DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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HLTH
CORPORATION
669 River Drive, Center
2
Elmwood Park, New Jersey
07407-1361
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD DECEMBER 10,
2008
To the Stockholders of HLTH Corporation:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of
HLTH Corporation will be held at 9:30 a.m., Eastern time,
on December 10, 2008, at The Waldorf-Astoria Hotel, 301
Park Avenue, New York, NY 10022, for the following purposes:
1. To elect two Class I directors, each to serve a
three-year term expiring at our Annual Meeting of Stockholders
in 2011 or until his successor is elected and has qualified or
his earlier resignation or removal.
2. To consider and vote on a proposal to ratify the
appointment of Ernst & Young LLP as the independent
registered public accounting firm to serve as HLTHs
independent auditor for the fiscal year ending December 31,
2008.
3. To consider and transact such other business as may
properly be brought before the Annual Meeting or any adjournment
or postponement thereof.
Only stockholders of record at the close of business on
October 24, 2008 will be entitled to vote at this meeting.
The stock transfer books will not be closed.
All stockholders are cordially invited to attend the Annual
Meeting in person. However, to ensure your representation at the
Annual Meeting, you are urged to complete, sign, date and return
the enclosed proxy card in the enclosed postage-prepaid envelope
as promptly as possible.
By Order of the Board of Directors
of HLTH Corporation
Charles A. Mele
Executive Vice President,
General Counsel and Secretary
Elmwood Park, New Jersey
November 3, 2008
YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This proxy statement 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 are not guarantees of future
performance. They involve known and unknown risks, uncertainties
and other factors that may cause actual results, performance or
achievements to be different from any future results,
performance and achievements expressed or implied by these
statements. Factors that may cause actual results to differ
materially from those contemplated by the forward-looking
statements include, among others, those disclosed in the section
entitled Risk Factors and in other reports filed by
HLTH with the Securities and Exchange Commission.
The forward-looking statements included in this proxy statement
are made only as of the date of this proxy statement. Except as
required by applicable law or regulation, we do not undertake
any obligation to update any forward-looking statements to
reflect subsequent events or circumstances.
HLTH CORPORATION 2007 ANNUAL REPORT
Annexes A-1
through A-4 and Annex B of this proxy statement constitute
portions of the 2007 Annual Report required to be distributed
with this proxy statement to stockholders of HLTH. For 2007,
HLTH will not be distributing a stand-alone Annual Report
document. The Annexes, together with other information contained
in this proxy statement, contain all of the information that
HLTH would have included in its Annual Report.
HLTH
CORPORATION
669 River Drive, Center 2
Elmwood Park, New Jersey
07407-1361
PROXY
STATEMENT
ANNUAL
MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 10, 2008
This proxy statement and the enclosed form of proxy are
furnished to stockholders of HLTH Corporation, a Delaware
corporation, in connection with the solicitation of proxies by
our board of directors from holders of outstanding shares of our
Common Stock, par value $0.0001 per share, for use at our Annual
Meeting of Stockholders to be held on December 10, 2008, at
9:30 a.m., Eastern time, at The Waldorf-Astoria Hotel, 301
Park Avenue, New York, NY 10022, and at any adjournment or
postponement thereof. The date of this proxy statement is
November 3, 2008 and it and a form of proxy are first being
mailed or otherwise delivered to stockholders on or about
November 5, 2008.
PROPOSALS
TO BE CONSIDERED AT THE ANNUAL MEETING
The following proposals will be considered and voted on at the
Annual Meeting:
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Proposal 1: Election of two Class I
directors of HLTH, each to serve a three-year term expiring at
the Annual Meeting of Stockholders in 2011 or until his
successor is elected and has qualified or his earlier
resignation or removal. The two nominees are:
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Neil F.
Dimick
Joseph E. Smith
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Proposal 2: A proposal to ratify the
appointment of Ernst & Young LLP as the independent
registered public accounting firm to serve as HLTHs
independent auditor for the fiscal year ending December 31,
2008.
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The board of directors of HLTH recommends a vote
FOR the election of each of the nominees for
director listed in Proposal 1 and FOR
Proposal 2.
VOTING
RIGHTS AND RELATED MATTERS
Record
Date and Outstanding Shares
Only holders of record of HLTH Common Stock at the close of
business on October 24, 2008, the record date, are entitled
to notice of and to vote at the HLTH Annual Meeting. On the
record date, approximately 185,602,915 shares of HLTH
Common Stock were issued and outstanding and held by
approximately 3,200 holders of record, although HLTH believes
that there are approximately 45,000 beneficial owners of HLTH
Common Stock. Unvested shares of restricted HLTH Common Stock
granted under HLTHs equity compensation plans (which we
refer to as HLTH restricted stock) are entitled to vote at the
Annual Meeting and are included in the above number of
outstanding shares of HLTH Common Stock. No other voting
securities of HLTH are outstanding.
As of the record date for the HLTH Annual Meeting, the directors
and executive officers of HLTH held and are entitled to vote, in
the aggregate, shares of HLTH Common Stock representing
approximately 5.3% of the outstanding shares.
1
Vote and
Quorum Required
The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of HLTH Common
Stock entitled to vote at the Annual Meeting is necessary to
constitute a quorum at the meeting. Abstentions will be counted
as shares that are present and entitled to vote for purposes of
determining whether a quorum is present. Shares held by nominees
for beneficial owners will also be counted for purposes of
determining whether a quorum is present if the nominee has the
discretion to vote on at least one of the matters presented and
even though the nominee may not exercise discretionary voting
power with respect to other matters and voting instructions have
not been received from the beneficial owner (sometimes referred
to as a broker non-vote). If a quorum is not
present, the Annual Meeting may be adjourned from time to time
until a quorum is obtained.
On all matters to be considered at the Annual Meeting, each
share of HLTH Common Stock is entitled to one vote per share.
Proposal 1 (Election of
Directors). Election of directors is by a
plurality of the votes cast at the Annual Meeting with respect
to such election. Accordingly, the two nominees receiving the
greatest number of votes for their election will be elected.
Abstentions and instructions on the accompanying proxy card to
withhold authority to vote with respect to a nominee will result
in that nominee receiving fewer votes for the election.
Proposal 2 (Ratification of Appointment of Independent
Registered Public Accounting Firm). The
affirmative vote of the holders of a majority of the shares
present or represented at the meeting and entitled to vote on
the matter is required to ratify the appointment of
Ernst & Young LLP as the independent registered public
accounting firm to serve as HLTHs independent auditor
described in Proposal 2. Abstentions with respect to
Proposal 2 will be treated as shares that are present or
represented at the meeting, but will not be counted in favor of
that proposal. Accordingly, an abstention from voting on
Proposal 2 will have the same effect as a vote
AGAINST that proposal.
Voting of
Proxies
If you hold shares of HLTH Common Stock in your name, please
sign, date and return your proxy card with voting instructions.
All shares represented by properly executed proxies received in
time for the HLTH Annual Meeting will be voted at the HLTH
Annual Meeting in the manner specified by the stockholders
giving those proxies. Unless your shares of HLTH Common Stock
are held in a brokerage account, if you sign, date and send your
proxy and do not indicate how you want to vote, your proxy will
be voted FOR the election of each of the nominees
for director listed in Proposal 1 and FOR
Proposal 2.
If your stock is held in street name through a bank
or a broker, please direct your bank or broker to vote your
stock in the manner described in the instructions you have
received from your bank or broker. Stockholders are urged to
utilize telephone or Internet voting if their bank or broker has
provided them with the opportunity to do so. See the relevant
voting instruction form for instructions. If a
stockholders bank or broker holds its shares and such
stockholder attends the HLTH Annual Meeting in person, such
stockholder should please bring a letter from its bank or broker
identifying it as the beneficial owner of the shares and
authorizing it to vote such shares at the meeting.
HLTH does not expect that any matters other than those discussed
above will be brought before the HLTH Annual Meeting. If,
however, other matters are properly presented at the HLTH Annual
Meeting, the individuals named as proxies will vote on such
matters in their discretion.
2
Revocability
of Proxies
Submitting a proxy on the enclosed form does not preclude a HLTH
stockholder of record from voting in person at the HLTH Annual
Meeting. A HLTH stockholder of record may revoke a proxy at any
time before it is voted by taking any of the following actions:
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delivering to the Secretary of HLTH, at the address set forth
above, prior to the vote at the HLTH Annual Meeting, a written
notice, bearing a date later than the date of the proxy, stating
that the proxy is revoked;
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signing and so delivering a proxy relating to the same shares
and bearing a later date prior to the vote at the HLTH Annual
Meeting; or
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attending the HLTH Annual Meeting and voting in person, although
attendance at the meeting will not, by itself, revoke a proxy.
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HLTH stockholders whose shares are held in street name should
contact their broker, bank or nominee for instructions regarding
voting at the HLTH Annual Meeting or revoking previously
submitted instructions regarding how their shares are to be
voted.
Solicitation
of Proxies
HLTH will pay the expenses of soliciting proxies from its
stockholders to be voted at the HLTH Annual Meeting and the cost
of preparing and mailing this proxy statement to its
stockholders. Following the original mailing of this proxy
statement and other soliciting materials, HLTH and its agents
also may solicit proxies by mail, telephone, facsimile or in
person. In addition, proxies may be solicited from HLTH
stockholders by HLTHs directors, officers and employees in
person or by telephone, facsimile or other means of
communication. These officers, directors and employees will not
be additionally compensated but may be reimbursed for reasonable
out-of-pocket expenses in connection with the solicitation.
Following the original mailing of this proxy statement and other
soliciting materials, HLTH will request brokers, custodians,
nominees and other record holders of HLTH Common Stock to
forward copies of this proxy statement and other soliciting
materials to persons for whom they hold shares of HLTH Common
Stock and to request authority for the exercise of proxies. In
these cases, HLTH will, upon the request of the record holders,
reimburse these holders for their reasonable expenses. HLTH has
retained Innisfree M&A Incorporated, a proxy solicitation
firm, for assistance in connection with the solicitation of
proxies for the Annual Meeting and will pay customary fees plus
reimbursement of
out-of-pocket
expenses.
No
Appraisal Rights
The stockholders of HLTH will not be entitled to exercise
dissenters rights with respect to any matter to be voted
upon at the Annual Meeting.
3
DIRECTORS
AND EXECUTIVE OFFICERS
The charts below list HLTHs directors and executive
officers and are followed by biographical information about them
and a description of certain corporate governance matters.
Directors
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Name
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Age
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Positions
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Mark J.
Adler, M.D.(3)(4)
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52
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Director; Chairman of the Compensation Committee
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Paul A.
Brooke(1)(2)(5)(6)
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62
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Director
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Kevin M. Cameron
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42
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Director
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Neil F.
Dimick(4)(5)
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59
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Director; Chairman of the Nominating Committee; Chairman of the
Governance & Compliance Committee
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James V.
Manning(1)(2)(4)
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61
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Director; Chairman of the Audit Committee
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Herman
Sarkowsky(3)(5)(6)
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82
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Director
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Joseph E.
Smith(1)(2)(3)(6)
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69
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Director
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Martin J.
Wygod(1)
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68
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Chairman of the Board; Acting Chief Executive Officer
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(1)
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Member of the Executive Committee
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(2)
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Member of the Audit Committee
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(3)
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Member of the Compensation Committee
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(4)
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Member of the
Governance & Compliance Committee
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(5)
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Member of the Nominating Committee
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(6)
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Member of the Related Parties
Committee
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For a description of each of the standing committees of the
board of directors and other corporate governance matters, see
Corporate Governance below. Dr. Adler and
Messrs. Dimick, Manning and Wygod are also members of the
board of directors of WebMD. HLTH, through its ownership of
WebMD Class B Common Stock, owns approximately 84% of the
total outstanding Common Stock of WebMD and approximately 96% of
the combined voting power of WebMDs outstanding Common
Stock as of October 24, 2008.
Executive
Officers
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Name
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Age
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Positions
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Martin J. Wygod
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68
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Chairman of the Board and Acting Chief Executive Officer
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Mark D. Funston
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49
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Executive Vice President and Chief Financial Officer
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Wayne T. Gattinella
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56
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CEO and President of the WebMD segment
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Charles A. Mele
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52
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Executive Vice President, General Counsel and Secretary
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William G. Midgette
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52
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CEO of the Porex segment
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Mark J. Adler, M.D., has been a director of HLTH
since September 2000. Since September 2005, he has also served
as a member of the board of directors of WebMD. Dr. Adler
is an oncologist and has, for more than five years, been CEO and
Medical Director of the San Diego Cancer Center and a
director of the San Diego Cancer Research Institute. Until
April 2006, he had also been, for more than five years, the
Chief Executive Officer of the internal medicine and oncology
group of Medical Group of North County, which is based in
San Diego, California, and he continues to be a member of
that Medical Group.
Paul A. Brooke has been a director of HLTH since November
2000. Mr. Brooke has been Chairman of the Board of Alsius
Corporation, a medical device company, since June 2007 and was
Chairman and Chief Executive Officer of a predecessor company
from 2005 to June 2007. Mr. Brooke has been the Managing
Member of PMSV Holdings LLC, a private investment firm, since
1993. Mr. Brooke has also been a Senior
4
Advisor to Morgan Stanley since April 2000. From 1997 through
2006, Mr. Brooke was a Venture Partner of MPM Capital, a
venture capital firm specializing in the healthcare industry.
From 1983 until April 1999, Mr. Brooke was a Managing
Director and the Global Head of Healthcare Research and Strategy
at Morgan Stanley. From April 1999 until May 2000, he was a
Managing Director at Tiger Management LLC. He serves as a member
of the boards of directors of the following other public
companies: Incyte Corporation, a drug discovery company; and
Viropharma Incorporated, a pharmaceutical company.
Kevin M. Cameron has served as a director of HLTH since
October 2004. He also served as Chief Executive Officer of HLTH
from October 2004 until February 2008, when he went on medical
leave. From November 2005 until November 2006, Mr. Cameron
also served as Acting CEO of Emdeon Business Services, which was
then one of HLTHs segments. From January 2002 until
October 2004, Mr. Cameron was Special Advisor to the
Chairman. From September 2000 to January 2002, he served as
Executive Vice President, Business Development of HLTH and, in
addition, from September 2001 through January 2002, was a member
of the Office of the President. From April 2000 until its merger
with HLTH in September 2000, Mr. Cameron served as
Executive Vice President, Business Development of a predecessor
to HLTH. Prior to April 2000, Mr. Cameron was a Managing
Director of the Health Care Investment Banking Group of UBS and
held various positions at Salomon Smith Barney, which is now
part of Citigroup.
Neil F. Dimick has been a director of HLTH since December
2002. Since September 2005, he has also served as a member of
the board of directors of WebMD. Mr. Dimick served as
Executive Vice President and Chief Financial Officer of
AmerisourceBergen Corporation, a wholesale distributor of
pharmaceuticals, from 2001 to 2002 and as Senior Executive Vice
President and Chief Financial Officer and as a director of
Bergen Brunswig Corporation, a wholesale distributor of
pharmaceuticals, for more than five years prior to its merger in
2001 with AmeriSource Health Corporation to
form AmerisourceBergen. He also serves as a member of the
boards of directors of the following companies: Alliance Imaging
Inc., a provider of outsourced diagnostic imaging services to
hospitals and other healthcare companies; Global Resources
Professionals, an international professional services firm that
provides outsourced services to companies on a project basis;
Mylan Laboratories, Inc., a pharmaceutical manufacturer; and
Thoratec Corporation, a developer of products to treat
cardiovascular disease.
Mark D. Funston has served as Executive Vice President
and Chief Financial Officer of HLTH since November 2006 and of
WebMD since August 11, 2007. Prior to joining HLTH,
Mr. Funston was Interim Chief Financial Officer of Digital
Harbor, Inc., a privately held software company, from November
2005. Prior to that, Mr. Funston served as Chief Financial
Officer of Group 1 Software, Inc., a publicly traded software
company, from 1996 until its acquisition by Pitney Bowes in
2004. From 1989 to 1996, Mr. Funston was Chief Financial
Officer of COMSAT RSI, Inc. (formerly Radiation Systems, Inc.),
a publicly traded telecommunications manufacturing company
acquired by COMSAT Corporation in 1994.
Wayne T. Gattinella has served as President of the WebMD
segment since joining HLTH in 2001 and as its Chief Executive
Officer since 2005. Since 2005, he has held the same positions
at WebMD and has also served as a member of its board of
directors. From 2000 to 2001, Mr. Gattinella was Executive
Vice President and Chief Marketing Officer for People PC, an
Internet services provider. Mr. Gattinella had previously
held senior management positions with Merck-Medco (now Medco
Health Solutions) and MCI Telecommunications.
Mr. Gattinella currently serves on Drexel Universitys
LeBow College of Business Advisory Board.
James V. Manning has been a director of HLTH since
September 2000 and, prior to that, was a member of a predecessor
companys board of directors for more than five years.
Since September 2005, he has also served as a member of the
board of directors of WebMD.
Charles A. Mele has been Executive Vice President,
General Counsel and Secretary of HLTH since January 2001 and has
served in senior executive positions for HLTH and predecessor
companies since 1995.
William G. Midgette has been Chief Executive Officer of
the Porex segment since August 2002. For more than five years
prior to that, Mr. Midgette served in senior management
positions at C. R. Bard, Inc., a healthcare products company,
the last of which was President, Bard International.
5
Herman Sarkowsky has been a director of HLTH since
November 2000 and, prior to that, was a member of a predecessor
companys board of directors for more than five years.
Mr. Sarkowsky has been President of Sarkowsky Investment
Corporation, a private investment company, for more than five
years.
Joseph E. Smith has been a director of HLTH since
September 2000. Mr. Smith served in various positions with
Warner-Lambert Company, a pharmaceutical company, from March
1989 to September 1997, the last of which was Corporate
Executive Vice President and a member of the Office of the
Chairman and the firms Management Committee.
Mr. Smith serves on the board of directors of
Par Pharmaceutical Companies, Inc., a manufacturer and
distributor of generic and branded pharmaceuticals, and on the
Board of Trustees of the International Longevity Center, a
non-profit organization.
Martin J. Wygod has served as Acting Chief Executive
Officer of HLTH since February 2008, as Chairman of the Board of
HLTH since March 2001, and as a director since September 2000.
Since May 2005, he has also served as Chairman of the Board of
WebMD. From October 2000 until May 2003, Mr. Wygod also
served as HLTHs Chief Executive Officer. From September
2000 until October 2000, Mr. Wygod served as Co-Chief
Executive Officer of HLTH. Mr. Wygod is also engaged in the
business of racing, boarding and breeding thoroughbred horses,
and is President of River Edge Farm, Inc.
No family relationship exists among any of HLTHs directors
or executive officers. No arrangement or understanding exists
between any director or executive officer of HLTH and any other
person pursuant to which any of them were selected as a director
or executive officer.
6
SECURITY
OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership of HLTH Common Stock, as of
October 24, 2008 (except where otherwise indicated), by
each person or entity known by HLTH to beneficially own more
than 5% of HLTH Common Stock, by each of HLTHs directors,
by each of HLTHs Named Executive Officers, and by all of
HLTHs directors and executive officers as a group. Except
as indicated in the footnotes to this table, and subject to
applicable community property laws, the persons listed in the
table below have sole voting and investment power with respect
to all shares of HLTH Common Stock shown as beneficially owned
by them. Unless otherwise indicated, the address of each of the
beneficial owners identified is
c/o HLTH
Corporation, 669 River Drive, Center 2, Elmwood Park, New Jersey
07407-1361.
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Common
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Total
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Percent of
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Name and Address of Beneficial Owner
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Stock(1)
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Other(2)
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Shares
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Outstanding(2)
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FMR
Corp.(3)
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14,821,042
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14,821,042
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8.0
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%
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82 Devonshire Street
Boston, MA 02109
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Ziff Asset Management,
L.P.(4)
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13,409,998
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13,409,998
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7.2
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%
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283 Greenwich Avenue
Greenwich, CT 06830
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Baron Capital Group,
Inc.(5)
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13,208,187
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13,208,187
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7.1
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%
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767 Fifth Avenue
New York, NY 10153
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Kensico Capital Management
Corp.(6)
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12,054,389
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12,054,389
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6.5
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%
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55 Railroad Avenue,
2nd Floor
Greenwich, CT 06830
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Mark J. Adler, M.D.
