the end of 2008. As a result of the timing of this grant,
the related non-cash stock based compensation expense was only
partially included in 2008, but included during the full year of
2009.
General and administrative expense, excluding the non-cash
stock-based compensation expense discussed above, was $65,000,
or 14.8% of revenue in 2009, compared to $70,830, or 19.0% of
revenue in 2008. The decrease of $5,830 was attributable to
approximately $8,000 of corporate expense reduction initiatives
throughout the year in anticipation of the Merger which was
completed in October 2009, offset by an increase of
approximately $2,200 in personnel and related expenses at WebMD.
Our general and administrative expenses as a percentage of
revenue declined during 2009 as compared to 2008, reflecting the
$8,000 corporate expense reductions as well as our ability to
achieve the increase in revenue without incurring a proportional
increase in general and administrative expenses.
Depreciation and Amortization. Depreciation
and amortization expense was $28,185, or 6.4% of revenue in
2009, compared to $28,410, or 7.6% of revenue in 2008.
Depreciation expense increased by
62
approximately $2,900 during 2009 compared to 2008, resulting
from capital expenditures made in 2009 and 2008, which was
offset by a decrease in amortization expense of approximately
$3,100 resulting from certain intangible assets becoming fully
amortized.
Interest Income. Interest income was $9,149 in
2009, compared to $35,300 in 2008. This decrease in 2009
primarily resulted from a decrease in the average rates of
return, as well as lower average investment balances for the
period, compared to the prior year period.
Interest Expense. Interest expense was $23,515
in 2009, compared to $26,428 in 2008. Interest expense in 2009
and 2008 included $10,205 and $10,926, respectively, related to
the amortization of the debt discount for our
31/8% Convertible
Notes due 2025 (which we refer to as
31/8% Notes)
and the amortization of the debt issuances costs for both our
1.75% Convertible Subordinated Notes due 2023 (which we
refer to as 1.75% Notes) and our
31/8% Notes.
During 2009 we repurchased $85,417 principal amount of our
1.75% Notes and $49,700 principal amount of our
31/8% Notes
which resulted in the decrease in interest expense during 2009
when compared to 2008.
Gain on Repurchases of Convertible
Notes. During 2009, we repurchased $85,417
principal amount of our 1.75% Convertible Notes for
$80,123, and $49,700 principal amount of our
31/8% Convertible
Notes for $43,734. We recognized a net gain on the repurchase of
these notes of $10,120 during 2009. There was no comparable
repurchase activity in 2008.
Severance and Other Transaction Expenses. We
incurred severance and other transaction expenses of $11,066
during 2009 and $6,941 during 2008 related to the merger between
HLTH and WebMD. During 2009, these expenses include severance
and related expenses for certain HLTH senior executives that had
severance and other benefits through pre-existing employment
agreements which were triggered by the Merger. During 2008,
these expenses related to professional fees, primarily
consisting of legal, accounting and financial advisory services
that we incurred related to a proposed merger between WebMD and
HLTH that was never completed under the then proposed structure.
Gain on Sale of EBS Master LLC. The gain on
sale of EBS Master LLC of $538,024 in 2008 represented a pre-tax
gain recognized in connection with the 2008 EBSCo Sale on
February 8, 2008. For additional information see
Introduction Background
Information on Certain Transactions and Other Significant
Developments 2008 EBSCo Sale above.
Impairment of Auction Rate
Securities. Impairment of auction rate securities
represents a charge of $60,108 related to an
other-than-temporary
impairment of the fair value of our ARS investments in 2008. For
additional information, see Critical Accounting Estimates
and Policies Fair Value of Investments in Auction
Rate Securities above.
Restructuring. During 2008, as a result of our
completion of the integration of previously acquired businesses
and efficiencies that we realized from our infrastructure
investments, combined with the continued reduction in shared
services of HLTH following the divestiture of EPS, EBS and ViPS,
we took an opportunity to better align the skill sets of our
employees with the needs of our business. As a result, we
recorded a restructuring charge of $7,416 during 2008. This
amount includes (i) $3,575 related to the purchase of
insurance for extended coverage during periods when we owned the
divested businesses, (ii) $3,391 for severance expenses
related to the reduction of our work force and (iii) $450
of costs to consolidate facilities and other exit costs.
Other (Expense) Income, Net. Other expense was
$1,369 in 2009, compared to other income of $992 in 2008. Other
(expense) income, net includes (i) $2,331 and $1,092 in
2009 and 2008 of external legal costs and expenses we incurred
related to the investigation by the United States Attorney for
the District of South Carolina and the SEC, including legal
costs we incurred related to the ongoing litigation with the
insurance carriers regarding the coverage of certain expenses
related to this investigation, (ii) $915 and $1,749 in 2009
and 2008 related to the reversal of indemnification accruals for
certain tax contingencies associated with our former EBS
subsidiary resulting from the expiration of various statutes and
(iii) transition services income of $47 and $335 in 2009
and 2008 which represents amounts earned from the service fees
charged to EBSCo and ViPS, for services rendered under their
respective transition services agreements.
63
Income Tax (Benefit) Provision. We had an
income tax benefit of $45,491 in 2009, compared to an income tax
provision of $26,638 in 2008. The income tax benefit of $45,491
in 2009 includes a benefit of $58,578 related to the reversal of
valuation allowance against our net deferred tax assets,
including our net operating loss carryforwards, and certain
state net operating loss benefits as a result of revised
apportionment factors due to the Merger. The income tax
provision of $26,638 in 2008 includes a provision of $20,504
related to the gain on the 2008 EBSCo Sale, which primarily
relates to certain alternative minimum taxes and other state
taxes that were not offset by net operating loss carryforwards.
Also, the income tax provision in 2008 excludes a benefit for
the impairment of ARS, as it is currently not deductible for tax
purposes, and therefore, a valuation allowance is maintained on
this deferred tax asset.
Consolidated Income from Discontinued Operations, Net of
Tax. Consolidated income from discontinued
operations, net of tax, was $49,354 in 2009, compared to $94,682
in 2008. Included in discontinued operations is a pre-tax gain
of $25,790 from the sale of Porex in 2009 and a pre-tax gain of
$96,969 from the sale of ViPS in 2008. In addition, consolidated
income from discontinued operations includes the aggregate
pre-tax operating results of Porex and LBB of $5,575 in 2009 and
the aggregate pre-tax operating results of ViPS, Porex and LBB
of $29,369 in 2008. Also included in consolidated income from
discontinued operations are pre-tax charges of approximately
$14,367 and $29,078 in 2009 and 2008, respectively, related to
our indemnity obligations to advance amounts for reasonable
defense costs for the former officers and directors of EPS, who
were indicted in connection with the investigation by the United
States Attorney for the District of South Carolina and the SEC.
In 2009, we also recorded income of $53,150 related to
settlements with certain insurance carriers related to their
coverage of the defense costs being incurred by the former
officers and directors of EPS. The income tax provision included
within discontinued operations was $21,224 and $3,134 during
2009 and 2008.
Income Attributable to Noncontrolling
Interest. Income attributable to noncontrolling
interest was $3,705 in 2009 and $1,032 in 2008 and represents
the interest of the former WebMD minority shareholders during
periods prior to October 23, 2009, the closing date of the
Merger. Historically, income attributable to noncontrolling
interest fluctuated based on the net income or loss reported by
WebMD, combined with changes in the percentage ownership of
WebMD held by the noncontrolling interest shareholders.
2008
and 2007
The following discussion is a comparison of our results of
operations for the year ended December 31, 2008 to the year
ended December 31, 2007.
Revenue. Our total revenue increased 17.0% to
$373,462 in 2008 from $319,232 in 2007. The increase was
primarily due to higher advertising and sponsorship revenue from
our public portals. A more detailed discussion regarding changes
in revenue is included below under
Supplemental Financial and Operating
Information.
Cost of Operations. Cost of operations was
$135,138 in 2008, compared to $114,000 in 2007. Our cost of
operations represented 36.2% of revenue in 2008, compared to
35.7% of revenue in 2007. Included in cost of operations were
non-cash expenses related to stock-based compensation of $3,818
in 2008, compared to $5,027 in 2007. The decrease in non-cash
stock-based compensation expense for 2008, compared to 2007,
resulted primarily from the graded vesting methodology used in
determining stock-based compensation expense relating to the
stock options and restricted stock awards granted to our
employees, which includes the options and restricted stock
granted at the time of our initial public offering.
Cost of operations, excluding the non-cash stock-based
compensation expense discussed above, was $131,320, or 35.2% of
revenue in 2008, compared to $108,973, or 34.1% of revenue in
2007. The increase in absolute dollars as well as the increase
as a percentage of revenue in 2008 as compared to 2007 was
primarily attributable to an increase of approximately $13,000
in compensation-related costs due to higher staffing levels
relating to our Web site operations and development, as well as
higher staffing levels associated with our personalized
telephonic coaching services. Additionally, the increase was
also related to approximately $6,500 of higher costs associated
with creating and licensing content for our sponsorship
arrangements and Web sites.
64
Sales and Marketing. Sales and marketing
expense was $106,080 in 2008, compared to $91,035 in 2007. Our
sales and marketing expense represented 28.4% of revenue in
2008, compared to 28.5% in 2007. Included in sales and marketing
expense were non-cash expenses related to advertising of $5,097
in 2008, compared to $5,264 in 2007. Also included in sales and
marketing expense were non-cash expenses related to stock-based
compensation of $3,591 in 2008, compared to $4,868 in 2007. The
decrease in non-cash stock-based compensation expense for 2008,
compared to 2007, resulted primarily from the graded vesting
methodology used in determining stock-based compensation expense
relating to stock options and restricted stock awards granted to
our employees, which includes the options and restricted stock
granted at the time of our initial public offering.
Sales and marketing expense, excluding the non-cash expenses
discussed above, was $97,392, or 26.1% of revenue in 2008,
compared to $80,903, or 25.3% of revenue in 2007. The increase
in absolute dollars, as well as the increase as a percentage of
revenue in 2008 compared to 2007, were primarily attributable to
an increase of approximately $13,500 in compensation and other
personnel-related costs due to increased staffing and sales
commissions related to higher revenue.
General and Administrative. General and
administrative expense was $88,053 in 2008, compared to $102,661
in 2007. Our general and administrative expenses represented
23.6% in 2008, compared to 32.2% in 2007. Included in general
and administrative expense was non-cash stock-based compensation
expense of $17,223 in 2008, compared to $22,441 in 2007.
Non-cash stock-based compensation expense was lower in 2008,
compared to 2007, resulting primarily from the graded vesting
methodology used in determining stock-based compensation expense
relating to stock options and restricted stock awards granted to
our employees, which includes the options and restricted stock
granted at the time of our initial public offering.
General and administrative expense, excluding the non-cash
stock-based compensation expense discussed above, was $70,830,
or 19.0% of revenue in 2008, compared to $80,220, or 25.1% of
revenue in 2007. Approximately $10,000 of the decrease in
absolute dollars was attributable to lower corporate expenses in
2008, compared to 2007. These lower corporate expenses were
achievable due to the reduction in our corporate infrastructure
following the sales of EPS and EBS during the latter part of
2006 and the related wind down of our remaining responsibilities
under the transition services agreements with those entities.
Depreciation and Amortization. Depreciation
and amortization expense was $28,410, or 7.6% of revenue in
2008, compared to $27,808, or 8.7% of revenue in 2007. The
increase in 2008, as compared to 2007, was primarily due to
approximately $3,900 in depreciation expense resulting from
capital expenditures made in 2008 and 2007, which was partially
offset by a decrease in amortization expense of approximately
$3,300 resulting from certain intangible assets becoming fully
amortized.
Interest Income. Interest income was $35,300
in 2008, compared to $42,035 in 2007. This decrease in 2008
primarily resulted from a decrease in the average rates of
return for the period, partially offset by higher average
investment balances.
Interest Expense. Interest expense of $26,428
in 2008 was relatively consistent with interest expense of
$25,887 in 2007. Interest expense in 2008 and 2007 included
$10,926 and $10,210, respectively, related to the amortization
of the debt discount for our
31/8% Notes
and the amortization of the debt issuances costs for both our
1.75% Notes and our
31/8% Notes.
Gain on Sale of EBS Master LLC. The gain on
sale of EBS Master LLC of $538,024 represented a pre-tax gain
recognized in connection with the 2008 EBSCo Sale on
February 8, 2008. For additional information see
Introduction Background
Information on Certain Transactions and Other Significant
Developments 2008 EBSCo Sale above. There was
no comparable amount in 2007.
Impairment of Auction Rate
Securities. Impairment of auction rate securities
represents a charge of $60,108 related to an
other-than-temporary
impairment of the fair value of our ARS investments in 2008. For
additional information, see Critical Accounting Estimates
and Policies Fair Value of Investments in Auction
Rate Securities above. There was no comparable amount in
2007.
65
Restructuring. As a result of our completion
of the integration of previously acquired businesses and
efficiencies that we continue to realize from our infrastructure
investments combined with the continued reduction in corporate
shared services following the divestiture of EPS, EBS and ViPS,
we took this opportunity to better align the skill sets of our
employees with the needs of our business. We recorded a
restructuring charge during 2008 of $7,416. This amount includes
(i) $3,575 related to the purchase of insurance for
extended coverage during periods when we owned the divested
businesses, (ii) $3,391 for severance expenses related to
the reduction of our work force and (iii) $450 of costs to
consolidate facilities and other exit costs. There was no
comparable amount in 2007.
Other (Expense) Income, Net. Other income, net
was $992 in 2008, compared to $6,332 in 2007. Other income, net
includes (i) $1,092 and $1,397 in 2008 and 2007 of external
legal costs and expenses we incurred related to the
investigation by the United States Attorney for the District of
South Carolina and the SEC, (ii) $1,749 and $1,497 in 2008
and 2007 related to the reversal of certain sales and use tax
contingencies resulting from the expiration of various statutes
and (iii) transition services income of $335 and $5,833 in
2008 and 2007 which represents amounts earned from the service
fee charged to EBSCo, Sage Software and ViPS, net of services
EBSCo provides to us, for services rendered under each of their
respective transition services agreements. We provided a
significantly higher level of transition services in 2007,
compared to 2008, as reflected by the lower fees charged in 2008.
Income Tax Provision (Benefit). We had an
income tax provision of $26,638 in 2008, compared to an income
tax benefit of $9,053 in 2007. The income tax provision of
$26,638 in 2008 includes a provision of $20,504 related to the
gain on the 2008 EBSCo Sale, which primarily relates to certain
alternative minimum taxes and other state taxes that were not
offset by net operating loss carryforwards. Also, the income tax
provision in 2008 excludes a benefit for the impairment of ARS,
as it is currently not deductible for tax purposes, and
therefore, a valuation allowance is maintained on this deferred
tax asset. The income tax benefit of $9,053 in 2007 includes a
benefit of $16,327 related to the reversal of valuation
allowance against our net deferred tax assets, including our net
operating loss carryforwards.
Consolidated Income (Loss) from Discontinued Operations, Net
of Tax. Consolidated income from discontinued
operations, net of tax, was $94,682 in 2008, compared to a loss
of $18,048 in 2007. Included in consolidated income (loss) from
discontinued operations, net of tax, is a pre-tax gain of
$96,969 from the ViPS Sale. In addition, consolidated income
(loss) from discontinued operations includes the aggregate
pre-tax operating results of our ViPS segment, Porex segment and
LBB of $29,369 in 2008 and the aggregate pre-tax operating
results of our ViPS segment, Porex segment, LBB and ACS/ACP
Business of $31,724 in 2007. Also included in consolidated
income (loss) from discontinued operations are pre-tax charges
of approximately $29,078 and $73,347 in 2008 and 2007,
respectively, related to our indemnity obligations to advance
amounts for reasonable defense costs for initially ten, and now
four, former officers and directors of EPS, who were indicted in
connection with the investigation by the United States Attorney
for the District of South Carolina and the SEC, which was
partially offset in 2007 by $14,625 related to a settlement with
two of our insurance companies related to the reimbursement of
these defense costs. The income tax provision (benefit) included
within discontinued operations was $3,134 and $(4,894) during
2008 and 2007.
Income Attributable to Noncontrolling
Interest. Income attributable to noncontrolling
interest was $1,032 in 2008, compared to $10,667 in 2007 and
represents the interest of the former WebMD minority
shareholders. Historically, income attributable to
noncontrolling interest fluctuated based on the net income or
loss reported by WebMD, combined with changes in the percentage
ownership of WebMD held by the noncontrolling interest
shareholders.
66
Supplemental
Financial and Operating Information
The following table and the discussion that follows presents
information for groups of revenue based on similar services we
provide, as well as information related to a non-GAAP
performance measure that we use to monitor the performance of
our business which we refer to as Earnings before
interest, taxes, non-cash and other items or
Adjusted EBITDA. Due to the fact that Adjusted
EBITDA is a non-GAAP measure, we have also included a
reconciliation from Adjusted EBITDA to net income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Public portal advertising and sponsorship
|
|
$
|
347,570
|
|
|
$
|
284,416
|
|
|
$
|
238,022
|
|
Private portal services
|
|
|
90,966
|
|
|
|
89,046
|
|
|
|
81,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
438,536
|
|
|
$
|
373,462
|
|
|
$
|
319,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes, non-cash and other items
(Adjusted EBITDA)
|
|
$
|
112,274
|
|
|
$
|
74,255
|
|
|
$
|
54,969
|
|
Interest, taxes, non-cash and other items
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9,149
|
|
|
|
35,300
|
|
|
|
42,035
|
|
Interest expense
|
|
|
(23,515
|
)
|
|
|
(26,428
|
)
|
|
|
(25,887
|
)
|
Income tax benefit (provision)
|
|
|
45,491
|
|
|
|
(26,638
|
)
|
|
|
9,053
|
|
Depreciation and amortization
|
|
|
(28,185
|
)
|
|
|
(28,410
|
)
|
|
|
(27,808
|
)
|
Non-cash stock-based compensation
|
|
|
(39,412
|
)
|
|
|
(24,632
|
)
|
|
|
(32,336
|
)
|
Non-cash advertising
|
|
|
(1,753
|
)
|
|
|
(5,097
|
)
|
|
|
(5,264
|
)
|
Severance and other transaction expenses
|
|
|
(11,066
|
)
|
|
|
(6,941
|
)
|
|
|
(2,527
|
)
|
Equity in earnings of EBS Master LLC
|
|
|
|
|
|
|
4,007
|
|
|
|
28,566
|
|
Gain on repurchases of convertible notes
|
|
|
10,120
|
|
|
|
|
|
|
|
|
|
Gain on sale of EBS Master LLC
|
|
|
|
|
|
|
538,024
|
|
|
|
|
|
Impairment of auction rate securities
|
|
|
|
|
|
|
(60,108
|
)
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
(7,416
|
)
|
|
|
|
|
Other (expense) income, net
|
|
|
(1,416
|
)
|
|
|
657
|
|
|
|
499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from continuing operations
|
|
|
71,687
|
|
|
|
466,573
|
|
|
|
41,300
|
|
Consolidated income (loss) from discontinued operations, net of
tax
|
|
|
49,354
|
|
|
|
94,682
|
|
|
|
(18,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income inclusive of noncontrolling interest
|
|
|
121,041
|
|
|
|
561,255
|
|
|
|
23,252
|
|
(Income) attributable to noncontrolling interest
|
|
|
(3,705
|
)
|
|
|
(1,032
|
)
|
|
|
(10,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
117,336
|
|
|
$
|
560,223
|
|
|
$
|
12,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
and 2008
The following discussion is a comparison of the results of
operations for our two groups of revenue and our Adjusted EBITDA
for the year ended December 31, 2009 to the year ended
December 31, 2008.
Public Portal Advertising and
Sponsorship. Public portal advertising and
sponsorship revenue was $347,570 in 2009, an increase of $63,154
or 22.2% from 2008. The increase in public portal advertising
and sponsorship revenue was primarily attributable to an
increase in the number and average size of unique sponsored
programs on our sites, including both brand sponsorship and
educational programs. The number of such programs grew to
approximately 1,600 in 2009, compared to approximately 1,400 in
2008. In general, pricing remained relatively stable for our
advertising and sponsorship programs and was not a significant
source of the revenue increase. Public portal advertising and
sponsorship revenue includes revenue previously referred to as
advertising and sponsorship revenue and
content syndication and other revenue, as well as
other print service revenue (which consists primarily of revenue
from advertising in WebMD the Magazine).
Private Portal Services. Private portal
services revenue was $90,966 in 2009, an increase of $1,920 or
2.2%. The number of companies using our private portal platform
was 138 in 2009 compared to 134 in 2008. In general, pricing
remained relatively stable for our private portal services and
was not a significant source of
67
the revenue increase. We also have approximately 140 additional
customers who purchase stand-alone decision support services
from us. Private portal services revenue includes revenue
previously referred to as licensing revenue.
Adjusted EBITDA. Adjusted EBITDA increased to
$112,274 or 25.6% of revenue in 2009 from $74,255 or 19.9% of
revenue in 2008. This increase as a percentage of revenue was
primarily due to higher revenue, specifically related to the
increase in the number of brands and sponsored programs in our
public portals, without incurring a proportionate increase in
overall expenses. Additionally, corporate expense reductions of
approximately $8,000 during 2009 in anticipation of the Merger
contributed to the increase in Adjusted EBITDA in 2009 when
compared to 2008.
2008
and 2007
The following discussion is a comparison of the results of
operations for our two groups of revenue and our Adjusted EBITDA
for the year ended December 31, 2008 to the year ended
December 31, 2007.
Public Portal Advertising and
Sponsorship. Public portal advertising and
sponsorship revenue was $284,416 in 2008, an increase of $46,394
or 19.5% from 2007. The increase in public portals revenue was
primarily attributable to an increase in the number of unique
sponsored programs on our sites including both brand sponsorship
and educational programs. The number of such programs grew to
approximately 1,400 in 2008 compared to approximately 1,000 in
2007. In general, pricing remained relatively stable for our
advertising and sponsorship programs and was not a significant
source of the revenue increase. Public portals revenue includes
revenue previously referred to as advertising and
sponsorship revenue and content syndication and
other revenue, as well as other print service revenue
(which consists primarily of revenue from advertising in WebMD
the Magazine).
Private Portal Services. Private portal
services revenue was $89,046 in 2008, an increase of $7,836 or
9.6% compared to 2007. This increase was due to an increase in
the number of companies using our private portal platform to 134
in 2008 from 117 in the prior year. In general, pricing remained
relatively stable for our private portal licenses and was not a
significant source of the revenue increase. We also have
approximately 140 additional customers who purchase stand-alone
decision-support services from us. Private portals revenue
includes revenue previously referred to as licensing
revenue.
Adjusted EBITDA. Adjusted EBITDA was $74,255,
or 19.9% of revenue in 2008, compared to $54,969, or 17.2% of
revenue in 2007. This increase as a percentage of revenue was
due to higher revenue from the increase in the number of brands
and sponsored programs in our public portals as well as the
increase in companies using our private online portal without
incurring a proportionate increase in overall expenses.
Explanatory Note Regarding Adjusted
EBITDA. Adjusted EBITDA is a non-GAAP financial
measure and should be viewed as supplemental to, and not as an
alternative for, income (loss) from continuing
operations or net income (loss) calculated in
accordance with GAAP. Our management uses Adjusted EBITDA as an
additional measure of performance for purposes of business
decision-making, including developing budgets, managing
expenditures, and evaluating potential acquisitions or
divestitures.
Period-to-period
comparisons of Adjusted EBITDA help our management identify
additional trends in financial results that may not be shown
solely by
period-to-period
comparisons of income (loss) from continuing operations or net
income (loss). In addition, we use Adjusted EBITDA in the
incentive compensation programs applicable to many of our
employees in order to evaluate our performance. We believe that
the presentation of Adjusted EBITDA is useful to investors in
their analysis of our results for reasons similar to the reasons
why our management finds it useful and because it helps
facilitate investor understanding of decisions made by our
management in light of the performance metrics used in making
those decisions. In addition, we believe that providing Adjusted
EBITDA, together with a reconciliation of Adjusted EBITDA to
income (loss) from continuing operations or to net income
(loss), helps investors make comparisons between us and other
companies that may have different capital structures, different
effective income tax rates and tax attributes, different
capitalized asset values
and/or
different forms of employee compensation. Please see the
Explanation of Non-GAAP Financial Information
filed as Exhibit 99.1 to this Annual Report for additional
68
background information regarding our use of Adjusted EBITDA.
Exhibit 99.1 is incorporated in this MD&A by this
reference.
Liquidity
and Capital Resources
Cash
Flows
As of December 31, 2009, we had $459,766 of cash and cash
equivalents and held investments with an aggregate fair value of
$348,378. Our more significant investments include (i) a
note receivable from Porex with a face value of $67,500 and a
fair value of approximately $64,000 and (ii) investments in
ARS with a face value of $352,700 and a fair value of
approximately $280,000. While liquidity for our ARS investments
is currently limited, we entered into non-recourse credit
facilities with Citigroup that will allow us to borrow up to 75%
of the face amount of our ARS holdings through May 2010. Our
working capital as of December 31, 2009 was $125,342. Our
working capital is affected by the timing of each period end in
relation to items such as payments received from customers,
payments made to vendors, and internal payroll and billing
cycles, as well as the seasonality within our business.
Accordingly, our working capital, and its impact on cash flow
from operations, can fluctuate materially from period to period.
Cash provided by operating activities from our continuing
operations in 2009 was $107,423, which related to consolidated
net income of $121,041, adjusted for income from discontinued
operations $49,354, for the non-operating gains on repurchases
of convertible notes of $10,120 and for non-cash expenses of
$37,412, which include depreciation and amortization expense,
non-cash interest expense, non-cash advertising expense,
non-cash stock-based compensation expense and deferred income
taxes. Additionally, changes in operating assets and liabilities
provided cash flow of $8,444, primarily due to increases in
deferred revenue of $18,861, an increase in accrued expenses and
other long-term liabilities of $7,677 and a decrease in prepaid
expenses of $6,979, offset by an increase in accounts receivable
of $25,073.
Cash provided by operating activities from our continuing
operations in 2008 was $62,490 which related to consolidated net
income of $561,255, adjusted for income from discontinued
operations of $94,682 and equity in earnings of EBS Master LLC
of $4,007, for non-operating items including the $538,024 gain
on the sale of EBS Master LLC and the $60,108 impairment of
auction rate securities, and for non-cash expenses of $75,472,
which include depreciation and amortization expense, non-cash
interest expense, non-cash advertising expense, non-cash
stock-based compensation expense and deferred income taxes.
Additionally, changes in operating assets and liabilities
provided cash flow of $2,368.
Cash provided by investing activities from our continuing
operations was $56,732 in 2009, compared to cash provided by
investing activities from our continuing operations of $718,334
in 2008. Cash provided by investing activities from our
continuing operations in 2009 included $72,318 of proceeds from
the sale of discontinued operations of Porex and to a lesser
extent LBB. The more significant items contributing to the cash
provided by investing activities from our continuing operations
in 2008 included $574,617 of net proceeds received from the 2008
EBSCo Sale, $223,175 of net proceeds received from the ViPS Sale
and $23,333 we received, which was released from escrow, from
the sale of our EPS segment, which was sold in the latter part
of 2006. In 2009 we received $2,300 related to the sales of
available for sale securities compared to net purchases of
available for sale securities in 2008 of $58,811. We used
$17,886 in connection with purchases of property and equipment
in 2009 compared to $24,265 of purchases of property and
equipment in 2008.
Cash used in financing activities from our continuing operations
was $331,547 in 2009, compared to cash used in financing
activities from our continuing operations of $715,593 in 2008.
Cash used in financing activities in 2009 principally related to
the repurchases of our 1.75% Notes and our
31/8% Notes
in the aggregate of $123,857, and the repurchase of a total of
6.3 million shares of our common stock through our tender
offer for $235,220, less $6,818 related to tendered shares that
were not yet delivered as of December 31, 2009. These uses
of cash were offset by net proceeds of $25,253 from the issuance
of common stock in connection with employee stock option
exercises, net of cash used for withholding taxes due on these
stock option exercises and from vesting of restricted stock.
Cash used in financing activities in 2008 principally related to
$737,324 used to purchase common stock in connection with a
tender offer in 2008, offset by the net proceeds of $21,683 from
the issuance of common stock in connection with employee stock
69
option exercises, net of cash used for withholding taxes due on
these stock option exercises and from vesting of restricted
stock.
Included in our consolidated statements of cash flows are cash
flows from discontinued operations of Porex and LBB, as well as
cash flows from our ViPS and ACS/ACP businesses in 2008, through
the date when each of these discontinued operations were
divested. Also included in cash flows from discontinued
operations provided by operating activities in 2009 and 2008 is
the receipt of $26,795 and $44,937 during 2009 and 2008 of
reimbursements from our Director & Officer insurance
carriers, offset by $36,479 and $37,091 in payments made in 2009
and 2008, respectively, in connection with the defense costs of
the former officers and directors of our former EPS subsidiary
in connection with the investigation by the United States
Attorney for the District of South Carolina and the SEC. For
additional information, see Introduction
Background Information on Certain Transactions and other
Significant Developments Directors &
Officers Liability Insurance Coverage Litigation and
Indemnification Obligations to Former Officers and Directors of
EPS.
Contractual
Obligations and Commitments
The following table summarizes our principal commitments as of
December 31, 2009 for future specified contractual
obligations, as well as the estimated timing of the cash
payments associated with these obligations. This table also
provides the timing of cash payments related to our long-term
debt and other obligations included in our consolidated balance
sheets. Managements estimates of the timing of future cash
flows are largely based on historical experience, and
accordingly, actual timing of cash flows may vary from these
estimates.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Convertible notes(a)
|
|
$
|
537,863
|
|
|
$
|
274,527
|
|
|
$
|
263,336
|
|
|
$
|
|
|
|
$
|
|
|
Leases(b)
|
|
|
35,905
|
|
|
|
7,928
|
|
|
|
11,972
|
|
|
|
9,181
|
|
|
|
6,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
573,768
|
|
|
$
|
282,455
|
|
|
$
|
275,308
|
|
|
$
|
9,181
|
|
|
$
|
6,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Convertible notes includes our
31/8% Notes,
and our 1.75% Notes, which are first redeemable at the
option of the holders in 2012 and 2010, respectively. Amounts
include our contractual interest payments through the earliest
date at which these notes are redeemable by the holder.
|
|
(b)
|
|
The lease amounts are net of
sublease income.
|
The above table excludes $14,199 of uncertain tax positions,
including interest and penalties, as we are unable to reasonably
estimate the timing of the settlement of these items. See
Note 15, Income Taxes located in the Notes to
Consolidated Financial Statements elsewhere in this Annual
Report.
Outlook
on Future Liquidity
As of December 31, 2009, we had $459,766 of cash and cash
equivalents and held investments with an aggregate fair value of
$348,378. Based on our plans and expectations, and taking into
consideration issues relating to the liquidity of our ARS
investments, as well as the redemption provision that becomes
available to the holders of our $265 million of 1.75%
convertible notes in June 2010, we believe that our available
cash resources and future cash flow from operations will provide
sufficient cash resources to meet the cash commitments of our
1.75% Notes, our
31/8% Notes
and to fund our currently anticipated working capital and
capital expenditure requirements, for at least the next
twenty-four months. Our future liquidity and capital
requirements will depend upon numerous factors, including
retention of customers at current volume and revenue levels,
implementation of new or updated application and service
offerings, competing technological and market developments,
potential future acquisitions and whether holders of our
1.75% Notes and our
31/8% Notes
elect their rights to convert their holdings to equity or elect
their rights for redemption. In addition, our ability to
generate cash flow is subject to numerous factors beyond our
control, including general economic, regulatory and other
matters affecting us and our customers. We plan to continue to
enhance our online services and to continue to invest in
acquisitions, strategic relationships, facilities and
technological
70
infrastructure and product development. We intend to grow each
of our existing businesses and enter into complementary ones
through both internal investments and acquisitions. We may need
to raise additional funds to support expansion, develop new or
enhanced applications and services, respond to competitive
pressures, acquire complementary businesses or technologies or
take advantage of unanticipated opportunities. If required, we
may raise such additional funds through public or private debt
or equity financing, strategic relationships or other
arrangements. We cannot assure that such financing will be
available on acceptable terms, if at all, or that such financing
will not be dilutive to our stockholders. Future indebtedness
may impose various restrictions and covenants on us that could
limit our ability to respond to market conditions, to provide
for unanticipated capital investments or to take advantage of
business opportunities.
Off-Balance
Sheet Arrangements
We have no material off-balance sheet arrangements.
Recent
Accounting Pronouncements
Accounting
Pronouncements Adopted During 2009
We adopted the new authoritative guidance which establishes
accounting and reporting standards for noncontrolling interests,
previously called minority interests. This new guidance requires
that a noncontrolling interest be reported in the consolidated
balance sheets within equity and separate from the parent
companys equity. Also, the new guidance requires
consolidated net income to be reported at amounts inclusive of
both the parents and noncontrolling interests shares
and, separately, the amounts of consolidated net income
attributable to the parent and noncontrolling interest, all on
the face of the consolidated operating statement. In addition,
discontinued operations and continuing operations reflected as
part of the noncontrolling interest should be allocated between
continuing operations and discontinued operations for the
calculation of earnings per share. The consolidated financial
statements reflect the retrospective application of this
accounting standard which we adopted effective January 1,
2009.
We adopted the new authoritative guidance which requires cash
settled convertible debt to be separated into debt and equity
components at issuance and a value to be assigned to each. This
new guidance affects the accounting for our
31/8% Notes.
The value assigned to the debt component will be the estimated
fair value, as of the issuance date, of a similar bond without
the conversion feature. The difference between the bonds
cash proceeds and this estimated fair value, which was $61,300
at the time the
31/8% Notes
were issued during August 2005, represents a debt discount and
will be amortized to interest expense over the period from
issuance to August 2012 (the first date on which we may be
required to repurchase the
31/8% Notes
at the option of the holder). The $61,300 also represents the
value of the equity component on the
31/8% Notes
and was included within additional paid-in capital through
December 31, 2008. The consolidated financial statements
reflect the retrospective application of this accounting
standard which we adopted effective January 1, 2009.
Effective January 1, 2009, we adopted the revised
authoritative guidance on business combinations which changed
existing practice, in part, as follows: (1) contingent
consideration arrangements are now fair valued at the
acquisition date and included on that basis in the purchase
price consideration; (2) transaction costs are now expensed
as incurred, rather than capitalized as part of the purchase
price; (3) reversal of valuation allowances created in
purchase accounting are now recorded through the income tax
provision; and (4) in order to accrue for a restructuring
plan in purchase accounting, all authoritative guidance would
have to be met at the acquisition date. While the adoption of
this standard did not have a material impact on our financial
statements, it could materially change the accounting for
business combinations consummated in the future and for tax
matters relating to prior acquisitions settled subsequent to
December 31, 2008.
Effective January 1, 2009, we adopted the authoritative
guidance which clarifies that unvested share-based payment
awards with a right to receive nonforfeitable dividends are
participating securities. We reflected the impact on the year
ended December 31, 2009 in the Net Income (Loss) Per Common
Share section of Note 2 contained elsewhere in this Annual
Report. The adoption of the new guidance did not have a material
impact
71
on the years ended December 31, 2008 and 2007 and
accordingly, those periods were not retrospectively adjusted.
In April 2009, the Financial Accounting Standards Board (which
we refer to as the FASB) issued authoritative guidance requiring
disclosures about fair value of financial instruments in interim
reporting periods. Such disclosures were previously required
only in annual financial statements. Because this pronouncement
applies only to financial statement disclosure, it did not have
an impact on our results of operations, financial position or
cash flows.
In April 2009, the FASB issued authoritative guidance which
changed when and how to assess
other-than-temporary
impairments of securities and to improve the financial statement
presentation of such impairments. A more detailed description of
this new guidance and the impact of its adoption is discussed in
Note 16 contained elsewhere in this Annual Report.
In May 2009, the FASB issued authoritative guidance establishing
general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial
statements are issued. This new guidance was effective for
interim or annual financial periods ending after June 15,
2009.
In June 2009, the FASB issued authoritative guidance which
established the FASB Accounting Standards Codification (which we
refer to as Codification). On the effective date of this new
guidance, the Codification superseded all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered,
non-SEC accounting literature not included in the Codification
became non-authoritative. This new guidance was effective for
financial statements issued for interim and annual periods
ending after September 15, 2009. Because this pronouncement
applies only to financial statement disclosure, it did not have
an impact on our results of operations, financial position or
cash flows.
Accounting
Pronouncements to be Adopted in the Future
In October 2009, the FASB issued authoritative guidance on
revenue recognition that will become effective beginning
January 1, 2011, with earlier adoption permitted. Under the
new guidance on arrangements that include software elements,
tangible products that have software components that are
essential to the functionality of the tangible product will no
longer be within the scope of the software revenue recognition
guidance, and software-enabled products will now be subject to
other relevant revenue recognition guidance. Additionally, the
FASB issued authoritative guidance on revenue arrangements with
multiple deliverables that are outside the scope of the software
revenue recognition guidance. Under the new guidance, when
vendor specific objective evidence or third party evidence for
deliverables in an arrangement cannot be determined, a best
estimate of the selling price is required to separate
deliverables. In addition, revenue under multiple element
arrangements will be allocated using the relative selling price
method. The new guidance includes new disclosure requirements on
how the application of the relative selling price method affects
the timing and amount of revenue recognition. We are currently
evaluating the impact that this new guidance will have on our
results of operations and financial position.
In January 2010, the FASB issued an amendment regarding
improving disclosures about fair value measurements. This new
guidance requires some new disclosures and clarifies some
existing disclosure requirements about fair value measurement.
The new disclosures and clarifications of existing disclosures
are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements in the roll forward
of activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning after
December 15, 2010 and for interim periods within those
fiscal years. We do not expect the adoption of this guidance to
have an impact on our results of operations and financial
position.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Interest
Rate Sensitivity
The primary objective of our investment activities is to
preserve principal and maintain adequate liquidity, while at the
same time maximizing the yield we receive from our investment
portfolio.
72
Changes in prevailing interest rates will cause the fair value
of certain of our investments to fluctuate, such as our
investments in auction rate securities that generally bear
interest at rates indexed to LIBOR. As of December 31,
2009, the fair market value of our auction rate securities was
$279.7 million. However, the fair values of our cash and
money market investments, which approximate $459.8 million
at December 31, 2009, are not subject to changes in
interest rates.
We have entered into non-recourse credit facilities (which we
refer to as the Credit Facilities) with Citigroup that is
secured by our ARS holdings (including, in some circumstances,
interest payable on the ARS holdings), that will allow us to
borrow up to 75% of the face amount of the ARS holdings pledged
as collateral under the Credit Facilities. The interest rate
applicable to such borrowings is the Open Federal Funds Rate
plus 395 basis points. No borrowings have been made under
the Credit Facilities to date.
The
31/8% Notes
and the 1.75% Notes that we have issued have fixed interest
rates; changes in interest rates will not impact our financial
condition or results of operations.
Exchange
Rate Sensitivity
Currently, substantially all of our sales and expenses are
denominated in United States dollars; however, Porex, which was
sold on October 19, 2009 and included in discontinued
operations, was exposed to fluctuations in foreign currency
exchange rates, primarily the rate of exchange of the United
States dollar against the Euro. This exposure arises primarily
as a result of translating the results of Porexs foreign
operations to the United States dollar at exchange rates that
have fluctuated from the beginning of the accounting period.
Porex did not engage in foreign currency hedging activities.
Foreign currency translation gains (losses) relating to our
Porex operations were $2.1 million, ($4.2) million and
$3.3 million in 2009, 2008 and 2007, respectively.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Financial
Statements
Our financial statements required by this item are contained on
pages F-1 through F-48 of this Annual Report on
Form 10-K.
See Item 15(a)(1) for a listing of financial statements
provided.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
As required by Exchange Act
Rule 13a-15(b),
WebMD management, including the Chief Executive Officer and
Chief Financial Officer, conducted an evaluation of the
effectiveness of WebMDs disclosure controls and
procedures, as defined in Exchange Act
Rule 13a-15(e),
as of December 31, 2009. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded
that WebMDs disclosure controls and procedures were
effective as of December 31, 2009.
In connection with the evaluation required by Exchange Act
Rule 13a-15(d),
WebMD management, including the Chief Executive Officer and
Chief Financial Officer, concluded that there were no changes in
WebMDs internal control over financial reporting, as
defined in Exchange Act
Rule 13a-15(f),
during the fourth quarter of 2009 that have materially affected,
or are reasonably likely to materially affect, WebMDs
internal control over financial reporting. Completion of our
merger with HLTH in October 2009 did not materially affect
WebMDs internal control over financial reporting because
there were no HLTH business operations to combine with
WebMDs business operations and because HLTH personnel and
resources used to provide certain corporate services to WebMD
(including processes with respect to internal control over
financial reporting, such as general and stock-based
compensation, payroll, federal and state income taxes, and SEC
financial reporting) prior to the merger under a Services
Agreement between HLTH and WebMD, became employees and resources
of WebMD upon completion of the merger.
73
|
|
Item 9B.
|
Other
Information
|
At our Annual Meeting of Stockholders held on October 23,
2009, our stockholders voted with respect to the following
matters:
|
|
|
|
|
Proposal 1 To adopt the Agreement and Plan of
Merger, dated as of June 17, 2009, between HLTH and WebMD,
and to approve the transactions contemplated by that agreement:
|
|
|
|
|
|
Votes FOR
|
|
|
247,740,072
|
|
Votes AGAINST
|
|
|
63,222
|
|
Abstentions
|
|
|
24,915
|
|
Broker non-votes
|
|
|
2,363,908
|
|
|
|
|
|
|
Proposal 2 To elect as Class I directors
for a three-year term:
|
|
|
|
|
|
|
|
Mark J. Adler, M.D.
|
|
votes FOR
|
|
|
249,760,007
|
|
|
|
votes withheld
|
|
|
432,110
|
|
|
|
|
|
|
|
|
Neil F. Dimick
|
|
votes FOR
|
|
|
250,125,437
|
|
|
|
votes withheld
|
|
|
66,680
|
|
|
|
|
|
|
|
|
James V. Manning
|
|
votes FOR
|
|
|
250,136,040
|
|
|
|
votes withheld
|
|
|
56,077
|
|
|
|
|
|
|
Proposal 3 To ratify and approve an amendment
to WebMDs Amended and Restated 2005 Long-Term Incentive
Plan to increase the number of shares of WebMD Class A
Common Stock issuable under that Plan by 1,100,000 shares,
to a total of 15,600,000 shares:
|
|
|
|
|
|
Votes FOR
|
|
|
243,370,572
|
|
Votes AGAINST
|
|
|
21,583
|
|
Abstentions
|
|
|
26,450
|
|
Broker non-votes
|
|
|
2,363,908
|
|
|
|
|
|
|
Proposal 4 To ratify the appointment of
Ernst & Young LLP as the independent registered public
accounting firm to serve as our independent auditor for the
fiscal year ending December 31, 2009:
|
|
|
|
|
|
Votes FOR
|
|
|
250,139,083
|
|
Votes AGAINST
|
|
|
21,583
|
|
Abstentions
|
|
|
26,450
|
|
Broker non-votes
|
|
|
0
|
|
As a result, the individuals listed above for Proposal 1
were elected and Proposals 2 and 3 were each approved. For
each director and for Proposals 2 and 3, the totals include
240,500,000 votes cast FOR by HLTH, the holder of all of the
outstanding shares of WebMD Class B Common Stock at the
time of the 2009 Annual Meeting.
74
PART III
Information required by Items 10, 11, 12, 13 and 14 of
Part III is omitted from this Annual Report and will be
filed in a definitive proxy statement or by an amendment to this
Annual Report not later than 120 days after the end of the
fiscal year covered by this Annual Report.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
We will provide information that is responsive to this
Item 10 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report,
in either case under the captions Directors and Executive
Officers and Corporate Governance and possibly
elsewhere therein. That information is incorporated in this
Item 10 by reference.
|
|
Item 11.
|
Executive
Compensation
|
We will provide information that is responsive to this
Item 11 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report,
in either case under the caption Executive
Compensation, and possibly elsewhere therein. That
information is incorporated in this Item 11 by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
We will provide information that is responsive to this
Item 12 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report,
in either case under the caption Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters, and possibly elsewhere therein. That information
is incorporated in this Item 12 by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
We will provide information that is responsive to this
Item 13 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report,
in either case under the caption Certain Relationships and
Related Transactions, and possibly elsewhere therein. That
information is incorporated in this Item 13 by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
We will provide information that is responsive to this
Item 14 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report,
in either case under the caption Services and Fees of
Ernst & Young, and possibly elsewhere therein.
That information is incorporated in this Item 14 by
reference.
75
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedule
|
(a)(1)-(2) Financial Statements and Schedule
The financial statements and schedule listed in the accompanying
Index to Consolidated Financial Statements and Supplemental Data
on
page F-1
are filed as part of this Report.
(a)(3) Exhibits
See Index to Exhibits beginning on
page E-1,
which is incorporated by reference herein. The Index to Exhibits
lists all exhibits filed with this Report and identifies which
of those exhibits are management contracts and compensation
plans.
76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 2nd day of
March, 2010.
WebMD Health
Corp.
Anthony Vuolo
Chief Operating Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
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|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Wayne
T. Gattinella
Wayne
T. Gattinella
|
|
Director; President and Chief Executive Officer (principal
executive officer)
|
|
March 2, 2010
|
|
|
|
|
|
/s/ Anthony
Vuolo
Anthony
Vuolo
|
|
Chief Operating Officer and Chief Financial Officer (principal
financial and accounting officer)
|
|
March 2, 2010
|
|
|
|
|
|
/s/ Mark
J. Adler, M.D.
Mark
J. Adler, M.D.
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Paul
A. Brooke
Paul
A. Brooke
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Kevin
M. Cameron
Kevin
M. Cameron
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Neil
F. Dimick
Neil
F. Dimick
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Jerome
C. Keller
Jerome
C. Keller
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ James
V. Manning
James
V. Manning
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Abdool
Rahim Moossa, M.D.
Abdool
Rahim Moossa, M.D.
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Herman
Sarkowsky
Herman
Sarkowsky
|
|
Director
|
|
March 1, 2010
|
77
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Joseph
E. Smith
Joseph
E. Smith
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Stanley
S. Trotman, Jr.
Stanley
S. Trotman, Jr.
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Martin
J. Wygod
Martin
J. Wygod
|
|
Director
|
|
March 1, 2010
|
78
WEBMD
HEALTH CORP.
|
|
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|
|
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|
Page
|
|
Historical Financial Statements:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
Supplemental Financial Data:
|
|
|
|
|
The following supplemental financial data of the Registrant and
its subsidiaries required to be included in Item 15(a)(2)
on
Form 10-K
are listed below:
|
|
|
|
|
|
|
|
S-1
|
|
All other schedules not listed above have been omitted as not
applicable or because the required information is included in
the Consolidated Financial Statements or in the notes thereto.
Columns omitted from the schedule filed have been omitted
because the information is not applicable.
F-1
REPORT OF
MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management of WebMD Health Corp. is responsible for establishing
and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined
in
Rules 13a-15(f)
and
15d-15(f)
promulgated under the Securities Exchange Act of 1934 (the
Exchange Act) as a process designed by, or under the supervision
of, a companys principal executive and principal financial
officers and effected by its board of directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
the companys assets that could have a material effect on
the financial statements.
|
Internal control over financial reporting includes the controls
themselves, monitoring and internal auditing practices and
actions taken to correct deficiencies as identified.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
WebMD management assessed the effectiveness of WebMDs
internal control over financial reporting as of
December 31, 2009. In making this assessment, WebMD
management used the criteria set forth in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on that assessment and those criteria, WebMD
management concluded that WebMD maintained effective internal
control over financial reporting as of December 31, 2009.
Ernst & Young LLP, the independent registered public
accounting firm that audited and reported on the Companys
financial statements as of December 31, 2009 and 2008 and
for each of the three years in the period ended
December 31, 2009, has audited the Companys internal
control over financial reporting as of December 31, 2009,
as stated in their report which appears on
page F-3.
March 2, 2010
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of WebMD Health Corp.
We have audited WebMD Health Corp.s internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). WebMD Health
Corp.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying Report of
Management on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, WebMD Health Corp. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of WebMD Health Corp. as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, equity and cash flows for each of the
three years in the period ended December 31, 2009 of WebMD
Health Corp. and our report dated March 2, 2010 expressed
an unqualified opinion thereon.
/s/ Ernst &
Young LLP
New York, New York
March 2, 2010
F-3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of WebMD Health Corp.
We have audited the accompanying consolidated balance sheets of
WebMD Health Corp. as of December 31, 2009 and 2008, and
the related consolidated statements of operations, equity, and
cash flows for each of the three years in the period ended
December 31, 2009. Our audits also included the financial
statement schedule listed in the Index to consolidated financial
statements and supplemental data at
page F-1.
These financial statements and schedule are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of WebMD Health Corp. at December 31,
2009 and 2008, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, effective January 1, 2009, the Company
retrospectively adopted authoritative guidance relating to
(i) non-controlling interests in consolidated financial
statements and (ii) accounting for convertible debt
instruments that may be settled in cash upon conversion. As
further discussed in Note 2 to the consolidated financial
statements, effective January 1, 2009, the Company adopted
(i) authoritative guidance clarifying that unvested
share-based payment awards with a right to receive
nonforfeitable dividends are participating securities, and
(ii) revised authoritative guidance related to accounting
for business combinations, and effective April 1, 2009, the
Company adopted authoritative guidance which changed when and
how to assess other-than-temporary impairments of securities.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), WebMD
Health Corp.s internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated March 2, 2010 expressed an unqualified opinion
thereon.