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10,600
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(7)
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219,749
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230,349
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*
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Paul A. Brooke
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371,667
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(8)
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193,749
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565,416
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*
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Kevin M. Cameron
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601,184
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(9)
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3,257,168
|
|
|
|
3,858,352
|
|
|
|
2.0
|
%
|
Neil F. Dimick
|
|
|
|
|
|
|
41,665
|
|
|
|
41,665
|
|
|
|
*
|
|
Mark D. Funston
|
|
|
60,000
|
(10)
|
|
|
90,000
|
|
|
|
150,000
|
|
|
|
*
|
|
Wayne T. Gattinella
|
|
|
20,218
|
|
|
|
489,881
|
|
|
|
510,099
|
|
|
|
*
|
|
James V. Manning
|
|
|
568,515
|
(11)
|
|
|
231,749
|
|
|
|
800,264
|
|
|
|
*
|
|
Charles A. Mele
|
|
|
228,446
|
(12)
|
|
|
1,858,000
|
|
|
|
2,086,446
|
|
|
|
1.1
|
%
|
Herman Sarkowsky
|
|
|
495,996
|
|
|
|
368,749
|
|
|
|
864,745
|
|
|
|
*
|
|
Joseph E. Smith
|
|
|
29,250
|
|
|
|
149,749
|
|
|
|
178,999
|
|
|
|
*
|
|
Martin J. Wygod
|
|
|
7,516,183
|
(13)
|
|
|
4,400,000
|
|
|
|
11,916,183
|
|
|
|
6.3
|
%
|
All executive officers and directors as a group (12 persons)
|
|
|
9,788,073
|
|
|
|
11,610,459
|
|
|
|
21,398,532
|
|
|
|
10.9
|
%
|
|
|
|
*
|
|
Less than 1%.
|
|
(1)
|
|
The amounts set forth in this
column include 156, 1,855 and 236 shares of HLTH Common
Stock held in the respective accounts of each of
Messrs. Cameron, Mele and Wygod in the HLTH 401(k) Plan
(which we refer to in this table as 401(k) Plan Shares), all of
which are vested in accordance with terms of the Plan. The
amount set forth in this column for All executive officers
and directors as a group includes 2,247 401(k) Plan
Shares, all of which are vested in accordance with the terms of
the HLTH 401(k) Plan.
|
|
|
|
Messrs. Cameron, Funston, Mele
and Wygod are beneficial owners of shares of HLTH restricted
stock in the respective amounts stated in the footnotes below.
Holders of HLTH restricted stock have voting power, but not
dispositive power, with respect to unvested shares of HLTH
restricted stock. For information regarding the vesting
schedules of the HLTH restricted stock, see Executive
Compensation Executive Compensation
Tables Outstanding Equity Awards at End of
2007 below.
|
|
(2)
|
|
Beneficial ownership is determined
under the rules and regulations of the SEC, which provide that
shares of common stock that a person has the right to acquire
within 60 days are deemed to be outstanding and
beneficially owned by that person for the purpose of computing
the total number of shares beneficially owned by that person and
the percentage ownership of that person. However, those shares
are not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person. Accordingly, we
have set forth, in the column entitled Other, where
applicable, the number of shares of HLTH Common Stock that the
person has the right to acquire pursuant to options that are
currently exercisable or that will be exercisable within
60 days of October 24, 2008. HLTH has calculated the
percentages set forth in the column entitled Percent of
Outstanding based on the number of shares outstanding as
of October 24, 2008 (which was 185,602,915 including
unvested shares of HLTH restricted stock) plus, for each listed
person or group, the number of additional shares deemed
outstanding, as set forth in the column entitled
Other.
|
7
|
|
|
(3)
|
|
The information shown is as of
February 29, 2008 and is based upon information disclosed
by FMR Corp., Fidelity Management and Research Company, Fidelity
Growth Company Fund and Edward C. Johnson, 3d in a
Schedule 13G filed with the SEC. Such persons reported that
FMR Corp. and the other members of the filing group had, as of
February 29, 2008, sole power to dispose of or to direct
the disposition of 14,821,042 shares of HLTH Common Stock.
Sole power to vote the other shares of HLTH Common Stock
beneficially owned by the filing group resides in the respective
boards of trustees of the funds that have invested in the shares.
|
|
(4)
|
|
The information shown is as of
December 31, 2007 and is based upon information disclosed
by Ziff Asset Management, L.P., PBK Holdings, Inc., Philip B.
Korsant and ZBI Equities, L.L.C. in a Schedule 13G filed
with the SEC. Such persons reported that they had, as of
December 31, 2007, shared power to dispose of or to direct
the disposition of 13,409,998 shares of HLTH Common Stock
and sole power to vote or to direct the vote of
13,409,998 shares of HLTH Common Stock, except that Ziff
Asset Management, L.P. had shared voting power and shared
dispositive power with respect to only 12,278,030 of those
shares.
|
|
(5)
|
|
The information shown is as of
December 31, 2007 and is based upon information disclosed
by Baron Capital Group, Inc., BAMCO, Inc., Baron Capital
Management and Ronald Baron in a Schedule 13G filed with
the SEC. Such persons reported that they had, as of
December 31, 2007, sole power to dispose or direct the
disposition of 150,000 shares of HLTH Common Stock, shared
power to dispose or direct the disposition of
13,058,187 shares of HLTH Common Stock, sole power to vote
or to direct the vote of 150,000 shares of HLTH Common
Stock and shared power to vote or to direct the vote of
11,556,876 shares of HLTH Common Stock, except that Baron
Capital Management, Inc. had shared voting power with respect to
only 475,800 of those shares and shared dispositive power with
respect to only 491,100 of those shares and BAMCO, Inc. did not
have sole voting or dispositive power with respect to any of
those shares and had shared voting power with respect to only
11,081,076 of those shares and shared dispositive power with
respect to only 12,567,087 of those shares.
|
|
(6)
|
|
The information shown is as of
December 31, 2007 and is based upon information disclosed
by Kensico Capital Management Corp., Michael Lowenstein and
Thomas J. Coleman in a Schedule 13G filed with the SEC.
Such persons reported that they had, as of December 31,
2007, sole power to dispose of or to direct the disposition of
12,054,389 shares of HLTH Common Stock and sole power to
vote or to direct the vote of 12,054,389 shares of HLTH
Common Stock.
|
|
(7)
|
|
Represents 10,000 shares held
by Dr. Adler and 600 shares held by
Dr. Adlers son.
|
|
(8)
|
|
Represents 170,000 shares held
by Mr. Brooke and 201,667 shares held by PMSV Holdings
LLC, of which Mr. Brooke is the managing member.
|
|
(9)
|
|
Represents 318,778 shares held
by Mr. Cameron, 156 401(k) Plan Shares and 282,250 unvested
shares of HLTH restricted stock.
|
|
(10)
|
|
Represents 15,000 shares held
by Mr. Funston and 45,000 unvested shares of HLTH
restricted stock.
|
|
(11)
|
|
Represents 503,018 shares held
by Mr. Manning (including 12,500 through an IRA),
3,000 shares held by Mr. Mannings wife through
an IRA, and 62,497 shares held by the WebMD Health
Foundation, Inc., a charitable foundation of which
Messrs. Manning and Wygod are trustees and share voting and
dispositive power.
|
|
(12)
|
|
Represents 88,591 shares held
by Mr. Mele, 1,855 401(k) Plan Shares, 73,000 unvested
shares of HLTH restricted stock and 65,000 shares held by
the Rose Foundation, a private charitable foundation of which
Messrs. Mele and Wygod are trustees and share voting and
dispositive power.
|
|
(13)
|
|
Represents 6,953,118 shares
held by Mr. Wygod, 236 401(k) Plan Shares,
269,000 shares of unvested HLTH restricted stock,
5,000 shares held by Mr. Wygods spouse through
an IRA, 161,332 shares held by SYNC, Inc., which is
controlled by Mr. Wygod, 62,497 shares held by the
WebMD Health Foundation, Inc., a charitable foundation of which
Messrs. Wygod and Manning are trustees and share voting and
dispositive power, and 65,000 shares held by the Rose
Foundation, a private charitable foundation of which
Messrs. Wygod and Mele are trustees and share voting and
dispositive power.
|
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires executive officers and directors, and persons
who beneficially own more than ten percent of a registered class
of HLTHs equity securities, to file reports of ownership
and changes in ownership of these securities with the SEC.
Officers, directors and greater than ten percent beneficial
owners are required by applicable regulations to furnish HLTH
with copies of all Section 16(a) forms they file. Based
solely upon a review of the forms furnished to HLTH during or
with respect to the most recent fiscal year, all of HLTHs
directors and officers subject to the reporting requirements and
each beneficial owner of more than ten percent of HLTH Common
Stock satisfied all applicable filing requirements under
Section 16(a).
8
PROPOSAL 1:
ELECTION OF DIRECTORS
Election of two Class I directors of HLTH, each to serve
a three-year term expiring at the HLTH Annual Meeting of
Stockholders in 2011 or until his successor is elected and has
qualified or his earlier resignation or removal.
The HLTH board of directors has eight members and is divided
into three classes, two of which currently have three directors
and one of which currently has two directors. At each Annual
Meeting, the term of one of the classes of directors expires and
HLTH stockholders vote to elect nominees for the directorships
in that class for a new three-year term. At this years
Annual Meeting, the terms of the two Class I directors,
Neil F. Dimick and Joseph E. Smith, will expire. The terms of
Messrs. Brooke, Manning and Wygod will expire at the Annual
Meeting in 2009; and the terms of Dr. Adler and
Messrs. Cameron and Sarkowsky will expire at the Annual
Meeting in 2010.
The board of directors, based on the recommendation of the
Nominating Committee of the board of directors, has nominated
Messrs. Dimick and Smith for re-election at the Annual
Meeting, each to serve a three-year term expiring at the Annual
Meeting in 2011 or until his successor is elected and has
qualified or his earlier resignation or removal. For
biographical information regarding the nominees and other
directors, see Directors and Executive Officers
above.
The persons named in the enclosed proxy intend to vote for the
election of Messrs. Dimick and Smith, unless you indicate
on the proxy card that your vote should be withheld.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF THESE NOMINEES AS DIRECTORS.
HLTH has inquired of each nominee and has determined that each
will serve if elected. While the HLTH board of directors does
not anticipate that any of the nominees will be unable to serve,
if any nominee is not able to serve, proxies will be voted for a
substitute nominee unless the board of directors chooses to
reduce the number of directors serving on the board.
For information regarding corporate governance and related
matters involving HLTHs board of directors and its
committees, see Corporate Governance below. For
information regarding the compensation of non-employee
directors, see Non-Employee Director Compensation
below. Employees of HLTH who serve on the board of directors do
not receive additional compensation for board service.
9
CORPORATE
GOVERNANCE
Board of
Directors
HLTHs board of directors has eight members. Two of the
members are also employees of HLTH: Mr. Cameron, who served
as Chief Executive Officer and is currently on medical leave,
and Mr. Wygod, Chairman of the Board and Acting Chief
Executive Officer. Six of the members are non-employee
directors: Dr. Adler and Messrs. Brooke, Dimick,
Manning, Sarkowsky and Smith. The board of directors has
determined that each of the non-employee directors is also an
independent director under applicable SEC rules and Nasdaq
Global Select Market listing standards. See Director
Independence below. The non-employee directors meet
regularly in private sessions with the Chairman of the Board and
also meet regularly without any employee directors or other HLTH
employees present. For information regarding the compensation of
non-employee directors, see Non-Employee Director
Compensation below.
The board of directors met 11 times during 2007. During 2007,
each of the directors attended 75% or more of the meetings held
by the board and the board committees on which he served. In
addition to meetings, the board and its committees reviewed and
acted upon matters by unanimous written consent. HLTHs
board of directors encourages its members to attend the Annual
Meetings of Stockholders. All but two of our directors attended
the 2007 Annual Meeting.
Director
Independence
HLTHs board of directors has delegated to the
Governance & Compliance Committee of the board the
authority to make determinations regarding the independence of
members of the board. The Governance & Compliance
Committee has determined that Dr. Adler, and
Messrs. Brooke, Dimick, Manning, Sarkowsky and Smith (all
six of HLTHs non-employee directors) are
independent in accordance with the published listing
requirements of the Nasdaq Global Select Market applicable
generally to members of HLTHs board and, with respect to
the committees of HLTHs board on which they serve, those
applicable to the specific committees. The other two directors,
Messrs. Cameron and Wygod, as officers of HLTHs
company, are not independent.
The Nasdaq independence definition includes a series of
objective tests, including one that requires a three-year period
to have elapsed since employment by the listed company and other
tests relating to specific types of transactions or business
dealings between a director (or persons or entities related to
the director) and the listed company. In addition, as further
required by the Nasdaq Marketplace Rules, the
Governance & Compliance Committee of the HLTH board
has made a subjective determination as to each non-employee
director that no relationships exist which, in the opinion of
the Governance & Compliance Committee, would interfere
with the exercise of independent judgment in carrying out the
responsibilities of a director. In considering whether
Mr. Manning qualified as independent, the
Governance & Compliance Committee considered that
(1) he had previously served as an executive officer of a
predecessor of HLTH, more than nine years ago and (2) he
and Mr. Wygod both serve as trustees of the WebMD Health
Foundation, Inc., a charitable foundation. In considering
whether Mr. Sarkowsky qualified as independent,
the Governance & Compliance Committee considered the
fact that he and Mr. Wygod have jointly owned race horses.
Each member of the Governance & Compliance Committee
abstained from voting with respect to his own independence.
Communications
with HLTH Directors
The board of directors encourages HLTHs security holders
to communicate in writing to its directors. Security holders may
send written communications to the board of directors or to
specified individual directors by sending such communications
c/o the Corporate Secretarys Office, HLTH Corporation, 669
River Drive, Center 2, Elmwood Park, New Jersey
07407-1361.
Such communications will be reviewed by HLTHs Legal
Department and, depending on the content, will be:
|
|
|
|
|
forwarded to the addressees or distributed at the next scheduled
board meeting; or
|
10
|
|
|
|
|
if they relate to financial or accounting matters, forwarded to
the Audit Committee or discussed at the next scheduled Audit
Committee meeting; or
|
|
|
|
if they relate to the recommendation of the nomination of an
individual, forwarded to the Nominating Committee or discussed
at the next scheduled Nominating Committee meeting; or
|
|
|
|
if they relate to the operations of HLTH, forwarded to the
appropriate officers of HLTH, and the response or other handling
reported to the board at the next scheduled board meeting.
|
Committees
of the Board of Directors
This section describes the roles of each of the committees of
the HLTH board in the corporate governance of HLTH. The board of
directors currently has six standing committees: an Executive
Committee, a Compensation Committee, an Audit Committee, a
Governance & Compliance Committee, a Nominating
Committee and a Related Parties Committee. The Compensation
Committee, the Audit Committee, the Governance &
Compliance Committee, the Nominating Committee and the Related
Parties Committee each has the authority to retain such outside
advisors as it may determine to be appropriate.
With respect to certain committees, including the Audit
Committee, the Compensation Committee and the Nominating
Committee, a portion of their responsibilities are specified by
SEC rules and the listing standards of the Nasdaq Global Select
Market. These committees work with their counterparts at WebMD
where their responsibilities overlap or where they otherwise
believe it is appropriate to do so. To assist in that
coordination of responsibilities, the Chairpersons of the Audit
Committee, Compensation Committee, Governance &
Compliance Committee and Nominating Committee are the same
persons who hold those positions on those committees of the
WebMD board of directors.
Executive Committee. The Executive Committee,
which met once during 2007, is currently comprised of
Messrs. Brooke, Manning, Smith and Wygod. Mr. Cameron
was also a member of the Executive Committee until February
2008. The Executive Committee has the power to exercise, to the
fullest extent permitted by law, the powers of the entire board.
Audit Committee. The Audit Committee, which
met nine times during 2007, is currently comprised of
Messrs. Brooke, Manning and Smith; Mr. Manning is its
Chairman. Each of the members of the Audit Committee meets the
standards of independence applicable to audit committee members
under applicable SEC rules and Nasdaq Global Select Market
listing standards and is financially literate, as required under
applicable Nasdaq Global Select Market listing standards. In
addition, the board of directors of HLTH has determined that
Mr. Manning qualifies as an audit committee financial
expert, as that term is used in applicable SEC regulations
implementing Section 407 of the Sarbanes-Oxley Act of 2002,
based on his training and experience as a certified public
accountant, including as a partner of a major accounting firm,
and based on his service as a senior executive and chief
financial officer of public companies.
The Audit Committee operates under a written charter adopted by
the board of directors, which sets forth the responsibilities
and powers delegated by the board to the Audit Committee. A copy
of the Audit Committee Charter, as amended through July 26,
2007, was included as Annex A to the Proxy Statement for
HLTHs 2007 Annual Meeting. The Audit Committees
responsibilities are summarized below in Report of the
Audit Committee and include oversight of the
administration of HLTHs Code of Business Conduct. A copy
of the joint HLTH and WebMD Code of Business Conduct, as
amended, was filed as Exhibit 14.1 to the Current Report on
Form 8-K
filed on February 9, 2006. The Code of Business Conduct
applies to all directors and employees of HLTH and its
subsidiaries. Any waiver of applicable requirements in the Code
of Business Conduct that is granted to any of HLTHs
directors, principal executive officer, any senior financial
officers (including the principal financial officer, principal
accounting officer or controller) or any other person who is an
executive officer of HLTH requires the approval of the Audit
Committee and waivers will be disclosed on HLTHs corporate
Web site, www.hlth.com, in the Investor
Relations section, or in a Current Report on
Form 8-K.
11
Compensation Committee. The Compensation
Committee, which met seven times during 2007, is currently
comprised of Dr. Adler and Messrs. Sarkowsky and
Smith; Dr. Adler is its Chairman. Each of these directors
is a non-employee director within the meaning of the rules
promulgated under Section 16 of the Securities Exchange
Act, an outside director within the meaning of
Section 162(m) of the Internal Revenue Code and an
independent director under applicable Nasdaq Global Select
Market listing standards. The responsibilities delegated by the
board to the Compensation Committee include:
|
|
|
|
|
oversight of the HLTH executive compensation program and its
incentive and equity compensation plans;
|
|
|
|
determination of compensation levels for and grants of incentive
and equity-based awards to executive officers and the terms of
any employment agreements with them;
|
|
|
|
determination of compensation levels for non-employee
directors; and
|
|
|
|
review of and making recommendations regarding other matters
relating to HLTHs compensation practices.
|
The Compensation Committee operates under a written charter
adopted by the board of directors, which sets forth the
responsibilities and powers delegated by the board to the
Compensation Committee. A copy of the Compensation Committee
Charter, as amended through July 26, 2007, was included as
Annex B to the Proxy Statement for HLTHs 2007 Annual
Meeting. For additional information regarding HLTHs
Compensation Committee and its oversight of executive
compensation, see Executive Compensation
Compensation Discussion and Analysis below.
Nominating Committee. The Nominating
Committee, which met once during 2007, is currently comprised of
Messrs. Brooke, Dimick and Sarkowsky; Mr. Dimick is
its Chairman. Each of these directors is an independent director
under applicable Nasdaq Global Select Market listing standards.