New York, New York
March 2, 2010
F-4
WEBMD
HEALTH CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share
data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
459,766
|
|
|
$
|
629,848
|
|
Accounts receivable, net of allowance for doubtful accounts of
$1,511 at December 31, 2009 and $1,301 at December 31,
2008
|
|
|
118,155
|
|
|
|
93,082
|
|
Prepaid expenses and other current assets
|
|
|
11,419
|
|
|
|
18,644
|
|
Investments
|
|
|
9,932
|
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
26,096
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
131,350
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
599,272
|
|
|
|
899,020
|
|
Investments
|
|
|
338,446
|
|
|
|
288,049
|
|
Property and equipment, net
|
|
|
52,194
|
|
|
|
56,633
|
|
Goodwill
|
|
|
202,104
|
|
|
|
202,104
|
|
Intangible assets, net
|
|
|
26,020
|
|
|
|
32,328
|
|
Deferred tax assets
|
|
|
50,789
|
|
|
|
|
|
Other assets
|
|
|
19,723
|
|
|
|
23,600
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,288,548
|
|
|
$
|
1,501,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
63,721
|
|
|
$
|
54,595
|
|
Deferred revenue
|
|
|
98,474
|
|
|
|
79,613
|
|
1.75% convertible subordinated notes due 2023
|
|
|
264,583
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
12,955
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
|
34,197
|
|
|
|
100,771
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
473,930
|
|
|
|
234,979
|
|
1.75% convertible subordinated notes due 2023
|
|
|
|
|
|
|
350,000
|
|
31/8%
convertible notes due 2025, net of discount of $22,641 at
December 31, 2009 and $35,982 at December 31, 2008
|
|
|
227,659
|
|
|
|
264,018
|
|
Other long-term liabilities
|
|
|
22,191
|
|
|
|
21,816
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, 50,000,000 shares authorized; no shares
issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share,
650,000,000 shares authorized; 57,243,710 shares
issued at December 31, 2009 and 203,661,733 shares
issued at December 31, 2008
|
|
|
572
|
|
|
|
2,036
|
|
Additional paid-in capital
|
|
|
9,469,857
|
|
|
|
12,564,864
|
|
Treasury stock, at cost; 6,296,944 shares at
December 31, 2009 and 158,610,889 shares at
December 31, 2008
|
|
|
(233,651
|
)
|
|
|
(3,292,997
|
)
|
Accumulated deficit
|
|
|
(8,634,585
|
)
|
|
|
(8,776,618
|
)
|
Accumulated other comprehensive loss
|
|
|
(37,425
|
)
|
|
|
(587
|
)
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
564,768
|
|
|
|
496,698
|
|
Noncontrolling interest
|
|
|
|
|
|
|
134,223
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
564,768
|
|
|
|
630,921
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
1,288,548
|
|
|
$
|
1,501,734
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
WEBMD
HEALTH CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
438,536
|
|
|
$
|
373,462
|
|
|
$
|
319,232
|
|
Cost of operations
|
|
|
165,753
|
|
|
|
135,138
|
|
|
|
114,000
|
|
Sales and marketing
|
|
|
112,101
|
|
|
|
106,080
|
|
|
|
91,035
|
|
General and administrative
|
|
|
89,620
|
|
|
|
88,053
|
|
|
|
102,661
|
|
Depreciation and amortization
|
|
|
28,185
|
|
|
|
28,410
|
|
|
|
27,808
|
|
Interest income
|
|
|
9,149
|
|
|
|
35,300
|
|
|
|
42,035
|
|
Interest expense
|
|
|
23,515
|
|
|
|
26,428
|
|
|
|
25,887
|
|
Severance and other transaction expenses
|
|
|
11,066
|
|
|
|
6,941
|
|
|
|
2,527
|
|
Gain on repurchases of convertible notes
|
|
|
10,120
|
|
|
|
|
|
|
|
|
|
Gain on sale of EBS Master LLC
|
|
|
|
|
|
|
538,024
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
7,416
|
|
|
|
|
|
Impairment of auction rate securities
|
|
|
|
|
|
|
60,108
|
|
|
|
|
|
Other (expense) income, net
|
|
|
(1,369
|
)
|
|
|
992
|
|
|
|
6,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax (benefit)
provision
|
|
|
26,196
|
|
|
|
489,204
|
|
|
|
3,681
|
|
Income tax (benefit) provision
|
|
|
(45,491
|
)
|
|
|
26,638
|
|
|
|
(9,053
|
)
|
Equity in earnings of EBS Master LLC
|
|
|
|
|
|
|
4,007
|
|
|
|
28,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from continuing operations
|
|
|
71,687
|
|
|
|
466,573
|
|
|
|
41,300
|
|
Consolidated income (loss) from discontinued operations, net of
income tax provision (benefit) of $21,224, $3,134 and $(4,894)
in 2009, 2008 and 2007
|
|
|
49,354
|
|
|
|
94,682
|
|
|
|
(18,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income inclusive of noncontrolling interest
|
|
|
121,041
|
|
|
|
561,255
|
|
|
|
23,252
|
|
Income attributable to noncontrolling interest
|
|
|
(3,705
|
)
|
|
|
(1,032
|
)
|
|
|
(10,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
117,336
|
|
|
$
|
560,223
|
|
|
$
|
12,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Company stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
67,018
|
|
|
$
|
465,725
|
|
|
$
|
31,845
|
|
Income (loss) from discontinued operations
|
|
|
50,318
|
|
|
|
94,498
|
|
|
|
(19,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
117,336
|
|
|
$
|
560,223
|
|
|
$
|
12,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.40
|
|
|
$
|
5.99
|
|
|
$
|
0.40
|
|
Income (loss) from discontinued operations
|
|
|
1.05
|
|
|
|
1.22
|
|
|
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
2.45
|
|
|
$
|
7.21
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.21
|
|
|
$
|
4.92
|
|
|
$
|
0.36
|
|
Income (loss) from discontinued operations
|
|
|
0.86
|
|
|
|
0.96
|
|
|
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
2.07
|
|
|
$
|
5.88
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding used in computing per share
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
47,400
|
|
|
|
77,738
|
|
|
|
79,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
57,740
|
|
|
|
97,824
|
|
|
|
83,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-6
WEBMD
HEALTH CORP.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Treasury Stock
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
Balances at December 31, 2006
|
|
|
199,802,571
|
|
|
$
|
1,998
|
|
|
$
|
12,347,298
|
|
|
|
127,885,353
|
|
|
$
|
(2,585,769
|
)
|
|
$
|
(9,350,784
|
)
|
|
$
|
10,110
|
|
|
$
|
422,853
|
|
|
$
|
101,860
|
|
|
$
|
524,713
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,585
|
|
|
|
|
|
|
|
12,585
|
|
|
|
10,667
|
|
|
|
23,252
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized losses on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(249
|
)
|
|
|
(249
|
)
|
|
|
|
|
|
|
(249
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,318
|
|
|
|
3,318
|
|
|
|
|
|
|
|
3,318
|
|
Companys share of EBSCos comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,326
|
)
|
|
|
(7,326
|
)
|
|
|
|
|
|
|
(7,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,257
|
)
|
|
|
|
|
|
|
(4,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,328
|
|
|
|
10,667
|
|
|
|
18,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect related to the adoption of new authoritative
guidance relating to uncertain tax positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,475
|
|
|
|
|
|
|
|
1,475
|
|
|
|
|
|
|
|
1,475
|
|
Issuance of stock for option exercises, ESPP and other issuances
|
|
|
3,645,242
|
|
|
|
36
|
|
|
|
96,858
|
|
|
|
(2,095,738
|
)
|
|
|
22,840
|
|
|
|
|
|
|
|
|
|
|
|
119,734
|
|
|
|
13,714
|
|
|
|
133,448
|
|
Tax benefit realized from issuances of common stock and
valuation reversal
|
|
|
|
|
|
|
|
|
|
|
7,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,299
|
|
|
|
|
|
|
|
7,299
|
|
Gain on issuance of subsidiary common stock for options
exercised and restricted stock released and other
|
|
|
|
|
|
|
|
|
|
|
14,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,364
|
|
|
|
(14,364
|
)
|
|
|
|
|
Conversion and accretion of convertible redeemable exchangeable
preferred stock
|
|
|
|
|
|
|
|
|
|
|
53,781
|
|
|
|
(4,727,659
|
)
|
|
|
45,104
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
98,768
|
|
|
|
|
|
|
|
98,768
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
18,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,699
|
|
|
|
17,888
|
|
|
|
36,587
|
|
Purchase of treasury stock under repurchase program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,497,624
|
|
|
|
(47,123
|
)
|
|
|
|
|
|
|
|
|
|
|
(47,123
|
)
|
|
|
|
|
|
|
(47,123
|
)
|
Noncontrolling interest impact of cash transferred
|
|
|
|
|
|
|
|
|
|
|
(1,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,588
|
)
|
|
|
1,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
203,447,813
|
|
|
|
2,034
|
|
|
|
12,536,711
|
|
|
|
122,559,580
|
|
|
|
(2,564,948
|
)
|
|
|
(9,336,841
|
)
|
|
|
5,853
|
|
|
|
642,809
|
|
|
|
131,353
|
|
|
|
774,162
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
560,223
|
|
|
|
|
|
|
|
560,223
|
|
|
|
1,032
|
|
|
|
561,255
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized losses on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,588
|
)
|
|
|
(9,588
|
)
|
|
|
(702
|
)
|
|
|
(10,290
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,178
|
)
|
|
|
(4,178
|
)
|
|
|
|
|
|
|
(4,178
|
)
|
Reversal of EBSCos comprehensive loss in connection with
sale of EBSCo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,326
|
|
|
|
7,326
|
|
|
|
|
|
|
|
7,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,440
|
)
|
|
|
(702
|
)
|
|
|
(7,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
553,783
|
|
|
|
330
|
|
|
|
554,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for option exercises, ESPP and other issuances
|
|
|
213,920
|
|
|
|
2
|
|
|
|
9,283
|
|
|
|
(1,144,936
|
)
|
|
|
9,275
|
|
|
|
|
|
|
|
|
|
|
|
18,560
|
|
|
|
3,465
|
|
|
|
22,025
|
|
Tax benefit realized from issuances of common stock and
valuation reversal
|
|
|
|
|
|
|
|
|
|
|
2,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,232
|
|
|
|
|
|
|
|
2,232
|
|
Gain on issuance of subsidiary common stock for options
exercised and restricted stock released and other
|
|
|
|
|
|
|
|
|
|
|
3,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,688
|
|
|
|
(3,688
|
)
|
|
|
|
|
Repurchase of common stock of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,728
|
)
|
|
|
(6,728
|
)
|
Cash settlement for Subimo transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,782
|
)
|
|
|
(2,782
|
)
|
Purchase of warrant
|
|
|
|
|
|
|
|
|
|
|
(700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(700
|
)
|
|
|
|
|
|
|
(700
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
13,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,650
|
|
|
|
12,273
|
|
|
|
25,923
|
|
Purchase of treasury stock in tender offer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,196,245
|
|
|
|
(737,324
|
)
|
|
|
|
|
|
|
|
|
|
|
(737,324
|
)
|
|
|
|
|
|
|
(737,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
203,661,733
|
|
|
|
2,036
|
|
|
|
12,564,864
|
|
|
|
158,610,889
|
|
|
|
(3,292,997
|
)
|
|
|
(8,776,618
|
)
|
|
|
(587
|
)
|
|
|
496,698
|
|
|
|
134,223
|
|
|
|
630,921
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,336
|
|
|
|
|
|
|
|
117,336
|
|
|
|
3,705
|
|
|
|
121,041
|
|
Cumulative effect related to the adoption of new authoritative
guidance relating to
other-than-temporary
impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,697
|
|
|
|
(24,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized losses on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(340
|
)
|
|
|
(340
|
)
|
|
|
(857
|
)
|
|
|
(1,197
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,091
|
)
|
|
|
(8,091
|
)
|
|
|
|
|
|
|
(8,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,431
|
)
|
|
|
(857
|
)
|
|
|
(9,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,905
|
|
|
|
2,848
|
|
|
|
111,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock for option exercises and other issuances
|
|
|
774,130
|
|
|
|
8
|
|
|
|
2,790
|
|
|
|
(1,585,065
|
)
|
|
|
16,651
|
|
|
|
|
|
|
|
|
|
|
|
19,449
|
|
|
|
6,179
|
|
|
|
25,628
|
|
Tax benefit realized from issuances of common stock
|
|
|
|
|
|
|
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480
|
|
|
|
|
|
|
|
480
|
|
Recognition of Merger
|
|
|
(147,192,153
|
)
|
|
|
(1,472
|
)
|
|
|
(3,115,748
|
)
|
|
|
(157,068,107
|
)
|
|
|
3,277,915
|
|
|
|
|
|
|
|
(3,710
|
)
|
|
|
156,985
|
|
|
|
(162,013
|
)
|
|
|
(5,028
|
)
|
Repurchases of
31/8%
convertible notes, net of tax
|
|
|
|
|
|
|
|
|
|
|
(3,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,544
|
)
|
|
|
|
|
|
|
(3,544
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
21,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,015
|
|
|
|
18,763
|
|
|
|
39,778
|
|
Purchase of treasury stock in tender offer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,339,227
|
|
|
|
(235,220
|
)
|
|
|
|
|
|
|
|
|
|
|
(235,220
|
)
|
|
|
|
|
|
|
(235,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
57,243,710
|
|
|
$
|
572
|
|
|
$
|
9,469,857
|
|
|
|
6,296,944
|
|
|
$
|
(233,651
|
)
|
|
$
|
(8,634,585
|
)
|
|
$
|
(37,425
|
)
|
|
$
|
564,768
|
|
|
$
|
|
|
|
$
|
564,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-7
WEBMD
HEALTH CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income inclusive of noncontrolling interest
|
|
$
|
121,041
|
|
|
$
|
561,255
|
|
|
$
|
23,252
|
|
Adjustments to reconcile consolidated net income inclusive of
noncontrolling interest to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated (income) loss from discontinued operations, net of
tax
|
|
|
(49,354
|
)
|
|
|
(94,682
|
)
|
|
|
18,048
|
|
Depreciation and amortization
|
|
|
28,185
|
|
|
|
28,410
|
|
|
|
27,808
|
|
Equity in earnings of EBS Master LLC
|
|
|
|
|
|
|
(4,007
|
)
|
|
|
(28,566
|
)
|
Non-cash interest
|
|
|
10,205
|
|
|
|
9,859
|
|
|
|
10,210
|
|
Non-cash advertising
|
|
|
1,753
|
|
|
|
5,097
|
|
|
|
5,264
|
|
Non-cash stock-based compensation
|
|
|
39,412
|
|
|
|
24,632
|
|
|
|
32,336
|
|
Deferred income taxes
|
|
|
(42,143
|
)
|
|
|
7,474
|
|
|
|
(10,430
|
)
|
Gain in repurchases of convertible notes
|
|
|
(10,120
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of EBS Master LLC
|
|
|
|
|
|
|
(538,024
|
)
|
|
|
|
|
Gain on 2006 EBS Sale
|
|
|
|
|
|
|
|
|
|
|
(399
|
)
|
Impairment of auction rate securities
|
|
|
|
|
|
|
60,108
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(25,073
|
)
|
|
|
(9,672
|
)
|
|
|
4,239
|
|
Prepaid expenses and other, net
|
|
|
6,979
|
|
|
|
1,893
|
|
|
|
5,599
|
|
Accrued expenses and other long-term liabilities
|
|
|
7,677
|
|
|
|
6,052
|
|
|
|
(44,248
|
)
|
Deferred revenue
|
|
|
18,861
|
|
|
|
4,095
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations
|
|
|
107,423
|
|
|
|
62,490
|
|
|
|
43,206
|
|
Net cash provided by discontinued operations
|
|
|
305
|
|
|
|
34,624
|
|
|
|
32,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
107,728
|
|
|
|
97,114
|
|
|
|
75,393
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities and sales of
available-for-sale
securities
|
|
|
2,300
|
|
|
|
118,339
|
|
|
|
670,326
|
|
Purchases of
available-for-sale
securities
|
|
|
|
|
|
|
(177,150
|
)
|
|
|
(927,038
|
)
|
Purchases of property and equipment
|
|
|
(17,886
|
)
|
|
|
(24,265
|
)
|
|
|
(19,041
|
)
|
Purchase of investment in preferred stock
|
|
|
|
|
|
|
(6,471
|
)
|
|
|
|
|
Cash paid in business combinations, net of cash acquired
|
|
|
|
|
|
|
(2,633
|
)
|
|
|
|
|
Purchase of noncontrolling interest in subsidiary
|
|
|
|
|
|
|
(12,818
|
)
|
|
|
|
|
Proceeds from the sale of discontinued operations
|
|
|
72,318
|
|
|
|
247,491
|
|
|
|
11,667
|
|
Proceeds related to the sale of EBS Master LLC
|
|
|
|
|
|
|
574,617
|
|
|
|
|
|
Proceeds from the 2006 EBS Sale, net
|
|
|
|
|
|
|
|
|
|
|
2,898
|
|
Other
|
|
|
|
|
|
|
1,224
|
|
|
|
18,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing operations
|
|
|
56,732
|
|
|
|
718,334
|
|
|
|
(242,396
|
)
|
Net cash used in discontinued operations
|
|
|
(3,552
|
)
|
|
|
(4,852
|
)
|
|
|
(4,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
53,180
|
|
|
|
713,482
|
|
|
|
(247,149
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of cash used for
employee withholding taxes
|
|
|
25,253
|
|
|
|
21,683
|
|
|
|
133,054
|
|
Tax benefit on stock-based awards
|
|
|
480
|
|
|
|
748
|
|
|
|
6,601
|
|
Purchase of treasury stock under repurchase program
|
|
|
|
|
|
|
|
|
|
|
(47,123
|
)
|
Purchase of treasury stock in tender offers, net of $6,818 in
2009 for shares not delivered as of
year-end
|
|
|
(228,402
|
)
|
|
|
(737,324
|
)
|
|
|
|
|
Repurchases of convertible notes
|
|
|
(123,857
|
)
|
|
|
|
|
|
|
|
|
Cash paid for merger related costs
|
|
|
(5,021
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
(700
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing operations
|
|
|
(331,547
|
)
|
|
|
(715,593
|
)
|
|
|
92,512
|
|
Net cash used in discontinued operations
|
|
|
|
|
|
|
(76
|
)
|
|
|
(175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(331,547
|
)
|
|
|
(715,669
|
)
|
|
|
92,337
|
|
Effect of exchange rates on cash
|
|
|
557
|
|
|
|
(1,958
|
)
|
|
|
1,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(170,082
|
)
|
|
|
92,969
|
|
|
|
(77,812
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
629,848
|
|
|
|
536,879
|
|
|
|
614,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
459,766
|
|
|
$
|
629,848
|
|
|
$
|
536,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-8
WEBMD
HEALTH CORP.
(In thousands, except share and per share data)
|
|
1.
|
Background
and Basis of Presentation
|
Background
WebMD Health Corp. (the Company or
WebMD) is a Delaware corporation that was
incorporated on May 3, 2005. The Company completed an
initial public offering on September 28, 2005. The
Companys common stock trades under the symbol
WBMD on the Nasdaq Global Select Market. From the
completion of the initial public offering through the completion
of the merger with HLTH Corporation (HLTH) on
October 23, 2009, the Company was more than 80% owned by
HLTH. On October 23, 2009, stockholders of HLTH and WebMD
approved a merger with HLTH and the transaction was completed
later that day, with HLTH merging into WebMD and WebMD
continuing as the surviving corporation (Merger).
WebMD automatically succeeded to all of HLTHs assets,
liabilities and commitments upon completion of the Merger (other
than the shares of WebMD Class B common stock owned by HLTH
which were cancelled in the Merger). In the Merger, each share
of HLTH common stock was converted into 0.4444 shares of
WebMD common stock. The shares of WebMDs Class A
common stock were unchanged in the Merger and continue to trade
on the NASDAQ Global Select Market under the symbol
WBMD; however, they are no longer referred to as
Class A because the Merger eliminated both
WebMDs Class B common stock and the dual-class stock
structure that had existed at WebMD.
WebMD was the only operating business of HLTH at the time the
Merger closed. Accordingly, the completion of the Merger did not
have a significant effect on the operations of WebMD since there
were no HLTH business operations to combine with WebMDs
business operations and, while HLTH had previously been
providing certain corporate services to WebMD under a services
agreement and had certain other agreements with WebMD, those
agreements ceased when WebMD acquired HLTH. The employees and
resources of HLTH used to provide services to WebMD under the
services agreement became employees and resources of WebMD upon
completion of the Merger.
The Company provides health information services to consumers,
physicians and other healthcare professionals, employers and
health plans through its public and private online portals and
health-focused publications. The Companys public portals
for consumers enable them to obtain health and wellness
information (including information on specific diseases or
conditions), check symptoms, locate physicians, store individual
healthcare information, receive periodic
e-newsletters
on topics of individual interest and participate in online
communities with peers and experts. The Companys public
portals for physicians and healthcare professionals make it
easier for them to access clinical reference sources, stay
abreast of the latest clinical information, learn about new
treatment options, earn continuing medical education
(CME) credit and communicate with peers. The
Companys public portals generate revenue primarily through
the sale of advertising and sponsorship products, including CME
services. The Company also distributes online content and
services to other entities and generates revenue from these
arrangements through the sale of advertising and sponsorship
products and content syndication fees. The Company also provides
e-detailing
promotion and physician recruitment services, information
services and provides print services including the publication
of WebMD the Magazine, a consumer magazine distributed to
physician office waiting rooms. The public portals sponsors and
advertisers include pharmaceutical, biotechnology, medical
device and consumer products companies. The Companys
private portals enable employers and health plans to provide
their employees and members with access to personalized health
and benefit information and decision-support technology that
helps them to make more informed benefit, treatment and provider
choices. In addition, the Company offers clients of its private
portals telephonic health coaching services on a per participant
basis across an employee or plan population. The Company
generates revenue from its private portals through the licensing
of these portals and related services to employers and health
plans either directly or through distributors.
F-9
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Basis of
Presentation
The applicable accounting treatment for the Merger results in
HLTH being considered the acquiring entity of the WebMD
non-controlling interest. Therefore, the pre-acquisition
consolidated financial statements of HLTH became the historical
financial statements of WebMD following the completion of the
Merger. Accordingly, in these consolidated financial statements,
the defined term Company refers not only to WebMD
but also, where the context requires, to HLTH. The specific
names of HLTH and WebMD are used only where there is a need to
distinguish between the legal entities. The weighted-average
shares outstanding used in computing income per common share
have been adjusted by multiplying the historical
weighted-average shares outstanding for HLTH by the 0.4444
exchange ratio in the Merger (the Exchange Ratio),
for all prior periods presented in this Annual Report.
Additionally, basic and diluted income per common share have
been recalculated to reflect the adjusted weighted-average
shares outstanding for the prior year periods presented. For the
year ended December 31, 2009, these adjustments only apply
to the portion of the year prior to the completion of the Merger
on October 23, 2009. In addition, all references in these
consolidated financial statements to amounts of shares of HLTH
common stock and to market prices or purchase prices for HLTH
common stock have been adjusted to reflect the Exchange Ratio,
and expressed as the number of shares of WebMD common stock into
which the HLTH common stock would be converted in the Merger and
the equivalent price per share of WebMD common stock. Similarly,
the exercise price of options and warrants to purchase HLTH
common stock and the number of shares subject to those options
and warrants have been adjusted to reflect the Exchange Ratio.
The accompanying consolidated financial statements include the
consolidated accounts of the Company and its subsidiaries and
have been prepared in United States dollars, and in accordance
with U.S. generally accepted accounting principles
(GAAP). The consolidated accounts of HLTH included,
until the completion of the Merger, 100% of the assets and
liabilities of WebMD, which was more than 80% owned by HLTH
until the Merger. The ownership interests of the noncontrolling
stockholders of WebMD were presented as noncontrolling
interest for periods prior to the Merger, included within
the December 31, 2008 Consolidated Balance Sheet. In the
Consolidated Statements of Operations, Net income
attributable to Company stockholders reflects an
adjustment for the noncontrolling stockholders share of
the net income of WebMD until completion of the Merger.
The accompanying consolidated financial statements reflect the
Companys Porex, LBB, ViPS and ACS/ACP businesses as
discontinued operations. The sale of Porex was completed on
October 19, 2009 (the Porex Sale), the sale of
Little Blue Book print directory business (LBB) was
completed on September 30, 2009 (the LBB Sale),
the sale of ViPS was completed on July 22, 2008 (the
ViPS Sale) and the sale of the Companys
reference publications business, including the publications
ACP Medicine and ACS Surgery: Principles and Practice
(the ACS/ACP Business) was completed on
December 31, 2007. See Note 3 for further details.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and all majority-owned subsidiaries. The
results of operations for companies acquired or disposed are
included in the consolidated financial statements from the
effective date of acquisition or up to the date of disposal. All
material intercompany balances and transactions have been
eliminated in consolidation.
Accounting
Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and
F-10
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accompanying notes. The Company bases its estimates on
historical experience, current business factors, and various
other assumptions that the Company believes are necessary to
consider to form a basis for making judgments about the carrying
values of assets and liabilities, the recorded amounts of
revenue and expenses, and the disclosure of contingent assets
and liabilities. The Company is subject to uncertainties such as
the impact of future events, economic and political factors, and
changes in the Companys business environment; therefore,
actual results could differ from these estimates. Accordingly,
the accounting estimates used in the preparation of the
Companys financial statements will change as new events
occur, as more experience is acquired, as additional information
is obtained and as the Companys operating environment
changes. Changes in estimates are made when circumstances
warrant. Such changes in estimates and refinements in estimation
methodologies are reflected in reported results of operations;
if material, the effects of changes in estimates are disclosed
in the notes to the consolidated financial statements.
Significant estimates and assumptions by management affect: the
allowance for doubtful accounts, the carrying value of prepaid
advertising, the carrying value of long-lived assets (including
goodwill and intangible assets), the amortization period of
long-lived assets (excluding goodwill and indefinite lived
intangible assets), the carrying value, capitalization and
amortization of software and Web site development costs, the
carrying value of investments including investments in auction
rate securities, the provision for income taxes and related
deferred tax accounts, certain accrued expenses, revenue
recognition, contingencies, litigation and related legal
accruals and the value attributed to employee stock options and
other stock-based awards.
Seasonality
The timing of the Companys revenue is affected by seasonal
factors. The Companys public portal advertising and
sponsorship revenue is seasonal, primarily due to the annual
spending patterns of the advertising and sponsorship clients of
the Companys public portals. This portion of the
Companys revenue is usually the lowest in the first
quarter of each calendar year, and increases during each
consecutive quarter throughout the year. The timing of revenue
in relation to the Companys expenses, much of which do not
vary directly with revenue, has an impact on cost of operations,
sales and marketing and general and administrative expenses as a
percentage of revenue in each calendar quarter.
Cash and
Cash Equivalents
All highly liquid investments with an original maturity from the
date of purchase of three months or less are considered to be
cash equivalents. These investments are stated at cost, which
approximates market. The Companys cash and cash
equivalents are generally invested in various money market
accounts.
Fair
Value
The carrying amount of cash and cash equivalents, accounts
receivable, accrued expenses and deferred revenue is deemed to
approximate fair value due to the immediate or short-term
maturity of these financial instruments. See Note 16 for
further information on the fair value of the Companys
investments.
Marketable
Securities
The Company classifies its investments in marketable securities
as either
available-for-sale
or
held-to-maturity
at the time of purchase and re-evaluates such classifications at
each balance sheet date. The Company does not invest in trading
securities. Debt securities in which the Company has the
positive intent and ability to hold the securities to maturity
are classified as
held-to-maturity;
otherwise they are classified as
available-for-sale.
Investments in marketable equity securities are classified as
available-for-sale.
Held-to-maturity
securities are carried at amortized cost and
available-for-sale
securities are carried at fair value as of each balance sheet
date. Unrealized gains and losses associated with
available-for-sale
securities are recorded as a component of accumulated other
comprehensive income within equity. Realized
F-11
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
gains and losses are recorded in the consolidated statements of
operations. If the Company intends to sell or if it is more
likely than not that it will be required to sell an impaired
security prior to recovery of its cost basis, then the security
is to be considered other-than-temporarily impaired and the full
amount of impairment must be charged to earnings. Otherwise,
losses on securities which are other-than-temporarily impaired
are separated into two categories, the portion of loss which is
considered credit loss and the portion of loss which is due to
other factors. The credit loss portion is charged to earnings
while the loss due to other factors is charged to other
comprehensive income. The cost of securities is based on the
specific identification method.
Equity
Investment in EBS Master LLC
From November 17, 2006 through February 8, 2008, the
Company accounted for its investment in EBS Master LLC as an
equity method investment since the Company had the ability
to exercise significant influence over operating and financial
policies of an investee, but did not exercise control.
Allowance
for Doubtful Accounts
The allowance for doubtful accounts receivable reflects the
Companys best estimate of losses inherent in the
Companys receivable portfolio determined on the basis of
historical experience, specific allowances for known troubled
accounts and other currently available evidence.
Long-Lived
Assets
Property
and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets.
The useful lives are generally as follows:
|
|
|
Computer equipment
|
|
3 to 5 years
|
Office equipment, furniture and fixtures
|
|
4 to 7 years
|
Software
|
|
3 to 5 years
|
Building and improvements
|
|
Up to 40 years
|
Web site development costs
|
|
3 years
|
Leasehold improvements
|
|
Shorter of useful life or lease term
|
Expenditures for maintenance, repair and renewals of minor items
are charged to expense as incurred. Major improvements are
capitalized.
Goodwill
and Intangible Assets
Goodwill and intangible assets result from business combinations
accounted for under the acquisition method, formerly the
purchase method. Goodwill and other intangible assets with
indefinite lives are not amortized and are subjected to
impairment review by applying fair value based tests. Intangible
assets with definite lives are amortized on a straight-line
basis over the individually estimated useful lives of the
related assets as follows:
|
|
|
Content
|
|
3 to 5 years
|
Customer relationships
|
|
5 to 12 years
|
Acquired technology and patents
|
|
3 years
|
Trade names
|
|
10 years
|
F-12
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recoverability
The Company reviews the carrying value of goodwill and
indefinite lived intangible assets annually and whenever
indicators of impairment are present. The Company determines
whether goodwill may be impaired by comparing the carrying value
of its reporting unit to the fair value of its reporting unit
determined using an income approach valuation. A reporting unit
is defined as an operating segment or one level below an
operating segment.
Long-lived assets used in operations are reviewed for impairment
whenever events or changes in circumstances indicate that
carrying amounts may not be recoverable. For long-lived assets
to be held and used, the Company recognizes an impairment loss
only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based
on the difference between the carrying amount and the fair
value. Long-lived assets held for sale are reported at the lower
of cost or fair value less costs to sell.
Based on the Companys analysis, there was no impairment of
goodwill and indefinite lived intangible assets of any of the
Companys continuing operations in connection with the
annual impairment tests that were performed during the years
ended December 31, 2009, 2008 and 2007.
Internal
Use Software
Software development costs that are incurred in the preliminary
project stage are expensed as incurred. Once certain criteria
have been met, internal and external direct costs incurred in
developing or obtaining computer software are capitalized. The
Company capitalized $4,354 and $2,797 during the years ended
December 31, 2009 and 2008, respectively. Capitalized
internal use software development costs are included in property
and equipment in the accompanying consolidated balance sheets.
Training and data conversion costs are expensed as incurred.
Capitalized software costs are depreciated over a three-year
period. Depreciation expense related to internal use software
was $3,797, $3,699 and $3,492 for the years ended
December 31, 2009, 2008 and 2007, respectively.
Web Site
Development Costs
Costs related to the planning and post implementation phases of
WebMDs Web site development efforts, as well as minor
enhancements and maintenance, are expensed as incurred. Direct
costs incurred in the development phase are capitalized. The
Company capitalized $3,906 and $6,289 during the years ended
December 31, 2009 and 2008, respectively. These capitalized
costs are included in property and equipment in the accompanying
consolidated balance sheets and are depreciated over a
three-year period. Depreciation expense related to Web site
development costs was $7,140, $6,644 and $4,501 during the years
ended December 31, 2009, 2008 and 2007, respectively.