The responsibilities delegated by the board to the Nominating
Committee include:
|
|
|
|
|
identifying individuals qualified to become board members;
|
|
|
|
recommending to the board the director nominees for each Annual
Meeting of Stockholders; and
|
|
|
|
recommending to the board candidates for filling vacancies that
may occur between Annual Meetings.
|
The Nominating Committee operates pursuant to a written charter
adopted by the board of directors, which sets forth the
responsibilities and powers delegated by the board to the
Nominating Committee. A copy of the Nominating Committee
Charter, as amended through July 26, 2007, was included as
Annex C to the Proxy Statement for HLTHs 2007 Annual
Meeting. The Nominating Committee has not adopted specific
objective requirements for service on the HLTH board. Instead,
the Nominating Committee considers various factors in
determining whether to recommend to the board potential new
board members, or the continued service of existing members,
including:
|
|
|
|
|
the amount and type of the potential nominees managerial
and policy-making experience in complex organizations and
whether any such experience is particularly relevant to HLTH;
|
|
|
|
any specialized skills or experience that the potential nominee
has and whether such skills or experience are particularly
relevant to HLTH;
|
|
|
|
in the case of non-employee directors, whether the potential
nominee has sufficient time to devote to service on the HLTH
board and the nature of any conflicts of interest or potential
conflicts of interest arising from the nominees existing
relationships;
|
|
|
|
in the case of non-employee directors, whether the nominee would
be an independent director and would be considered a
financial expert or to have financial
sophistication under applicable SEC rules and the listing
standards of the Nasdaq Global Select Market;
|
12
|
|
|
|
|
in the case of potential new members, whether the nominee
assists in achieving a mix of board members that represents a
diversity of background and experience, including with respect
to age, gender, race, areas of expertise and skills; and
|
|
|
|
in the case of existing members, the nominees
contributions as a member of the board during his or her prior
service.
|
The Nominating Committee will consider candidates recommended by
stockholders in the same manner as described above. Any such
recommendation should be sent in writing to the Nominating
Committee, c/o Secretary, HLTH Corporation, 669 River Drive,
Center 2, Elmwood Park, New Jersey
07407-1361.
To facilitate consideration by the Nominating Committee, the
recommendation should be accompanied by a full statement of the
qualifications of the recommended nominee, the consent of the
recommended nominee to serve as a director of HLTH if nominated
and to be identified in HLTHs proxy materials and the
consent of the recommending stockholder to be named in
HLTHs proxy materials. The recommendation and related
materials will be provided to the Nominating Committee for
consideration at its next regular meeting.
Governance & Compliance
Committee. The Governance & Compliance
Committee is currently comprised of Dr. Adler and
Messrs. Dimick and Manning; Mr. Dimick is its
Chairman. The Governance & Compliance Committee met
twice in 2007. The responsibilities delegated by the board to
the Governance & Compliance Committee include:
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|
|
|
|
evaluating and making recommendations to the board regarding
matters relating to the governance of HLTH;
|
|
|
|
assisting the board in coordinating the activities of the
boards other standing committees, including with respect
to HLTHs compliance programs and providing additional
oversight of those compliance programs; and
|
|
|
|
providing oversight of senior executive recruitment and
management development.
|
As part of its responsibilities relating to corporate
governance, the Governance & Compliance Committee
evaluates and makes recommendations to the board regarding any
proposal for which a stockholder has provided required notice
that such stockholder intends to make at an Annual Meeting of
Stockholders, including recommendations regarding the
boards response and regarding whether to include such
proposal in HLTHs proxy statement.
The Governance & Compliance Committee operates
pursuant to a written charter adopted by the board of directors.
A copy of the Governance & Compliance Committee
Charter, as amended through July 26, 2007, was included as
Annex D to the Proxy Statement for HLTHs 2007 Annual
Meeting. Pursuant to that Charter, the membership of the
Governance & Compliance Committee consists of the
Chairpersons of the Nominating, Audit and Compensation
Committees and the Chairperson of the Nominating Committee
serves as the Chairperson of the Governance &
Compliance Committee, unless otherwise determined by the
Governance & Compliance Committee.
Related Parties Committee. In September 2005,
HLTHs board of directors established the Related Parties
Committee. The Related Parties Committee is currently comprised
of Messrs. Brooke, Sarkowsky and Smith. Each of the members
of the Related Parties Committee is an independent director and
none of its members serves as a director of WebMD. The Related
Parties Committee met once during 2007. The responsibilities
delegated by the board to the Related Parties Committee include:
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|
|
|
|
oversight of transactions between HLTH and WebMD; and
|
|
|
|
oversight of other matters in which the interests of HLTH and
WebMD conflict or may potentially conflict.
|
13
Other Committees. From time to time,
HLTHs board of directors forms additional committees to
make specific determinations or to provide oversight of specific
matters or initiatives. For example:
|
|
|
|
|
Messrs. Brooke, Manning, Sarkowsky and Smith and
Dr. Adler are members of a special committee of the board
to oversee matters relating to the investigations described in
Legal Proceedings Investigations by United
States Attorney for the District of South Carolina and the
SEC in Note 12 to the Consolidated Financial
Statements included as Annex A-1 to this proxy
statement; and
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|
|
|
Messrs. Wygod, Manning and Smith are members of a special
committee of the board authorized to make determinations
relating to HLTHs stock repurchase program.
|
14
NON-EMPLOYEE
DIRECTOR COMPENSATION
This section describes the compensation paid by HLTH during 2007
to the members of its board of directors who are not also HLTH
or WebMD employees. These individuals are referred to as
non-employee directors. The Compensation Committee of the HLTH
board is authorized to determine the compensation of the
non-employee directors.
As described below, only two types of compensation were paid by
HLTH to non-employee directors in 2007 for their board and board
committee service: (1) cash and (2) a grant of
non-qualified options to purchase HLTH Common Stock. None of the
non-employee directors received any other compensation from HLTH
during 2007 and none of them provided any services to HLTH
during 2007, except their service as a director. HLTH does not
offer any deferred compensation plans or retirement plans to its
non-employee directors.
2007 Director
Compensation Table
This table provides information regarding the value of the
compensation of the HLTH non-employee directors for 2007, as
calculated in accordance with applicable SEC regulations. This
table should be read together with the additional information
under the headings Cash Compensation and
Option Grants below.
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|
|
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|
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|
(a)
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|
(b)
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(c)
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(d)
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|
Fees Earned or
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|
|
|
|
|
Paid in Cash
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|
Option Awards
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Total
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Name
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|
($)
|
|
($)(1)(2)
|
|
($)
|
|
Mark J.
Adler, M.D.(3)
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|
|
77,500
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|
|
|
54,996
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|
|
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132,496
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|
Paul A. Brooke
|
|
|
90,000
|
|
|
|
54,996
|
|
|
|
144,996
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|
Neil F.
Dimick(3)
|
|
|
57,500
|
|
|
|
54,996
|
|
|
|
112,496
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|
James V.
Manning(3)
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|
|
95,000
|
|
|
|
54,996
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|
|
|
149,996
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|
Herman Sarkowsky
|
|
|
80,000
|
|
|
|
54,996
|
|
|
|
134,996
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|
Joseph E. Smith
|
|
|
90,000
|
|
|
|
54,996
|
|
|
|
144,996
|
|
|
|
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(1)
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The amounts reported in Column
(c) above reflect the aggregate dollar amounts recognized
by HLTH in 2007 for stock option awards for income statement
reporting purposes under Statement of Financial Accounting
Standards (SFAS) No. 123R, Share-based
Payments (disregarding any estimate of forfeitures related
to service-based vesting conditions). See Note 13
(Stock-Based Compensation) to the Consolidated Financial
Statements included as Annex A-1 to this proxy statement
for an explanation of the methodology and assumptions used in
determining the fair value of stock option awards granted. The
amounts reported in Column (c) reflect HLTHs
accounting expense for these stock option awards, not amounts
realized by non-employee directors. The actual amounts, if any,
ultimately realized by non-employee directors from options to
purchase HLTH Common Stock will depend on the price of HLTH
Common Stock at the time they exercise vested stock options.
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(2)
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|
Under HLTHs Amended and
Restated 2000 Long-Term Incentive Plan (which we refer to as the
2000 Plan), each non-employee director of HLTH automatically
receives a non-qualified option to purchase 20,000 shares
of HLTH Common Stock on each January 1, with an exercise
price equal to the closing price on the last trading date of the
prior year. The grants made on January 1, 2007 each had an
exercise price of $12.39 per share and each had a total grant
date fair value equal to $77,774, based on the methodology and
assumptions referred to in Footnote 1 above. The following lists
the total number of shares of HLTH Common Stock subject to
outstanding unexercised option awards held by each of
non-employee directors as of December 31, 2007 and the
weighted average exercise price of those options:
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|
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Number of Shares Subject
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|
Weighted Average
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Name
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|
to Outstanding Options
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|
Exercise Price
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|
Mark J. Adler, M.D.
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|
|
236,000
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$
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10.16
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Paul A. Brooke
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210,000
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|
$
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8.02
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Neil F. Dimick
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57,916
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|
|
$
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9.82
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James V. Manning
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248,000
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|
$
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8.89
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Herman Sarkowsky
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410,000
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|
|
$
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10.65
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Joseph E. Smith
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|
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166,000
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|
|
$
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11.60
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|
|
|
|
|
|
See Option Grants below
for additional information.
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(3)
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|
These three non-employee directors
of HLTH are also non-employee directors of WebMD, for which they
received compensation from WebMD. For information regarding the
compensation they received from WebMD, see below under
Compensation for Service on WebMD Board.
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15
Cash
Compensation
Overview. For each of the HLTH
non-employee directors, the amount set forth in Column
(a) of the 2007 Director Compensation Table represents
the sum of the following amounts, each of which is described
below:
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|
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an annual retainer for service on the board;
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|
annual fees for service on standing committees of the board;
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|
annual fees, if any, for serving as Chairperson of standing
committees of the board; and
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|
quarterly fees for service on other committees of the board.
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Non-employee directors do not receive per meeting fees but are
reimbursed for out-of-pocket expenses they incur in connection
with attending board and board committee meetings and the Annual
Meeting of Stockholders.
Board Service. Each HLTH non-employee
director receives an annual retainer of $30,000 for service on
the HLTH board.
Service on Standing Committees. HLTH
pays annual fees for service on some of the standing committees
of the board, as well as an additional fee to the Chairperson of
each of those committees, in the following amounts:
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|
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Type of Service
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|
Annual Fee
|
|
|
Membership on Audit Committee (Messrs. Brooke, Manning
and Smith)
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|
$
|
15,000
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|
Membership on Compensation Committee (Dr. Adler and
Messrs. Sarkowsky and Smith) or Nominating Committee
(Messrs. Brooke, Dimick and Sarkowsky)
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|
$
|
5,000
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|
Membership on Governance & Compliance Committee
(Dr. Adler and Messrs. Dimick and Manning) or
Related Parties Committee (Messrs. Brooke, Sarkowsky and
Smith)
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$
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10,000
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Chairperson of Compensation Committee (Dr. Adler) or
Nominating Committee (Mr. Dimick)
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|
$
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2,500
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|
Chairperson of Audit Committee (Mr. Manning) or
Governance & Compliance Committee
(Mr. Dimick)
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|
$
|
10,000
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|
The amounts of the fees payable to HLTH non-employee directors
for service on the board and its standing committees are
determined by the Compensation Committee and may be changed by
it from time to time. The Compensation Committee also has
discretion to determine whether such compensation is paid in
cash, in HLTH Common Stock or some other form of compensation.
Service on Other Committees. HLTH
non-employee directors may also receive additional fees for
service on committees established by the board for specific
purposes. Those fees are generally paid on a quarterly basis for
the period that the committee exists and may be set by the
board, the Compensation Committee or the committee itself.
Messrs. Brooke, Manning, Sarkowsky and Smith and
Dr. Adler were each paid $30,000 for their service in 2007
as members of a special committee of the board to oversee
matters relating to the investigations described in Legal
Proceedings Investigations by United States Attorney
for the District of South Carolina and the SEC in
Note 12 to the Consolidated Financial Statements included
as Annex A-1 to this proxy statement. Members of this
special committee will continue to receive compensation for
their service on the committee. The current quarterly payment is
$3,750 per member.
Option
Grants
Annual Stock Option Grants. On January
1 of each year, each HLTH non-employee director receives a
non-qualified option to purchase 20,000 shares of HLTH
Common Stock pursuant to automatic annual grants of stock
options under WebMDs 2000 Plan. The annual stock option
awards are granted with a per-share exercise price equal to the
fair market value of a share of HLTH Common Stock on the grant
date. For these purposes, and in accordance with the terms of
the 2000 Plan and HLTHs equity award grant practices, the
fair market value is equal to the closing price of a share of
HLTH Common Stock on the Nasdaq Global Select
16
Market on the last trading day of the prior year. The vesting
schedule for each automatic annual grant is as follows:
1/4
of the grant on the first anniversary of the date of grant and
1/48
of the grant on a monthly basis over the next three years (full
vesting on the fourth anniversary of the date of grant). Each
non-employee director received automatic annual grants of
options to purchase 20,000 shares of HLTH Common Stock on
January 1, 2007 (with an exercise price of $12.39 per
share) and January 1, 2008 (with an exercise price of
$13.40 per share). The options granted to non-employee directors
do not include any dividend or dividend equivalent rights. Each
such option will expire, to the extent not previously exercised,
ten years after the date of grant or earlier if their service as
a director ends.
Under the 2000 Plan, outstanding unvested options held by HLTH
non-employee directors vest and become fully exercisable:
(a) upon the non-employee directors death or
termination of service as a result of disability; and
(b) upon a Change in Control of HLTH. Those
options, and any others that had previously vested, will then
continue to be exercisable or lapse in accordance with the other
provisions of the 2000 Plan and the award agreement. For
purposes of the 2000 Plan, a Change in Control
generally includes (i) a change in the majority of the
board of directors of HLTH without the consent of the incumbent
directors, (ii) any person or entity becoming the
beneficial owner of 25% or more of the voting shares of HLTH and
the Compensation Committee determining that such transaction
constitutes a change in control, taking into consideration all
relevant facts, (iii) consummation of a reorganization,
merger or similar transaction as a result of which HLTHs
stockholders prior to the consummation of the transaction no
longer represent 50% of the voting power, and
(iv) consummation of a sale of all or substantially all of
HLTHs assets.
Discretionary Grants. Non-employee
directors may receive discretionary grants of stock options
under the 2000 Plan. No discretionary grants were made in 2007.
Compensation
for Service on WebMD Board
Dr. Adler and Messrs. Dimick and Manning serve as
non-employee directors of WebMD and receive compensation from
WebMD for their service. The Compensation Committee of the WebMD
board is authorized to determine the compensation of
WebMDs non-employee directors.
The HLTH directors serving on the WebMD board received two types
of compensation in 2007 from WebMD for their board and board
committee service: (1) annual fees paid in the form of
shares of WebMD Class A Common Stock and (2) a grant
of non-qualified options to purchase WebMD Class A Common
Stock. None of these non-employee directors received any other
compensation from WebMD during 2007 and none of them provided
any services to WebMD during 2007, except their service as a
director. WebMD does not offer any deferred compensation plans
or retirement plans to its non-employee directors.
This table provides information regarding the value of the
compensation from WebMD to the individuals listed for 2007, as
calculated in accordance with applicable SEC regulations.
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|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
Name
|
|
Stock
Awards(1)
|
|
Option
Awards(2)(3)
|
|
Total
|
|
Mark J. Adler, M.D.
|
|
$
|
65,894
|
|
|
$
|
134,519
|
|
|
$
|
200,413
|
|
Neil F. Dimick
|
|
|
90,894
|
|
|
|
134,519
|
|
|
|
225,413
|
|
James V. Manning
|
|
|
83,394
|
|
|
|
134,519
|
|
|
|
217,913
|
|
|
|
|
(1)
|
|
Shares of WebMD Class A Common
Stock were issued by WebMD on September 28, 2007 (the
anniversary of WebMDs initial public offering) in payment
for annual fees for service on the WebMD board and its standing
committees. These shares are not subject to vesting requirements
or forfeiture. The amounts (expressed in dollars) of the fees
are the same as those applicable to the HLTH board and its
standing committees, as described above. For each individual
listed in Column (a) of this table, the number of shares to
be issued was determined by dividing the aggregate dollar amount
of the fees by $52.10, the closing price of WebMD Class A
Common Stock on the Nasdaq Global Select Market on
September 28, 2007 (with cash paid in lieu of issuing
fractional shares). Dr. Adler received 911 shares of
WebMD Class A Common Stock; Mr. Dimick received
1,391 shares; and Mr. Manning received
1,247 shares. In addition, this column includes $18,394 for
each individual, which reflects the aggregate dollar amounts
recognized by WebMD in 2007, for income statement reporting
purposes under SFAS No. 123R (based on the methodology
and assumptions referred to in Footnote 2 below), for grants of
WebMD restricted stock made to these directors at the time of
WebMDs initial public offering. That amount reflects
WebMDs accounting expense for these WebMD restricted stock
awards, not amounts
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17
|
|
|
|
|
realized by non-employee directors.
The actual amounts, if any, ultimately realized by non-employee
directors from WebMD restricted stock will depend on the price
of WebMD Class A Common Stock at the time the WebMD
restricted stock vests.
|
|
(2)
|
|
The amounts reported in Column
(c) above reflect the aggregate dollar amounts recognized
by WebMD in 2007 for stock option awards for income statement
reporting purposes under SFAS No. 123R (disregarding
any estimate of forfeitures related to service-based vesting
conditions). See WebMD Plans in Note 13
(Stock-Based Compensation) to the Consolidated Financial
Statements included as Annex A-1 to this proxy statement
for an explanation of the methodology and assumptions used in
determining the fair value of stock option awards granted. The
amounts reported in Column (c) reflect WebMDs
accounting expense for these stock option awards, not amounts
realized by the individuals listed in the table. The actual
amounts, if any, ultimately realized by these individuals from
WebMD equity compensation will depend on the price of WebMD
Class A Common Stock at the time they exercise vested stock
options or at the time of vesting of WebMD restricted stock.
|
|
(3)
|
|
Under WebMDs Amended and
Restated 2005 Long-Term Incentive Plan (which we refer to as the
WebMD 2005 Plan), each non-employee director of WebMD
automatically receives a non-qualified option to purchase
13,200 shares of WebMD Class A Common Stock on each
January 1, with an exercise price equal to the closing
price on the last trading date of the prior year. The grants
made on January 1, 2007 each had an exercise price of
$40.02 per share and each had a total grant date fair value
equal to $227,555, based on the methodology and assumptions
referred to in Footnote 2 above. The Compensation Committee of
the WebMD board has discretion to make other grants of options
to purchase WebMD Class A Common Stock to WebMDs
non-employee directors, but did not do so in 2007. The following
lists the total number of shares of WebMD Class A Common
Stock subject to outstanding unexercised option awards held by
the listed individuals as of December 31, 2007 and the
weighted average exercise price of those options:
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Subject
|
|
Weighted Average
|
Name
|
|
to Outstanding WebMD Options
|
|
Exercise Price
|
|
Mark J. Adler, M.D.
|
|
|
39,600
|
|
|
$
|
28.86
|
|
Neil F. Dimick
|
|
|
39,600
|
|
|
$
|
28.86
|
|
James V. Manning
|
|
|
39,600
|
|
|
$
|
28.86
|
|
In addition, as of December 31, 2007, each of the listed
individuals held 2,200 shares of unvested WebMD restricted
stock that were granted at the time of WebMDs initial
public offering.
18
EXECUTIVE
COMPENSATION
Overview
This section contains information regarding HLTHs
compensation programs and policies and, in particular, their
application to a specific group of individuals that we refer to
as HLTHs Named Executive Officers. Under applicable SEC
rules, HLTHs Named Executive Officers for 2007 consist of
the Chief Executive Officer during that year, the Chief
Financial Officer during that year and the three other executive
officers of HLTH who received the most compensation for 2007.
This section is organized as follows:
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|
|
|
|
2007 Report of the Compensation
Committee. This section contains a report of
the Compensation Committee of the board of directors regarding
the Compensation Discussion and Analysis section
described below. The material in the 2007 Report of the
Compensation Committee will not be deemed incorporated by
reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the
extent that HLTH specifically incorporates this information by
reference, and will not otherwise be deemed filed under such
Acts.
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|
|
Compensation Committee Interlocks and Insider
Participation. This section contains
information regarding certain types of relationships involving
HLTHs Compensation Committee members.
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|
|
|
Compensation Discussion and
Analysis. This section contains a description
of the specific types of compensation HLTH pays, a discussion of
its compensation policies, information regarding how those
policies were applied to the compensation of the Named Executive
Officers for 2007 and other information that may be useful to
investors regarding compensation of HLTHs Named Executive
Officers and other employees.
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|
|
|
Executive Compensation Tables. This
section provides information, in tabular formats specified in
applicable SEC rules, regarding the amounts or value of various
types of compensation paid to HLTHs Named Executive
Officers and related information.
|
|
|
|
Potential Payments and Other Benefits upon Termination or
Change in Control. This section provides
information regarding amounts that could become payable to
HLTHs Named Executive Officers following specified events.