Restricted
Cash
The Companys restricted cash primarily relates to
collateral for letters of credit obtained to support the
Companys operations. As of December 31, 2009 and
2008, the total restricted cash was $2,334 and $3,665,
respectively, and is included in other assets in the
accompanying consolidated balance sheets.
Deferred
Charges
Other assets includes costs associated with the issuance of the
convertible notes that are amortized to interest expense in the
accompanying consolidated statements of operations, using the
effective interest method over the period from issuance through
the earliest date on which holders can demand redemption. The
Company capitalized $8,493 of issuance costs in connection with
the 2005 issuance of the $300,000
31/8% Convertible
Notes due 2025 and $10,411 of issuance costs in connection with
the 2003 issuance of the
F-13
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$350,000 1.75% Convertible Subordinated Notes due 2023. The
aggregate amortization of these issuance costs, which is
included within interest expense in the accompanying statements
of operations, was $2,359, $2,682 and $2,555 for the years ended
December 31, 2009, 2008 and 2007, respectively. In
connection with the repurchase of the 1.75% Notes and
31/8%
Notes during 2009, $1,260 of issuance costs were written off. As
of December 31, 2009 and 2008, the total unamortized
issuance costs for all outstanding convertible notes were $3,697
and $7,316, respectively.
Leases
The Company recognizes rent expense on a straight-line basis,
including predetermined fixed escalations, over the initial
lease term including reasonably assured renewal periods, net of
lease incentives, from the time that the Company controls the
leased property. Leasehold improvements made at the inception of
the lease are amortized over the shorter of the useful life of
the asset or the lease term. Lease incentives are recorded as a
deferred credit and recognized as a reduction to rent expense on
a straight-line basis over the lease term as described above.
Revenue
Recognition
Revenue from advertising is recognized as advertisements are
delivered or as publications are distributed. Revenue from
sponsorship arrangements, content syndication and distribution
arrangements, information services and licenses of healthcare
management tools and private portals as well as related health
coaching services are recognized ratably over the term of the
applicable agreement. Revenue from the sponsorship of CME is
recognized over the period the Company substantially completes
its contractual deliverables as determined by the applicable
agreements. When contractual arrangements contain multiple
elements, revenue is allocated to each element based on its
relative fair value determined using prices charged when
elements are sold separately. In certain instances where fair
value does not exist for all the elements, the amount of revenue
allocated to the delivered elements equals the total
consideration less the fair value of the undelivered elements.
In instances where fair value does not exist for the undelivered
elements, revenue is recognized when the last element is
delivered.
Sales,
Use and Value Added Tax
The Company excludes sales, use and value added tax from revenue
in the accompanying consolidated statements of operations.
Advertising
Costs
Advertising costs are generally expensed as incurred and totaled
$10,929, $10,852 and $9,779 in 2009, 2008 and 2007,
respectively. Included in advertising expense were non-cash
advertising costs of $1,753, $5,097 and $5,264 in 2009, 2008 and
2007, respectively. These non-cash advertising costs resulted
from a strategic relationship with News Corporation that the
Company entered into in 2000 and amended in 2001, through which
the Company received rights to an aggregate of $205,000 in
advertising services from News Corporation to be used over nine
years expiring in 2009, in exchange for equity securities issued
by the Company. The advertising services were initially recorded
at fair value determined using a discounted cash flow
methodology, and were amortized as the advertisements were
broadcast. As of December 31, 2008, unamortized prepaid
advertising services was $1,753 and was included in prepaid
expenses and other current assets. As of December 31, 2009,
there were no remaining prepaid advertising services.
Foreign
Currency
The financial statements and transactions of the Companys
foreign facilities are generally maintained in their local
currency. In accordance with SFAS No. 52,
Foreign Currency Translation, the translation of
foreign currencies into United States dollars is performed for
balance sheet accounts using current exchange
F-14
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
rates in effect at the balance sheet date and for revenue and
expense accounts using average exchange rates during the year.
The gains or losses resulting from translation are included as a
component of accumulated other comprehensive income within
equity. Foreign currency transaction gains and losses are
included in net income attributable to HLTH stockholders and
were not material in any of the periods presented. The
Companys foreign operations are not significant except for
the foreign operations of the Companys Porex business,
which was sold on October 19, 2009 and which was included
in discontinued operations during the periods presented in the
accompanying financial statements.
Concentration
of Credit Risk
None of the Companys customers individually accounted for
more than 10% of the Companys revenue in 2009, 2008 or
2007 or more than 10% of the Companys accounts receivable
as of December 31, 2009, 2008 or 2007.
The Companys revenue is principally generated in the
United States. An adverse change in economic conditions in the
United States could negatively affect the Companys revenue
and results of operations. The Company recorded revenue from
foreign customers of $3,693, $3,417 and $3,660 during the years
ended December 31, 2009, 2008 and 2007, respectively.
Income
Taxes
Deferred income taxes are recognized for the future tax
consequence of differences between the tax and financial
reporting basis of assets and liabilities at each reporting
period. A valuation allowance is established to reduce deferred
tax assets to the amount expected to be realized. Tax
contingencies are recorded to address potential exposure
involving tax positions the Company has taken that could be
challenged by tax authorities. These potential exposures result
from applications of various statutes, rules, regulations and
interpretations. The Companys estimates of tax
contingencies contain assumptions and judgments about potential
actions by taxing jurisdictions.
Effective January 1, 2007, the Company adopted the
authoritative guidance which clarifies the accounting for
uncertainty in income taxes recognized in the financial
statements. The guidance prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. It also provides guidance on derecognizing,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. Consistent with its
historical financial reporting, the Company has elected to
reflect interest and penalties related to uncertain tax
positions as part of the income tax provision in the
accompanying consolidated statements of operations. Upon
adoption, the Company reduced its existing reserves for
uncertain income tax positions by $1,475, primarily related to a
reduction in state income tax matters. This reduction was
recorded as a cumulative effect adjustment to accumulated
deficit as of January 1, 2007. In addition, the Company
reduced $5,213 of a deferred tax asset and its associated
valuation allowance upon adoption of this authoritative guidance.
Accounting
for Stock-Based Compensation
Effective January 1, 2006 the Company adopted authoritative
guidance which required all share-based payments to employees,
including grants of employee stock options, to be recognized as
compensation expense over the service period (generally the
vesting period) in the consolidated financial statements based
on their fair values. The fair value of each option granted is
estimated on the date of grant using the Black-Scholes option
pricing model. The assumptions used in this model are expected
dividend yield, expected volatility, risk-free interest rate and
expected term. Unvested stock options and restricted stock
awards that were granted prior to January 1, 2006 continued
to be accounted for, using the same grant date fair value and
same expense attribution method used under previously issued
authoritative guidance, except that all awards began to be
recognized in the results of operations over the remaining
vesting periods.
F-15
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net
Income Attributable to Company Stockholders Per Common
Share
Basic income (loss) per common share has been computed using the
weighted-average number of shares of common stock outstanding
during the period, increased to give effect to the participating
rights of the convertible redeemable exchangeable preferred
stock during the periods it was outstanding. Diluted income
(loss) per common share has been computed using the
weighted-average number of shares of common stock outstanding
during the period, increased to give effect to potentially
dilutive securities and assumes that any dilutive convertible
notes were converted, only in the periods in which such effect
is dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Amounts Attributable to Company Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations(1)
|
|
$
|
66,231
|
|
|
$
|
465,725
|
|
|
$
|
31,845
|
|
Convertible redeemable exchangeable preferred stock fee
|
|
|
|
|
|
|
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations Basic
|
|
|
66,231
|
|
|
|
465,725
|
|
|
|
32,019
|
|
Interest expense on 1.75% convertible notes, net of tax
|
|
|
3,714
|
|
|
|
4,600
|
|
|
|
|
|
Interest expense on
31/8%
convertible notes, net of tax
|
|
|
|
|
|
|
11,255
|
|
|
|
|
|
Effect of dilutive securities of subsidiary
|
|
|
(343
|
)
|
|
|
(587
|
)
|
|
|
(1,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations Diluted
|
|
$
|
69,602
|
|
|
$
|
480,993
|
|
|
$
|
30,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of
tax
Basic(1)
|
|
$
|
49,727
|
|
|
$
|
94,498
|
|
|
$
|
(19,260
|
)
|
Effect of dilutive securities of subsidiary
|
|
|
53
|
|
|
|
(27
|
)
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of
tax Diluted
|
|
$
|
49,780
|
|
|
$
|
94,471
|
|
|
$
|
(19,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
47,400
|
|
|
|
77,738
|
|
|
|
77,349
|
|
Convertible redeemable exchangeable preferred stock
|
|
|
|
|
|
|
|
|
|
|
2,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares Basic
|
|
|
47,400
|
|
|
|
77,738
|
|
|
|
79,694
|
|
Employee stock options, restricted stock and warrants
|
|
|
2,265
|
|
|
|
1,414
|
|
|
|
4,192
|
|
1.75% Convertible notes
|
|
|
8,075
|
|
|
|
10,107
|
|
|
|
|
|
31/8% Convertible
notes
|
|
|
|
|
|
|
8,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares after assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
conversions Diluted
|
|
|
57,740
|
|
|
|
97,824
|
|
|
|
83,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.40
|
|
|
$
|
5.99
|
|
|
$
|
0.40
|
|
Income (loss) from discontinued operations
|
|
|
1.05
|
|
|
|
1.22
|
|
|
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
2.45
|
|
|
$
|
7.21
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.21
|
|
|
$
|
4.92
|
|
|
$
|
0.36
|
|
Income (loss) from discontinued operations
|
|
|
0.86
|
|
|
|
0.96
|
|
|
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Company stockholders
|
|
$
|
2.07
|
|
|
$
|
5.88
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For 2009, income from continuing
operations and discontinued operations was adjusted for the
effect of participating non-vested restricted stock of $787 and
$591, respectively.
|
F-16
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has excluded convertible subordinated notes and
convertible notes, as well as certain outstanding warrants,
stock options and restricted stock, from the calculation of
diluted income (loss) per common share during the periods in
which such securities were anti-dilutive. The following table
presents the total number of shares that could potentially
dilute income (loss) per common share in the future that were
not included in the computation of diluted income (loss) per
common share during the periods presented (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Options, restricted stock and warrants
|
|
|
12,929
|
|
|
|
14,510
|
|
|
|
8,782
|
|
Convertible notes
|
|
|
7,147
|
|
|
|
|
|
|
|
18,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,076
|
|
|
|
14,510
|
|
|
|
27,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations
The operating results of a business unit are reported as
discontinued if its operations and cash flows can be clearly
distinguished from the rest of the business, the operations have
been sold or will be sold within a year, there will be no
continuing involvement in the operation after the disposal date
and certain other criteria are met. Significant judgments are
involved in determining whether a business component meets the
criteria for discontinued operation reporting and the period in
which these criteria are met.
Reclassifications
Certain reclassifications have been made to the prior period
financial statements to conform with the current period
presentation.
Recent
Accounting Pronouncements
Accounting
Pronouncements Adopted During 2009
The Company adopted the new authoritative guidance which
establishes accounting and reporting standards for
noncontrolling interests, previously called minority interests.
This new guidance requires that a noncontrolling interest be
reported in the Companys consolidated balance sheets
within equity and separate from the parent companys
equity. Also, the new guidance requires consolidated net income
to be reported at amounts inclusive of both the parents
and noncontrolling interests shares and, separately, the
amounts of consolidated net income attributable to the parent
and noncontrolling interest, all on the face of the consolidated
operating statement. In addition, discontinued operations and
continuing operations reflected as part of the noncontrolling
interest should be allocated between continuing operations and
discontinued operations for the calculation of earnings per
share. The consolidated financial statements reflect the
retrospective application of this accounting standard adopted by
the Company effective January 1, 2009.
The Company adopted the new authoritative guidance which
requires cash settled convertible debt to be separated into debt
and equity components at issuance and a value to be assigned to
each. This new guidance affects the accounting for the
Companys
31/8% Convertible
Notes due 2025 (the
31/8% Notes).
The value assigned to the debt component will be the estimated
fair value, as of the issuance date, of a similar bond without
the conversion feature. The difference between the bonds
cash proceeds and this estimated fair value, which was $61,300
at the time the
31/8% Notes
were issued during August 2005, represents a debt discount and
will be amortized to interest expense over the period from
issuance to August 2012 (the first date on which the Company may
be required to repurchase the
31/8% Notes
at the option of the holder). The $61,300 also represents the
value of the equity component on the
31/8% Notes
and was included within additional paid-
F-17
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in capital through December 31, 2008. The consolidated
financial statements reflect the retrospective application of
this accounting standard adopted by the Company effective
January 1, 2009.
Effective January 1, 2009, the Company adopted the revised
authoritative guidance on business combinations which changed
existing practice, in part, as follows: (1) contingent
consideration arrangements are now fair valued at the
acquisition date and included on that basis in the purchase
price consideration; (2) transaction costs are now expensed
as incurred, rather than capitalized as part of the purchase
price; (3) reversal of valuation allowances created in
purchase accounting are now recorded through the income tax
provision; and (4) in order to accrue for a restructuring
plan in purchase accounting, all authoritative guidance would
have to be met at the acquisition date. While the adoption of
this standard did not have a material impact on the
Companys financial statements, it could materially change
the accounting for business combinations consummated in the
future and for tax matters relating to prior acquisitions
settled subsequent to December 31, 2008.
Effective January 1, 2009, the Company adopted the
authoritative guidance which clarifies that unvested share-based
payment awards with a right to receive nonforfeitable dividends
are participating securities. The Company reflected the impact
on the year ended December 31, 2009 in the Net Income
(Loss) Per Common Share section of Note 2. The adoption of
the new guidance did not have a material impact on the years
ended December 31, 2008 and 2007 and accordingly, those
periods were not retrospectively adjusted.
In April 2009, the Financial Accounting Standards Board
(FASB) issued authoritative guidance requiring
disclosures about fair value of financial instruments in interim
reporting periods. Such disclosures were previously required
only in annual financial statements. Because this pronouncement
applies only to financial statement disclosure, it did not have
an impact on the Companys results of operations, financial
position or cash flows.
In April 2009, the FASB issued authoritative guidance which
changed when and how to assess
other-than-temporary
impairments of securities and to improve the financial statement
presentation of such impairments. A more detailed description of
this new guidance and the impact of its adoption is discussed in
Note 16.
In May 2009, the FASB issued authoritative guidance establishing
general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial
statements are issued. This new guidance was effective for
interim or annual financial periods ending after June 15,
2009.
In June 2009, the FASB issued authoritative guidance which
established the FASB Accounting Standards Codification
(Codification). On the effective date of this new
guidance, the Codification superseded all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered,
non-SEC accounting literature not included in the Codification
became non-authoritative. This new guidance was effective for
financial statements issued for interim and annual periods
ending after September 15, 2009. Because this pronouncement
applies only to financial statement disclosure, it did not have
an impact on the Companys results of operations, financial
position or cash flows.
Accounting
Pronouncements to be Adopted in the Future
In October 2009, the FASB issued authoritative guidance on
revenue recognition that will become effective for the Company
beginning January 1, 2011, with earlier adoption permitted.
Under the new guidance on arrangements that include software
elements, tangible products that have software components that
are essential to the functionality of the tangible product will
no longer be within the scope of the software revenue
recognition guidance, and software-enabled products will now be
subject to other relevant revenue recognition guidance.
Additionally, the FASB issued authoritative guidance on revenue
arrangements with multiple deliverables that are outside the
scope of the software revenue recognition guidance. Under the
new guidance, when vendor specific objective evidence or third
party evidence for deliverables in an arrangement cannot be
determined, a best estimate of the selling price is required to
separate deliverables. In addition, revenue under multiple
element arrangements will be allocated using the relative
selling price method. The
F-18
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
new guidance includes new disclosure requirements on how the
application of the relative selling price method affects the
timing and amount of revenue recognition. The Company has not
yet determined the impact that this new guidance will have on
its results of operations and financial position.
In January 2010, FASB issued an amendment regarding improving
disclosures about fair value measurements. This new guidance
requires some new disclosures and clarifies some existing
disclosure requirements about fair value measurement. The new
disclosures and clarifications of existing disclosures are
effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements in the roll forward
of activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning after
December 15, 2010 and for interim periods within those
fiscal years. The Company has not yet determined the impact that
this guidance will have on its results of operations and
financial position.
|
|
3.
|
Discontinued
Operations
|
Porex
In February 2008, the Company announced its intention to divest
its Porex business, and on October 19, 2009, the Company
completed the sale. In connection with the sale of Porex, the
Company received $74,378 in cash at closing, subject to
customary adjustment based on the amount of Porexs working
capital, received $67,500 in senior secured notes (Senior
Secured Notes) and incurred approximately $4,900 of
transaction expenses. The Senior Secured Notes are secured by
certain assets of the acquirer. The Senior Secured Notes accrue
interest at a rate of 8.75% per annum, payable quarterly. The
Senior Secured Notes were issued in four series: the Senior
Secured Notes of the first, second and third series have an
aggregate principal amount of $10,000 each and mature on the
first, second and third anniversaries of the closing,
respectively; and the Senior Secured Notes of the fourth series
have an aggregate principal amount of $37,500 and matures on the
fourth anniversary of the closing. The Company determined the
fair value of the Senior Secured Notes was $63,598. In addition,
Company agreed to indemnify Porex for certain tax matters, which
were estimated by the Company to be approximately $4,800. An
accrual for these tax matters is included within liabilities of
discontinued operations, within the accompanying balance sheet
as of December 31, 2009. In connection with the sale of
Porex, the Company recognized a pre-tax gain of $25,790.
Summarized operating results for the discontinued operations of
Porex are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Revenue
|
|
$
|
68,208
|
|
|
$
|
94,407
|
|
|
$
|
92,581
|
|
Earnings before taxes
|
|
|
14,137
|
|
|
|
19,294
|
|
|
|
20,790
|
|
Gain on disposal before taxes
|
|
|
25,790
|
|
|
|
|
|
|
|
|
|
F-19
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The major classes of assets and liabilities of Porex were as
follows as of December 31, 2008:
|
|
|
|
|
Assets of discontinued operations:
|
|
|
|
|
Accounts receivable, net
|
|
$
|
13,866
|
|
Inventory
|
|
|
11,978
|
|
Property and equipment, net
|
|
|
21,487
|
|
Goodwill
|
|
|
42,297
|
|
Intangible assets, net
|
|
|
24,724
|
|
Deferred tax assets
|
|
|
1,420
|
|
Other assets
|
|
|
3,003
|
|
|
|
|
|
|
Total assets
|
|
$
|
118,775
|
|
|
|
|
|
|
Liabilities of discontinued operations:
|
|
|
|
|
Accounts payable
|
|
$
|
1,601
|
|
Accrued expenses
|
|
|
6,654
|
|
Deferred tax liabilities
|
|
|
12,095
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
20,350
|
|
|
|
|
|
|
Little
Blue Book Print Directory Business
In March 2009, the Company decided to divest LBB. As a result,
the historical financial information for LBB has been reflected
as discontinued operations in the accompanying consolidated
financial statements. During the three months ended
June 30, 2009, the Company recorded an impairment charge of
$8,300 to reduce the carrying value of LBB to its current
estimated fair value. On September 30, 2009, the Company
completed the sale of LBB in which it received cash proceeds of
$2,590. Summarized operating results for the discontinued
operations of LBB and the loss recognized on the sale are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Revenue
|
|
$
|
4,066
|
|
|
$
|
9,235
|
|
|
$
|
12,461
|
|
(Loss) earnings before taxes
|
|
|
(8,432
|
)
|
|
|
1,954
|
|
|
|
4,462
|
|
Loss on disposal before taxes
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
F-20
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The major classes of assets and liabilities of LBB were as
follows as of December 31, 2008:
|
|
|
|
|
Assets of discontinued operations:
|
|
|
|
|
Accounts receivable, net
|
|
$
|
1,058
|
|
Property and equipment, net
|
|
|
98
|
|
Goodwill
|
|
|
11,044
|
|
Intangible assets, net
|
|
|
362
|
|
Other assets
|
|
|
13
|
|
|
|
|
|
|
Total assets
|
|
$
|
12,575
|
|
|
|
|
|
|
Liabilities of discontinued operations:
|
|
|
|
|
Accrued expenses
|
|
$
|
113
|
|
Deferred revenue
|
|
|
876
|
|
Deferred tax liability
|
|
|
1,570
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,559
|
|
|
|
|
|
|
ViPS
During February 2008, the Company announced its intention to
divest its ViPS business and on July 22, 2008, the Company
completed the ViPS Sale to an affiliate of General Dynamics
Corporation. The Company received cash proceeds of $223,175, net
of a working capital adjustment, professional fees and other
expenses associated with the ViPS Sale. In connection with the
ViPS Sale, the Company recognized a pre-tax gain of $96,969 and
incurred approximately $1,472 of professional fees and other
expenses.
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2008
|
|
2007
|
|
Revenue
|
|
$
|
57,497
|
|
|
$
|
103,083
|
|
Earnings before taxes
|
|
|
8,121
|
|
|
|
6,601
|
|
Gain on disposal before taxes
|
|
|
96,969
|
|
|
|
|
|
ACS/ACP
Business
As of December 31, 2007, the Company entered into an Asset
Sale Agreement and completed the sale of certain assets and
certain liabilities of its medical reference publications
business, including the publications ACP Medicine and
ACS Surgery: Principles and Practice. ACP Medicine and
ACS Surgery are official publications of the American
College of Physicians and the American College of Surgeons,
respectively. The Company received net cash proceeds of $1,925
during 2008 and $250 during 2009. The Company incurred
approximately $750 of professional fees and other expenses
associated with the sale of the ACS/ACP Business. In connection
with the sale, the Company recognized a pre-tax loss of $234 and
pre-tax gain of $3,394 for the years ended December 31,
2008 and 2007, respectively. Summarized operating results for
the discontinued operations of the ACS/ACP Business and the gain
recognized on the sale are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2008
|
|
2007
|
|
Revenue
|
|
$
|
|
|
|
$
|
4,219
|
|
Loss before taxes
|
|
|
|
|
|
|
(129
|
)
|
(Loss) gain on disposal before taxes
|
|
|
(234
|
)
|
|
|
3,394
|
|
F-21
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
EPS
On September 14, 2006, the Company completed the sale of
Emdeon Practice Services, Inc. (together with its subsidiaries,
EPS) to Sage Software, Inc. (Sage
Software), an indirect wholly owned subsidiary of The Sage
Group plc (the EPS Sale). The Company has certain
indemnity obligations to advance amounts for reasonable defense
costs for initially ten, and now four, former officers and
directors of EPS, who were indicted in connection with the
previously disclosed investigation by the United States Attorney
for the District of South Carolina (the
Investigation), which is more fully described in
Note 11. In connection with the EPS Sale, the Company
agreed to indemnify Sage Software relating to these indemnity
obligations. During the year ended December 31, 2007, based
on information available at that time, the Company determined a
reasonable estimate of the range of probable costs with respect
to its indemnification obligation and accordingly, recorded an
aggregate pre-tax charge of $73,347, which represented the
Companys estimate of the low end of the probable range of
costs related to this matter. The Company had reserved the low
end of the probable range of costs because no estimate within
the range was a better estimate than any other amount. That
estimate included assumptions as to the duration of the trial
and pre-trial periods, and the defense costs to be incurred
during these periods. The Company updated the estimated range of
its indemnification obligation based on new information received
during the year ended December 31, 2009 and 2008, and as a
result, recorded additional pre-tax charges of $14,367 and
$29,078, respectively. The probable future costs with respect to
this matter are estimated to be approximately $25,000 as of
December 31, 2009, which includes costs that have been
incurred prior to, but were not yet paid, as of
December 31, 2009. The ultimate outcome of this matter is
still uncertain, and the estimate of future costs includes
assumptions as to the duration of the trial and the defense
costs to be incurred during the remainder of the pre-trial
period and during the trial period. Accordingly, the amount of
cost the Company may ultimately incur could be substantially
more than the reserve the Company has currently provided. If the
recorded reserves are insufficient to cover the ultimate cost of
this matter, the Company will need to record additional charges
to its consolidated statement of operations in future periods.
The accrual related to this obligation was $25,437 and $47,550
as of December 31, 2009 and 2008, respectively, and is
included within liabilities of discontinued operations in the
accompanying consolidated balance sheets.
Also included within liabilities of discontinued operations
related to this matter is $3,957 and $30,312, as of
December 31, 2009 and 2008, respectively, which represents
certain reimbursements received from the Companys
insurance carriers between July 31, 2008 and
December 31, 2009. The Company deferred recognizing these
insurance reimbursements within the consolidated statement of
operations given the pending Coverage Litigation, which is
described below in Note 11. During the years ended
December 31, 2009 and 2008, the Company received
reimbursements from its insurance carriers in the amount of
$53,150 and $14,625, respectively, which reimbursements are no
longer subject to the pending Coverage Litigation. Accordingly,
the Company recognized these amounts within consolidated (loss)
income from discontinued operations during the years ended
December 31, 2009 and 2007, respectively.
Also included in income (loss) from discontinued operations for
the years ended December 31, 2009, 2008 and 2007 is $403,
$790 and $662, respectively, primarily related to the reversal
of certain sales and use tax contingencies, which were
indemnified by the Company for Sage Software, resulting from the
expiration of statutes of limitations.
|
|
4.
|
Emdeon
Business Services
|
On November 16, 2006, the Company completed the sale of a
52% interest in the entities comprising its Emdeon Business
Services business (EBS) to an affiliate of General
Atlantic LLC (GA), (the 2006 EBS Sale).
The 2006 EBS Sale was structured so that the Company and GA each
owned interests in EBS Master LLC (EBSCo), a limited
liability company owning the entities comprising EBS. The
Company received gross cash proceeds of approximately $1,220,000
in connection with the 2006 EBS Sale, and recognized a
F-22
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
gain of $352,297 during 2006, and recognized an additional gain
of $399 during 2007 which related to the finalization of a
working capital adjustment.
In connection with the 2006 EBS Sale, EBSCo agreed to continue
its strategic relationship with the Company and to market the
Companys online decision-support platform and tools that
support consumer directed health plans and health savings
accounts to its payer customers for integration into their
consumer directed health plan offerings. In addition, EBSCo
agreed to license certain de-identified data to the Company and
its subsidiaries through February 2018.
Beginning on November 17, 2006, the Companys
remaining 48% ownership interest in EBSCo was reflected as an
investment in the Companys consolidated financial
statements, accounted for under the equity method and the
Companys share of EBSCos net earnings was reported
as equity in earnings of EBS Master LLC in the accompanying
consolidated statements of operations through February 8,
2008.
On February 8, 2008, the Company entered into a securities
purchase agreement and simultaneously completed the sale of its
48% noncontrolling ownership interest in EBS Master LLC (the
2008 EBSCo Sale) for $574,617 in cash, net of
professional fees and other expenses, to an affiliate of GA and
affiliates of Hellman & Friedman, LLC. In connection
with the 2008 EBSCo Sale, the Company recognized a pre-tax gain
of $538,024.
The Companys share of EBSCos net earnings is
reported as equity in earnings of EBS Master LLC in the
accompanying consolidated statements of operations. The Carrying
value of the Companys investment in EBSCo of $25,261 as of
December 31, 2007, differed from 48% of the net equity of
EBSCo as of December 31, 2007. The difference is
principally due to the excess of the fair value of EBSCos
net assets as adjusted for in purchase accounting, over the
carryover basis of the Companys investment in EBSCo. The
following is summarized financial information of EBSCo during
the periods prior to the date of the 2008 EBSCo Sale on
February 8, 2008:
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
|
January 1, 2008
|
|
|
|
|
Through
|
|
Year Ended
|
|
|
February 8, 2008
|
|
December 31, 2007
|
|
Revenue
|
|
$
|
94,481
|
|
|
$
|
808,537
|
|
Cost of operations
|
|
|
44,633
|
|
|
|
517,884
|
|
Net income
|
|
|
5,551
|
|
|
|
34,493
|
|
|
|
5.
|
Cost
Method Investment
|
On November 19, 2008, the Company acquired Series D
preferred stock in a privately held company. The total
investment was approximately $6,471, which included
approximately $470 of acquisition costs. Since the Company does
not have the ability to exercise significant influence over this
company, the investment is accounted for under the cost method
and is included within other assets in the accompanying balance
sheet as of December 31, 2009 and 2008.
|
|
6.
|
Convertible
Redeemable Exchangeable Preferred Stock
|
On March 19, 2004, the Company issued $100,000 of
Convertible Redeemable Exchangeable Preferred Stock (the
Preferred Stock) in a private transaction to
CalPERS/PCG Corporate Partners, LLC (CalPERS/PCG Corporate
Partners). CalPERS/PCG Corporate Partners is a private
equity fund managed by the Pacific Corporate Group and
principally backed by California Public Employees
Retirement System, or CalPERS.
The Preferred Stock had a liquidation preference of $100,000 in
the aggregate and was convertible into 4,727,659 shares of
the Companys common stock in the aggregate, representing a
conversion price of $21.15 per share of common stock. So long as
the Preferred Stock remained outstanding, the Company was
required
F-23
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to pay to CalPERS/PCG Corporate Partners, on a quarterly basis,
an aggregate annual fee of 0.35% of the face amount of the then
outstanding Preferred Stock. Holders of the Preferred Stock had
the right to vote, together with the holders of the
Companys common stock on an as converted to common stock
basis, on matters that were put to a vote of the common stock
holders. The Certificate of Designations for the Preferred Stock
also provided that the Company would not, without the prior
approval of holders of 75% of the shares of Preferred Stock then
outstanding, voting as a separate class, issue any additional
shares of the Preferred Stock, or create any other class or
series of capital stock that ranks senior to or on a parity with
the Preferred Stock.
On June 26, 2007, the Company notified the Holder that it
had elected to redeem all outstanding shares of its Preferred
Stock. On June 29, 2007, prior to the date set for the
redemption, the Holder converted all of the then outstanding
Preferred Stock into 4,727,659 shares of the Companys
common stock.
The Company incurred issuance costs related to the Preferred
Stock of approximately $1,885, which were recorded against the
Preferred Stock in the accompanying consolidated balance sheets.
The issuance costs were being amortized to accretion of
convertible redeemable exchangeable preferred stock, using the
effective interest method. In 2007, $117 was recorded to
accretion of convertible redeemable exchangeable preferred
stock, included within equity. In connection with the conversion
of the Preferred Stock to common stock, the unamortized portion
of the deferred issuance costs related to the Preferred Stock of
$1,115 was reflected as a reduction to equity during the year
ended December 31, 2007.
31/8% Convertible
Notes due 2025
During 2005, the Company issued $300,000 aggregate principal
amount of
31/8% Convertible
Notes due 2025 (the
31/8% Notes)
in a private offering. Unless previously redeemed or converted,
the
31/8% Notes
will mature on September 1, 2025. Interest on the
31/8% Notes
accrues at the rate of
31/8%
per annum and is payable semiannually on March 1 and
September 1, commencing March 1, 2006. The Company
will also pay contingent interest of 0.25% per annum to the
holders of the
31/8% Notes
during specified six-month periods, commencing with the
six-month period beginning on September 1, 2012, if the
average trading price of a
31/8% Note
for the specified period equals 120% or more of the principal
amount of the
31/8% Notes.
As of the time the
31/8%
Notes were issued, they were convertible into an aggregate of
8,565,096 shares of common stock (representing a conversion
price of $35.03 per share). Upon conversion, the Company will
have the right to deliver, in lieu of shares of common stock,
cash or a combination of cash and shares of common stock.
Holders of the
31/8% Notes
may require the Company to repurchase their
31/8% Notes
on September 1, 2012, September 1, 2015 and
September 1, 2020, at a price equal to 100% of the
principal amount of the
31/8% Notes
being repurchased, plus any accrued and unpaid interest, payable
in cash. Additionally, the holders of the
31/8% Notes
may require the Company to repurchase the
31/8% Notes
upon a change in control of the Company at a price equal to 100%
of the principal amount of the
31/8% Notes,
plus accrued and unpaid interest, payable in cash or, at the
Companys option, in shares of the Companys common
stock or in a combination of cash and shares of the
Companys common stock. On or after September 5, 2010,
September 5, 2011 and September 5, 2012, the
31/8% Notes
are redeemable, at the option of the Company, for cash at
redemption prices of 100.893%, 100.446% and 100.0%,
respectively, plus accrued and unpaid interest.
The Company separately accounts for the debt and equity
components of its
31/8% Notes
by assigning a value to the debt component, which was the
estimated fair value, as of the issuance date, of a similar bond
without the conversion feature. The difference between the
original face value and this estimated fair value, which was
$61,300 at the time the
31/8% Notes
were issued during August 2005, represents a debt discount and
will be amortized to interest expense over the period from
issuance to August 2012 (when the
31/8% Notes
F-24
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are first redeemable at the option of the holder). As of
December 31, 2009 and 2008, the debt discount was $22,641
and $35,982, respectively. The decrease in value of the equity
component included in additional paid-in capital was due to the
repurchases of the
31/8% Notes
during 2009. The following table reflects the interest expense
recognized and effective interest rate for the Companys
31/8% Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Contractual coupon interest
|
|
$
|
8,310
|
|
|
$
|
9,375
|
|
|
$
|
9,375
|
|
Amortization of debt discount
|
|
|
7,846
|
|
|
|
8,244
|
|
|
|
7,655
|
|
Amortization of debt issuance costs
|
|
|
1,087
|
|
|
|
1,142
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense for
31/8%
Notes
|
|
$
|
17,243
|
|
|
$
|
18,761
|
|
|
$
|
18,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate
|
|
|
7.4
|
%
|
|
|
7.4
|
%
|
|
|
7.4
|
%
|
During 2009, the Company repurchased $49,700 principal amount of
its
31/8% Notes
for $43,734 in cash. The Company recognized an aggregate pre-tax
gain of $5,326 related to the repurchases of the
31/8% Notes
during 2009, which is reflected as gain on repurchases of
convertible notes in the accompanying consolidated statement of
operations. As of December 31, 2009, the remaining
principal amount of the
31/8% Notes
outstanding was $250,300 which was convertible into
7.15 million shares of common stock.
1.75% Convertible
Subordinated Notes due 2023
During 2003, the Company issued $350,000 aggregate principal
amount of 1.75% Convertible Subordinated Notes due 2023
(the 1.75% Notes) in a private offering. Unless
previously redeemed or converted, the 1.75% Notes will
mature on June 15, 2023. Interest on the 1.75% Notes
accrues at the rate of 1.75% per annum and is payable
semiannually on June 15 and December 15. The Company will
also pay contingent interest of 0.25% per annum of the average
trading price of the 1.75% Notes during specified six-month
periods, commencing on June 20, 2010, if the average
trading price of the 1.75% Notes for specified periods
equals 120% or more of the principal amount of the
1.75% Notes.
As of the time the 1.75% Notes were issued, they were
convertible into an aggregate of 10,106,563 shares of
common stock (representing a conversion price of $34.63 per
share) if the sale price of the Companys common stock
exceeds 120% of the conversion price for specified periods and
in certain other circumstances. The 1.75% Notes are
redeemable by the Company after June 15, 2008 and prior to
June 20, 2010, subject to certain conditions, including the
sale price of the Companys common stock exceeding certain
levels for specified periods. If the 1.75% Notes are
redeemed by the Company during this period, the Company will be
required to make additional interest payments. After
June 20, 2010, the 1.75% Notes are redeemable at any
time for cash at 100% of their principal amount. Holders of the
1.75% Notes may require the Company to repurchase their
1.75% Notes on June 15, 2010, June 15, 2013 and
June 15, 2018, for cash at 100% of the principal amount of
the 1.75% Notes, plus accrued interest. As a result of this
repurchase right by the holders, the 1.75% Notes have been
classified as a current liability as of December 31, 2009.
Upon a change in control, holders may require the Company to
repurchase their 1.75% Notes for, at the Companys
option, cash or shares of common stock, or a combination
thereof, at a price equal to 100% of the principal amount of the
1.75% Notes being repurchased.
During 2009, the Company repurchased $85,417 principal amount of
its 1.75% Notes for $80,123 in cash. The Company recognized
an aggregate pre-tax gain of $4,794 related to the repurchases
of the 1.75% Notes during 2009, which is reflected as gain
on repurchases of convertible notes in the accompanying
consolidated statement of operations. As of December 31,
2009 the remaining principal amount of the 1.75% Notes
outstanding was $264,583 which was convertible into
7.64 million shares of common stock.
F-25
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Software
|
|
$
|
28,401
|
|
|
$
|
24,622
|
|
Computer equipment
|
|
|
31,663
|
|
|
|
26,145
|
|
Web site development costs
|
|
|
30,116
|
|
|
|
26,210
|
|
Leasehold improvements
|
|
|
22,353
|
|
|
|
19,494
|
|
Office equipment, furniture and fixtures
|
|
|
6,924
|
|
|
|
6,959
|
|
Land and buildings
|
|
|
1,847
|
|
|
|
3,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,304
|
|
|
|
106,718
|
|
Less: accumulated depreciation
|
|
|
(69,110
|
)
|
|
|
(50,085
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
52,194
|
|
|
$
|
56,633
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $21,877, $19,013 and $15,161 in 2009,
2008 and 2007, respectively.
Goodwill
and Intangible Assets
The changes in the carrying amount of goodwill during the years
ended December 31, 2009 and 2008 were as follows:
|
|
|
|
|
Balance as of January 1, 2008
|
|
$
|
206,279
|
|
Reversal of income tax valuation allowance and other adjustments
|
|
|
(4,027
|
)
|
Purchase price allocation
|
|
|
(148
|
)
|
|
|
|
|
|
Balance as of December 31, 2008 and 2009
|
|
$
|
202,104
|
|
|
|
|
|
|
Intangible assets subject to amortization consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Remaining
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Remaining
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Useful Life(a)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Useful Life(a)
|
|
|
Content
|
|
$
|
15,954
|
|
|
$
|
(15,482
|
)
|
|
$
|
472
|
|
|
|
1.0
|
|
|
$
|
15,954
|
|
|
$
|
(14,541
|
)
|
|
$
|
1,413
|
|
|
|
1.7
|
|
Customer relationships
|
|
|
34,057
|
|
|
|
(16,374
|
)
|
|
|
17,683
|
|
|
|
8.3
|
|
|
|
34,057
|
|
|
|
(12,872
|
)
|
|
|
21,185
|
|
|
|
8.8
|
|
Technology and patents
|
|
|
14,700
|
|
|
|
(14,700
|
)
|
|
|
|
|
|
|
|
|
|
|
14,700
|
|
|
|
(13,370
|
)
|
|
|
1,330
|
|
|
|
0.8
|
|
Trade namesdefinite lives
|
|
|
6,030
|
|
|
|
(2,629
|
)
|
|
|
3,401
|
|
|
|
6.4
|
|
|
|
6,030
|
|
|
|
(2,094
|
)
|
|
|
3,936
|
|
|
|
7.4
|
|
Trade namesindefinite lives
|
|
|
4,464
|
|
|
|
|
|
|
|
4,464
|
|
|
|
n/a
|
|
|
|
4,464
|
|
|
|
|
|
|
|
4,464
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75,205
|
|
|
$
|
(49,185
|
)
|
|
$
|
26,020
|
|
|
|
|
|
|
$
|
75,205
|
|
|
$
|
(42,877
|
)
|
|
$
|
32,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The calculation of the weighted
average remaining useful life is based on the net book value and
the remaining amortization period of each respective intangible
asset.
|
F-26
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization expense was $6,308, $9,397 and $12,647 in 2009,
2008 and 2007, respectively. Future amortization expense for
intangible assets is estimated to be:
|
|
|
|
|
Year Ending December 31:
|
|
|
|
|
2010
|
|
$
|
3,394
|
|
2011
|
|
|
2,627
|
|
2012
|
|
|
2,627
|
|
2013
|
|
|
2,627
|
|
2014
|
|
|
2,627
|
|
Thereafter
|
|
|
7,654
|
|
As a result of the completion of the integration of previously
acquired businesses and efficiencies that the Company was
continuing to realize from its infrastructure investments
combined with the continued reduction in HLTHs shared
services following the divestitures of EPS, EBS and ViPS, the
Company recorded a restructuring charge during 2008 of $7,416.
This amount included (i) $3,575 related to the purchase of
insurance for extended coverage during periods when the Company
owned the divested businesses, (ii) $3,391 related to
severance and (iii) $450 of costs to consolidate facilities
and other exit costs. The remaining accrual related to this
charge as of December 31, 2008 was $7,071 and was reflected
within accrued expenses in the accompanying consolidated balance
sheets. During 2009, this remaining accrual was substantially
paid in full.
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accrued compensation
|
|
$
|
32,012
|
|
|
$
|
23,258
|
|
Accrued outside services
|
|
|
4,148
|
|
|
|
4,714
|
|
Accrued marketing and distribution
|
|
|
4,051
|
|
|
|
1,937
|
|
Accrued income, sales and other taxes
|
|
|
1,745
|
|
|
|
3,204
|
|
Accrual for tendered shares not yet delivered
|
|
|
6,818
|
|
|
|
|
|
Accrued restructuring
|
|
|
|
|
|
|
7,071
|
|
Other accrued liabilities
|
|
|
14,947
|
|
|
|
14,411
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,721
|
|
|
$
|
54,595
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Commitments
and Contingencies
|
Legal
Proceedings
Litigation Regarding Distribution of Shares in Healtheon
Initial Public Offering
Seven purported class action lawsuits were filed against Morgan
Stanley & Co. Incorporated and Goldman
Sachs & Co., underwriters of the initial public
offering of HLTH (then known as Healtheon Corporation) in the
United States District Court for the Southern District of New
York in the summer and fall of 2001. Three of these suits also
named HLTH and certain of its former officers and directors as
defendants. Similar suits were filed in connection with over 300
other initial public offerings that occurred in 1999, 2000 and
2001.
The complaints against HLTH and its former officers and
directors alleged violations of Section 10(b) of the
Securities Exchange Act of 1934 and
Rule 10b-5
under that Act and Section 11 of the Securities Act of
F-27
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1933 because of failure to disclose certain practices alleged to
have occurred in connection with the distribution of shares in
the Healtheon initial public offering. Claims under
Section 12(a)(2) of the Securities Act of 1933 were also
brought against the underwriters. These claims were
consolidated, along with claims relating to over 300 other
initial public offerings, in the Southern District of New York.
After a lengthy mediation under the auspices of former United
States District Judge Nicholas Politan, the issuer defendants in
the consolidated action (including HLTH), the issuers
insurance carriers, and the plaintiffs reached an agreement on a
settlement to resolve the matter among the participating issuer
defendants, their insurers, and the plaintiffs. HLTH, and
virtually all of the approximately 260 other issuer defendants
who were eligible to participate, elected to participate in the
settlement. Although HLTH believed that the claims alleged in
the lawsuits were primarily directed at the underwriters and, as
they related to HLTH, were without merit, HLTH believed that the
settlement was beneficial to HLTH because it would have reduced
the time, expense and risks of further litigation, particularly
since all the other eligible issuer defendants elected to
participate, HLTHs insurance carriers strongly supported
the settlement, and HLTHs insurance carriers, not HLTH,
would have paid any funds required under the settlement.
On June 10, 2004, plaintiffs submitted to the court a
Stipulation and Agreement of Settlement with Defendant Issuers
and Individuals. Although the district court had preliminarily
approved the settlement, the parties terminated this settlement
after the Second Circuit Court of Appeals reversed the district
courts certification of the classes in nine related
focus cases in a ruling that was inconsistent with
the proposed settlement class. After termination of this
settlement, litigation proceeded in the nine focus
cases but was stayed in the cases involving the other
issuers, including HLTH.
After another lengthy mediation under the auspices of former
Judges Politan and Daniel Weinstein, all the parties to the
litigation reached a revised global settlement. This settlement
calls for the underwriters and the insurers for the issuers to
pay a total of $586 million to settle all of the
approximately 300 cases outstanding. HLTH is not obligated to
provide any money to fund the settlement. As with the previous
proposed settlement, although HLTH believes that the claims
alleged in the lawsuits were primarily directed at the
underwriters and, as they relate to HLTH, are without merit,
HLTH believed that the settlement was beneficial to HLTH because
it would reduce the time, expense and risks of further
litigation, particularly since all the other eligible issuer and
underwriter defendants elected to participate, HLTHs
insurance carriers strongly supported the settlement, and it
required no payment by HLTH.
On June 10, 2009, the district court granted preliminary
approval to the new proposed settlement. On October 5,
2009, the court approved the final settlement in this matter.
Roberta Feinstein v. WebMD Health Corporation, et
al.
In June 2009, a purported class action was filed on behalf of
stockholders of the Company in the Supreme Court of the State of
New York, County of New York. Roberta Feinstein v. WebMD
Health Corporation, et al., No. 650369/2009 (Sup. Ct. N.Y.
Co.). The action named as defendants: the Company; certain
directors of the Company; and HLTH. The action alleged, among
other things, that the members of the Companys Board of
Directors breached their fiduciary duties of care, loyalty, good
faith and candor in agreeing to the Merger and have attempted to
unfairly deprive the Companys stockholders of the true
value of their investment in the Company, with the action
containing additional allegations that HLTH aided and abetted
the breaches of fiduciary duty of the Companys directors.
The lawsuit sought, among other things, to certify plaintiff as
class representative, a declaration that the members of the
Companys Board of Directors have breached their fiduciary
duties, and an award of attorneys and experts fees
and expenses. The plaintiff has filed a stipulation of
discontinuance, which concluded the matter.
F-28
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Roger H. Kaye and Roger H. Kaye, MD PC v. WebMD, LLC,
et al.
In December 2009, a lawsuit was filed by Dr. Roger H. Kaye
(and Roger H. Kaye MD PC) individually, and as an alleged class
action, under the Telephone Consumer Protection Act (the
TCPA) and under a similar Connecticut statute, in
the U.S. District Court, District of Connecticut against
subsidiaries of the Company. The lawsuit claims that faxes
allegedly sent during the period August 1, 2006 to the
present by subsidiaries of the Company and by the The Little
Blue Book business that the Company sold in September 2009 were
sent in violation of the TCPA and the Connecticut statute. The
lawsuit seeks damages in excess of $5,000. The Company has filed
its answer denying that it has violated either the TCPA or the
Connecticut statute. Discovery has recently begun in the action.
The Company intends to vigorously defend this action.
Porex Corporation v. Kleanthis Dean Haldopoulos,
Benjamin T. Hirokawa and Micropore Plastics, Inc.
On September 24, 2005, Porex Corporation (then a subsidiary
of HLTH) filed a complaint in the Superior Court of Fulton
County against two former employees of Porex, Dean Haldopoulos
and Benjamin Hirokawa, and their corporation, Micropore
Plastics, Inc. (Micropore), alleging
misappropriation of Porexs trade secrets and breaches of
Haldopoulos and Hirokawas employment agreements, and
seeking monetary and injunctive relief. The lawsuit was
subsequently transferred to the Superior Court of DeKalb County,
Georgia. On October 24, 2005, the defendants filed an
Answer and Counterclaims against Porex. In the Answer and
Counterclaims, the defendants allege that Porex breached
non-disclosure and standstill agreements in connection with a
proposed transaction between Porex and Micropore and engaged in
fraud. The defendants also seek punitive damages and expenses of
litigation. In connection with HLTHs sale of Porex in
October 2009 (described above in Note 3 above), HLTH agreed
to indemnify Porex for any liability that may be incurred by
Porex with respect to defendants counterclaim against
Porex and for certain legal fees of Porex in connection with the
case and the Company assumed that obligation in the Merger.
Investigations by United States Attorney for the District
of South Carolina and the SEC
As previously disclosed, the United States Attorney for the
District of South Carolina has been conducting an investigation
of HLTH, which HLTH first learned about on September 3,
2003. Based on the information available to the Company, it
believes that the investigation relates principally to issues of
financial accounting improprieties relating to Medical Manager
Corporation, a predecessor of HLTH (by its merger into HLTH in
September 2000), and, more specifically, HLTHs former
Medical Manager Health Systems, Inc. subsidiary. Medical Manager
Health Systems was a predecessor to Emdeon Practice Services,
Inc. (EPS), a subsidiary that HLTH sold to Sage
Software in September 2006 (the EPS Sale). HLTH and
the Company have been fully cooperating and the Company intends
to continue to cooperate fully with the
U.S. Attorneys Office. As previously reported, the
Board of Directors of HLTH formed a special committee consisting
solely of independent directors to oversee this matter with the
sole authority to direct HLTHs response to the allegations
that have been raised and that special committee has been
continued as a committee of the Board of Directors of the
Company following the Merger. As previously disclosed, the
Company understands that the SEC is also conducting a formal
investigation into this matter. In connection with the EPS Sale,
HLTH agreed to indemnify Sage Software with respect to this
matter and the Company assumed that obligation in the Merger.
The United States Attorney for the District of South Carolina
announced on January 10, 2005 that three former employees
of Medical Manager Health Systems each had agreed to plead
guilty to one count of mail fraud and that one such employee had
agreed to plead guilty to one count of tax evasion for acts
committed while they were employed by Medical Manager Health
Systems. According to the Informations, Plea Agreements and
Factual Summaries filed by the United States Attorney in, and
available from, the District Court of the United States for the
District of South Carolina Beaufort Division, on
January 7, 2005, the three former employees and other then
unnamed co-schemers were engaged in schemes between 1997 and
2002 that included causing companies acquired by Medical Manager
Health Systems to pay the former vice president in charge of
acquisitions and co-schemers
F-29
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
kickbacks which were funded through increases in the purchase
price paid by Medical Manager Health Systems to the acquired
companies and that included fraudulent accounting practices to
artificially inflate the quarterly revenues and earnings of
Medical Manager Health Systems when it was an independent public
company called Medical Manager Corporation from 1997 through
1999, when and after it was acquired by Synetic, Inc. in July
1999, and when and after it became a subsidiary of HLTH in
September 2000. A fourth former officer of Medical Manager
Health Systems pled guilty to similar activities later in 2005.
On December 15, 2005, the United States Attorney announced
indictments of ten former officers and employees of Medical
Manager Health Systems including Michael A. Singer, a former
Chief Executive Officer of Medical Manager Health Systems and a
former director of HLTH, who was last employed by HLTH as its
Executive Vice President, Physician Software Strategies until
February 2005, John H. Kang, a former President of Medical
Manager Health Systems, who was employed until May 2001, and
John P. Sessions, a former President and Chief Operating Officer
of Medical Manager Health Systems, who was employed until
September 2003. The indictment initially charged the defendants
with conspiracy to commit mail, wire and securities fraud, a
violation of Title 18, United States Code, Section 371
and conspiracy to commit money laundering, a violation of
Title 18, United States Code, Section 1956(h) but the
second count was dismissed earlier this year. The allegations
set forth in the indictment describe activities that are
substantially similar to those described above with respect to
the January 2005 plea agreements. One of the defendants passed
away in 2008 and was dismissed from the indictment. Four of the
defendants have been dismissed from the case and two defendants
were severed from the case and their cases was transferred to
Tampa, Florida. In addition, Mr. Singer has entered into a
Deferred Prosecution Agreement with the United States pursuant
to which, if Mr. Singer complies with the conditions of
such agreement, all charges against him in the indictment will
be dismissed in July of this year. The trial of John Kang and
John Sessions, former officers of Medical Manager Health
Systems, began on January 19, 2010 and on March 1,
2010 both men were found guilty by the jury.
Based on the information it has obtained to date, including that
contained in the court documents filed by the United States
Attorney in South Carolina, the Company does not believe that
any member of HLTHs senior management whose duties were
not primarily related to the operations of Medical Manager
Health Systems during the relevant time periods engaged in any
of the violations or improprieties described in those court
documents. The Company understands, however, that in light of
the nature of the allegations involved, the
U.S. Attorneys office has been investigating all
levels of HLTHs management. The Company has not uncovered
information that it believes would require a restatement for any
of the years covered by HLTHs financial statements. In
addition, the Company believes that the amounts of the kickback
payments referred to in the court documents have already been
reflected in the financial statements of HLTH to the extent
required.
HLTH had (and the Company has assumed in the Merger) certain
indemnity obligations to advance amounts for reasonable defense
costs for the former officers and directors of EPS. For the
years ended December 31, 2009, 2008 and 2007, the Company
recorded pre-tax charges of $14,367, $29,078 and $73,347,
respectively, related to its estimated liability with respect to
these indemnity obligations. See Note 3 for a more detailed
discussion regarding these charges.
Directors & Officers Liability Insurance
Coverage Litigation
On July 23, 2007, HLTH commenced litigation (the
Coverage Litigation) in the Court of Chancery of the
State of Delaware in and for New Castle County against ten
insurance companies in which the Company was seeking to compel
the defendant companies (collectively, the
Defendants) to honor their obligations under certain
directors and officers liability insurance policies (the
Policies). The Company succeeded to HLTH as
plaintiff in this action as a result of the Merger. HLTH was
seeking an order requiring the Defendants to advance
and/or
reimburse expenses that HLTH has incurred and expected to
continue to incur for the advancement of the reasonable defense
costs of initially ten, and now four, former officers and
directors of the HLTHs former EPS subsidiary who were
indicted in connection with the Investigation described above in
this Note 11 (the Investigation).
F-30
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pursuant to a stipulation among the parties, the Coverage
Litigation was transferred on September 13, 2007 to the
Superior Court of the State of Delaware in and for New Castle
County. The Policies were issued to HLTH and to EPS, which is a
co-plaintiff with the Company in the Coverage Litigation
(collectively, the Plaintiffs). EPS was sold in
September 2006 to Sage Software and has changed its name to Sage
Software Healthcare, Inc. (SSHI). In connection with
HLTHs sale of EPS to Sage Software, HLTH retained certain
obligations relating to the Investigation and agreed to
indemnify Sage Software and SSHI with respect to certain
expenses in connection with the Investigation and the Company
assumed those obligations as a result of the Merger. HLTH
retained (and the Company succeeded to as a result of the
Merger) the right to assert claims and recover proceeds under
the Policies on behalf of SSHI.