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|
|
|
Employment Agreements with Named Executive
Officers. This section contains summaries of
the employment agreements between HLTH (or its subsidiaries) and
its Named Executive Officers. We refer to these summaries in
various other places in this Executive Compensation section.
|
The parts of this Executive Compensation section described above
are intended to be read together and each provides information
not included in the others. In addition, for background
information regarding the Compensation Committee of HLTHs
board of directors and its responsibilities, please see
Corporate Governance Committees of the Board
of Directors Compensation Committee above.
2007
Report of the Compensation Committee
The Compensation Committee of HLTHs board of directors
provides oversight of HLTHs compensation programs and
makes specific compensation decisions regarding compensation of
the Named Executive Officers and HLTHs other executive
officers. Set out below is the Compensation Discussion and
Analysis section of this proxy statement. That section contains
a discussion of HLTHs executive compensation programs and
policies and their application by the Compensation Committee for
2007 to the Named Executive Officers. The Compensation Committee
has reviewed and discussed with management the disclosures
contained in the Compensation Discussion and Analysis. Based
upon this review and the Compensation Committees
discussions, the Compensation Committee has recommended to the
board of directors that the Compensation Discussion and Analysis
section be included in this proxy statement.
Mark J. Adler, M.D. (Chairperson)
Herman Sarkowsky
Joseph E. Smith
19
Compensation
Committee Interlocks and Insider Participation
Each of the Compensation Committee members whose name appears
under the Compensation Committee Report was a committee member
for all of 2007. No current member of the Compensation Committee
is a current or former executive officer or employee of HLTH or
had any relationships in 2007 requiring disclosure by HLTH or
WebMD under the SECs rules requiring disclosure of certain
relationships and related-party transactions.
None of HLTHs executive officers served as a director or a
member of a compensation committee (or other committee serving
an equivalent function) of any other entity, the executive
officers of which served as a director or member of the
Compensation Committee of the HLTH board or the Compensation
Committee of the WebMD board during the fiscal year ended
December 31, 2007.
Compensation
Discussion and Analysis
This section contains a description of the specific types of
compensation HLTH pays, a discussion of HLTHs compensation
policies, information regarding how the compensation of
HLTHs Named Executive Officers for 2007 was determined
under those policies and other information that may be useful to
investors regarding compensation of HLTHs Named Executive
Officers and other employees.
Overview of Types of Compensation Used by
HLTH. The compensation of HLTHs Named
Executive Officers consists primarily of the following:
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cash salary;
|
|
|
|
an annual cash bonus, the amount of which was determined, for
2007, by the Compensation Committee in its discretion;
|
|
|
|
special bonuses to provide recognition for specific
accomplishments or at the time of a promotion, if determined by
the Compensation Committee to be appropriate and in amounts
determined by the Compensation Committee in its discretion;
|
|
|
|
grants of non-qualified options to purchase shares of HLTH
Common Stock, subject to vesting based on continued employment,
with an exercise price that is equal to the fair market value of
HLTH Common Stock on the grant date (and, in the case of certain
Named Executive Officers, options to purchase shares of WebMD
Class A Common Stock, with an exercise price that is equal
to the fair market value of WebMD Class A Common Stock on
the grant date); and
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|
grants of shares of restricted HLTH Common Stock (which we refer
to as HLTH restricted stock), subject to vesting based on
continued employment and, in the case of Messrs. Gattinella
and Wygod only, shares of restricted WebMD Class A Common
Stock (which we refer to as WebMD restricted stock), subject to
vesting based on continued employment.
|
A discussion of the above types of compensation, to the extent
used in 2007, follows under the heading Use of Specific
Types of Compensation in 2007. The compensation of
HLTHs other executives generally consists of the same
types (other than WebMD equity compensation), with the specific
amounts determined by the Chief Executive Officer and other
members of senior management.
In determining the forms of compensation to be used by HLTH, the
Compensation Committee considers various factors, including the
effectiveness of the incentives provided, tax and accounting
considerations, the compensation practices of other companies
and the expectations of employees and investors. In addition,
the Compensation Committee believes that it is important that
compensation be understood by the employees who receive it and
by HLTHs investors. The Compensation Committee believes
that HLTHs compensation programs, including the types of
stock options and restricted stock that HLTH uses, are effective
forms of compensation and well understood. HLTH has not offered
any deferred compensation plans to its executive officers or
other employees. HLTH has also not offered any retirement plans
to its executive officers, other than 401(k) plans generally
available to its employees. Subject to the terms of the HLTH
401(k) Savings and Employee Stock Ownership Plan (which we refer
to as the HLTH 401(k) Plan), HLTH matches, in cash, 25%
20
of amounts contributed to that Plan by each Plan participant, up
to 6% of eligible pay. The matching contribution made by HLTH is
subject to vesting, based on continued employment, with 50%
scheduled to vest on each of the first and second anniversaries
of an employees date of hire (with employees vesting
immediately in any matching contribution made after the second
anniversary). Messrs. Cameron, Funston and Gattinella are
the Named Executive Officers who chose to participate in the
HLTH 401(k) Plan in 2007. WebMD employees are eligible to
participate in the HLTH 401(k) Plan. HLTHs Porex
subsidiary also sponsors a 401(k) plan for its employees,
including one employee of Porex who is an executive officer of
HLTH.
Discussion of Compensation
Policies. The Compensation Committees
guiding philosophy is to establish a compensation program that
is:
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|
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|
|
Competitive with the market in order to help attract,
motivate and retain highly qualified managers and
executives. HLTH seeks to attract and retain
talent by offering competitive base salaries, annual incentive
opportunities and the potential for long-term rewards through
equity-based awards, such as stock options and restricted stock.
HLTH has, in the past, granted and may continue to grant
equity-based awards to a large portion of its employees, not
just its executives. Those awards have been primarily in the
form of non-qualified options to purchase HLTH Common Stock.
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|
|
|
Performance-based to link executive pay to company
performance over the short-term and long-term and to facilitate
shareholder value creation. It is HLTHs
practice to provide compensation opportunities in addition to
base salary that are linked to HLTHs performance and the
individuals performance. Achievement of short-term goals
is rewarded through annual cash bonuses, while achievement of
long-term objectives is encouraged through nonqualified stock
option grants and restricted stock awards that are subject to
vesting over periods generally ranging from three to four years.
Through annual and long-term incentives, a major portion of the
total potential compensation of HLTHs executive officers
(and other members of senior management) is placed at risk in
order to motivate them to improve the performance of HLTHs
businesses and to increase the value of the company.
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|
|
|
Designed to foster a long-term commitment by
management. The Compensation Committee believes
that there is great value to HLTH in having a team of
long-tenured, seasoned executives and managers. HLTHs
compensation practices are designed to foster a long-term
commitment to HLTH by its management team. The vesting schedules
attributable to equity grants are typically three to
four years with, in some cases (particularly for more
senior executives), scheduled vestings that are smaller in the
early vesting periods and greater in the later vesting periods.
|
The Compensation Committee has not retained outside consultants
to assist it in implementing these policies or making specific
decisions relating to executive compensation. The Compensation
Committee does, from time to time, review general information
regarding the compensation practices of other companies,
including some that are likely to compete with HLTH for the
services of its executives and employees, and that information
is a factor used by the Committee in its decisions and in its
general oversight of compensation practices at HLTH. However,
the Compensation Committee does not use that information to
generate specific compensation amounts or targets and does not
seek to create an objective standard for HLTH compensation based
on what other companies have done. Instead, in each compensation
decision, the committee exercises its business judgment
regarding the appropriateness of types and amounts of
compensation in light of the value to HLTH of specific
individuals. With respect to 2007 compensation, the Compensation
Committee took into account recommendations made by the Chairman
of the Board and Chief Executive Officer of HLTH with respect to
determinations of the types and amounts of compensation to be
paid to the other executive officers and also discussed with the
Chairman of the Board and the Chief Executive Officer the types
and amounts such individuals believed would be appropriate to
pay each of them in light of the amounts being recommended for
the other executive officers and amounts being paid to other
HLTH executives.
21
HLTHs senior management generally applies a similar
philosophy and similar policies to determine the compensation of
officers and managers who are not executive officers and reports
to the Compensation Committee regarding these matters.
Use of
Specific Types of Compensation in 2007
Base Salary. The Compensation Committee
reviews the base salaries of HLTHs executive officers from
time to time, but has made few changes in those salaries in
recent years except upon a change in position. In 2007, no
changes were made to the salaries of any of HLTHs Named
Executive Officers. In general, it is the Compensation
Committees view that increases in the cash compensation of
HLTHs executive officers should be performance-based and
achieved through the bonus-setting process, rather than through
an increase in base salary. However, the Compensation Committee
considers various factors when it contemplates an adjustment to
base salary, including: company performance, the
executives individual performance, scope of responsibility
and changes in that scope (including as a result of promotions),
tenure, prior experience and market practice. HLTHs senior
management considers similar factors in determining whether to
make adjustments to salaries of other employees, and such
changes are made more frequently.
Annual Cash Bonuses. HLTHs Named
Executive Officers have the opportunity to earn annual cash
bonuses. However, HLTHs Named Executive Officers (and its
other executive officers) do not participate in a formal annual
bonus plan and the Compensation Committee did not set
quantitative performance targets, in advance, for use in
determining bonus amounts for executive officers for 2007. After
the end of 2007, the Compensation Committee determined such
amounts based on its subjective assessment of the performance of
HLTH and its business segments in 2007, taking into
consideration its views regarding the extent to which financial
and operational goals discussed by management and the board at
various times during 2007 were achieved. The Compensation
Committee believes that, for HLTH at this time, a flexible
annual bonus process is a more appropriate one for motivating
HLTHs executive officers than setting quantitative targets
in advance because it allows the Compensation Committee to
consider, in its bonus determinations:
|
|
|
|
|
goals of any type set by the board and communicated to senior
management at any point in the year;
|
|
|
|
the effects of acquisitions and dispositions of businesses made
during the year; and
|
|
|
|
the effects of unexpected events and changes in HLTHs
businesses during the year.
|
The Compensation Committee may, at some point in the future,
determine that it will use quantitative targets set in advance
in determining executive officer bonuses. In addition, in some
years, bonus awards for some of HLTHs executive officers
(particularly newly-hired executive officers) may be dictated by
the terms of the executives employment agreement,
providing for payment of a specified bonus amount or an amount
within a specific range with respect to a specific employment
period. No such requirements applied with respect to HLTHs
Named Executive Officers for 2007.
While the Compensation Committee does not set quantitative
performance targets in advance, it does set individual target
bonus opportunities, as a percentage of base salary, for each
Named Executive Officer. In some cases, these percentages are
reflected in the employment agreement for the Named Executive
Officer approved by the Compensation Committee. The higher the
target percentage of an individuals salary that the annual
bonus opportunity represents, the greater the percentage of
total annual cash compensation that is not guaranteed for that
individual. Generally, the target percentage (and therefore the
percentage of annual compensation that is
22
not guaranteed) increases with the level and scope of
responsibility of the executive, as does salary. The target
bonus opportunities for the Named Executive Officers for 2007
are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Annual
|
|
|
|
|
|
|
|
|
Target Annual
|
|
|
Bonus Amount
|
|
|
|
|
|
Annual
|
|
|
Bonus
|
|
|
as a Percent
|
|
Named Executive Officer
|
|
Title
|
|
Salary
|
|
|
Opportunity
|
|
|
of Salary
|
|
|
Kevin M. Cameron
|
|
Chief Executive Officer
|
|
$
|
660,000
|
|
|
$
|
660,000
|
|
|
|
100
|
%
|
Mark D. Funston
|
|
Executive Vice President and Chief Financial Officer
|
|
$
|
375,000
|
|
|
$
|
187,000
|
|
|
|
50
|
%
|
Wayne T. Gattinella
|
|
CEO and President, WebMD
|
|
$
|
560,000
|
|
|
$
|
560,000
|
|
|
|
100
|
%
|
Charles A. Mele
|
|
Executive Vice President, General Counsel & Secretary
|
|
$
|
450,000
|
|
|
$
|
225,000
|
|
|
|
50
|
%
|
Martin J. Wygod
|
|
Chairman of the Board
|
|
$
|
975,000
|
|
|
$
|
975,000
|
|
|
|
100
|
%
|
However, the Compensation Committee (or, in the case of
Mr. Gattinella, the WebMD Compensation Committee) retained
discretion in 2007 regarding the actual annual bonus amounts to
be paid, which could be less than, equal to or more than the
target bonus opportunity. The following table lists the amount
of the annual cash bonuses paid to the Named Executive Officers
with respect to 2007 and 2006 and the percentage this
represented of the target bonus opportunity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Annual Bonus
|
|
|
2006 Annual Bonus
|
|
Named Executive Officer
|
|
Title
|
|
Amount
|
|
|
% of Target
|
|
|
Amount
|
|
|
% of Target
|
|
|
Kevin M. Cameron
|
|
Chief Executive Officer
|
|
$
|
520,000
|
|
|
|
79
|
%
|
|
$
|
780,000
|
|
|
|
173
|
%
|
Mark D. Funston
|
|
Executive Vice President and Chief Financial Officer
|
|
$
|
100,000
|
|
|
|
53
|
%
|
|
$
|
35,000
|
|
|
|
n/a
|
|
Wayne T. Gattinella
|
|
CEO and President, WebMD
|
|
$
|
270,000
|
|
|
|
48
|
%
|
|
$
|
340,000
|
|
|
|
61
|
%
|
Charles A. Mele
|
|
Executive Vice President, General Counsel & Secretary
|
|
$
|
233,000
|
|
|
|
104
|
%
|
|
$
|
350,000
|
|
|
|
106
|
%
|
Martin J. Wygod
|
|
Chairman of the Board
|
|
$
|
520,000
|
|
|
|
53
|
%
|
|
$
|
780,000
|
|
|
|
80
|
%
|
For 2007, the Compensation Committee primarily considered
HLTHs financial performance in setting annual bonuses for
its executive officers, including the Named Executive Officers.
However, the Compensation Committee did not attempt to tie the
amounts of the 2007 annual bonuses for the executive officers to
any specific measures and, instead, based its bonus
determinations on its subjective view of HLTHs results. In
addition, the Compensation Committee did not focus on making
individualized determinations of each Named Executive
Officers specific contributions for 2007 and instead
relied primarily on its evaluation of the management team as a
whole, as reflected in the financial results. Accordingly,
differences in the amounts of 2007 bonuses among the Named
Executive Officers result primarily from differences in their
level of responsibility with the company. Because HLTHs
financial performance in 2007 did not fully achieve
expectations, including publicly disclosed guidance issued by
management, the Compensation Committee set bonus amounts at
lower levels than in 2006. For Messrs Cameron, Mele and Wygod,
their 2007 annual bonus amounts represented approximately 67% of
their 2006 bonus amounts. Mr. Funstons 2007 bonus
represented approximately 50% of an annualized amount based on
his 2006 annual bonus. Mr. Funstons employment by
HLTH began in November 2006 and the amount of his bonus for 2006
was set by the Compensation Committee based on that part-year
employment period.
The WebMD Compensation Committee applied similar considerations
in setting bonuses for its executive officers. For 2007, there
were two separate bonus amounts for Mr. Gattinella:
(1) a cash bonus of $135,000 paid in March 2008; and
(2) an award of $135,000 under the Supplemental Bonus
Program (the SBP) described below. In making
comparisons to 2006 bonuses, the WebMD Compensation Committee
considered the total of these two amounts, which represented
approximately 80% of Mr. Gattinellas 2006 bonus.
23
Supplemental Bonus Program (SBP). The
Compensation Committee of the WebMD board approved the
contribution, in March 2008, to a trust (which we refer to as
the Supplemental Bonus Trust) of SBP Awards for WebMDs
executive officers, including a $135,000 contribution for
Mr. Gattinella. The amounts of the SPB Awards were
determined by the Compensation Committee of the WebMD board, in
its discretion. The Supplemental Bonus Trust will distribute the
SPB Awards, together with actual net interest earned on the
respective amounts, to those receiving SPB Awards as promptly as
practicable following March 1, 2009 (but in no event later
than
21/2
months following such date); provided, however, that in order to
receive such payment, the individual must continue to be
employed by WebMD on March 1, 2009 (subject to limited
exceptions for death, disability, or certain terminations in
connection with a reduction in force or a sale of a subsidiary).
Certain other WebMD officers and employees also received SBP
Awards, subject to similar terms and conditions as apply to
WebMDs executive officers.
Special Bonuses. None of the Named Executive
Officers received any special bonuses in 2007.
Equity Compensation. HLTH uses two types of
long-term incentives: non-qualified stock options and restricted
stock. Stock options are granted with an exercise price that is
equal to the fair market value of HLTH Common Stock on the grant
date. Thus, the Named Executive Officers will only realize value
on their stock options if the price of HLTH Common Stock
increases after the grant date. Historically, long-term
incentives at HLTH consisted almost exclusively of stock option
grants. However, in light of market trends and changes in the
accounting treatment applicable to such option grants, HLTH has
increased its use of HLTH restricted stock as part of the mix of
equity compensation for its executives and certain other
employees. The Compensation Committee believes that equity
compensation, subject to vesting periods of three to four years,
encourages employees to focus on the long-term performance of
HLTH. The amount that employees receive from equity awards
increases when the price of HLTH Common Stock increases, which
rewards employees for increasing shareholder value. The vesting
schedules applicable to these equity awards are intended to
promote retention of employees during the vesting period.
The Compensation Committee does not make equity grants to
HLTHs Named Executive Officers on an annual or other
pre-determined basis, and no such grants were made during 2007.
In determining whether and when to make equity grants, the
Compensation Committee expects to consider the history of prior
grants made to individual Named Executive Officers, their
vesting status and the amounts that have been or may be realized
by those individuals from those grants. In addition, the
Compensation Committee expects to consider factors similar to
those it considers in its decisions relating to cash
compensation, as described above, including factors relating to
individual and company performance. Finally, the Compensation
Committee expects that it will typically make larger grants to
the executive officers it believes have the greatest potential
to affect the value of HLTH and improve results for
stockholders. Similar considerations will apply to grants made
to other officers and employees.
Application of Compensation Policies to Individual Named
Executive Officers. Differences in compensation
among the Named Executive Officers result from a number of
factors and may vary from year to year. The primary factors that
may create differences in compensation are disparities in:
(a) the level of responsibility of the individual Named
Executive Officers, (b) individual performance of the Named
Executive Officers, and (c) HLTHs need to motivate
and retain specific individuals at specific points in time. In
general, larger equity grants are made to the most senior
executive officers because they have the greatest potential to
affect the value of HLTH and to improve results for
stockholders. Similarly, a greater portion of their total cash
compensation is likely to come from their annual bonus. In 2007,
no equity grants were made to HLTHs Named Executive
Officers and no changes were made to their salaries.
Accordingly, the application of compensation policies to
individual Named Executive Officers in 2007 related solely to
their bonuses and is described under Annual Cash
Bonuses above.
Benefits and Perquisites. HLTHs
executive officers are generally eligible to participate in
HLTHs benefit plans on the same basis as other employees
(including matching contributions to a 401(k) Plan and
company-paid group term life insurance). HLTH, for the past
several years, has maintained a sliding scale for the cost of
employee premiums for its health plan, under which employees
with higher salaries pay a higher amount. The limited
perquisites (or perks) received by HLTHs
executive officers in 2007 are described in the footnotes to the
Summary Compensation Table and consisted primarily of car
allowances. In addition,
24
HLTHs executive officers (as part of a larger group of
employees generally having a salary of $180,000 or more) receive
company-paid supplemental disability insurance, the cost of
which is listed in those footnotes.