Prior to the filing of the Second Amended Complaint which is
discussed below, the Policies at issue in the Coverage
Litigation consisted of two separate groups of insurance
policies. Each group of policies consists of several layers of
coverage, with different insurers having agreed to provide
specified amounts of coverage at various levels. The first group
of policies was issued to EPS in the amount of $20,000 (the
EPS Policies) and the second group of policies was
issued to Synetic, Inc. (the former parent of EPS, which merged
into HLTH) in the amount of $100,000, of which approximately
$3,600 was paid by the primary carrier with respect to another
unrelated matter (the Synetic Policies).
The carrier with the third level of coverage in the Synetic
Policies filed a motion for summary judgment in the Coverage
Litigation, which most of the carriers who have issued the
Synetic Policies joined, which sought summary judgment that any
liability to pay defense costs should be allocated among the
three sets of policies available to the Company (including the
policies with respect to which the Coverage Litigation relates
and a third set of policies the issuers of which had not yet
been named by the Company) such that the Synetic Policies would
only be liable to pay about $23,000 of the $96,400 total
coverage available under such policies. HLTH filed its
opposition to the motion together with its motion for summary
judgment against such carrier and several other carriers who
have issued the Synetic Policies seeking to require such
carriers to advance payment of the defense costs that the
Company is obligated to pay while the Coverage Litigation is
pending. On July 31, 2008, the Superior Court for the State
of Delaware denied the motion filed by the carriers seeking
allocation and granted HLTHs motion for partial summary
judgment to enforce the duty of such carriers to advance and
reimburse these costs. Pursuant to the Courts order, the
issuers of the Synetic Policies have been reimbursing the
Company for its costs as described above.
On September 9, 2008 and February 4, 2009,
respectively, the eighth and ninth level carriers of the Synetic
Policies notified HLTH that they believe that they were not
bound by the Courts July 31, 2008 order regarding the
duty of the Synetic carriers to advance and reimburse defense
costs. This resulted in HLTH making a motion to the Court on
February 23, 2009 to require such eighth and ninth level
carriers to advance and reimburse defense costs. HLTH later
settled with the eighth level carrier. Under the terms of the
settlement such carrier will pay, in full and final settlement,
an
agreed-upon
percentage of the policy amount against each payment of defense
costs made by the Company as such policy continues to be
implicated. On April 15, 2009, the ninth level carrier made
a cross-motion for summary judgment claiming that, in light of a
policy endorsement applicable only to the ninth level carrier,
because of the time period during which the conspiracy charged
in the Second Superseding Indictment is alleged to have taken
place, the Synetic Policy issued by such carrier does not cover
HLTHs indemnification obligations. HLTH believed that such
carriers motion was without merit and responded to the
motion. On July 15, 2009, the Court granted summary
judgment in favor of the ninth level carrier and unless and
until the Company successfully appeals such decision, the ninth
level carrier is not liable to pay any portion of the $10,000
total coverage of its policy with respect to the Companys
indemnification obligations. As of December 31, 2009,
$83,100 has been paid by insurance companies representing the
EPS Policies and the Synetic Policies through a combination of
payment under the terms of the Policies, payment under
reservation of rights or through settlement. Of this amount,
$61,700 represents the portion received through settlement.
F-31
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On November 17, 2008, HLTH filed a Second Amended Complaint
which added four new insurance companies as defendants in the
Coverage Action. These carriers are the issuers of a third set
of policies (the Emdeon Policies) that provide
coverage with respect to HLTHs indemnification obligations
to the former officers and directors of HLTHs former EPS
subsidiary who were indicted in connection with the
Investigation. All but one of the carriers who issued the Emdeon
Policies moved for summary judgment asserting that exclusions in
the Emdeon Policies preclude coverage for HLTHs
indemnification obligations and HLTH filed motions seeking to
compel such carriers to advance defense costs that HLTH was
obligated to indemnify. On August 31, 2009, the Court
issued two opinions. In the first opinion, the Court granted
summary judgment in favor of HLTH with respect to one of the
exclusions asserted by the carriers who issued the Emdeon
Policies. In the second opinion, the Court granted summary
judgment in favor of the carriers with respect to the other
exclusion asserted by such carriers. One of the carriers only
joined in the first motion with respect to which HLTH prevailed,
although the policy issued by such carrier also contains
language with respect to which the other carriers prevailed. The
Company has made a motion to compel such carrier to advance
defense costs and also asking the Court to rule that the Company
has satisfied the $10 million retention amount with respect
to the Emdeon Policies and the Court has stayed a ruling on this
motion pending the outcome of the appeals to the Supreme Court
of Delaware discussed below. The implication of these opinions,
when considered together, is that unless and until the Company
successfully appeals the second opinion described above, the
Company has (with the possible exception of the carrier who only
joined in the motion regarding the first exclusion) effectively
exhausted its insurance with respect to its obligation to
indemnify the indicted individuals. The Company and the carriers
who issued the Emdeon Policies (with the exception of the second
level carrier with whom the Company has settled) have each
appealed the trial Courts August 31, 2009 rulings to
the Supreme Court of Delaware and the Supreme Court has agreed
to hear both appeals, which have been consolidated. The Supreme
Court heard oral argument on both appeals on February 24,
2010.
The insurance carriers assert that the Companys insurance
policies provide that under certain circumstances, amounts
advanced by the insurance companies in connection with the
defense costs of the indicted individuals may have to be repaid
by the Company, although the amounts that the Company has
received in settlement from certain carriers is not subject to
being repaid. The Company has obtained an undertaking from each
indicted individual pursuant to which, under certain
circumstances, such individual has agreed to repay defense costs
advanced on such individuals behalf.
In addition to the Coverage Litigation, on December 22,
2009, TIG Specialty Insurance Company (TIG), the
second level issuer of the EPS Policies commenced an action
against the Company (the TIG Action) to recover the
$5,000 that TIG advanced to the Company in 2006. The Company has
not yet answered the TIG Action but intends to vigorously defend
its rights.
There can be no assurance that the Company will ultimately
prevail in the Coverage Litigation or the TIG Action or that the
Defendants in the Coverage Action will be required to provide
funding on an interim basis pending the resolution of the
Coverage Litigation. The Company intends to continue to satisfy
its legal obligations to the indicted individuals with respect
to advancement of amounts for their defense costs.
Other
Legal Proceedings
In the normal course of business, the Company and its
subsidiaries are involved in various other claims and legal
proceedings. While the ultimate resolution of these matters has
yet to be determined, the Company does not believe that their
outcomes will have a material adverse effect on the
Companys consolidated financial position, results of
operations or liquidity.
Leases
The Company leases its offices and other facilities under
operating lease agreements that expire at various dates through
2018. Total rent expense for all operating leases was
approximately $7,306, $6,981 and
F-32
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$8,870 in 2009, 2008 and 2007, respectively. Included in other
long-term liabilities as of December 31, 2009 and 2008 were
$7,400 and $8,402, respectively, related to lease incentives and
the difference between rent expense and the rental amount
payable for leases with fixed escalations.
Future minimum lease commitments under non-cancelable lease
agreements at December 31, 2009 were as follows:
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2010
|
|
$
|
7,928
|
|
2011
|
|
|
6,964
|
|
2012
|
|
|
5,007
|
|
2013
|
|
|
4,564
|
|
2014
|
|
|
4,617
|
|
Thereafter
|
|
|
6,824
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
35,904
|
|
|
|
|
|
|
Other
Contingencies
The Company provides certain indemnification provisions within
its license agreements to protect the other party from any
liabilities or damages resulting from a claim of
misappropriation or infringement by third parties relating to
its products and services. The Company has not incurred a
liability relating to any of these indemnification provisions in
the past and management believes that the likelihood of any
future payment relating to these provisions is unlikely.
Therefore, the Company has not recorded a liability during any
period for these indemnification provisions.
|
|
12.
|
Stock-Based
Compensation
|
Prior to the Merger on October 23, 2009, HLTH had various
stock-based compensation plans (collectively, the HLTH
Plans) under which directors, officers and other eligible
employees received awards of options to purchase HLTH common
stock and restricted shares of HLTH common stock. WebMD also had
similar stock-based compensation plans (the WebMD
Plans) that provide for the grant of stock options,
restricted stock awards, and other awards based on WebMD common
stock. In connection with the Merger, all outstanding stock
options and restricted stock awards under the HLTH Plans were
converted into outstanding stock options and restricted stock
awards of WebMD based on the Merger exchange ratio of 0.4444.
The following sections of this note present the historical
activity of the HLTH Plans (on a converted basis after giving
effect to the Merger exchange ratio of .4444) combined with the
historical activity of the WebMD Plans, which are collectively
referred to as (the Plans).
The 2005 Long-Term Incentive Plan, (as amended, the 2005
Plan) is the only plan under which future grants can be
made. The maximum number of shares of the Companys common
stock that may be subject to awards under the 2005 Plan was
15,600,000 as of December 31, 2009, subject to adjustment
in accordance with the terms of the 2005 Plan. The Company had
an aggregate of 3,085,579 shares of common stock available
for future grants under the 2005 Plan at December 31, 2009.
F-33
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Options
Generally, options under the Plans vest and become exercisable
ratably over periods ranging from four to five years based on
their individual grant dates, subject to continued employment on
the applicable vesting dates, and generally expire within ten
years from the date of grant. Options are granted at prices not
less than the fair market value of the Companys common
stock on the date of grant. The following table summarizes stock
option activity for the Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
(In Years)
|
|
|
Value(1)
|
|
|
Outstanding at January 1, 2007
|
|
|
33,665,565
|
|
|
$
|
30.31
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,074,398
|
|
|
|
46.19
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,053,991
|
)
|
|
|
22.49
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(2,648,155
|
)
|
|
|
46.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
26,037,817
|
|
|
|
31.39
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
7,382,934
|
|
|
|
23.86
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,339,415
|
)
|
|
|
17.20
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(2,029,466
|
)
|
|
|
33.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
30,051,870
|
|
|
|
30.04
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,000,673
|
|
|
|
28.98
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,614,910
|
)
|
|
|
23.29
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(4,008,680
|
)
|
|
|
39.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
22,428,953
|
|
|
$
|
29.67
|
|
|
|
5.0
|
|
|
$
|
250,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at the end of the period
|
|
|
15,043,612
|
|
|
$
|
31.52
|
|
|
|
3.1
|
|
|
$
|
154,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The aggregate intrinsic value is
based on the market price of the Companys common stock on
December 31, 2009, which was $38.49, less the applicable
exercise price of the underlying option. This aggregate
intrinsic value represents the amount that would have been
realized if all the option holders had exercised their options
on December 31, 2009.
|
F-34
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information with respect to
options outstanding and options exercisable at December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise Price Per
|
|
|
Contractual Life
|
|
|
|
|
|
Exercise Price
|
|
Exercise Prices
|
|
Shares
|
|
|
Share
|
|
|
(In Years)
|
|
|
Shares
|
|
|
Per Share
|
|
|
$7.72-$17.50
|
|
|
2,785,637
|
|
|
$
|
16.44
|
|
|
|
5.1
|
|
|
|
2,783,087
|
|
|
$
|
16.44
|
|
$17.53-$21.29
|
|
|
2,713,873
|
|
|
|
20.00
|
|
|
|
6.3
|
|
|
|
1,776,324
|
|
|
|
19.70
|
|
$21.31-$23.54
|
|
|
255,414
|
|
|
|
22.60
|
|
|
|
7.6
|
|
|
|
71,353
|
|
|
|
22.32
|
|
$23.57-$23.61
|
|
|
4,647,700
|
|
|
|
23.61
|
|
|
|
8.9
|
|
|
|
23,225
|
|
|
|
23.61
|
|
$23.66-$27.15
|
|
|
2,406,075
|
|
|
|
26.38
|
|
|
|
5.0
|
|
|
|
2,175,572
|
|
|
|
26.45
|
|
$27.16-$30.38
|
|
|
2,585,168
|
|
|
|
28.73
|
|
|
|
1.8
|
|
|
|
2,410,052
|
|
|
|
28.72
|
|
$30.47-$34.88
|
|
|
742,019
|
|
|
|
32.33
|
|
|
|
7.4
|
|
|
|
263,669
|
|
|
|
32.56
|
|
$35.00-$36.15
|
|
|
2,337,882
|
|
|
|
36.10
|
|
|
|
0.9
|
|
|
|
2,288,819
|
|
|
|
36.12
|
|
$36.16-$48.81
|
|
|
2,613,864
|
|
|
|
41.29
|
|
|
|
3.7
|
|
|
|
2,065,296
|
|
|
|
41.41
|
|
$49.03-$154.15
|
|
|
1,341,321
|
|
|
|
71.39
|
|
|
|
1.9
|
|
|
|
1,186,215
|
|
|
|
74.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,428,953
|
|
|
|
29.67
|
|
|
|
5.0
|
|
|
|
15,043,612
|
|
|
|
31.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option pricing model
considering the weighted average assumptions noted in the
following table. Expected volatility is based on implied
volatility from traded options of the Companys common
stock combined with historical volatility of the Companys
common stock. The expected term represents the period of time
that options are expected to be outstanding following their
grant date, and was determined using historical exercise data.
The risk-free rate is based on the U.S. Treasury yield
curve for periods equal to the expected term of the options on
the grant date.
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Expected dividend yield
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
Expected volatility
|
|
0.38-0.55
|
|
0.37-0.57
|
|
0.31-0.44
|
Risk-free interest rate
|
|
1.45%
|
|
1.26%
|
|
4.28%
|
Expected term (years)
|
|
3.4
|
|
3.4
|
|
3.4
|
Weighted average fair value of options granted during the year
|
|
$11.01
|
|
$9.29
|
|
$16.67
|
Restricted
Stock Awards
The Companys Restricted Stock consists of shares of the
Companys common stock which have been awarded to employees
with restrictions that cause them to be subject to substantial
risk of forfeiture and restrict their sale or other transfer by
the employee until they vest. Generally, the Companys
Restricted Stock awards vest ratably over periods ranging from
three to five years from their individual award dates subject to
F-35
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
continued employment on the applicable vesting dates. The
following table summarizes the activity of the Companys
Restricted Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Balance at the beginning of the year
|
|
|
1,244,900
|
|
|
$
|
23.99
|
|
|
|
858,910
|
|
|
$
|
26.07
|
|
|
|
1,464,178
|
|
|
$
|
24.10
|
|
Granted
|
|
|
411,875
|
|
|
|
33.63
|
|
|
|
826,039
|
|
|
|
22.66
|
|
|
|
71,700
|
|
|
|
47.02
|
|
Vested
|
|
|
(449,936
|
)
|
|
|
23.50
|
|
|
|
(364,521
|
)
|
|
|
23.90
|
|
|
|
(534,935
|
)
|
|
|
22.64
|
|
Forfeited
|
|
|
(100,715
|
)
|
|
|
26.87
|
|
|
|
(75,528
|
)
|
|
|
33.52
|
|
|
|
(142,033
|
)
|
|
|
29.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
1,106,124
|
|
|
|
27.51
|
|
|
|
1,244,900
|
|
|
|
23.99
|
|
|
|
858,910
|
|
|
|
26.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from the exercise of options to purchase
shares of the Companys common stock were $42,898, $23,041
and $136,079 for the years ended December 31, 2009, 2008
and 2007, respectively. Additionally, in connection with the
exercise of certain stock options and the vesting of restricted
stock, the Company withheld shares of common stock with a value
of $17,645, $1,822 and $3,923 during the years ended
December 31, 2009, 2008 and 2007, respectively, in order to
satisfy the statutory withholding tax requirements of the
respective employees.
The intrinsic value related to stock options that were
exercised, combined with the fair value of shares of restricted
stock that vested, aggregated $63,571, $21,868 and $92,214 for
the years ended December 31, 2009, 2008 and 2007,
respectively.
Employee
Stock Purchase Plan
As of and prior to April 30, 2008, the Company maintained
an Employee Stock Purchase Plan (ESPP) which allowed
eligible employees of the Company the opportunity to purchase
shares of HLTH common stock through payroll deductions, up to
15% of a participants annual compensation with a maximum
of 2,222 common shares per participant during each
six-month purchase period. The purchase price of the stock was
equal to 85% of the fair market value of the Companys
common stock on the last day of each purchase period. There were
21,831 and 31,019 shares of common stock issued to the
Companys employees under the ESPP during the years ended
December 31, 2008 and 2007, respectively. The Company
received cash proceeds of $464 and $898 related to these
issuances, during the years ended December 31, 2008 and
2007, respectively. The ESPP was terminated effective
April 30, 2008.
Other
At the time of the IPO and on the anniversary of the IPO until
2008, the Company issued shares of its common stock to each
WebMD non-employee director with a value equal to their annual
board and committee retainers. During 2009, the Company issued
the shares on the date of the Merger, October 23, 2009. The
Company recorded $327, $340, and $340 of stock-based
compensation expense for the years ended December 31, 2009,
2008 and 2007, respectively, in connection with these issuances.
Additionally, the Company recorded $1,070 and $1,094 of
stock-based compensation expense during 2008 and 2007,
respectively, in connection with a stock transferability right
for shares required were issued in connection with the
acquisition of Subimo, LLC by the Company.
F-36
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summary
of Stock-Based Compensation Expense
The following table summarizes the components and classification
of stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock options
|
|
$
|
29,038
|
|
|
$
|
17,578
|
|
|
$
|
25,316
|
|
Restricted stock
|
|
|
10,625
|
|
|
|
7,184
|
|
|
|
9,999
|
|
ESPP
|
|
|
|
|
|
|
51
|
|
|
|
162
|
|
Other
|
|
|
442
|
|
|
|
1,419
|
|
|
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
40,105
|
|
|
$
|
26,232
|
|
|
$
|
36,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
6,723
|
|
|
$
|
3,818
|
|
|
$
|
5,027
|
|
Sales and marketing
|
|
|
8,069
|
|
|
|
3,591
|
|
|
|
4,868
|
|
General and administrative
|
|
|
24,620
|
|
|
|
17,223
|
|
|
|
22,441
|
|
Equity in earnings of EBS Master LLC
|
|
|
|
|
|
|
|
|
|
|
2,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from continuing operations
|
|
|
39,412
|
|
|
|
24,632
|
|
|
|
34,443
|
|
Consolidated income from discontinued operations
|
|
|
693
|
|
|
|
1,600
|
|
|
|
2,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
40,105
|
|
|
$
|
26,232
|
|
|
$
|
36,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense during the year ended
December 31, 2009 includes $1,193 and $1,129 related to
2008 and 2007, respectively. As of December 31, 2009,
approximately $63,500 of unrecognized stock-based compensation
expense related to unvested awards (net of estimated
forfeitures) is expected to be recognized over a
weighted-average period of approximately 3.1 years, related
to the Plans.
Tax benefits attributable to stock-based compensation
represented 39% and 38% of stock-based compensation expense
during the years ended December 31, 2009 and 2008,
respectively. No tax benefits were recognized during 2007 as the
Company maintained a full valuation allowance on its federal and
state deferred tax assets.
The Company maintains various defined contribution retirement
plans covering substantially all of its employees. Certain of
these plans provide for matching and discretionary
contributions. The Company has recorded expenses related to
these plans of $2,854, $1,310 and $1,087 for 2009, 2008 and
2007, respectively.
Common
Stock
Repurchased shares are recorded under the cost method and are
reflected as treasury stock in the accompanying consolidated
balance sheets.
Tender
Offers
On December 10, 2009, the Company completed a tender offer
(the 2009 Tender Offer) and, as a result,
repurchased 6,339,227 shares of common stock at a price of
$37.00 per share. The total cost of the 2009 Tender Offer was
$235,220, which includes $670 of costs directly attributable to
the purchase. Approximately 184,000 of the shares that were
tendered in the 2009 Tender Offer were not delivered to the
F-37
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company until January 2010, and therefore the amounts due to the
respective shareholders of $6,818 were included in accrued
expenses within the accompanying consolidated balance sheet as
of December 31, 2009.
On November 25, 2008, the Company completed a tender offer
(the 2008 Tender Offer) and, as a result,
repurchased 37,196,245 shares of common stock at a price of
$19.80 per share. The total cost of the 2008 Tender Offer was
$737,324, which includes $765 of costs directly attributable to
the purchase.
Stock
Repurchase Programs
In December 2006, the Company announced a stock repurchase
program (2006 Repurchase Program). Under the 2006
Repurchase Program, the Company was authorized to use up to
$100,000 to purchase shares of common stock from time to time
beginning on December 19, 2006, subject to market
conditions. During the year ended December 31, 2007, the
Company repurchased 1,497,624 shares at a cost of
approximately $47,123 under the 2006 Repurchase Program. No
shares were repurchased through program during 2009 or 2008. As
a result of the Merger, the 2006 Repurchase Program was
terminated.
On December 4, 2008, the Company announced the
authorization of a WebMD common stock repurchase program, at
which time the Company was authorized to use up to $30,000 to
purchase shares of its common stock, from time to time, in the
open market, through block trades or in private transactions,
depending on market conditions and other factors. During 2009
and 2008, no shares were repurchased under this program.
Warrants
At December 31, 2009, the Company had warrants outstanding
to purchase 3,419 common shares at an exercise price of $67.51
per share. These warrants expired in January 2010.
During 2008, the Company repurchased a warrant for $700, which
was exercisable into 1,070,519 common shares at an exercise
price of $20.81 per share. Other activity during the years ended
December 2009, 2008 and 2007 related to outstanding warrants was
not material.
Accumulated
Other Comprehensive (Loss) Income
Accumulated other comprehensive (loss) income includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Foreign currency translation gains
|
|
$
|
|
|
|
$
|
8,091
|
|
|
$
|
12,269
|
|
|
|
|
|
Unrealized (losses) earnings on securities, net
|
|
|
(37,425
|
)
|
|
|
(8,678
|
)
|
|
|
910
|
|
|
|
|
|
Comprehensive loss EBSCo.
|
|
|
|
|
|
|
|
|
|
|
(7,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive (loss) income
|
|
$
|
(37,425
|
)
|
|
$
|
(587
|
)
|
|
$
|
5,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in comprehensive loss of EBSCo as of December 31,
2007, is the Companys share of unrealized loss on the fair
value of EBSCos interest rate swap agreements. This amount
was relieved when EBSCo was sold on February 8, 2008. See
Note 4 for additional information.
Deferred taxes are not included within accumulated other
comprehensive (loss) income because a valuation allowance was
maintained on these net deferred tax assets.
F-38
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets (liabilities) were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Federal net operating loss carryforwards
|
|
$
|
162,520
|
|
|
$
|
230,001
|
|
State net operating loss carryforwards
|
|
|
45,588
|
|
|
|
55,633
|
|
Federal tax credits
|
|
|
44,943
|
|
|
|
36,678
|
|
Accrued expenses
|
|
|
33,344
|
|
|
|
50,395
|
|
Stock-based compensation
|
|
|
30,497
|
|
|
|
22,457
|
|
Intangible assets
|
|
|
10,457
|
|
|
|
11,279
|
|
Auction rate securities
|
|
|
28,470
|
|
|
|
26,695
|
|
Fixed assets
|
|
|
5,293
|
|
|
|
2,799
|
|
Other
|
|
|
4,921
|
|
|
|
1,001
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
366,033
|
|
|
|
436,938
|
|
Valuation allowance
|
|
|
(234,735
|
)
|
|
|
(317,235
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
131,298
|
|
|
|
119,703
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
(76,167
|
)
|
|
|
(82,826
|
)
|
Goodwill and indefinite-lived intangible asset
|
|
|
(15,978
|
)
|
|
|
(12,420
|
)
|
Other
|
|
|
(1,319
|
)
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(93,464
|
)
|
|
|
(95,530
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
37,834
|
|
|
$
|
24,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Current deferred tax (liabilities) assets, net:
|
|
|
|
|
|
|
|
|
Current deferred tax assets, net of deferred tax liabilities
|
|
$
|
55,752
|
|
|
$
|
94,467
|
|
Valuation allowance
|
|
|
(68,707
|
)
|
|
|
(68,371
|
)
|
|
|
|
|
|
|
|
|
|
Current deferred tax (liabilities) assets, net
|
|
|
(12,955
|
)
|
|
|
26,096
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets (liabilities), net:
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets, net of deferred tax liabilities
|
|
|
216,817
|
|
|
|
246,941
|
|
Valuation allowance
|
|
|
(166,028
|
)
|
|
|
(248,864
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets (liabilities), net
|
|
|
50,789
|
|
|
|
(1,923
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
37,834
|
|
|
$
|
24,173
|
|
|
|
|
|
|
|
|
|
|
F-39
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The income tax (benefit) provision was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(5,695
|
)
|
|
$
|
6,602
|
|
|
$
|
(366
|
)
|
State
|
|
|
2,282
|
|
|
|
12,379
|
|
|
|
(2,215
|
)
|
Foreign
|
|
|
65
|
|
|
|
590
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax (benefit) provision
|
|
|
(3,348
|
)
|
|
|
19,571
|
|
|
|
(2,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(31,662
|
)
|
|
|
2,218
|
|
|
|
(13,276
|
)
|
State
|
|
|
(10,481
|
)
|
|
|
701
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (benefit) provision
|
|
|
(42,143
|
)
|
|
|
2,919
|
|
|
|
(12,998
|
)
|
Reversal of valuation allowance applied to goodwill
|
|
|
|
|
|
|
2,707
|
|
|
|
2,610
|
|
Reversal of valuation allowance applied to additional paid-in
capital
|
|
|
|
|
|
|
1,441
|
|
|
|
3,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) provision
|
|
$
|
(45,491
|
)
|
|
$
|
26,638
|
|
|
$
|
(9,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between the federal statutory rate and the
effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
United States federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes (net of federal benefit)
|
|
|
1.4
|
|
|
|
1.7
|
|
|
|
18.3
|
|
Gain on 2006 EBS Sale
|
|
|
|
|
|
|
|
|
|
|
(17.9
|
)
|
Valuation allowance
|
|
|
(259.5
|
)
|
|
|
(38.6
|
)
|
|
|
(120.5
|
)
|
Non-deductible officer compensation
|
|
|
5.7
|
|
|
|
0.1
|
|
|
|
6.5
|
|
Reversal of valuation allowance applied to goodwill
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
Reversal of valuation allowance applied to additional paid-in
capital
|
|
|
|
|
|
|
|
|
|
|
12.2
|
|
Losses benefited to discontinued operations
|
|
|
59.5
|
|
|
|
6.5
|
|
|
|
25.5
|
|
Effect of the Merger on state net operating loss carryforwards
|
|
|
(17.6
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
1.8
|
|
|
|
0.7
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(173.7
|
)%
|
|
|
5.4
|
%
|
|
|
(28.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Until 2007, a full valuation allowance had been provided against
all domestic net deferred tax assets, except for a deferred tax
liability originating from the Companys business
combinations that resulted in tax-deductible goodwill which is
indefinite as to when such liability will reverse, as well as a
deferred tax liability established in purchase accounting that
is not expected to reverse prior to the expiration of net
operating losses. During 2009 and 2007, after consideration of
the relevant positive and negative evidence, the Company
reversed $68,922 and $24,652 of its valuation allowance,
respectively, of which $54,200 and $16,327, respectively,
reversed through the tax provision and the remainder primarily
reversed through discontinued operations. During 2008, the
Company reversed approximately $224,682 of its valuation
allowance as a result of the gains the Company recorded in
connection with the 2008 EBSCo Sale and the ViPS Sale, of which
$186,196 reversed through the tax provision and the remainder
primarily reversed through discontinued operations. The
valuation allowance for deferred tax assets decreased by $82,500
and $168,962 in 2009 and 2008, respectively.
F-40
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2009, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$650 million, which expire in 2011 through 2027, and
federal tax credits of approximately $53,656, which excludes the
impact of any unrecognized tax benefits, of which approximately
$30,818 expire in 2017 through 2027 and approximately $22,838
can be carried forward indefinitely. Approximately $430,281 of
these net operating loss carryforwards were recorded through
additional paid-in capital. Therefore, if in the future the
Company believes that it is more likely than not that these tax
benefits will be realized, this portion of the valuation
allowance will be reversed against additional paid-in capital.
The Company uses the
with-and-without
approach in determining the order in which tax attributes are
utilized. Using the
with-and-without
approach, the Company will only recognize a tax benefit from
stock-based awards in additional paid-in capital if an
incremental tax benefit is realized after all other net
operating loss carryforwards currently available to the Company
have been utilized, but prior to the utilization of other tax
attributes.
The Company has excess tax benefits related to share-based
payments of $185,898 that are not recorded as a deferred tax
asset as the amounts would not have resulted in a reduction in
current taxes payable if all other net operating loss
carryforwards currently available to the Company were utilized.
The benefit of these deductions is recorded to additional
paid-in capital at the time the tax deduction results in a
reduction of current taxes payable.
The 2008 Tender Offer discussed in Note 14 above resulted
in a cumulative change of more than 50% of the ownership of the
Companys capital, as determined under rules prescribed by
the U.S. Internal Revenue Code and applicable Treasury
regulations. As a result of the ownership change, there is an
annual limitation imposed on the Companys net operating
loss carryforwards and federal tax credits.
As of December 31, 2009 and 2008, the Company had
unrecognized income tax benefits of $14,199 and $11,478,
respectively, which if recognized, would result in $2,288 and
$5,926, respectively, being reflected as a component of the
income tax provision. Included in the unrecognized income tax
benefits as of December 31, 2009 and 2008 are accrued
interest and penalties of $880 and $902, respectively. If
recognized, these benefits would be reflected as a component of
the income tax (benefit) provision. The following table
summarizes the activity of unrecognized tax benefits, excluding
accrued interest and penalties, for the years ended
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at the beginning of the year
|
|
$
|
10,576
|
|
|
$
|
10,910
|
|
Increases related to prior year tax positions
|
|
|
3,161
|
|
|
|
|
|
Increases related to current year tax positions
|
|
|
4,254
|
|
|
|
734
|
|
Decreases related to prior year tax positions
|
|
|
(3,781
|
)
|
|
|
|
|
Decreases related to current year tax positions
|
|
|
(727
|
)
|
|
|
|
|
Expiration of the statute of limitations for the assessment of
taxes
|
|
|
(164
|
)
|
|
|
(1,068
|
)
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
13,319
|
|
|
$
|
10,576
|
|
|
|
|
|
|
|
|
|
|
Although the Company files U.S. federal and various state
and other tax returns, the major taxing jurisdiction is the
U.S. The Company is currently under audit in a number of
state and local taxing jurisdictions and will have statutes of
limitations with respect to certain tax returns expiring within
the next twelve months. As a result, it is reasonably possible
that there may be a reduction in the unrecognized income tax
benefits, prior to any annual increase, in the range of $500 to
$600 within the next twelve months. With the exception of
adjusting net operating loss carryforwards that may be utilized,
the Company is no longer
F-41
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
subject to federal income tax examinations for tax years before
2006 and for state and local income tax examinations for years
before 2004.
|
|
16.
|
Fair
Value of Financial Instruments and Non-Recourse Credit
Facilities
|
The Company accounts for certain assets and liabilities at fair
value, which is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Additionally, the Company uses valuation techniques that
maximize the use of observable inputs and minimize the use of
unobservable inputs. These inputs are prioritized below:
|
|
|
|
Level 1:
|
Observable inputs such as quoted market prices in active markets
for identical assets or liabilities.
|
Level 2: Observable market-based inputs
or unobservable inputs that are corroborated by market data.
|
|
|
|
Level 3:
|
Unobservable inputs for which there is little or no market data,
which require the use of the reporting entitys own
assumptions.
|
The Company did not have any Level 2 assets as of
December 31, 2009 and 2008. The following table sets forth
the Companys Level 1 and Level 3 financial
assets that were measured and recorded at fair value on a
recurring basis as or December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
Fair Value
|
|
Amortized
|
|
|
|
Unrealized
|
|
Amortized
|
|
|
|
Unrealized
|
|
|
Estimate Using:
|
|
Cost Basis
|
|
Fair Value
|
|
Gains (Losses)
|
|
Cost Basis
|
|
Fair Value
|
|
Gains (Losses)
|
|
Cash and cash equivalents
|
|
|
Level 1
|
|
|
$
|
459,766
|
|
|
$
|
459,766
|
|
|
$
|
|
|
|
$
|
629,848
|
|
|
$
|
629,848
|
|
|
$
|
|
|
Equity securities
|
|
|
Level 1
|
|
|
|
1,470
|
|
|
|
4,851
|
|
|
|
3,381
|
|
|
|
1,470
|
|
|
|
1,497
|
|
|
|
27
|
|
Auction rate
securities(1)
|
|
|
Level 3
|
|
|
|
320,507
|
|
|
|
279,701
|
|
|
|
(40,806
|
)(2)
|
|
|
295,959
|
|
|
|
286,552
|
|
|
|
(9,407
|
)
|
Senior secured
notes(3)
|
|
|
Level 3
|
|
|
|
63,826
|
|
|
|
63,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The face (par) value of the auction
rate securities was $352,700 and $355,000 as of
December 31, 2009 and 2008, respectively.
|
|
(2)
|
|
Amounts reflect cumulative effect
of adoption of new authoritative guidance as discussed below.
|
|
(3)
|
|
The face value of the senior
secured notes was $67,500 as of December 31, 2009.
|
The following table reconciles the beginning and ending balances
of the Companys Level 3 assets, which consist of the
auction rate securities and the senior secured notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Auction
|
|
|
Senior
|
|
|
Auction
|
|
|
|
Rate Securities
|
|
|
Secured Notes
|
|
|
Rate Securities
|
|
|
Fair value as of the beginning of the period
|
|
$
|
286,552
|
|
|
$
|
|
|
|
$
|
|
|
Transfers to Level 3
|
|
|
|
|
|
|
63,598
|
|
|
|
363,700
|
|
Redemptions
|
|
|
(2,300
|
)
|
|
|
|
|
|
|
(8,700
|
)
|
Impairment charge included in earnings
|
|
|
|
|
|
|
|
|
|
|
(60,108
|
)
|
Interest income accretion included in earnings
|
|
|
|
|
|
|
228
|
|
|
|
1,067
|
|
Unrealized loss included in other comprehensive loss
|
|
|
(4,551
|
)
|
|
|
|
|
|
|
(9,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of the end of the period
|
|
$
|
279,701
|
|
|
$
|
63,826
|
|
|
$
|
286,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company holds investments in auction rate securities
(ARS) which have been classified as Level 3
assets as described above. The types of ARS holdings the Company
owns are backed by student loans, 97% guaranteed under the
Federal Family Education Loan Program (FFELP), and had credit
ratings of AAA or Aaa when purchased. Historically, the fair
value of the Companys ARS holdings approximated par value
due to the frequent auction periods, generally every 7 to
28 days, which provided liquidity to these investments.
However, since February 2008, all auctions involving these
securities have failed. The result of a failed auction is that
these ARS holdings will continue to pay interest in accordance
with their terms at each respective auction date; however,
liquidity of the securities will be limited until there is a
successful auction, the issuer redeems the securities, the
securities mature or until such time as other markets for these
ARS holdings develop. As a secondary market has yet to develop,
these investments have been classified as long-term investments
as their contractual maturity dates are generally in excess of
20 years. Additionally, during 2009 approximately one-half
of the auction rate securities the Company holds were either
downgraded below AAA or placed on watch status by
one or more of the major credit rating agencies. As of
March 31, 2008, the Company concluded that the estimated
fair value of its ARS no longer approximated the face value. The
Company concluded the fair value of its ARS holdings was
$302,842 compared to a face value of $362,950. The impairment in
value, of $60,108, was considered to be
other-than-temporary,
and accordingly, was recorded as an impairment charge within the
statement of operations during the three months ended
March 31, 2008.
Effective April 1, 2009, the Company was required to adopt
new authoritative guidance which amended the recognition
guidance for
other-than-temporary
impairments of debt securities and changed the presentation of
other-than-temporary
impairments in the financial statements. In accordance with this
new guidance, if an entity intends to sell or if it is more
likely than not that it will be required to sell an impaired
security prior to recovery of its cost basis, the security is to
be considered
other-than-temporarily
impaired and the full amount of impairment must be charged to
earnings. Otherwise, losses on securities which are
other-than-temporarily
impaired are separated into two categories, the portion of loss
which is considered credit loss and the portion of loss which is
due to other factors. The credit loss portion is charged to
earnings while the loss due to other factors is charged to other
comprehensive income. This new guidance requires a cumulative
effect adjustment to be reported as of the beginning of the
period of adoption to reclassify the non-credit component of
previously recognized
other-than-temporary
impairments on debt securities held at that date, from retained
earnings to accumulated other comprehensive income, if the
entity does not intend to sell the debt security and it is not
more likely than not that the entity will be required to sell
the debt security before recovery of its amortized cost basis.
Since the Company has no current intent to sell the auction rate
securities that it holds, and it is not more likely than not
that the Company will be required to sell the securities prior
to recovery, the Company estimated the present value of the cash
flows expected to be collected related to the auction rate
securities it holds. The difference between the present value of
the estimated cash flows expected to be collected and the
amortized cost basis as of April 1, 2009, the date this new
guidance was adopted, was $24,697, which is net of the effect of
noncontrolling interest of $2,151. This represents the
cumulative effect of initially adopting this new guidance and it
has been reflected as an increase to accumulated other
comprehensive loss and an increase to retained earnings in the
accompanying balance sheet effective as of April 1, 2009.
The Company estimates the fair value of its ARS holdings using
an income approach valuation technique. Using this approach,
expected future cash flows are calculated over the expected life
of each security and are discounted to a single present value
using a market required rate of return. Some of the more
significant assumptions made in the present value calculations
were (i) the estimated weighted average lives for the loan
portfolios underlying each individual ARS, which ranged from 4
to 14 years as of March 31, 2008 and (ii) the
required rates of return used to discount the estimated future
cash flows over the estimated life of each security, which
consider both the credit quality for each individual ARS and the
market liquidity for these investments. Additionally, as
discussed above, during 2009, certain of the auction rate
securities the
F-43
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company holds were downgraded below AAA by one or more of the
major credit rating agencies. These revised credit ratings were
a significant consideration in determining the cash flows
expected to be collected. Substantial judgment and estimation
factors are necessary in connection with making fair value
estimates of Level 3 securities, including estimates
related to expected credit losses as these factors are not
currently observable in the market due to the lack of trading in
the securities. The Company continues to monitor the market for
ARS as well as the individual ARS investments it owns. The
Company may be required to record additional losses, either
realized or unrealized, in future periods if the fair value of
its ARS holdings deteriorates further.
The Companys other Level 3 asset as of
December 31, 2009, included $67,500 in senior secured notes
(Senior Secured Notes) that the Company received in
connection with its sale of Porex on October 19, 2009. The
Senior Secured Notes are secured by certain assets of the
acquirer of Porex. The Senior Secured Notes accrue interest at a
rate of 8.75% per annum, payable quarterly. The Senior Secured
Notes were issued in four series: the Senior Secured Notes of
the first, second and third series have an aggregate principal
amount of $10,000 each and mature on the first, second and third
anniversaries of the closing, respectively; and the Senior
Secured Notes of the fourth series have an aggregate principal
amount of $37,500 and mature on the fourth anniversary of the
closing. The Company estimated that the fair value of the Senior
Secured Notes was $63,826 as of December 31, 2009, of which
$9,932 and $53,894 were classified as current investments and
long-term investments, respectively, within the accompanying
consolidated balance sheet. The Company estimated the fair value
of the Senior Secured Notes using an income approach valuation
technique. Using this approach, the expected future cash flows
were discounted to a single present value using a market
required rate of return. The market required rate of return used
to discount the future cash flows considered the estimated
credit quality of the issuer and the liquidity of the
securities.
The Company also holds an investment in a privately held company
which is carried at cost, and not subject to fair value
measurements. However, if events or circumstances indicate that
its carrying amount may not be recoverable, it would be reviewed
for impairment. The amount of this investment is $6,471 and it
is included in other assets on the accompanying balance sheets.
For disclosure purposes, the Company is required to measure the
outstanding value of its debt on a recurring basis. The
following table presents the carrying value and estimated fair
value of the Companys convertible notes that are carried
at historical cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.75% Notes(a)
|
|
$
|
264,583
|
|
|
$
|
296,002
|
|
|
$
|
350,000
|
|
|
$
|
305,200
|
|
31/8% Notes(a)
|
|
|
227,659
|
|
|
|
284,716
|
|
|
|
264,018
|
|
|
|
243,750
|
|
|
|
|
(a)
|
|
Fair value estimate incorporates
bid price quotes.
|
Non-Recourse
Credit Facilities
On May 6, 2008, the Company entered into two substantially
similar non-recourse credit facilities (the 2008 Credit
Facilities) with an affiliate of Citigroup, secured by its
ARS holdings (including, in some circumstances, interest payable
on the ARS holdings), that would allow the Company to borrow up
to 75% of the face amount of the ARS holdings pledged as
collateral under the 2008 Credit Facilities. No borrowings were
made under the 2008 Credit Facilities.
On April 28, 2009, the Company entered into amended and
restated credit facilities with an affiliate of Citigroup (the
2009 Credit Facilities), replacing the 2008 Credit
Facilities. As of the date of this Annual Report, no borrowings
have been made under the 2009 Credit Facilities. The 2009 Credit
Facilities are
F-44
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
secured by the Companys ARS holdings (including, in some
circumstances, interest payable on the ARS holdings). The
Company can make borrowings under the 2009 Credit Facilities
until April 27, 2010. Any borrowings outstanding under
these 2009 Credit Facilities after February 26, 2010 become
demand loans, subject to 60 days notice, with recourse only
to the pledged collateral. Loan proceeds may be used for general
working capital purposes or other lawful business purposes of
the Company (including repurchases of its own securities), but
not for purposes of buying, trading or carrying other
securities. The interest rate applicable to borrowings under the
2009 Credit Facilities will be the Open Federal Funds Rate plus
3.95%. The maximum that can be borrowed under the 2009 Credit
Facilities is 75% of the face amount of the pledged ARS
holdings. As of December 31, 2009, the maximum the Company
would be able to borrow under these credit facilities would be
$264,525. Removals of ARS from the pledged collateral (including
upon their redemption or sale) will reduce the amount available
for borrowing under the 2009 Credit Facilities.
The 2009 Credit Facilities are governed by amended and restated
loan agreements, which contain customary representations and
warranties of the Company and certain affirmative covenants and
negative covenants relating to the pledged collateral. Under the
loan agreements, the Company and the lender may, in certain
circumstances, cause the pledged collateral to be sold, with the
proceeds of any such sale required to be applied in full
immediately to repayment of amounts borrowed.
|
|
17.
|
Other
(Expense) Income, Net
|
Other (expense) income, net consists of the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Transition service
fees(a)
|
|
$
|
47
|
|
|
$
|
335
|
|
|
$
|
5,833
|
|
Reduction of tax
contingencies(b)
|
|
|
915
|
|
|
|
1,749
|
|
|
|
1,497
|
|
Legal
expense(c)
|
|
|
(2,331
|
)
|
|
|
(1,092
|
)
|
|
|
(1,397
|
)
|
Gain on 2006 EBS
Sale(d)
|
|
|
|
|
|
|
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
|
$
|
(1,369
|
)
|
|
$
|
992
|
|
|
$
|
6,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents the net fees received
from ViPS, Sage Software and EBSCo in relation to their
respective transition services agreements.
|
|
(b)
|
|
Represents the reduction of certain
sales and use tax contingencies resulting from the expiration of
various statutes.
|
|
(c)
|
|
Represents the costs and expenses
incurred by the Company related to the investigation by the
United States Attorney for the District of South Carolina and
the SEC and the related Coverage Litigation.
|
|
(d)
|
|
Represents the finalization of the
working capital adjustment related to the 2006 EBS Sale.
|
|
|
18.
|
Related
Party Transactions
|
In 2004, the Company entered into an agreement with Fidelity
Employer Services Company LLC (FESCO) to integrate
WebMDs private portals product into the services FESCO
provides to its clients. FESCO provides human resources
administration and benefit administration services to employers.
The agreement with FESCO terminated in August, 2009 but the
relationship has continued under the transition provisions while
the parties negotiate a new agreement for FESCO to continue to
distribute the Companys services. The Company recorded
revenue of $8,072, $9,399, and $10,362 in 2009, 2008 and 2007,
respectively, and $2,250 and $2,070 was included in accounts
receivable as of December 31, 2009 and 2008, respectively,
related to the FESCO agreement. FESCO is an affiliate of FMR
LLC, which reported beneficial ownership of shares that
represent approximately 15.6% of the Companys common stock
as of December 31, 2009. Affiliates of FMR LLC also provide
services to the Company in connection with certain of the
Companys 401(k) plans.
F-45
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Supplemental
Disclosures of Cash Flow Information
|
Supplemental information related to the consolidated statements
of cash flows is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
13,891
|
|
|
$
|
15,502
|
|
|
$
|
15,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes (received) paid, net(a)
|
|
$
|
(3,687
|
)
|
|
$
|
26,714
|
|
|
$
|
27,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Non-Cash Investing and Financing
|
|
|
|
|
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible redeemable exchangeable
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred stock to common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of convertible redeemable exchangeable
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
As the Company generally files its
tax returns on a consolidated basis, taxes paid, net of refunds,
includes all taxes paid by the Company, including those of the
Companys discontinued operations.
|
F-46
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Quarterly
Financial Data (Unaudited)
|
The following table summarizes the quarterly financial data for
2009 and 2008. The per common share calculations for each of the
quarters are based on the weighted average number of common
shares for each period; therefore, the sum of the quarters may
not necessarily be equal to the full year per common share
amount.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Revenue
|
|
$
|
90,264
|
|
|
$
|
98,631
|
|
|
$
|
111,568
|
|
|
$
|
138,073
|
|
Cost of operations
|
|
|
36,565
|
|
|
|
39,229
|
|
|
|
41,965
|
|
|
|
47,994
|
|
Sales and marketing
|
|
|
27,561
|
|
|
|
26,797
|
|
|
|
26,265
|
|
|
|
31,478
|
|
General and administrative
|
|
|
21,848
|
|
|
|
22,003
|
|
|
|
21,967
|
|
|
|
23,802
|
|
Depreciation and amortization
|
|
|
7,103
|
|
|
|
6,956
|
|
|
|
7,134
|
|
|
|
6,992
|
|
Interest expense, net
|
|
|
(4,274
|
)
|
|
|
(3,823
|
)
|
|
|
(3,701
|
)
|
|
|
(2,568
|
)
|
Severance and other transaction expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,066
|
|
Gain on repurchases of convertible notes
|
|
|
6,647
|
|
|
|
3,473
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(269
|
)
|
|
|
(552
|
)
|
|
|
(123
|
)
|
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income tax
(benefit) provision
|
|
|
(709
|
)
|
|
|
2,744
|
|
|
|
10,413
|
|
|
|
13,748
|
|
Income tax (benefit) provision
|
|
|
(1,217
|
)
|
|
|
750
|
|
|
|
5,389
|
|
|
|
(50,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from continuing operations
|
|
|
508
|
|
|
|
1,994
|
|
|
|
5,024
|
|
|
|
64,161
|
|
Consolidated income (loss) from discontinued operations, net of
tax
|
|
|
517
|
|
|
|
(13,284
|
)
|
|
|
27,462
|
|
|
|
34,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss) inclusive of noncontrolling
interest
|
|
|
1,025
|
|
|
|
(11,290
|
)
|
|
|
32,486
|
|
|
|
98,820
|
|
Income attributable to noncontrolling interest
|
|
|
(610
|
)
|
|
|
(387
|
)
|
|
|
(2,184
|
)
|
|
|
(524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company stockholders
|
|
$
|
415
|
|
|
$
|
(11,677
|
)
|
|
$
|
30,302
|
|
|
$
|
98,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Company stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(194
|
)
|
|
$
|
703
|
|
|
$
|
2,872
|
|
|
$
|
63,637
|
|
Income (loss) from discontinued operations
|
|
|
609
|
|
|
|
(12,380
|
)
|
|
|
27,430
|
|
|
|
34,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company stockholders
|
|
$
|
415
|
|
|
$
|
(11,677
|
)
|
|
$
|
30,302
|
|
|
$
|
98,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(0.00
|
)
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
$
|
1.19
|
|
Income (loss) from discontinued operations
|
|
|
0.01
|
|
|
|
(0.28
|
)
|
|
|
0.59
|
|
|
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company stockholders
|
|
$
|
0.01
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.65
|
|
|
$
|
1.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(0.00
|
)
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
$
|
0.92
|
|
Income (loss) from discontinued operations
|
|
|
0.01
|
|
|
|
(0.26
|
)
|
|
|
0.56
|
|
|
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company stockholders
|
|
$
|
0.01
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.61
|
|
|
$
|
1.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Company Stockholders Per Common
Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
Basic(1)
|
|
$
|
(194
|
)
|
|
$
|
703
|
|
|
$
|
2,841
|
|
|
$
|
62,751
|
|
Interest expense on 1.75% convertible notes, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
876
|
|
Interest expense on
31/8%
convertible notes, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,472
|
|
Effect of dilutive securities of subsidiary
|
|
|
|
|
|
|
(76
|
)
|
|
|
(188
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations Diluted
|
|
$
|
(194
|
)
|
|
$
|
627
|
|
|
$
|
2,653
|
|
|
$
|
66,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of
tax Basic and
Diluted(1)
|
|
$
|
602
|
|
|
$
|
(12,380
|
)
|
|
$
|
27,137
|
|
|
$
|
34,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares Basic
|
|
|
45,217
|
|
|
|
45,599
|
|
|
|
46,096
|
|
|
|
52,688
|
|
Employee stock options, restricted stock and warrants
|
|
|
|
|
|
|
1,134
|
|
|
|
2,513
|
|
|
|
4,470
|
|
1.75% Convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,640
|
|
31/8% Convertible
notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares after assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversions Diluted
|
|
|
45,217
|
|
|
|
46,733
|
|
|
|
48,609
|
|
|
|
71,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Adjusted for the effect of
participating non-vested restricted stock if dilutive to income
per common share.
|
F-47
WEBMD
HEALTH CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Revenue
|
|
$
|
80,650
|
|
|
$
|
85,964
|
|
|
$
|
96,777
|
|
|
$
|
110,071
|
|
Cost of operations
|
|
|
30,927
|
|
|
|
31,968
|
|
|
|
34,225
|
|
|
|
38,018
|
|
Sales and marketing
|
|
|
25,149
|
|
|
|
24,898
|
|
|
|
26,021
|
|
|
|
30,012
|
|
General and administrative
|
|
|
20,849
|
|
|
|
22,778
|
|
|
|
22,493
|
|
|
|
21,933
|
|
Depreciation and amortization
|
|
|
6,775
|
|
|
|
7,214
|
|
|
|
7,188
|
|
|
|
7,233
|
|
Interest income (expense), net
|
|
|
5,411
|
|
|
|
1,477
|
|
|
|
2,750
|
|
|
|
(766
|
)
|
Severance and other transaction expenses
|
|
|
4,259
|
|
|
|
765
|
|
|
|
1,135
|
|
|
|
782
|
|
Gain on sale of EBS Master LLC
|
|
|
538,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,416
|
|
Impairment of auction rate securities
|
|
|
60,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
115
|
|
|
|
99
|
|
|
|
138
|
|
|
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax
provision (benefit)
|
|
|
476,133
|
|
|
|
(83
|
)
|
|
|
8,603
|
|
|
|
4,551
|
|
Income tax provision (benefit)
|
|
|
25,602
|
|
|
|
569
|
|
|
|
3,493
|
|
|
|
(3,026
|
)
|
Equity in earnings of EBS Master LLC
|
|
|
4,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income (loss) from continuing operations
|
|
|
454,538
|
|
|
|
(652
|
)
|
|
|
5,110
|
|
|
|
7,577
|
|
Consolidated income (loss) from discontinued operations, net of
tax
|
|
|
3,057
|
|
|
|
(3,063
|
)
|
|
|
92,647
|
|
|
|
2,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss) inclusive of noncontrolling
interest
|
|
|
457,595
|
|
|
|
(3,715
|
)
|
|
|
97,757
|
|
|
|
9,618
|
|
Income (loss) attributable to noncontrolling interest
|
|
|
3,845
|
|
|
|
(1,071
|
)
|
|
|
(1,845
|
)
|
|
|
(1,961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company stockholders
|
|
$
|
461,440
|
|
|
$
|
(4,786
|
)
|
|
$
|
95,912
|
|
|
$
|
7,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Company stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
458,322
|
|
|
$
|
(1,611
|
)
|
|
$
|
3,403
|
|
|
$
|
5,611
|
|
Income (loss) from discontinued operations
|
|
|
3,118
|
|
|
|
(3,175
|
)
|
|
|
92,509
|
|
|
|
2,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company stockholders
|
|
$
|
461,440
|
|
|
$
|
(4,786
|
)
|
|
$
|
95,912
|
|
|
$
|
7,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
5.66
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.04
|
|
|
$
|
0.08
|
|
Income (loss) from discontinued operations
|
|
|
0.04
|
|
|
|
(0.04
|
)
|
|
|
1.13
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company stockholders
|
|
$
|
5.70
|
|
|
$
|
(0.06
|
)
|
|
$
|
1.17
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
4.56
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.04
|
|
|
$
|
0.08
|
|
Income (loss) from discontinued operations
|
|
|
0.03
|
|
|
|
(0.04
|
)
|
|
|
1.11
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company stockholders
|
|
$
|
4.59
|
|
|
$
|
(0.06
|
)
|
|
$
|
1.15
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Company Stockholders Per Common
Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations Basic
|
|
$
|
458,322
|
|
|
$
|
(1,611
|
)
|
|
$
|
3,403
|
|
|
$
|
5,611
|
|
Interest expense on 1.75% convertible notes, net of tax
|
|
|
1,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on
31/8%
convertible notes, net of tax
|
|
|
2,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities of subsidiary
|
|
|
|
|
|
|
(110
|
)
|
|
|
(188
|
)
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations Diluted
|
|
$
|
462,243
|
|
|
$
|
(1,721
|
)
|
|
$
|
3,215
|
|
|
$
|
5,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of
tax Basic and Diluted
|
|
$
|
3,118
|
|
|
$
|
(3,175
|
)
|
|
$
|
92,509
|
|
|
$
|
2,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares Basic
|
|
|
80,959
|
|
|
|
81,157
|
|
|
|
81,644
|
|
|
|
67,193
|
|
Employee stock options, restricted stock and warrants
|
|
|
1,763
|
|
|
|
1,609
|
|
|
|
1,693
|
|
|
|
592
|
|
1.75% Convertible notes
|
|
|
10,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31/8% Convertible
notes
|
|
|
8,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares after assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversions Diluted
|
|
|
101,394
|
|
|
|
82,766
|
|
|
|
83,337
|
|
|
|
67,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
Schedule II.