Compensation
Following Termination of Employment or a Change in
Control
Overview. HLTH does not offer any deferred
compensation plans to its executive officers or other employees
and does not offer any retirement plans to its executive
officers, other than 401(k) plans generally available to other
employees. Accordingly, the payment and benefit levels for
HLTHs Named Executive Officers applicable upon a
termination or a change in control result from provisions in the
employment agreements between HLTH and the individual Named
Executive Officers. However, unlike annual or special bonuses or
the amounts of equity grants (which the Compensation Committee
generally determines in its discretion at the time of payment or
grant), the terms of employment agreements are the result of
negotiations between HLTH and those individuals, generally
occurring at the time the individual joined HLTH or in
connection with a promotion to a more senior position with HLTH
(subject to the approval of the Compensation Committee in the
case of executive officer employment agreements). The
Compensation Committee has, in the past, usually been willing to
include similar provisions relating to potential terminations
and changes in control in connection with the renewal of or
extensions to an employment agreement with an existing executive
officer as those in the existing employment agreement with that
executive officer. The employment agreements with HLTHs
Named Executive Officers are described under the heading
Employment Agreements with Named Executive Officers
below and summaries of the types of provisions relating to
post-termination compensation included in those agreement are
included in this section under the headings Employment
Agreement Provisions Regarding Termination Benefits and
Employment Agreement Provisions Regarding Change in
Control Benefits below.
In determining whether to approve executive officer employment
agreements (or renewals of or extensions to those agreements),
the Compensation Committee considers HLTHs need for the
services of the specific individual and the alternatives
available to HLTH, as well as potential alternative employment
opportunities available to the individual from other companies.
In considering whether to approve employment agreement terms
that may result in potential payments and other benefits for
executives that could become payable following a termination or
change in control, the Compensation Committee considers both the
costs that could potentially be incurred by HLTH, as well as the
potential benefits to HLTH, including benefits to HLTH from
post-termination confidentiality, non-solicit and non-compete
obligations imposed on the executive and provisions relating to
post-termination services required of certain Named Executive
Officers. In the case of potential payments and other benefits
that could potentially become payable following a change in
control, the Compensation Committee considers whether those
provisions would provide appropriate benefit to an acquiror, in
light of the cost the acquiror would incur, as well as benefits
to HLTH during the period an acquisition is pending.
Employment Agreement Provisions Regarding Termination
Benefits. HLTHs employment agreements with
Named Executive Officers provide for some or all of the
following to be paid if the Named Executive Officer is
terminated without cause or resigns for good reason (the
definitions of which are typically set forth in the applicable
employment agreement), dies or ceases to be employed as a result
of disability:
|
|
|
|
|
continuation of cash compensation (including salary and, in some
cases, an amount based on past bonuses) for a period following
termination;
|
|
|
|
continuation of vesting
and/or
exercisability of some or all options or restricted
stock; and
|
|
|
|
continued participation in certain of HLTHs health and
welfare insurance plans or payment of COBRA premiums.
|
The amount and nature of these benefits vary by individual, with
the most senior of the Named Executive Officers typically
receiving more of these benefits and receiving them for a longer
period. These benefits also vary depending on the reason for the
termination. See Employment Agreements with Named
Executive Officers below for a description of the specific
provisions that apply to each of HLTHs Named Executive
Officers and Potential Payments and Other Benefits upon
Termination of Employment or Change in Control below for a
sample calculation, based on applicable SEC rules, of the
amounts that would have been payable if termination for
specified reasons had occurred as of December 31, 2007. No
such post-termination benefits apply if a Named Executive
Officer is terminated for cause (the definition of which is
typically set forth in the
25
applicable employment agreement). The Compensation Committee
believes that the protections provided to executive officers by
the types of employment agreement provisions described above are
appropriate for the attraction and retention of qualified and
talented executives and consistent with good corporate
governance.
Employment Agreement Provisions Regarding Change in Control
Benefits. The Compensation Committee believes
that executives should generally not be entitled to severance
benefits solely upon the occurrence of a change in control, but
that it is appropriate to provide for such benefits if a change
in control is followed by a termination of employment or other
appropriate triggering event. See Employment Agreement
Provisions Regarding Termination Benefits above. However,
as more fully described below under Employment Agreements
with the Named Executive Officers and Potential
Payments and Other Benefits upon Termination of Employment or
Change in Control below, the Compensation Committee has
approved the following exceptions:
|
|
|
|
|
Mr. Wygods employment agreement includes terms
providing that if there is a change in control of HLTH, all of
his outstanding options and other equity compensation (including
WebMD equity) would become immediately vested and the options
would remain exercisable for the remainder of the originally
scheduled term. The employment agreement also contains
provisions providing that he may resign and receive severance
payments, but it requires Mr. Wygod to provide consulting
services during any period in which he is receiving severance.
|
|
|
|
With respect to Messrs. Cameron and Mele, their employment
agreements include terms providing that:
|
|
|
|
|
|
they would be able to resign following a change in control,
after the completion of a transition period with the successor,
and receive the same benefits that they would be entitled to
upon a termination without cause following the change in control
(as set forth in the tables below and the descriptions of their
respective employment agreements that follow); and
|
|
|
|
they would receive accelerated vesting of the options to
purchase shares of WebMD Class A Common Stock granted to
them on September 28, 2005 in the event of a change in
control of WebMD or if WebMD is no longer an affiliate of HLTH
since, as a result of such a transaction, they would no longer
have a direct involvement with WebMDs business.
|
|
|
|
|
|
In the case of Mr. Gattinella, his employment agreement
provides that, so long as he remains employed for 6 months
following a change in control of WebMD, his options to purchase
WebMD Class A Common Stock would continue to vest until the
next vesting date following the change in control, even if he
resigns from the employ of WebMD prior to such vesting date.
|
In the negotiations with those Named Executive Officers
regarding their employment agreements, the Compensation
Committee recognized that, for those individuals, a change in
control is likely to result in a fundamental change in the
nature of their responsibilities. Accordingly, under their
employment agreements, the Compensation Committee approved those
Named Executive Officers having, following a change in control,
the rights described above. The Compensation Committee believes
that the rights provided are likely to be viewed as appropriate
by a potential acquiror in the case of those specific
individuals. In addition, the Compensation Committee sought to
balance the rights given to those Named Executive Officers with
certain requirements to provide transitional or consulting
services in types and amounts likely to be viewed as reasonable
by a potential acquiror.
If the benefits payable to Mr. Cameron, Mr. Mele, or
Mr. Wygod in connection with a change in control would be
subject to the excise tax imposed under Section 280G of the
Internal Revenue Code of 1986 (Section 280G),
HLTH has agreed to make an additional payment to the executive
so that the net amount of such payment (after taxes) that such
individual receives is sufficient to pay the excise tax due.
Application in 2007. No changes were made
during 2007 to the provisions of the employment agreements with
the Named Executive Officers relating to post-termination
compensation.
Deductibility of
Compensation. Section 162(m) of the
Internal Revenue Code generally limits the ability of a publicly
held corporation to deduct compensation in excess of
$1 million per year paid to certain executive officers. It
is the policy of the Compensation Committee to structure, where
practicable,
26
compensation paid to its executive officers so that it will be
deductible under Section 162(m) of the Code. Accordingly,
HLTHs equity plans under which awards are made to officers
and directors are generally designed to ensure that compensation
attributable to stock options granted will be tax deductible by
HLTH. However, cash bonuses for HLTHs executive officers
and grants of restricted stock do not qualify as
performance-based within the meaning of Section 162(m) and,
therefore, are subject to its limits on deductibility. In
determining that the compensation of HLTHs executive
officers for 2007 was appropriate under the circumstances and in
the best interests of HLTH and its stockholders, the
Compensation Committee considered the amount of net operating
loss carryforwards available to HLTH to offset income for
federal income tax purposes. See Note 16 to the
Consolidated Financial Statements included as Annex A-1 to
this proxy statement.
Executive
Compensation Tables
This section provides information, in tabular formats specified
in applicable SEC rules, regarding the amounts of compensation
paid to HLTHs Named Executive Officers and related
information. The tables included are:
|
|
|
|
|
Summary Compensation Table, which presents information regarding
HLTHs Named Executive Officers total compensation
and the types and value of its components; and
|
|
|
|
three tables providing additional information regarding
HLTHs equity compensation, entitled: Grants of Plan-Based
Awards in 2007; Outstanding Equity Awards at End of 2007; and
Option Exercises and Stock Vested in 2007.
|
As permitted by the SEC rules relating to these tables, the
tables reflect only the types of compensation that HLTH and
WebMD paid to their Named Executive Officers. For example, since
HLTHs only retirement plan is a 401(k) plan, tables
applicable to other types of retirement plans are not included.
For a general description of the types of compensation paid by
WebMD and HLTH, see Compensation Discussion and
Analysis Overview of Types of Compensation. In
addition, since no grants of stock options or restricted stock
were made to the Named Executive Officers during 2007, we have
omitted the table that would otherwise appear under the heading
Grants of Plan-Based Awards in 2007.
27
Summary
Compensation Table
Table. The following table presents
information regarding the amount of the total compensation of
HLTHs Named Executive Officers for services rendered
during 2007 and 2006, as well as the amount of the specific
components of that compensation. The compensation reported in
the table reflects all compensation to the Named Executive
Officers by HLTH and its subsidiaries (including WebMD and its
subsidiaries). Amounts reflecting equity grants by HLTH are
noted with an H and amounts reflecting equity grants
by WebMD are noted with a W.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
|
|
Name and
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
Stock
|
|
|
Option
|
|
|
All Other
|
|
|
(h)
|
|
Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus(1)
|
|
|
Awards(2)
|
|
|
Awards(2)
|
|
|
Compensation
|
|
|
Total
|
|
|
Kevin M. Cameron
|
|
|
2007
|
|
|
$
|
660,000
|
|
|
$
|
520,000
|
|
|
$
|
1,478,740
|
H
|
|
$
|
2,227,811
|
H
|
|
$
|
17,627
|
(4)
|
|
$
|
5,038,119
|
|
Chief Executive
Officer(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,941
|
W
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,361,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
660,000
|
|
|
|
3,530,000
|
|
|
|
714,830
|
H
|
|
|
1,682,494
|
H
|
|
|
17,552
|
(5)
|
|
|
6,843,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239,122
|
W
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,921,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark D. Funston
|
|
|
2007
|
|
|
|
375,000
|
|
|
|
100,000
|
|
|
|
173,881
|
H
|
|
|
182,503
|
H
|
|
|
169,948
|
(6)
|
|
|
1,001,332
|
|
Executive VP and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
46,875
|
|
|
|
35,000
|
|
|
|
22,867
|
H
|
|
|
24,000
|
H
|
|
|
526
|
(7)
|
|
|
129,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne T. Gattinella
|
|
|
2007
|
|
|
|
560,000
|
|
|
|
270,000
|
(8)
|
|
|
7,457
|
H
|
|
|
84,850
|
H
|
|
|
9,214
|
(9)
|
|
|
1,699,682
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229,931
|
W
|
|
|
538,230
|
W
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and President of WebMD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,388
|
|
|
|
623,080
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
560,000
|
|
|
|
340,000
|
|
|
|
46,977
|
H
|
|
|
229,800
|
H
|
|
|
8,313
|
(10)
|
|
|
2,585,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
439,809
|
W
|
|
|
960,853
|
W
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
486,786
|
|
|
|
1,190,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles A. Mele
|
|
|
2007
|
|
|
|
450,000
|
|
|
|
233,000
|
|
|
|
402,430
|
H
|
|
|
523,569
|
H
|
|
|
16,663
|
(11)
|
|
|
1,732,815
|
|
Executive VP, General Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,153
|
W
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
630,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
450,000
|
|
|
|
1,350,000
|
|
|
|
121,643
|
H
|
|
|
312,736
|
H
|
|
|
16,663
|
(11)
|
|
|
2,442,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,297
|
W
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
504,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin J. Wygod
|
|
|
2007
|
|
|
|
975,000
|
|
|
|
520,000
|
|
|
|
1,623,018
|
H
|
|
|
1,813,757
|
H
|
|
|
10,847
|
(12)
|
|
|
5,710,783
|
|
Chairman of the
Board(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229,931
|
W
|
|
|
538,230
|
W
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,852,949
|
|
|
|
2,351,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
975,000
|
|
|
|
3,530,000
|
|
|
|
629,691
|
H
|
|
|
709,598
|
H
|
|
|
10,847
|
(12)
|
|
|
7,255,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
439,809
|
W
|
|
|
960,853
|
W
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,069,500
|
|
|
|
1,670,451
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts reported in Column
(d) above for Messrs. Cameron, Mele and Wygod in 2006
reflect both regular annual bonuses for that year, as well as
special bonuses that were made in recognition of the
contributions of those Named Executive Officers to the
completion of the sale of Emdeon Practice Services and the
Emdeon Business Services Sale and the related repositioning of
HLTH. The amounts of the special bonuses, which were determined
by the Compensation Committee of the HLTH board in its
discretion, were as follows: Mr. Cameron
$2,750,000; Mr. Mele $1,000,000; and
Mr. Wygod $2,750,000. No special bonuses were
granted for 2007.
|
28
|
|
|
(2)
|
|
The amounts reported in Columns
(e) and (f) above reflect the aggregate dollar amounts
recognized by HLTH for stock awards and option awards for income
statement reporting purposes under SFAS No. 123R
(disregarding any estimate of forfeitures related to
service-based vesting conditions). See Note 13 (Stock-Based
Compensation) to the Consolidated Financial Statements included
as Annex A-1 to this proxy statement for an explanation of
the methodology and assumptions used in determining the fair
value of stock option awards granted. The amounts reported in
Columns (e) and (f) reflect HLTHs accounting
expense for these equity awards, not amounts realized by its
Named Executive Officers. The actual amounts, if any, ultimately
realized by HLTHs Named Executive Officers from equity
compensation will depend on the price of HLTH Common Stock (or
the price of WebMD Class A Common Stock in the case of
WebMD equity awards) at the time they exercise vested stock
options or at the time of vesting of restricted stock. Holders
of shares of HLTH restricted stock and WebMD restricted stock
have voting power and the right to receive dividends, if any,
that are declared on those shares, but their ability to sell
those shares is subject to vesting requirements based on
continued employment.
|
|
(3)
|
|
Mr. Cameron served as Chief
Executive Officer of HLTH during all of 2007. In February 2008,
he went on medical leave and Mr. Wygod began serving as
HLTHs Acting Chief Executive Officer, while also
continuing as Chairman of the Board.
|
|
(4)
|
|
Consists of: (a) $3,375 in
company matching contributions under the HLTH 401(k) Plan;
(b) $1,712 for company-paid supplemental disability
insurance; (c) $540 for company-paid group term life
insurance; and (d) an automobile allowance of $12,000.
|
|
(5)
|
|
Consists of: (a) $3,300 in
company matching contributions under the HLTH 401(k) Plan;
(b) $1,712 for company-paid supplemental disability
insurance; (c) $540 for company-paid group term life
insurance; and (d) an automobile allowance of $12,000.
|
|
(6)
|
|
Consists of: (a) $3,338 in
company matching contributions under the HLTH 401(k) Plan;
(b) $3,570 for company-paid supplemental disability
insurance; (c) $810 for company-paid group term life
insurance; and (d) $88,545 for reimbursement of relocation
costs plus $73,685 for reimbursement of amounts required to pay
income taxes resulting from the payment for such relocation
costs.
|
|
(7)
|
|
Consists of: (a) $433 in
company matching contributions under the HLTH 401(k) Plan; and
(b) $93 for company-paid group term life insurance.
|
|
(8)
|
|
Consists of: (a) an annual
bonus of $135,000 for 2007; and (b) an SBP Award of
$135,000 (see Additional Information below).
|
|
(9)
|
|
Consists of: (a) $2,906 in
company matching contributions under the HLTH 401(k) Plan;
(b) $3,986 for company-paid supplemental disability
insurance; and (c) $2,322 for company-paid group term life
insurance.
|
|
(10)
|
|
Consists of: (a) $3,085 in
company matching contributions under the HLTH 401(k) Plan;
(b) $3,986 for company-paid supplemental disability
insurance; and (c) $1,242 for company-paid group term life
insurance.
|
|
(11)
|
|
Consists of: (a) $3,421 for
company-paid supplemental disability insurance; (b) $1,242
for company-paid group term life insurance; and (c) an
automobile allowance of $12,000.
|
|
(12)
|
|
Consists of: (a) $3,989 for
company-paid supplemental disability insurance; and
(b) $6,858 for company-paid group term life insurance.
|
Additional Information. The Summary
Compensation Table above quantifies the amount or value of the
different forms of compensation earned by or awarded to
HLTHs Named Executive Officers in each of 2007 and 2006
and provides a dollar amount for total compensation. All amounts
reported in the Summary Compensation Table for
Mr. Gattinella reflect compensation from WebMD, except for
amounts reflecting grants of HLTH restricted stock and options
to purchase HLTH Common Stock which he received prior to
WebMDs initial public offering and which continue to vest
in accordance with their terms. The amounts reported in the
Summary Compensation Table for HLTHs other Named Executive
Officers reflect compensation from HLTH, except for amounts
reflecting grants of WebMD restricted stock and options to
purchase WebMD Class A Common Stock. In the case of
Mr. Funston, the Summary Compensation Table reflects
compensation beginning in mid-November 2006, when he joined HLTH.
The Compensation Committee of the WebMD board approved the
contribution, in March 2008, to a trust (which we refer to
Supplemental Bonus Trust) of Supplemental Bonus Plan (SBP)
Awards for WebMDs executive officers, including a $135,000
contribution for Mr. Gattinella. The amounts of the SPB
Awards were determined by the Compensation Committee of the
WebMD board, in its discretion. The Supplemental Bonus Trust
will distribute the SPB Awards, together with actual net
interest earned on the respective amounts, to those receiving
SPB Awards as promptly as practicable following March 1,
2009 (but in no event later than
21/2
months following such date); provided, however, that in order to
receive such payment, the individual must continue to be
employed by WebMD on March 1, 2009 (subject to limited
exceptions for death, disability, or certain terminations in
connection with a reduction in force or a sale of a subsidiary).
Descriptions of the material terms of each Named Executive
Officers employment agreement and related information is
provided under Employment Agreements with Named Executive
Officers below. The agreements provide the general
framework and some of the specific terms for the compensation of
the Named Executive Officers. Approval of the Compensation
Committee is required prior to HLTH entering into
29
employment agreements with its executive officers or amendments
to those agreements. However, many of the decisions relating to
compensation for a specific year made by the Compensation
Committee (or, in the case of Mr. Gattinella, by the WebMD
Compensation Committee) are implemented without changes to the
general terms of employment set forth in those agreements. For a
discussion of the salary, bonus and equity compensation of
HLTHs Named Executive Officers for 2007 and the decisions
made by the Compensation Committee relating to 2007
compensation, see Compensation Discussion and
Analysis above. In addition, the Named Executive Officers
earned or were paid the other benefits listed in Column
(g) of the Summary Compensation Table and described in the
related footnotes to the table in this Executive
Compensation Tables section.
Grants
of Plan-Based Awards in 2007
During 2007, neither HLTH nor WebMD granted any restricted
stock, stock options or other equity incentive awards to any of
the Named Executive Officers.