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, 2009, 2008 and 2007
|
|
|
Balance at
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
Costs and
|
|
|
|
|
|
|
|
Balance at
|
|
|
of Year
|
|
Expenses
|
|
Acquired
|
|
Write-offs
|
|
Other
|
|
End of Year
|
|
|
(in thousands)
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
$
|
1,301
|
|
|
$
|
1,486
|
|
|
$
|
|
|
|
$
|
(1,276
|
)
|
|
$
|
|
|
|
|
1,511
|
|
Valuation Allowance for Deferred Tax Assets
|
|
|
317,235
|
|
|
|
(67,781
|
)
|
|
|
131
|
|
|
|
|
|
|
|
(14,850
|
)(a)
|
|
|
234,735
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
1,165
|
|
|
|
668
|
|
|
|
|
|
|
|
(532
|
)
|
|
|
|
|
|
|
1,301
|
|
Valuation Allowance for Deferred Tax Assets
|
|
|
486,197
|
|
|
|
(194,057
|
)
|
|
|
24,775
|
|
|
|
|
|
|
|
320
|
|
|
|
317,235
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
956
|
|
|
|
1,074
|
|
|
|
|
|
|
|
(865
|
)
|
|
|
|
|
|
|
1,165
|
|
Valuation Allowance for Deferred Tax Assets
|
|
|
533,724
|
|
|
|
(40,176
|
)
|
|
|
1,449
|
|
|
|
|
|
|
|
(8,800
|
)(b)
|
|
|
486,197
|
|
|
|
|
(a)
|
|
Primarily represents the valuation
allowance released as a result of the effect of the Merger on
state net operating loss carryforwards.
|
|
|
|
(b)
|
|
Primarily represents the valuation
allowance released as a result of (i) the adoption of new
authoritative guidance relating to uncertain tax positions and
(ii) stock option and warrant exercises, partially offset
by the valuation allowance established relating to the
Companys share of unrealized loss on the fair value of
EBSCos interest rate swap agreements.
|
S-1
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
2
|
.1*
|
|
Stock Purchase Agreement, dated as of August 8, 2006,
between HLTH Corporation (HLTH) and Sage Software,
Inc. (incorporated by reference to Exhibit 2.1 to
HLTHs Current Report on
Form 8-K
filed on August 11, 2006)
|
|
2
|
.2*
|
|
Amended and Restated Agreement and Plan of Merger, dated as of
November 15, 2006, among Emdeon Corporation, EBS Holdco,
Inc., EBS Master LLC, Emdeon Business Services LLC, Medifax-EDI
Holding Company, EBS Acquisition LLC, GA EBS Merger LLC and EBS
Merger Co. (incorporated by reference to Exhibit 2.1 to
HLTHs Current Report on
Form 8-K
filed on November 21, 2006)
|
|
2
|
.3*
|
|
Securities Purchase Agreement, dated as of February 8,
2008, among HLTH, EBS Master LLC, the voting members of EBS
Master LLC and the purchasers listed therein (incorporated by
reference to Exhibit 2.1 to HLTHs Current Report on
Form 8-K
filed on February 13, 2008)
|
|
2
|
.4*
|
|
Agreement and Plan of Merger, dated as of June 17, 2009,
between HLTH Corporation and WebMD Health Corp. (incorporated by
reference to Exhibit 2.1 to the Current Report on
Form 8-K
filed by the Registrant on June 18, 2009, as amended on
June 22, 2009)
|
|
2
|
.5*
|
|
Stock Purchase Agreement, dated as of September 17, 2009,
among SNTC Holding, Inc., Aurora Equity Partners III L.P.
and Aurora Overseas Equity Partners III, L.P. (incorporated by
reference to Exhibit 2.1 to the Current Report on
Form 8-K
filed by HLTH on September 22, 2009)
|
|
2
|
.6*
|
|
Unit Purchase Agreement, dated as of November 2, 2006, by
and among the Registrant, Subimo, LLC and the Sellers referred
to therein (incorporated by reference to Exhibit 2.1 to the
Current Report on
Form 8-K
filed by the Registrant on November 8, 2006) (the
Subimo Purchase Agreement)
|
|
2
|
.7
|
|
Amendment, dated December 3, 2008, to the Subimo Purchase
Agreement (incorporated by reference to Exhibit 2.7 to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2008 (the 2008
Form 10-K))
|
|
2
|
.8*
|
|
Stock Purchase Agreement, dated as of June 3, 2008, between
SNTC Holding, Inc. and General Dynamics Information Technology,
Inc. (incorporated by reference to Exhibit 2.1 to Amendment
No. 1, filed on June 10, 2008, to the Current Report
on
Form 8-K
filed by HLTH on June 4, 2008)
|
|
2
|
.9*
|
|
Termination and Mutual Release Agreement, dated as of
November 18, 2008, among the Registrant, Marketing
Technology Solutions Inc., Jay Goldberg and Russell Planitzer
(incorporated by reference to Exhibit 2.8 to the 2008
Form 10-K)
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Registrants Registration Statement on
Form S-8
filed on October 23, 2009 (Reg.
No. 333-162651))
|
|
3
|
.2
|
|
Amended and Restated By-laws of the Registrant (incorporated by
reference to Exhibit 3.2 to the Registrants
Registration Statement on
Form S-8
filed on October 23, 2009 (Reg.
No. 333-162651))
|
|
4
|
.1
|
|
Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 in Amendment No. 1, filed on
August 11, 2009, to the Registrants Registration
Statement on
Form S-4
(Reg. No. 333-160530))
|
|
4
|
.2
|
|
Indenture, dated as of June 25, 2003, between HLTH and The
Bank of New York (incorporated by reference to Exhibit 4.1
to HLTHs Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2003)
|
|
4
|
.3
|
|
Form of 1.75% Convertible Subordinated Note Due 2023
(included in Exhibit 4.2)
|
|
4
|
.4
|
|
First Supplemental Indenture, dated as of October 23, 2009,
between the Registrant and The Bank of New York Mellon, as
Trustee, to the Indenture for the 1.75% Convertible Notes
due 2025 (incorporated by reference to Exhibit 4.4 to the
Registrants Current Report on
Form 8-K
dated October 26, 2009)
|
|
4
|
.5
|
|
Indenture, dated as of August 30, 2005, between HLTH and
The Bank of New York (incorporated by reference to
Exhibit 4.1 to Amendment, filed November 9, 2005 to
HLTHs Current Report on
Form 8-K
filed on August 30, 2005)
|
E-1
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
4
|
.6
|
|
Form of
31/8% Convertible
Note Due 2025 (included in Exhibit 4.5)
|
|
4
|
.7
|
|
First Supplemental Indenture, dated as of October 23, 2009,
between the Registrant and The Bank of New York Mellon, as
Trustee, to the Indenture for the
31/8% Convertible
Notes due 2025 (incorporated by reference to Exhibit 4.1 to
the Registrants Current Report on
Form 8-K
filed October 26, 2009)
|
|
10
|
.1
|
|
Form of Indemnification Agreement between HLTH and each of its
directors and executive officers (incorporated by reference to
Exhibit 10.1 to HLTHs Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2002)
|
|
10
|
.2
|
|
Form of Indemnification Agreement between the Registrant and its
directors and executive officers (incorporated by reference to
Exhibit 10.9 to the Registrants Registration
Statement on
Form S-1
(No. 333-124832)
(which we refer to as the IPO Registration
Statement))
|
|
10
|
.3**
|
|
WebMD Health Corp. Long-Term Incentive Plan for Employees of
Subimo, LLC (incorporated by reference to Exhibit 10.2 to
HLTHs Annual Report on
Form 10-K
for the year ended December 31, 2006)
|
|
10
|
.4
|
|
Healtheon/WebMD Media Services Agreement dated January 26,
2000 among HLTH, Eastrise Profits Limited and Fox Entertainment
Group, Inc. (incorporated by reference to Exhibit 10.5 to
HLTHs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2000) , as amended by
Amendment dated February 15, 2001 (incorporated by
reference to Exhibit 10.2 to HLTHs Quarterly Report
on
Form 10-Q
for the quarter ended March 31, 2001)
|
|
10
|
.5**
|
|
Employment Agreement, dated as of November 9, 2006, between
HLTH and Mark Funston (incorporated by reference to
Exhibit 10.1 to HLTHs Current Report on
Form 8-K
filed on November 15, 2006)
|
|
10
|
.6**
|
|
Amended and Restated Employment Agreement, dated as of
August 3, 2005 between HLTH and Martin J. Wygod
(incorporated by reference to Exhibit 10.1 to HLTHs
Current Report on
Form 8-K
filed on August 5, 2005)
|
|
10
|
.7**
|
|
Letter Agreement, dated as of February 1, 2006 between HLTH
and Martin J. Wygod (incorporated by reference to
Exhibit 10.3 to HLTHs Current Report on
Form 8-K
filed on February 2, 2006)
|
|
10
|
.8**
|
|
Employment Agreement, dated September 23, 2004, between
HLTH and Kevin Cameron (incorporated by reference to
Exhibit 10.1 to HLTHs Current Report on
Form 8-K
filed September 28, 2004)
|
|
10
|
.9**
|
|
Letter Agreement, dated as of February 1, 2006 between HLTH
and Kevin M. Cameron (incorporated by reference to
Exhibit 10.2 to HLTHs Current Report on
Form 8-K
filed on February 2, 2006)
|
|
10
|
.10**
|
|
Amended and Restated Stock Option Agreement dated
August 21, 2000 between HLTH (as successor to Medical
Manager Corporation) and Martin J. Wygod (incorporated by
reference to Exhibit 10.21 to HLTHs Annual Report on
Form 10-K
for the year ended December 31, 2000, as amended by
Amendment No. 1 on
Form 10-K/A)
|
|
10
|
.11**
|
|
Letter Agreement, dated as of April 27, 2005, between HLTH.
and Wayne T. Gattinella (incorporated by reference to
Exhibit 99.1 to HLTHs Current Report on
Form 8-K
filed on May 3, 2005)
|
|
10
|
.12**
|
|
Employment Agreement, dated as of April 28, 2005, between
WebMD, Inc. and Wayne T. Gattinella (incorporated by reference
to Exhibit 99.1 to HLTHs Current Report on
Form 8-K
filed on May 3, 2005)
|
|
10
|
.13**
|
|
Form of Amended and Restated Stock Option Agreement dated
August 21, 2000, between HLTH and Anthony Vuolo
(incorporated by reference to Exhibit 10.54 to HLTHs
Annual Report on
Form 10-K
for the year ended December 31, 2001, as amended by
Amendment No. 1 on
Form 10-K/A)
|
|
10
|
.14**
|
|
Form of Amendment to HLTHs Equity Compensation Plans and
Stock Option Agreements (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on
Form 10-Q
filed by HLTH on November 9, 2006)
|
E-2
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.15**
|
|
2001 Employee Non-Qualified Stock Option Plan of HLTH, as
amended (incorporated by reference to Exhibit 10.46 to
HLTHs
Form 10-K
for the year ended December 31, 2001, as amended by
Amendment No. 1 on
Form 10-K/A)
|
|
10
|
.16**
|
|
2002 Restricted Stock Plan of HLTH and Form of Award Agreement
(incorporated by reference to Exhibit 10.21 to HLTHs
Annual Report on
Form 10-K
for the year ended December 31, 2002)
|
|
10
|
.17**
|
|
Amended and Restated 1996 Stock Plan of HLTH (incorporated by
reference to Exhibit 10.8 to HLTHs Quarterly Report
on
Form 10-Q
for the quarter ended March 31, 2006)
|
|
10
|
.18**
|
|
Amended and Restated 1998 Employee Stock Purchase Plan of HLTH
(incorporated by reference to Exhibit 99.27 to HLTHs
Registration Statement on
Form S-8
(No. 333-47250)
filed October 4, 2000)
|
|
10
|
.19**
|
|
Amended and Restated 2000 Long-Term Incentive Plan of HLTH
(incorporated by reference to Annex E to HLTHs Proxy
Statement for its 2006 Annual Meeting filed on August 14,
2006)
|
|
10
|
.20**
|
|
WebMD, Inc. Amended and Restated 1997 Stock Incentive Plan, as
amended (incorporated by reference to Exhibit 10.2 to
HLTHs Registration Statement on
Form S-8
(No. 33-90795)
filed November 12, 1999)
|
|
10
|
.21**
|
|
Envoy Stock Plan (incorporated by reference to Exhibit 99.1
to HLTHs Registration Statement on
Form S-8
(No. 333-42616)
filed July 31, 2000)
|
|
10
|
.22**
|
|
Amended and Restated 1989 Class A Non-Qualified Stock
Option Plan of Synetic, Inc. (incorporated by reference to
Exhibit 10.1 to Synetic, Inc.s Registration Statement
on
Form S-1
(No. 333-28654)
filed May 18, 1989)
|
|
10
|
.23**
|
|
Amended and Restated 1989 Class B Non-Qualified Stock
Option Plan of Synetic, Inc. (incorporated by reference to
Exhibit 10.2 to Synetic, Inc.s Registration Statement
on
Form S-1
(No. 333-28654)
filed May 18, 1989)
|
|
10
|
.24**
|
|
1991 Director Stock Option Plan of Synetic, Inc.
(incorporated by reference to Exhibit 4.2 to Synetic,
Inc.s Registration Statement on
Form S-8
(No. 333-46640)
filed March 24, 1992)
|
|
10
|
.25**
|
|
Amended and Restated 1991 Special Non-Qualified Stock Option
Plan of Synetic, Inc. (incorporated by reference to
Exhibit 4.3 to Synetic, Inc.s Registration Statement
on
Form S-8
(No. 333-36041)
filed September 19, 1997)
|
|
10
|
.26**
|
|
Medical Manager Corporations 1996 Amended and Restated
Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.1 to Medical Manager Corporations
(Commission
File No. 0-29090)
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1998)
|
|
10
|
.27**
|
|
Medical Manager Corporations 1996 Amended and Restated
Non-Employee Directors Stock Plan (incorporated by
reference to Exhibit 10.2 to Medical Manager
Corporations (Commission
File No. 0-29090)
Annual Report on
Form 10-K
for the fiscal year ended December 31, 1997)
|
|
10
|
.28**
|
|
1996 Class C Stock Option Plan of Synetic, Inc.
(incorporated by reference to Exhibit 4.1 to Synetic,
Inc.s Registration Statement on
Form S-8
(No. 333-36041)
filed September 19, 1997)
|
|
10
|
.29**
|
|
1997 Class D Stock Option Plan of Synetic, Inc.
(incorporated by reference to Exhibit 4.2 to Synetic,
Inc.s Registration Statement on
Form S-8
(No. 333-36041)
filed September 19, 1997)
|
|
10
|
.30**
|
|
1998 Class E Stock Option Plan of Synetic, Inc.
(incorporated by reference to Exhibit 4.1 to Synetic,
Inc.s Registration Statement on
Form S-8
(No. 333-72517)
filed February 17, 1999)
|
|
10
|
.31**
|
|
The 1999 Medical Manager Corporation Stock Option Plan for
Employees of Medical Manager Systems, Inc. (incorporated by
reference to Exhibit 10.28 to Medical Manager
Corporations Annual Report on
Form 10-K
for the year ended June 30, 1999)
|
|
10
|
.32**
|
|
1998 Porex Technologies Corp. Stock Option Plan of Synetic, Inc.
(incorporated by reference to Exhibit 4.2 to Synetic,
Inc.s Registration Statement on
Form S-8
(No. 333-72517)
filed February 17, 1999)
|
|
10
|
.33**
|
|
CareInsite, Inc. 1999 Officer Stock Option Plan (incorporated by
reference to Exhibit 10.18 to Amendment No. 6 to
CareInsite, Inc.s Registration Statement on
Form S-1
(No. 333-75071)
filed June 11, 1999)
|
E-3
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.34**
|
|
CareInsite, Inc. 1999 Employee Stock Option Plan (incorporated
by reference to Exhibit 10.17 to Amendment No. 6 to
CareInsite, Inc.s Registration Statement on
Form S-1
(No. 333-75071)
filed June 11, 1999)
|
|
10
|
.35**
|
|
CareInsite, Inc. 1999 Director Stock Option Plan
(incorporated by reference to Annex H to the Proxy
Statement/Prospectus, filed on August 7, 2000, and included
in HLTHs Registration Statement on
Form S-4
(No. 333-39592)
|
|
10
|
.36**
|
|
Amendment to Company Stock Option Plans of Medical Manager
Corporation and CareInsite, Inc. (incorporated by reference to
Exhibit 99.28 to HLTHs Registration Statement on
Form S-8
(No. 333-47250)
filed October 4, 2000)
|
|
10
|
.37**
|
|
2004 Non-Qualified Stock Option Plan for Employees of VIPS, Inc.
(incorporated by reference to Exhibit 10.2 of HLTHs
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2004)
|
|
10
|
.38**
|
|
Stock Option Agreement between HLTH and Wayne Gattinella dated
August 20, 2001 (incorporated by reference to
Exhibit 4.8 to HLTHs Registration Statement on
Form S-8
(No. 333-888420)
filed May 16, 2002)
|
|
10
|
.39**
|
|
WebMD Health Corp. Amended and Restated 2005 Long-Term Incentive
Plan (the 2005 LTIP) (incorporated by reference to
Exhibit 4.1 to the Registrants Registration Statement on
Form S-8
filed on October 23, 2009 (Reg.
No. 333-162653))
|
|
10
|
.40**
|
|
Amended and Restated Employment Agreement, dated as of
July 14, 2005, between WebMD Health Corp. and Anthony Vuolo
(incorporated by reference to Exhibit 99.2 to HLTHs
Current Report on
Form 8-K,
as amended, filed with the Securities and Exchange Commission on
July 19, 2005)
|
|
10
|
.41**
|
|
Form of Restricted Stock Agreement with Employees (incorporated
by reference to Exhibit 4.2 to the Registrants
Registration Statement on
Form S-8
filed on October 23, 2009 (Reg.
No. 333-162653)
|
|
10
|
.42**
|
|
Form of Restricted Stock Agreement with Non-Employee Directors
(incorporated by reference to Exhibit 10.49 to the IPO
Registration Statement)
|
|
10
|
.43**
|
|
Form of Non-Qualified Stock Option Agreement with Employees
(incorporated by reference to Exhibit 4.3 to the
Registrants Registration Statement on
Form S-8
filed on October 23, 2009 (Reg.
No. 333-162653))
|
|
10
|
.44**
|
|
Form of Non-Qualified Stock Option Agreement with Non-Employee
Directors (incorporated by reference to Exhibit 10.51 to
the IPO Registration Statement)
|
|
10
|
.45**
|
|
Employment Agreement between WebMD Health Holdings, Inc. and
Douglas W. Wamsley (incorporated by reference to
Exhibit 10.15 to the IPO Registration Statement)
|
|
10
|
.46**
|
|
Employment Agreement between WebMD Health Holdings, Inc. and
Nan-Kirsten Forte (incorporated by reference to
Exhibit 10.16 to the IPO Registration Statement)
|
|
10
|
.47**
|
|
Employment Agreement between WebMD Health Holdings, Inc. and
Steven Zatz, M.D. (incorporated by reference to
Exhibit 10.17 to the IPO Registration Statement)
|
|
10
|
.48**
|
|
Employment Agreement between WebMD Health Holdings, Inc. and
Craig Froude (incorporated by reference to Exhibit 10.18 to
the IPO Registration Statement)
|
|
10
|
.49
|
|
Agreement of Lease, dated as of June 30, 2004,
between III Chelsea Commerce LP and WebMD, Inc.
(incorporated by reference to Exhibit 10.45 to the IPO
Registration Statement)
|
|
10
|
.50
|
|
First Amendment to the Lease Agreement, dated as of
December 21, 2004, between III Chelsea Commerce LP and
WebMD, Inc. (incorporated by reference to Exhibit 10.46 to
the IPO Registration Statement)
|
|
10
|
.51
|
|
Services Agreement, dated as of February 12, 2004, between
WebMD, Inc. and Fidelity Human Resources Services Company LLC
(f/k/a Fidelity Employer Services Company LLC) (incorporated by
reference to Exhibit 10.47 to the IPO Registration
Statement)
|
|
10
|
.52**
|
|
Form of Restricted Stock Agreement between HLTH and Employees
for Grants Under HLTHs 2000 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.57 to HLTHs
Annual Report on
Form 10-K
for the year ended December 31, 2005)
|
E-4
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.53**
|
|
Form of Non-Qualified Stock Option Agreement between HLTH and
Employees for Grants Under HLTHs 2000 Long-Term Incentive
Plan (incorporated by reference to Exhibit 10.58 to
HLTHs Annual Report on
Form 10-K
for the year ended December 31, 2005)
|
|
10
|
.54**
|
|
Form of Non-Qualified Stock Option Agreement between HLTH and
Employees for Grants Under HLTHs 1996 Stock Plan
(incorporated by reference to Exhibit 10.59 to HLTHs
Annual Report on
Form 10-K
for the year ended December 31, 2005)
|
|
10
|
.55
|
|
Loan Agreement, dated as of April 28, 2009, between
Citigroup Global Markets Inc. and HLTH Corporation (incorporated
by reference to Exhibit 10.1 to HLTHs Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2009)
|
|
10
|
.56
|
|
Amended and Restated Loan Agreement, dated as of April 28,
2009, between Citigroup Global Markets Inc. and WebMD Health
Corp. (incorporated by reference to Exhibit 10.1 of the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009)
|
|
10
|
.57**
|
|
Amendment No. 2, dated as of December 1, 2008, between
HLTH and Martin J. Wygod (incorporated by reference to
Exhibit 10.1 to HLTHs Current Report on
Form 8-K
filed on December 5, 2008)
|
|
10
|
.58**
|
|
Letter Agreement, dated December 29, 2008, between HLTH and
Martin J. Wygod (incorporated by reference to Exhibit 10.52
to HLTHs Annual Report on
Form 10-K
for the year ended December 31, 2008)
|
|
10
|
.59**
|
|
Amendment to Employment Agreement, dated as of December 16,
2008, between HLTH and Kevin M. Cameron (incorporated by
reference to Exhibit 10.53 to HLTHs Annual Report on
Form 10-K
for the year ended December 31, 2008)
|
|
10
|
.60**
|
|
Letter Amendment, dated as of December 10, 2008, between
HLTH and Mark D. Funston (incorporated by reference to
Exhibit 10.54 to HLTHs Annual Report on
Form 10-K
for the year ended December 31, 2008)
|
|
10
|
.61**
|
|
Letter Amendment, dated as of December 10, 2008, between
the Registrant and Wayne T. Gattinella (incorporated by
reference to Exhibit 10.53 to the 2008
Form 10-K)
|
|
10
|
.62**
|
|
Letter Amendment, dated as of July 9, 2009, among HLTH
Corporation, WebMD Health Corp. and Martin J. Wygod
(incorporated by reference to Exhibit 10.1 to the Current
Report on
Form 8-K
filed by the Registrant on July 14, 2009)
|
|
10
|
.63**
|
|
WebMD, LLC Supplemental Bonus Program Trust Agreement
(incorporated by reference to Exhibit 10.48 to Amendment
No. 1, filed on April 29, 2008, to the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2007)
|
|
10
|
.64**
|
|
Amendment No. 1 to WebMD Supplemental Bonus Program
Trust Agreement (incorporated by reference to
Exhibit 10.58 to Amendment No. 1, filed on
April 30, 2009, to the 2008
Form 10-K)
|
|
10
|
.65**
|
|
Letter Agreement, dated as of October 1, 2007, between the
Registrant and William Pence (incorporated by reference to
Exhibit 10.59 to Amendment No. 1, filed on
April 30, 2009, to the 2008
Form 10-K)
|
|
10
|
.66**
|
|
Letter Amendment, dated as of December 10, 2008, between
the Registrant and William Pence (incorporated by reference to
Exhibit 10.60 to Amendment No. 1, filed on
April 30, 2009, to the 2008
Form 10-K)
|
|
10
|
.67**
|
|
Amendment, dated as of December 10, 2008 to Amended and
Restated Employment Agreement between the Registrant and Anthony
Vuolo (incorporated by reference to Exhibit 10.55 to the
2008
Form 10-K)
|
|
10
|
.68**
|
|
Letter Amendment, dated as of December 14, 2008, between
the Registrant and Nan Forte (incorporated by reference to
Exhibit 10.56 to the 2008
Form 10-K)
|
|
10
|
.69**
|
|
Letter Agreement, dated as of February 19, 2009, between
HLTH and Anthony Vuolo (incorporated by reference to
Exhibit 10.57 to the 2008
Form 10-K)
|
|
10
|
.70
|
|
Note Purchase Agreement, dated October 19, 2009, among SNTC
Holding, Inc., Porex Holding Corporation, Porex Corporation and
Porex Surgical, Inc. (incorporated by reference to
Exhibit 10.1 to HLTHs Current Report on
Form 8-K
filed October 20, 2009)
|
|
10
|
.71**
|
|
Restricted Stock Agreement, dated November 3, 2009, between
the Registrant and Anthony Vuolo
|
E-5
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.72**
|
|
Letter Amendment, dated as of November 3, 2009, between the
Registrant and Kevin M. Cameron
|
|
10
|
.73**
|
|
Letter Agreement, dated as of October 30, 2009, between the
Registrant and Mark Funston
|
|
12
|
.1
|
|
Computation of Ratio of Earnings to Fixed Charges
|
|
14
|
.1
|
|
Code of Business Conduct (incorporated by reference to
Exhibit 10.58 to Amendment No. 1, filed on
April 30, 2009, to the 2008
Form 10-K)
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm
|
|
23
|
.2
|
|
Consent of Ernst & Young LLP, Independent Auditors for
Exhibit 99.5
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer of the Registrant
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer of the Registrant
|
|
32
|
.1
|
|
Section 1350 Certification of Chief Executive Officer of
the Registrant
|
|
32
|
.2
|
|
Section 1350 Certification of Chief Financial Officer of
the Registrant
|
|
99
|
.1
|
|
Explanation of Non-GAAP Measures
|
|
99
|
.2
|
|
Audit Committee Charter
|
|
99
|
.3
|
|
Compensation Committee Charter
|
|
99
|
.4
|
|
Nominating & Governance Committee Charter
|
|
99
|
.5
|
|
Consolidated Financial Statements of EBS Master LLC for the Year
Ended December 31, 2007 and the Period from
November 16, 2006 to December 31, 2006 (incorporated
by reference to Exhibit 99.1 to HLTHs Annual Report
on
Form 10-K
for the year ended December 31, 2007)
|
|
|
|
* |
|
With respect to the agreements filed as Exhibits 2.1
through 2.6 and Exhibits 2.8 and 2.9, certain of the
exhibits and the schedules to those agreements have been omitted
pursuant to Item 601(b)(2) of
Regulation S-K.
The Registrant will furnish copies of any of the exhibits and
schedules to the Securities and Exchange Commission upon request. |
|
** |
|
Agreement relates to executive compensation. |
|
|
|
Portions of this exhibit were redacted pursuant to confidential
treatment request filed with the Secretary of the Securities and
Exchange Commission pursuant to Rule 406 under the
Securities Act of 1933, as amended. |
E-6