30
Outstanding
Equity Awards at End of 2007
The following table presents information regarding the
outstanding equity awards held by each Named Executive Officer
as of December 31, 2007, including the vesting dates for
the portions of these awards that had not vested as of that
date. Awards of HLTH equity are indicated with (H)
at the beginning of column (b) in the table and awards of
WebMD equity are indicated with (W) at the beginning
of that column.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
|
Option
Awards(1)
|
|
|
Stock
Awards(2)
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Value of
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
Stock
|
|
|
Shares of
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
Option
|
|
|
Stock That
|
|
|
Award
|
|
|
Stock
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Grant
|
|
|
Expiration
|
|
|
Have Not
|
|
|
Grant
|
|
|
That Have
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price
|
|
|
Date
|
|
|
Date
|
|
|
Vested
|
|
|
Date
|
|
|
Not
Vested(3)
|
|
|
Kevin M. Cameron
|
|
|
(H
|
)
|
|
|
243,000
|
|
|
|
657,000
|
(4)
|
|
$
|
11.86
|
|
|
|
10/23/06
|
|
|
|
10/23/16
|
|
|
|
219,000
|
(4)
|
|
|
10/23/06
|
|
|
$
|
2,934,600
|
|
|
|
|
(H
|
)
|
|
|
832,500
|
|
|
|
667,500
|
(5)
|
|
|
6.99
|
|
|
|
10/01/04
|
|
|
|
10/01/14
|
|
|
|
122,375
|
(5)
|
|
|
10/01/04
|
|
|
|
1,639,825
|
|
|
|
|
(H
|
)
|
|
|
200,000
|
|
|
|
|
|
|
|
8.59
|
|
|
|
3/17/04
|
|
|
|
3/17/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
87,168
|
|
|
|
|
|
|
|
3.43
|
|
|
|
9/20/01
|
|
|
|
9/20/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
200,000
|
|
|
|
|
|
|
|
12.75
|
|
|
|
8/21/00
|
|
|
|
8/21/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
125,000
|
|
|
|
|
|
|
|
11.55
|
|
|
|
6/05/00
|
|
|
|
6/05/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
325,000
|
|
|
|
|
|
|
|
17.55
|
|
|
|
4/04/00
|
|
|
|
4/04/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
625,000
|
|
|
|
|
|
|
|
12.21
|
|
|
|
4/04/00
|
|
|
|
4/04/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(W
|
)
|
|
|
27,500
|
|
|
|
27,500
|
(6)
|
|
|
17.50
|
|
|
|
9/28/05
|
|
|
|
9/28/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark D. Funston
|
|
|
(H
|
)
|
|
|
45,000
|
|
|
|
135,000
|
(6)
|
|
|
11.60
|
|
|
|
11/13/06
|
|
|
|
11/13/16
|
|
|
|
45,000
|
(6)
|
|
|
11/13/06
|
|
|
|
603,000
|
|
Wayne T. Gattinella
|
|
|
(H
|
)
|
|
|
250,000
|
|
|
|
|
|
|
|
8.59
|
|
|
|
3/17/04
|
|
|
|
3/17/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
239,881
|
|
|
|
|
|
|
|
4.81
|
|
|
|
8/20/01
|
|
|
|
8/20/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(W
|
)
|
|
|
110,000
|
|
|
|
110,000
|
(6)
|
|
|
17.50
|
|
|
|
9/28/05
|
|
|
|
9/28/15
|
|
|
|
27,500
|
(6)
|
|
|
9/28/05
|
|
|
|
1,129,425
|
|
Charles A. Mele
|
|
|
(H
|
)
|
|
|
81,000
|
|
|
|
219,000
|
(4)
|
|
|
11.86
|
|
|
|
10/23/06
|
|
|
|
10/23/16
|
|
|
|
73,000
|
(4)
|
|
|
10/23/06
|
|
|
|
978,200
|
|
|
|
|
(H
|
)
|
|
|
250,000
|
|
|
|
|
|
|
|
8.59
|
|
|
|
3/17/04
|
|
|
|
3/17/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
110,000
|
|
|
|
|
|
|
|
3.43
|
|
|
|
9/20/01
|
|
|
|
9/20/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
200,000
|
|
|
|
|
|
|
|
12.75
|
|
|
|
8/21/00
|
|
|
|
8/21/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
625,000
|
|
|
|
|
|
|
|
11.55
|
|
|
|
6/05/00
|
|
|
|
6/05/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
97,500
|
|
|
|
|
|
|
|
34.23
|
|
|
|
10/04/99
|
|
|
|
10/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
187,500
|
|
|
|
|
|
|
|
18.20
|
|
|
|
10/04/99
|
|
|
|
10/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
208,000
|
|
|
|
|
|
|
|
13.85
|
|
|
|
6/15/99
|
|
|
|
6/15/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
212,500
|
|
|
|
|
|
|
|
14.75
|
|
|
|
1/07/98
|
|
|
|
1/07/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(W
|
)
|
|
|
22,000
|
|
|
|
22,000
|
(6)
|
|
|
17.50
|
|
|
|
9/28/05
|
|
|
|
9/28/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin J. Wygod
|
|
|
(H
|
)
|
|
|
243,000
|
|
|
|
657,000
|
(4)
|
|
|
11.86
|
|
|
|
10/23/06
|
|
|
|
10/23/16
|
|
|
|
219,000
|
(4)
|
|
|
10/23/06
|
|
|
|
2,934,600
|
|
|
|
|
(H
|
)
|
|
|
25,000
|
|
|
|
450,000
|
(6)
|
|
|
8.77
|
|
|
|
1/27/06
|
|
|
|
1/27/16
|
|
|
|
100,000
|
(7)
|
|
|
1/27/06
|
|
|
|
1,340,000
|
|
|
|
|
(H
|
)
|
|
|
3,000,000
|
|
|
|
|
|
|
|
12.75
|
|
|
|
8/21/00
|
|
|
|
8/21/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
585,000
|
|
|
|
|
|
|
|
13.85
|
|
|
|
6/15/99
|
|
|
|
6/15/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
25,000
|
|
|
|
|
|
|
|
22.90
|
|
|
|
7/01/98
|
|
|
|
7/01/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
25,000
|
|
|
|
|
|
|
|
15.50
|
|
|
|
7/01/97
|
|
|
|
7/01/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
25,000
|
|
|
|
|
|
|
|
14.80
|
|
|
|
7/01/96
|
|
|
|
7/01/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(H
|
)
|
|
|
25,000
|
|
|
|
|
|
|
|
10.00
|
|
|
|
7/03/95
|
|
|
|
7/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(W
|
)
|
|
|
110,000
|
|
|
|
110,000
|
(6)
|
|
|
17.50
|
|
|
|
9/28/05
|
|
|
|
9/28/15
|
|
|
|
27,500
|
(6)
|
|
|
9/28/05
|
|
|
|
1,129,425
|
|
|
|
|
(1)
|
|
Each stock option grant reported in
the table above was granted under, and is subject to,
HLTHs 2000 Plan, HLTHs 1996 Stock Plan, WebMDs
2005 Plan or another plan or agreement that contains
substantially the same terms. The option expiration date shown
in Column (f) above is the normal expiration date, and the
last date that the options may be exercised. For each Named
Executive Officer, the unexercisable options shown in Column
(c) above are also unvested. Unvested shares are generally
forfeited if the Named Executive Officers employment
terminates, except to the extent otherwise provided in an
employment agreement. For information regarding the effect on
vesting of options on the death, disability or termination of
employment of a Named Executive Officer or a change in control
of HLTH, see Potential Payments and Other Benefits upon
Termination of Employment or a Change in Control below. If
a Named Executive Officers employment is terminated by
HLTH for cause, options (including the vested portion) are
generally forfeited. The exercisable options shown in Column
(b) above, and any unexercisable options shown in Column
(c) above
|
31
|
|
|
|
|
that subsequently become
exercisable, will generally expire earlier than the normal
expiration date if the Named Executive Officers employment
terminates, except as otherwise specifically provided in the
Named Executive Officers employment agreement. For a
description of the material terms of the Named Executive
Officers employment agreements, see Employment
Agreements with Named Executive Officers below.
|
|
(2)
|
|
The stock awards held by some of
HLTHs Named Executive Officers are subject to accelerated
or continued vesting in connection with a change in control of
HLTH or WebMD, as the case may be, and upon certain terminations
of employment, as described below in more detail under
Employment Agreements with Named Executive Officers
and Potential Payments and Other Benefits upon Termination
of Employment or a Change in Control. Except as otherwise
indicated in those sections, unvested stock awards will
generally be forfeited if a Named Executive Officers
employment terminates.
|
|
(3)
|
|
The market or payout value of stock
awards reported in Column (i) is computed by multiplying
the number of shares of stock reported in Column (g) by
(A) $13.40, the closing market price of HLTH Common Stock
on December 31, 2007, the last trading day of 2007 for HLTH
restricted stock, or (B) $41.07, the closing market price
of WebMD Class A Common Stock on that date, for WebMD
restricted stock.
|
|
(4)
|
|
Vesting schedule is: 27% of the
grant on first anniversary of the date of the grant, 33% on
second anniversary and 40% on third anniversary.
|
|
(5)
|
|
Vesting schedule is: 17% of the
grant on first anniversary of the date of the grant, 18.5% on
second anniversary, 20% on third anniversary, 21.5% on the
fourth anniversary, and 23% on the fifth anniversary.
|
|
(6)
|
|
Vesting schedule is: 25% of the
grant on each of first, second, third and fourth anniversaries
of the date of the grant.
|
|
(7)
|
|
Vesting schedule is: 1/3 of the
grant on each of the first, second and third anniversaries of
the date of grant.
|
Option
Exercises and Stock Vested in 2007
No options to purchase WebMD Class A Common Stock were
exercised during 2007 by HLTHs Named Executive Officers.
The following table presents information regarding the exercise
of options to purchase HLTH Common Stock by HLTHs Named
Executive Officers during 2007, and regarding the vesting during
2007 of WebMD restricted stock and HLTH restricted stock
previously granted to HLTHs Named Executive Officers.
Amounts with respect to HLTH equity are noted with an
H and amounts with respect to WebMD equity are noted
with a W.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
Value Realized
|
|
|
Number of Shares
|
|
|
Value Realized
|
|
Name
|
|
Acquired on Exercise
|
|
|
on
Exercise(1)
|
|
|
Acquired on Vesting
|
|
|
on
Vesting(2)
|
|
|
Kevin M. Cameron
|
|
|
|
|
|
$
|
|
|
|
|
146,000
|
H
|
|
$
|
2,076,360
|
H
|
Mark D. Funston
|
|
|
|
|
|
|
|
|
|
|
15,000
|
H
|
|
|
216,600
|
H
|
Wayne T. Gattinella
|
|
|
|
|
|
|
|
|
|
|
12,500
|
H
|
|
|
179,375
|
H
|
|
|
|
|
|
|
|
|
|
|
|
13,750
|
W
|
|
|
716,375
|
W
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles A. Mele
|
|
|
|
|
|
|
|
|
|
|
39,500
|
H
|
|
|
557,645
|
H
|
Martin J. Wygod
|
|
|
125,000
|
H
|
|
|
623,750
|
H(3)
|
|
|
131,000
|
H
|
|
|
1,802,810
|
H
|
|
|
|
|
|
|
|
|
|
|
|
13,750
|
W
|
|
|
716,375
|
W
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,519,185
|
|
|
|
|
(1)
|
|
The dollar amounts shown in Column
(c) above for option awards are determined by multiplying
(i) the number of shares of HLTH Common Stock to which the
exercise of the option related, by (ii) the difference
between (1) the per-share closing price of HLTH Common
Stock on the date of exercise (or, for any shares sold on the
date of exercise, the actual sale price received) and
(2) the exercise price of the options.
|
|
(2)
|
|
The dollar amounts shown in Column
(e) above for stock awards are determined by multiplying
the number of shares that vested by the per-share closing price
of HLTH Common Stock or WebMD Class A Common Stock on the
vesting date.
|
|
(3)
|
|
The 125,000 shares acquired on
exercise have not been sold by Mr. Wygod. The amount
reported in column (c) was calculated as described in
footnote 1 above, based on the closing price of HLTH Common
Stock on the date of exercise.
|
32
Potential
Payments and Other Benefits upon Termination of Employment or a
Change in Control
Background and Assumptions. In this
section, we provide tables containing estimates of amounts that
may become payable to our Named Executive Officers under their
employment agreements as a result of a termination of employment
under specific circumstances, as well as estimates regarding the
value of other benefits they may become entitled to receive as a
result of such termination. For a general discussion of matters
relating to compensation that may become payable by HLTH after
termination of employment or a change in control, see
Compensation Discussion and Analysis
Compensation Following Termination of Employment or a Change in
Control above and for a detailed description of the
applicable provisions of the employment agreements of the Named
Executive Officers, see Employment Agreements with Named
Executive Officers below. As prescribed by applicable SEC
rules, in estimating the amount of any potential payments to
Named Executive Officers under their employment agreements and
the value of other benefits they may become entitled to receive,
we have assumed that the applicable triggering event (i.e.,
termination of employment or change in control) occurred on
December 31, 2007, that the price per share of HLTH Common
Stock is $13.40 (the closing price per share on
December 31, 2007, the last trading day in 2007); and that
the price per share of WebMD Class A Common Stock is $41.07
(the closing price per share on December 31, 2007). We have
also treated the right to continue to vest in options as
accelerated to December 31, 2007 for purposes of this
disclosure only.
If the benefits payable to Mr. Cameron, Mr. Mele, or
Mr. Wygod in connection with a change in control would be
subject to the excise tax imposed under Section 280G of the
Internal Revenue Code of 1986, HLTH has agreed to make an
additional payment to the executive so that the net amount of
such payment (after taxes) that such individual receives is
sufficient to pay the excise tax due. In the tables below, HLTH
has calculated the Section 280G excise tax on the basis of
IRS regulations and Rev. Proc.
2003-68 and
has assumed that the Named Executive Officers outstanding
equity awards would be accelerated and terminated in exchange
for a cash payment upon the change in control. The value of this
acceleration (and thus the amount of the additional payment)
would be slightly higher if the accelerated awards were assumed
by the acquiring company rather than terminated upon the
transaction. For purposes other than calculating the
Section 280G excise tax, we have calculated the value of
any option or stock award that may be accelerated in connection
with a change in control to be the amount the holder can realize
from such award as of December 31, 2007: for options, that
is the market price of the shares that would be received upon
exercise, less the applicable exercise price; and for restricted
stock, that is the market value of the shares that would vest.
HLTH has also assumed that they have no accrued and unused
vacation at December 31, 2007.
Tables. The tables below set forth
estimates (rounded to the nearest $1,000), based on assumptions
described above and in the footnotes to the tables, of the
potential payments and the potential value of other benefits
applicable to each Named Executive Officer upon the occurrence
of specified termination or change in control triggering events.
The terms used in the tables have the meanings given to them in
each Named Executive Officers employment agreement and
described below under Employment Agreements with Named
Executive Officers. In addition, the amounts set forth in
each table reflect the following:
|
|
|
|
|
In the column entitled Permanent Disability or
Death, the amounts reflect both provisions in those
employment agreements and the fact that HLTHs and
WebMDs equity plans generally provide for acceleration of
vesting of awards in the event of a termination of employment as
a result of death or disability.
|
|
|
|
Under their employment agreements, Messrs. Cameron, Mele
and Wygod are eligible to continue to participate in HLTHs
health and welfare plans (or comparable plans) for a specified
period and Messrs. Funston and Gattinella are eligible to
receive payment for their COBRA premiums for a specified period.
In the row entitled Health and Welfare Benefits
Continuation, the amounts are based upon the current
average cost to HLTH of these benefits per employee and are net
of amounts that the executives would continue to be responsible
for. We have not made any reduction in the amounts in this row
to reflect the fact that the obligation to continue benefits
ceases in the event the executive becomes eligible for
comparable coverage with a subsequent employer.
|
33
Kevin
M. Cameron, Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
without Cause or
|
|
|
|
Voluntary
|
|
|
in Connection
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
for Good Reason
|
|
|
|
Termination
|
|
|
with a
|
|
|
Other
|
|
|
Permanent
|
|
|
Involuntary
|
|
|
Termination
|
|
|
Following a
|
|
|
|
for Good
|
|
|
Change in
|
|
|
Voluntary
|
|
|
Disability or
|
|
|
Termination
|
|
|
without
|
|
|
Change in
|
|
Executive Benefits and Payments
|
|
Reason
|
|
|
Control(1)
|
|
|
Termination
|
|
|
Death
|
|
|
for Cause
|
|
|
Cause
|
|
|
Control
|
|
|
Cash Severance
|
|
$
|
2,760,000
|
(2)
|
|
$
|
4,320,000
|
|
|
$
|
780,000
|
(3)
|
|
$
|
2,760,000
|
|
|
$
|
-0-
|
|
|
$
|
2,760,000
|
(2)
|
|
$
|
4,320,000
|
|
Stock Options
|
|
|
5,060,000
|
|
|
|
5,939,000
|
|
|
|
-0-
|
|
|
|
5,939,000
|
|
|
|
-0-
|
|
|
|
5,060,000
|
|
|
|
5,939,000
|
|
Restricted Stock
|
|
|
2,966,000
|
|
|
|
4,574,000
|
|
|
|
-0-
|
|
|
|
4,574,000
|
|
|
|
-0-
|
|
|
|
2,966,000
|
|
|
|
4,574,000
|
|
Health and Welfare Benefits Continuation
|
|
|
38,000
|
|
|
|
38,000
|
|
|
|
-0-
|
|
|
|
38,000
|
|
|
|
-0-
|
|
|
|
38,000
|
|
|
|
38,000
|
|
280G Tax
Gross-Up(4)
|
|
|
-0-
|
|
|
|
4,264,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
4,264,000
|
|
Other
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
TOTAL
|
|
|
10,824,000
|
|
|
|
19,135,000
|
|
|
|
780,000
|
|
|
|
13,311,000
|
|
|
|
-0-
|
|
|
|
10,824,000
|
|
|
|
19,135,000
|
|
|
|
|
(1)
|
|
Mr. Cameron may resign from
his employment upon 30 days notice after 11 months
following a Change in Control of HLTH and receive the benefits
as if he was terminated without Cause or for Good Reason
following a Change in Control (three years of salary and bonus,
plus the bonus for the year of termination). He may not
unilaterally resign without Good Reason prior to such date and
receive these benefits. However, for purposes of calculating the
amounts included in the column for Voluntary Termination
in Connection with Change in Control, we treat such
resignation as occurring on December 31, 2007 and assume
that the requirement for the transition period has been met.
|
|
(2)
|
|
Represents three years of
salary and an annual bonus for 2007. We have assumed, solely for
purposes of preparing this table, that the amount of such annual
bonus is $780,000 (based on what was actually paid for 2006, the
year prior to the year of the assumed termination).
|
|
(3)
|
|
Mr. Cameron is entitled to
receive his bonus (if any) so long as he remains employed
through December 31 of the applicable year. Solely for
purposes of preparing this table, We have assumed that the
amount of such bonus is $780,000, the actual amount of the
annual bonus paid to him for 2006 (the year prior to the year of
the assumed termination).
|
|
(4)
|
|
We have assumed, solely for
purposes of preparing this table, that 50% of the salary
continuation portion of the severance (for up to two years)
constitutes reasonable compensation for the
restrictive covenants to which the executive is bound following
the termination of employment. In addition, the portion of the
cash severance attributable to his bonus for 2007 is excluded
from the calculation as reasonable compensation for
services rendered during such year. Accordingly, we have not
treated that portion of the salary continuation or the 2007
bonus amount as a parachute payment for purposes of
Section 280G. Such assumption may change at the time of an
actual change in control.
|
Mark
D. Funston, Executive VP and Chief Financial
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment
|
|
|
|
Voluntary
|
|
|
in Connection
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
without Cause
|
|
|
|
Termination
|
|
|
with a
|
|
|
Other
|
|
|
Permanent
|
|
|
Involuntary
|
|
|
Termination
|
|
|
Following a
|
|
Executive Benefits and
|
|
for Good
|
|
|
Change in
|
|
|
Voluntary
|
|
|
Disability
|
|
|
Termination
|
|
|
without
|
|
|
Change in
|
|
Payments
|
|
Reason
|
|
|
Control
|
|
|
Termination
|
|
|
or Death
|
|
|
for Cause
|
|
|
Cause
|
|
|
Control
|
|
|
Cash
Severance(1)
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
375,000
|
|
|
$
|
-0-
|
|
|
$
|
375,000
|
|
|
$
|
750,000
|
|
Stock Options
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
243,000
|
|
|
|
-0-
|
|
|
|
81,000
|
|
|
|
81,000
|
|
Restricted Stock
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
603,000
|
|
|
|
-0-
|
|
|
|
201,000
|
|
|
|
201,000
|
|
Health and Welfare Benefits Continuation
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
10,000
|
|
|
|
-0-
|
|
|
|
10,000
|
|
|
|
10,000
|
|
280G Tax
Gross-Up
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Other
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
TOTAL
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,231,000
|
|
|
|
-0-
|
|
|
|
667,000
|
|
|
|
1,042,000
|
|
|
|
|
(1)
|
|
$375,000 represents one year of
salary; $750,000 represents two years of salary.
|
34
Wayne
T. Gattinella, Chief Executive Officer and President of WebMD
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
without Cause or
|
|
|
|
Voluntary
|
|
|
in Connection
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
for Good Reason
|
|
|
|
Termination
|
|
|
with a
|
|
|
Other
|
|
|
Permanent
|
|
|
Involuntary
|
|
|
Termination
|
|
|
Following a
|
|
Executive Benefits and
|
|
for Good
|
|
|
Change in
|
|
|
Voluntary
|
|
|
Disability
|
|
|
Termination
|
|
|
without
|
|
|
Change in
|
|
Payments
|
|
Reason
|
|
|
Control(1)
|
|
|
Termination
|
|
|
or Death
|
|
|
for Cause
|
|
|
Cause
|
|
|
Control
|
|
|
Cash
Severance(2)
|
|
$
|
900,000
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
900,000
|
|
|
$
|
900,000
|
|
Stock Options
|
|
|
1,296,000
|
|
|
|
1,296,000
|
|
|
|
-0-
|
|
|
|
2,593,000
|
|
|
|
-0-
|
|
|
|
1,296,000
|
|
|
|
1,296,000
|
|
Restricted Stock
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
1,129,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Health and Welfare Benefits Continuation
|
|
|
10,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
10,000
|
|
|
|
10,000
|
|
280G Tax
Gross-Up
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Other
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
TOTAL
|
|
|
2,206,000
|
|
|
|
1,296,000
|
|
|
|
-0-
|
|
|
|
3,722,000
|
|
|
|
-0-
|
|
|
|
2,206,000
|
|
|
|
2,206,000
|
|
|
|
|
(1)
|
|
In the event of a Change in Control
of WebMD, the unvested portion of the options granted to
Mr. Gattinella at the time of WebMDs initial public
offering would continue to vest until the next vesting date
following the Change in Control, so long as he remains employed
for six months following the Change in Control. For
purposes of calculating the amounts included in the column
entitled Voluntary Termination in Connection with Change
in Control, we treat such resignation as occurring on
December 31, 2007 and assume that the requirement for the
six month transition period has been met.
|
|
|
|
(2)
|
|
Represents one year of salary and
an annual bonus for 2007. We have assumed, solely for purposes
of this table, that the amount of the annual bonus used for
calculating the amounts in this line of the table, is $340,000,
the amount of Mr. Gattinellas bonus for 2006 (the
year prior to the year of the assumed termination).
|
Charles
A. Mele, Executive VP, General Counsel and
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
without Cause
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or for
|
|
|
|
Voluntary
|
|
|
in Connection
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
Good Reason
|
|
|
|
Termination
|
|
|
with a
|
|
|
Other
|
|
|
Permanent
|
|
|
Involuntary
|
|
|
Termination
|
|
|
Following a
|
|
Executive Benefits and
|
|
for Good
|
|
|
Change in
|
|
|
Voluntary
|
|
|
Disability
|
|
|
Termination
|
|
|
without
|
|
|
Change in
|
|
Payments
|
|
Reason
|
|
|
Control(1)
|
|
|
Termination
|
|
|
or Death
|
|
|
for Cause
|
|
|
Cause
|
|
|
Control
|
|
|
Cash Severance
|
|
$
|
2,750,000
|
(2)
|
|
$
|
2,817,000
|
|
|
$
|
-0-
|
|
|
$
|
2,750,000
|
|
|
$
|
-0-
|
|
|
$
|
2,750,000
|
(2)
|
|
$
|
2,817,000
|
|
Stock Options
|
|
|
412,000
|
|
|
|
856,000
|
|
|
|
-0-
|
|
|
|
856,000
|
|
|
|
-0-
|
|
|
|
412,000
|
|
|
|
856,000
|
|
Restricted Stock
|
|
|
442,000
|
|
|
|
978,000
|
|
|
|
-0-
|
|
|
|
978,000
|
|
|
|
-0-
|
|
|
|
442,000
|
|
|
|
978,000
|
|
Health and Welfare Benefits Continuation
|
|
|
38,000
|
|
|
|
38,000
|
|
|
|
-0-
|
|
|
|
38,000
|
|
|
|
-0-
|
|
|
|
38,000
|
|
|
|
38,000
|
|
280G Tax
Gross-Up(3)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Other
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
TOTAL
|
|
|
3,642,000
|
|
|
|
4,689,000
|
|
|
|
-0-
|
|
|
|
4,622,000
|
|
|
|
-0-
|
|
|
|
3,642,000
|
|
|
|
4,689,000
|
|
|
|
|
(1)
|
|
Mr. Mele may resign from his
employment after six months following a Change in Control
of HLTH and receive the same benefits as if he was terminated
without Cause or for Good Reason following a Change in Control
(salary and bonus through February 1, 2011). He may not
unilaterally resign without Good Reason prior to such date and
receive these benefits. However, for purposes of calculating the
amounts included in the column for Voluntary Termination
in Connection with a Change in Control, we treat such
resignation as occurring on December 31, 2007 and assume
that the six month transition period requirement has been
met.
|
|
|
|
(2)
|
|
Represents three years of
salary and three years of annual bonuses, plus an annual
bonus for 2007. We have assumed, solely for purposes of
preparing this table, that the amount of such annual bonus is
$350,000 (based on what was actually paid for 2006, the year
prior to the year of the assumed termination).
|
|
|
|
(3)
|
|
We have assumed, solely for
purposes of preparing this table, that 50% of the salary
continuation portion of the severance (for up to two years)
constitutes reasonable compensation for the
restrictive covenants to which the executive is bound following
the termination of employment. In addition, the portion of the
cash severance attributable to his bonus for 2007 is excluded
from the calculation as reasonable compensation for
services rendered during such year. Accordingly, we have not
treated that portion of the salary continuation or the 2007
bonus amount as a parachute payment for purposes of
Section 280G. Such assumption may change at the time of an
actual change in control.
|
35
Martin
J. Wygod, Chairman of the Board
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
without Cause
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or for
|
|
|
|
Voluntary
|
|
|
in Connection
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
Good Reason
|
|
|
|
Termination
|
|
|
with a
|
|
|
Other
|
|
|
Permanent
|
|
|
Involuntary
|
|
|
Termination
|
|
|
Following a
|
|
Executive Benefits and
|
|
for Good
|
|
|
Change in
|
|
|
Voluntary
|
|
|
Disability
|
|
|
Termination
|
|
|
without
|
|
|
Change in
|
|
Payments
|
|
Reason
|
|
|
Control
|
|
|
Termination
|
|
|
or Death
|
|
|
for Cause
|
|
|
Cause
|
|
|
Control
|
|
|
Cash
Severance(1)
|
|
$
|
2,527,000
|
|
|
$
|
2,527,000
|
|
|
$
|
-0-
|
|
|
$
|
2,527,000
|
|
|
$
|
-0-
|
|
|
$
|
2,527,000
|
|
|
$
|
2,527,000
|
|
Stock Options
|
|
|
5,688,000
|
|
|
|
5,688,000
|
|
|
|
-0-
|
|
|
|
5,688,000
|
|
|
|
-0-
|
|
|
|
5,688,000
|
|
|
|
5,688,000
|
|
Restricted Stock
|
|
|
5,404,000
|
|
|
|
5,404,000
|
|
|
|
-0-
|
|
|
|
5,404,000
|
|
|
|
-0-
|
|
|
|
5,404,000
|
|
|
|
5,404,000
|
|
Health and Welfare Benefits Continuation
|
|
|
32,000
|
|
|
|
32,000
|
|
|
|
-0-
|
|
|
|
32,000
|
|
|
|
-0-
|
|
|
|
32,000
|
|
|
|
32,000
|
|
280G Tax
Gross-Up(2)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Other
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
TOTAL
|
|
|
13,651,000
|
|
|
|
13,651,000
|
|
|
|
-0-
|
|
|
|
13,651,000
|
|
|
|
-0-
|
|
|
|
13,651,000
|
|
|
|
13,651,000
|
|
|
|
|
(1)
|
|
Represents salary through
August 3, 2010. Mr. Wygod is required to provide
consulting services during the period he is receiving severance
payments. Please see the description of his employment agreement
contained below under Employment Agreements with Named
Executive Officers.
|
|
(2)
|
|
We have assumed, solely for
purposes of preparing this table, that the salary continuation
portion of the severance is the only portion of the severance
benefits that constitutes reasonable compensation
for the consulting services required of Mr. Wygod and the
restrictive covenants to which the executive is bound following
the termination of employment. Accordingly, we have not treated
the salary continuation portion as a parachute payment for
purposes of Section 280G. Such assumption may change at the
time of an actual change in control.
|
Employment
Agreements with Named Executive Officers
The following are summaries of the employment agreements with
HLTHs Named Executive Officers. The agreements provide the
general framework and some of the specific terms for the
compensation of the Named Executive Officers. Approval of the
Compensation Committee is required prior to HLTH entering into
employment agreements with its executive officers. However, many
of the decisions relating to the compensation of Named Executive
Officers for a specific year made by the Compensation Committee
(or, in the case of Mr. Gattinella, by the WebMD
Compensation Committee) are implemented without changes to the
general terms of employment set forth in those agreements. With
respect to 2007, those decisions and their implementation are
discussed earlier in this Executive Compensation
section.
Kevin
M. Cameron
HLTH is party to an employment agreement with Kevin M. Cameron
entered into in September 2004, at the time he was elected by
the board to be HLTHs Chief Executive Officer, and amended
on February 1, 2006. The following is a description of
Mr. Camerons employment agreement, as amended:
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|
|
|
|
The agreement provides for an employment period through
September 23, 2009.
|
|
|
|
The agreement provides for an annual base salary of $660,000 and
an annual bonus of up to 100% of base salary. For the fiscal
year ended December 31, 2007, Mr. Cameron received an
annual bonus of $520,000, an amount that was determined by the
Compensation Committee in its discretion. See Compensation
Discussion and Analysis Use of Specific Types of
Compensation in 2007 Annual Cash Bonuses
above. The agreement provides that, for subsequent years, the
amount of the annual bonus will be based upon performance goals
to be approved by the Compensation Committee with respect to
each such year. For information regarding
Mr. Camerons equity compensation, see the
Executive Compensation Tables above.
|
36
|
|
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In the event of the termination of Mr. Camerons
employment by HLTH without Cause or by
Mr. Cameron for Good Reason, prior to a
Change in Control (as those terms are described
below), he would be entitled to:
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|
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(a)
|
continue to receive his base salary at the rate in effect at the
time of termination for a period of time equal to the length of
his employment after the effective date of the agreement,
rounded down to the nearest six months, but not longer than
three years; and
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|
(b)
|
continue to participate in HLTHs benefit plans (or
comparable plans) for the duration of the severance period.
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In addition: (i) all options to purchase HLTH Common Stock
and all HLTH restricted stock granted to Mr. Cameron at or
prior to October 1, 2004 would remain outstanding and
continue to vest, and would otherwise be treated as if
Mr. Cameron remained employed by HLTH through the three
year period that his salary is continued; and (ii) the
portion of the options to purchase WebMD Class A Common
Stock granted to Mr. Cameron by WebMD on September 28,
2005 that would have vested on the next vesting date following
the date of termination will vest on the date of termination and
the vested portion of those options will remain exercisable for
90 days plus an additional period of
21/2
months or, if longer, through the remainder of the calendar year
during which the termination occurred, but not beyond the
expiration of the original 10 year term (we refer to this
period of extension, which is the period permitted by
Section 409A of the Internal Revenue Code, as the
Permitted 409A Extension Period). In addition,
pursuant to the applicable award agreement, the option to
purchase HLTH Common Stock granted to Mr. Cameron on
October 23, 2006 would remain outstanding and continue to
vest until the next vesting date, and the next vesting of the
HLTH restricted stock grant made on the same date would
accelerate to the date of termination.
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|
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For purposes of the employment agreement:
(a) Cause includes (i) any willful
misconduct relating, directly or indirectly, to HLTH or any of
its affiliates, that remains uncured, if susceptible to cure,
after 30 days following written notice from HLTH detailing
such misconduct; (ii) any breach of any material provision
contained in the employment agreement or any material policy,
which breach remains uncured, if susceptible to cure, after
30 days following written notice from HLTH detailing such
breach, or (iii) conviction of a felony or crime involving
moral turpitude; and (b) Good Reason includes
any of the following which remains uncured 30 days after
written notice is provided to HLTH: (i) HLTHs
material breach of the employment agreement, (ii) a
material demotion of his position, and (iii) required
relocation from his present residence or a requirement that he
commute, on a regular basis, to HLTHs headquarters and
such headquarters is outside of the New York City metropolitan
area.
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For purposes of the employment agreement:
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(a)
|
a Change in Control of HLTH includes (i) a
change in the majority of the board of directors of HLTH without
the consent of the incumbent directors, (ii) any person or
entity becoming the beneficial owner of 25% or more of the
voting shares of HLTH and the Compensation Committee determining
that such transaction constitutes a change in control, taking
into consideration all relevant facts, (iii) consummation
of a reorganization, merger or similar transaction as a result
of which HLTHs stockholders prior to the consummation of
the transaction no longer represent 50% of the voting power, and
(iv) consummation of a sale of all or substantially all of
HLTHs assets; and
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(b)
|
a Change in Control of WebMD includes (i) a
change in the majority of the board of directors of WebMD
without the consent of the incumbent directors, (ii) any
person or entity becoming the beneficial owner of 50% or more of
the voting shares of WebMD, (iii) consummation of a
reorganization, merger or similar transaction as a result of
which WebMDs stockholders prior to the consummation of the
transaction no longer represent 50% of the voting power,
(iv) consummation of a sale of all or substantially all of
WebMDs assets, and (v) adoption of a plan of
liquidation by WebMD;
|
37
provided that no public offering nor any split-off, spin-off,
stock dividend or similar transaction as a result of which the
voting securities of WebMD are distributed to HLTHs
stockholders will constitute a Change in Control of WebMD or
HLTH.
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Mr. Cameron may terminate his employment upon
30 days notice after 11 months following a
Change in Control of HLTH and, if this occurs:
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(a)
|
Mr. Cameron would be entitled to continue to receive his
base salary at his then current rate for three years following
the termination of his employment;
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(b)
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Mr. Cameron would be entitled to annual bonus payments for
the period of salary continuance in an amount equal to the
amount of his bonus for the year prior to the termination or, if
higher, the bonus paid for the year immediately prior to the
Change in Control;
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(c)
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his participation in HLTHs benefit plans (or comparable
plans) would continue for the duration of the salary
continuation period;
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(d)
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all options to purchase HLTH Common Stock and HLTH restricted
stock granted to Mr. Cameron at or prior to October 1,
2004 that have not vested prior to the date of termination would
be vested as of the date of termination and all such options
would remain exercisable as if he remained in HLTHs employ
through the expiration date specified in the respective stock
option plans and agreements;
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(e)
|
any remaining unvested portion of the option to purchase WebMD
Class A Common Stock would be vested as of the date of
termination and all such options would remain exercisable
through the 90 day post-termination exercise period plus
the Section 409A Extension Period; and
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(f)
|
pursuant to the applicable award agreement, Mr. Cameron
would vest in the remaining unvested portion of the grants to
him made on October 23, 2006.
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In addition, Mr. Cameron would be entitled to these
benefits if his employment is terminated without Cause following
a Change in Control.
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In the event of a Change in Control of WebMD or if WebMD is no
longer an affiliate of HLTH, the options granted to
Mr. Cameron by WebMD on September 28, 2005 that have
not vested prior to such event would be vested as of the date of
such event and would remain exercisable for 90 days plus
the Permitted 409A Extension Period.
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If Mr. Camerons employment is terminated by HLTH for
Cause or by him without Good Reason, he (a) would not be
entitled to any further compensation or benefits and
(b) would not be entitled to any additional rights or
vesting with respect to his stock options following the date of
termination.
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In the event of the termination of Mr. Camerons
employment as a result of his death or permanent disability, he
(or his estate) would be entitled to three years of salary
continuation, three years of benefits continuation and three
years of vesting of the equity granted on or prior to
October 1, 2004 and three years of continued exercisability
of options to purchase HLTH Common Stock. In accordance with the
WebMD 2005 Plan, the options to purchase WebMD Class A
Common Stock would vest on the date of termination as a result
of death or disability and remain outstanding for one year.
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|
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|
The employment agreement contains confidentiality obligations
that survive indefinitely and non-solicitation and
non-competition obligations that end on the second anniversary
of the date of cessation of Mr. Camerons employment.
The severance payments and other post-employment benefits due to
Mr. Cameron under the employment agreement are subject to
Mr. Camerons continued compliance with these
covenants.
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|
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|
The employment agreement contains a tax
gross-up
provision relating to any excise tax that Mr. Cameron
incurs by reason of his receipt of any payment that constitutes
an excess parachute payment as defined in Section 280G of
the Internal Revenue Code. Any excess parachute payments and
related tax
gross-up
payments made to Mr. Cameron will not be deductible by HLTH
for federal income tax purposes.
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The employment agreement is governed by the laws of New Jersey.
|
38
Mark
D. Funston
HLTH is party to an employment agreement with Mark Funston
entered into on November 9, 2006, at the time he was
initially hired to be HLTHs Chief Financial Officer. Since
August 2007, Mr. Funston has also been serving as
WebMDs Chief Financial Officer. The following is a
description of Mr. Funstons employment agreement:
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|
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The agreement provides for an employment period for five years
from November 13, 2006 (subject to earlier termination as
described in the employment agreement).
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Under the agreement, Mr. Funstons annual base salary
is $375,000 and Mr. Funston is eligible to receive an
annual bonus of up to 50% of his annual base salary. The amount
of any bonus is in the discretion of the Compensation Committee
of the board of HLTH. For 2007, Mr. Funston received a
bonus of $100,000. See Compensation Discussion and
Analysis Use of Specific Types of Compensation in
2007 Annual Cash Bonuses above. For
information regarding Mr. Funstons equity
compensation, see the Executive Compensation Tables
above.
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In the event of the termination of Mr. Funstons
employment by HLTH without cause (as described
below), he would be entitled to: (i) continuation of his
base salary, as severance, for one year for each year of
completed service with a minimum of one year and a maximum of
three years (provided that if the termination occurs following a
Change in Control (as defined in the 2000 Plan), the minimum
severance pay period will be two years); (ii) payment of
COBRA premiums as if he were an active employee with similar
coverage during the period he is receiving severance (up to
18 months); (iii) the restricted stock described above
will vest and the restrictions thereon will lapse on the date of
termination for that portion of the award that would have vested
on the next vesting date following the termination of employment
or, if such termination occurs after the second anniversary of
the grant date, the next two vesting dates (to the extent not
previously vested); and (iv) the option described above
will continue to vest and remain outstanding through the next
vesting date following the termination of employment (or, if
such termination occurs following the second anniversary of the
grant date, the next two vesting dates (to the extent not
previously vested). If his employment is terminated as a result
of his becoming disabled or his death, he (or his estate) will
be entitled to the payments and benefits as if his employment
had been terminated by HLTH without cause.
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If Mr. Funstons employment is terminated by HLTH for
cause or by him, he (a) would not be entitled
to any further compensation or benefits and (b) would not
be entitled to any additional rights or vesting with respect to
the restricted stock or the stock options following the date of
termination.
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|
For purposes of Mr. Funstons employment agreement,
cause generally includes: (i) his bad faith in
connection with the performance of his duties or his willful
failure to follow the lawful instructions of the Chief Executive
Officer, the board or the Audit Committee, following written
notice and a 20 day period of time to remedy such failure;
(ii) his engaging in any willful misconduct that is, or is
reasonably likely to be, injurious to HLTH (or any of its
affiliates) or which could reasonably be expected to reflect
negatively upon HLTH or otherwise impair or impede its
operations; (iii) his material breach of a policy of HLTH,
which breach is not remedied (if susceptible to remedy)
following written notice and a 20 day period of time to
remedy such breach; (iv) his material breach of the
employment agreement, which breach is not remedied (if
susceptible to remedy) following written notice and a
20 day period of time to remedy such breach; or
(v) his commission of a felony in respect of a dishonest or
fraudulent act or other crime of moral turpitude.
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|
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|
The employment agreement contains confidentiality obligations
that survive indefinitely and non-solicitation and
non-competition obligations that end on the second anniversary
of the date employment has ceased for any reason. The severance
payments and other post-employment benefits due to
Mr. Funston under the employment agreement are subject to
Mr. Funstons continued compliance with these
covenants.
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|
|
|
The employment agreement is governed by the laws of the State of
New Jersey.
|
39
Wayne
T. Gattinella
A subsidiary of WebMD is party to an employment agreement, dated
as of April 28, 2005, with Wayne Gattinella, who
serves as CEO and President of the WebMD segment and of WebMD.
The following is a description of Mr. Gattinellas
employment agreement:
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|
|
|
|
Mr. Gattinella currently receives an annual base salary of
$560,000 and is eligible to earn a bonus of up to 100% of his
base salary. For 2007, Mr. Gattinella received an annual
bonus of $135,000, determined by WebMDs Compensation
Committee in its discretion (and ratified by HLTHs
Compensation Committee). In addition, WebMDs Compensation
Committee approved an SBP Award of $135,000 with respect to
Mr. Gattinella. See Compensation Discussion and
Analysis Use of Specific Types of Compensation in
2007 Annual Cash Bonuses and
Supplemental Bonus Program (SBP) above. With respect
to subsequent years, the employment agreement provides that
achievement of 50% of Mr. Gattinellas bonus will be
based upon WebMDs attainment of corporate financial and
strategic goals to be established by WebMDs Compensation
Committee, with the financial goals generally related to revenue
and/or other
measures of operating results and achievement of the remaining
50% of Mr. Gattinellas bonus will be based on
performance goals to be established by WebMDs Compensation
Committee. For information regarding Mr. Gattinellas
equity compensation, see the Executive Compensation
Tables above.
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|
|
|
In the event of the termination of Mr. Gattinellas
employment, prior to April 30, 2009, by WebMD without
Cause or by Mr. Gattinella for Good
Reason (as those terms are described below), he would be
entitled to continue to receive his base salary for one year
from the date of termination, to receive any unpaid bonus for
the year preceding the year in which the termination occurs, and
to receive healthcare coverage until the earlier of one year
following his termination and the date upon which he receives
comparable coverage under another plan. Amounts with respect to
Mr. Gattinellas SBP Award are payable only in
accordance with the terms of the Supplemental Bonus Program
Trust (see Compensation Discussion and
Analysis Use of Specific Types of Compensation in
2007 Annual Cash Bonuses and
Supplemental Bonus Program (SBP) above). In
addition, in the event that a termination of
Mr. Gattinellas employment by WebMD without Cause or
by Mr. Gattinella for Good Reason occurs before the fourth
anniversary of the grant of the options to purchase WebMD
Class A Common Stock made in connection with WebMDs
initial public offering, 25% of such options would continue to
vest on the next vesting date following the date of termination.
|
|
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|
In the event of a Change in Control of WebMD (as
that term is described below), the unvested portion of the
options to purchase WebMD Class A Common Stock would
continue to vest until the next scheduled vesting date following
the Change in Control. The continued vesting applies only if
Mr. Gattinella remains employed until six months following
such Change in Control or is terminated by WebMDs
successor without Cause or he resigns for Good Reason during
such six-month period. For purposes of the employment agreement,
a Change in Control would occur when: (i) a
person, entity or group acquires more than 50% of the voting
power of WebMD, (ii) there is a reorganization, merger or
consolidation or sale involving all or substantially all of
WebMDs assets, or (iii) there is a complete
liquidation or dissolution of WebMD.
|
|
|
|
For purposes of the employment agreement:
(a) Cause includes (i) a continued willful
failure to perform duties after 30 days written
notice, (ii) willful misconduct or violence or threat of
violence that would harm WebMD, (iii) a material breach of
WebMDs policies, the employment agreement, or the Trade
Secret and Proprietary Information Agreement (as described
below), that remains unremedied after 30 days written
notice, or (iv) conviction of a felony in respect of a
dishonest or fraudulent act or other crime of moral turpitude;
and (b) Good Reason includes any of the
following conditions or events remaining in effect after
30 days written notice: (i) a reduction in base
salary, (ii) a material reduction in authority, or
(iii) any material breach of the employment agreement by
WebMD.
|
|
|
|
The employment agreement and the related agreement described
below are governed by the laws of the State of New York.
|
40
Mr. Gattinella is also a party to a related Trade Secret
and Proprietary Information Agreement that contains
confidentiality obligations that survive indefinitely. The
agreement also includes non-solicitation provisions that
prohibit Mr. Gattinella from hiring WebMDs employees
or soliciting any of WebMDs clients or customers that he
had a relationship with during the time he was employed by
WebMD, and non-competition provisions that prohibit
Mr. Gattinella from being involved in a business that
competes with WebMDs business or that competes with any
other business engaged in by any affiliates of WebMD if he is
directly involved in such business. The non-solicitation and
non-competition obligations end on the first anniversary of the
date his employment has ceased. The severance payments and other
post-employment benefits due to Mr. Gattinella under the
employment agreement are subject to Mr. Gattinellas
continued compliance with the covenants contained in the Trade
Secret and Proprietary Information Agreement and the employment
agreement that are described in this paragraph.
Charles
A. Mele
HLTH is party to an employment agreement with Charles A. Mele,
HLTHs Executive Vice President, General Counsel and
Secretary, which was amended and restated as of February 1,
2006. The following is a description of Mr. Meles
employment agreement. In this description, the term Change
in Control has the same meanings, as applied to HLTH and
WebMD, as in the description of Mr. Camerons
employment agreement, above.
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|
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|
The agreement provides for an employment period through
February 1, 2011.
|
|
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|
Mr. Mele receives an annual base salary of $450,000. The
amount of any bonus is in the discretion of the Compensation
Committee of the board of HLTH. For 2007, Mr. Mele received
an annual bonus of $233,000, determined by the Compensation
Committee in its discretion. See Compensation Discussion
and Analysis Use of Specific Types of Compensation
in 2007 Annual Cash Bonuses above. For
information regarding Mr. Meles equity compensation,
see the Executive Compensation Tables above.
|
|
|
|
If Mr. Meles employment is terminated due to his
death or disability, by HLTH without Cause or by
Mr. Mele for Good Reason (as those terms are
described below), he would be entitled to: (a) continuation
of his base salary, at the rate then in effect, for three years;
(b) an amount for each of the three years equal to the
greater of the average annual bonus he received in the three
years prior to termination or the amount of the bonus he
received in the last of those years; and (c) continued
participation in HLTHs benefit plans (or comparable plans)
for three years; provided, however, that if the termination is
for Good Reason or without Cause following a Change in Control
of HLTH, the payments in (a) and (b) above will
continue for the remainder of the term of the agreement, if
longer. If such termination occurs after the end of a fiscal
year but before payment of the bonus for that year, he would
also be entitled to receive the bonus, if any, earned for that
fiscal year. In addition:
|
|
|
|
|
|
all options to purchase HLTH Common Stock and HLTH restricted
stock granted to Mr. Mele by HLTH prior to the date of the
agreement that have not vested prior to the date of termination
would be vested as of the date of termination and the options
would remain exercisable as if he remained in our employ through
the expiration date specified in each applicable stock option
agreement, except that the options granted to Mr. Mele on
March 17, 2004 would remain exercisable only for
90 days plus the Permitted 409A Extension Period;
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|
|
|
the portion of the options to purchase WebMD Class A Common
Stock granted to Mr. Mele by WebMD on September 28,
2005 that would have vested on the next vesting date following
the date of termination will vest on the date of termination and
the vested portion of those options will remain exercisable for
90 days plus the Permitted 409A Extension Period; provided,
however, that, if termination is for Good Reason or without
Cause following a Change in Control of HLTH, all of the options
that have not vested prior to the date of termination would be
vested as of the date of termination; and
|
|
|
|
pursuant to the applicable award agreement, the option to
purchase HLTH Common Stock granted to Mr. Mele on
October 23, 2006 would remain outstanding and continue to
vest until the next
|
41
|
|
|
|
|
vesting date and the next vesting of the HLTH restricted stock
grant made on the same date would accelerate to the date of
termination (provided, however, that if his employment is
terminated without Cause or Good Reason following a Change in
Control, then such awards are deemed fully vested on the date of
termination).
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|
|
|
|
|
In the event of a Change in Control of WebMD or if WebMD is no
longer an affiliate of HLTH, the options granted to
Mr. Mele by WebMD on September 28, 2005 that have not
vested prior to such event would be vested as of the date of
such event and would remain exercisable for 90 days plus
the Permitted 409A Extension Period.
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|
|
|
If Mr. Meles employment is terminated by HLTH for
Cause or by him without Good Reason, he (a) would not be
entitled to any further compensation or benefits and
(b) would not be entitled to any additional rights or
vesting with respect to the stock options or restricted stock
following the date of termination.
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|
|
|
For purposes of Mr. Meles employment agreement:
(a) Cause includes (i) a material breach
of the employment agreement that remains unremedied after
30 days written notice, or (ii) conviction of a
felony; and (b) Good Reason includes (i) a
material reduction in title or responsibilities, (ii) a
requirement that Mr. Mele report to anyone other than the
Chief Executive Officer of HLTH, (iii) a reduction in base
salary or material fringe benefits, (iv) a material breach
of the employment agreement, (v) a requirement that
Mr. Mele relocate to a location that is more than
25 miles from his current residence, or (vi) a Change
in Control of HLTH occurs and he remains in the employ of HLTH
for six months after the Change in Control.
|
|
|
|
Mr. Mele is subject to confidentiality obligations that
survive indefinitely and non-solicitation and non-competition
obligations that survive for two years or, if applicable, for
the three year period in which severance is payable under the
agreement. The severance payments and other post-employment
benefits due to Mr. Mele under the employment agreement are
subject to Mr. Meles continued compliance with these
covenants.
|
|
|
|
There is a tax
gross-up
provision relating to any excise tax that Mr. Mele incurs
by reason of his receipt of any payment that constitutes an
excess parachute payment as defined in Section 280G of the
Internal Revenue Code. Any excess parachute payments and related
tax gross-up
payments made to Mr. Mele will not be deductible by HLTH
for federal income tax purposes.
|
Martin
J. Wygod
On August 3, 2005, HLTH amended and restated its original
employment agreement, dated October 8, 2001, with Martin J.
Wygod. The agreement was further amended on February 1,
2006. Under the amended agreement, Mr. Wygod serves as
HLTHs Chairman of the Board, and also serves as the
Chairman of the Board of WebMD. In these positions,
Mr. Wygod focuses on the overall strategy, strategic
relationships and transactions intended to create long-term
value for stockholders. He is also currently serving as Acting
Chief Executive Officer of HLTH. The following is a description
of Mr. Wygods amended employment agreement. In this
description, the term Change in Control has the same
meanings, as applied to HLTH and WebMD, as in the description of
Mr. Camerons employment agreement, above.
|
|
|
|
|
The employment agreement provides for an employment period
through August 3, 2010.
|
|
|
|
Under the employment agreement, Mr. Wygod received an
annual base salary of $1.26 million until the completion of
WebMDs initial public offering; when the initial public
offering was completed in September 2005, Mr. Wygods
base salary was reduced to $975,000 per year. The amount of any
bonus is in the discretion of the Compensation Committee of the
board of HLTH. For 2007, Mr. Wygod received an annual bonus
of $520,000. See Compensation Discussion and
Analysis Use of Specific Types of Compensation in
2007 Annual Cash Bonuses above. For
information regarding Mr. Wygods equity compensation,
see the Executive Compensation Tables above.
|
42
|
|
|
|
|
In the event of the termination of Mr. Wygods
employment by HLTH without Cause or by
Mr. Wygod for Good Reason (as those terms are
described below), Mr. Wygod would become a consultant for
HLTH and would be entitled to receive his salary, at the rate
then in effect, and continuation of benefits until the later of
(i) two years following such termination or
(ii) August 3, 2010. In addition, all options, or
other forms of equity compensation, granted to Mr. Wygod by
HLTH or any of our affiliates (which would include WebMD) that
have not vested prior to the date of termination would become
vested as of the date of termination and, assuming there has not
been a Change in Control of HLTH or of WebMD, would continue to
be exercisable as long as he remains a consultant (or longer if
the plan or agreement expressly provided). The amount of past
bonuses would not be included in the calculation of the amount
of Mr. Wygods severance payments. In the event that
Mr. Wygods employment is terminated due to death or
disability, he or his estate would receive the same benefits as
described above.
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The employment agreement provides that in the event there is a
Change in Control of HLTH, all outstanding options and other
forms of equity compensation (including equity compensation
granted by WebMD) would become immediately vested on the date of
the Change in Control and, if following the Change in Control,
Mr. Wygods employment terminates for any reason other
than Cause, they would continue to be exercisable until the
tenth anniversary of the applicable date of grant. A Change in
Control of HLTH is also an event that constitutes Good Reason
for purposes of a termination by Mr. Wygod. In the event
there is a Change in Control of WebMD, any portion of
Mr. Wygods equity that relates to WebMD will fully
vest and become exercisable on the date of such event, and if
following such event, Mr. Wygods engagement with
WebMD is terminated for any reason other than Cause, such equity
will remain outstanding until the expiration of its original
term.
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For purposes of the employment agreement:
(a) Cause includes a final court adjudication
that Mr. Wygod (i) committed fraud or a felony
directed against HLTH or an affiliate relating to his
employment, or (ii) materially breached any of the material
terms of the employment agreement; and (b) the definition
of Good Reason includes the following conditions or
events: (i) a material reduction in title or responsibility
that remains in effect for 30 days after written notice,
(ii) a final court adjudication that HLTH materially
breached any material provisions of the employment agreement,
(iii) failure to serve on the board or Executive Committee
of the board, or (iv) the occurrence of a Change in Control
of HLTH.
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In the event Mr. Wygod terminates his engagement with WebMD
for Good Reason (as described in the following
sentence), any portion of equity that relates to WebMD will
fully vest and become exercisable on the date his engagement
terminates and will remain exercisable for the period beginning
on such date and ending on the later of two years following such
termination or August 3, 2010. For the purposes of a
termination of Mr. Wygods engagement with WebMD by
him, Good Reason means a material reduction in
Mr. Wygods title or responsibilities as Chairman of
the Board of WebMD.
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In the event that Mr. Wygods employment with HLTH is
terminated for any reason, but he remains Chairman of the Board
of WebMD, WebMD will have no obligation to pay a salary to
Mr. Wygod.
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The employment agreement contains confidentiality obligations
that survive indefinitely and non-solicitation and
non-competition obligations that continue until the second
anniversary of the date his employment has ceased. The
consulting fees and other post-employment payments and benefits
due to Mr. Wygod under the employment agreement are subject
to Mr. Wygods continued compliance with these
covenants.
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The employment agreement contains a tax
gross-up
provision relating to any excise tax that Mr. Wygod incurs
by reason of his receipt of any payment that constitutes an
excess parachute payment as defined in Section 280G of the
Internal Revenue Code. Any excess parachute payments and related
tax gross-up
payments made to Mr. Wygod will not be deductible for
federal income tax purposes.
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43
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions
with WebMD
This section describes the material provisions of agreements
between WebMD (or one of its subsidiaries) and HLTH (or one of
its subsidiaries other than WebMD and its subsidiaries). The
Consolidated Financial Statements of HLTH include the accounts
of HLTH and all of its majority-owned subsidiaries. Accordingly,
transactions between HLTH and WebMD are eliminated in
consolidation. For additional information regarding the
financial terms of certain of these agreements and charges from
WebMD to HLTH and from HLTH to WebMD under certain of these
agreements and certain predecessor arrangements, see
Transactions with HLTH in Managements
Discussion and Analysis of Financial Condition and Results of
Operations, in Item 7 of WebMDs Annual Report
on Form 10-K for the fiscal year ended December 31,
2007 (the WebMD Annual Report) and Note 5 to the
Consolidated Financial Statements included in the WebMD Annual
Report.
Termination
Agreement
On October 19, 2008, pursuant to the terms of a termination
agreement (the Termination Agreement), HLTH and
WebMD mutually agreed, in light of recent turmoil in financial
markets, to terminate the Agreement and Plan of Merger, dated as
of February 20, 2008, between HLTH and WebMD, as amended by
Amendment No. 1, dated as of May 6, 2008, and
Amendment No. 2, dated as of September 12, 2008 (the
Merger Agreement). The termination was by mutual
agreement of the companies and was unanimously approved by the
Board of Directors of each of the companies and by a special
committee of independent directors of WebMD. The Termination
Agreement maintains HLTHs obligation, under the terms of
the Merger Agreement, to pay the expenses of WebMD incurred in
connection with the merger.
Services
Agreement
HLTH has entered into a Services Agreement with WebMD pursuant
to which HLTH charges WebMD for specified services provided by
HLTH. Under the Services Agreement, HLTH receives an amount that
reasonably approximates its cost of providing services to WebMD.
The services that HLTH provides to WebMD include certain
administrative services, including services relating to payroll,
accounting, tax planning and compliance, employee benefit plans,
legal matters and information processing. In addition, WebMD
reimburses HLTH for an allocated portion of certain expenses
that HLTH incurs for outside services and similar items,
including insurance and audit fees, outside personnel,
facilities costs, professional fees, software maintenance fees
and telecommunications costs. HLTH has agreed to make the
services available to WebMD for a term of up to five years
following WebMDs initial public offering. However, WebMD
is not required, under the Services Agreement, to continue to
obtain services from HLTH. In the event WebMD wishes to receive
those services from a third party or provide them internally,
WebMD has the option to terminate services, in whole or in part,
at any time it chooses to do so, generally by providing, with
respect to the specified services or groups of services,
60 days notice and, in some cases, paying a
termination fee of not more than $30,000 to cover costs of HLTH
relating to the termination. HLTH has the option to terminate
the services that it provides to WebMD, in whole or in part, if
it ceases to provide such services for itself, upon at least
180 days written notice to WebMD. WebMD paid HLTH
approximately $3,340,000 for services under the Services
Agreement in 2007.
Registration
Rights Agreement
HLTH has entered into a Registration Rights Agreement with
WebMD, which requires WebMD to use its reasonable best efforts,
upon HLTHs request, to register under the applicable
federal and state securities laws any of the shares of
WebMDs equity securities owned by HLTH for sale in
accordance with HLTHs intended method of disposition, and
to take such other actions as may be necessary to permit the
sale in other jurisdictions, subject to specified limitations.
HLTH has the right to include the shares of WebMDs equity
securities it beneficially owns in other registrations of these
equity securities WebMD initiates. WebMD is required to pay all
expenses incurred in connection with each registration,
excluding underwriters discounts, if
44
any. Subject to specified limitations, the registration rights
are assignable by HLTH and its assignees. The Registration
Rights Agreement contains customary indemnification and
contribution provisions.
Tax
Sharing Agreement
HLTH is a party to a Tax Sharing Agreement with WebMD that
governs the respective rights, responsibilities, and obligations
of HLTH and WebMD with respect to tax liabilities and benefits,
tax attributes, tax contests and other matters regarding taxes
and related tax returns. In general, the Tax Sharing Agreement
does not require HLTH or WebMD to reimburse the other party to
the extent of any net tax savings realized by the consolidated
group, as a result of the groups utilization of
WebMDs or HLTHs attributes, including net operating
losses, during the period of consolidation. However, under the
Tax Sharing Agreement, HLTH was required to compensate WebMD for
any use of WebMDs net operating losses that resulted from
certain extraordinary transactions that occurred prior to
January 1, 2008. Specifically, the Tax Sharing Agreement
provides that, with respect such extraordinary transactions, if
HLTH or any corporation that is controlled, directly or
indirectly, by HLTH, other than WebMD or its subsidiaries, had
income or gain from the sale of assets (including a subsidiary)
outside the ordinary course of business, extinguishment of debt
or other extraordinary transaction (Extraordinary
Gains) that occurred prior to January 1, 2008, HLTH
was required to make a payment to WebMD and its subsidiaries
(collectively, the WebMD Subgroup) equal to 35% of
the amount of the WebMD Subgroups NOL carryforwards that
are absorbed in the consolidated tax return as a result of the
incurrence of such Extraordinary Gains. Under the Tax Sharing
Agreement, HLTH reimbursed WebMD approximately $150 million
with respect to the sale of EPS to Sage Software, Inc. on
November 14, 2006, which we refer to as the EPS Sale, and
the 2006 EBS Sale.
WebMD has agreed in the Tax Sharing Agreement that it will not
knowingly take or fail to take any action that could reasonably
be expected to preclude HLTHs ability to undertake a
split-off or spin-off on a tax-free basis. WebMD has also agreed
that, in the event that HLTH decides to undertake a split-off or
spin-off of WebMDs capital stock to HLTHs
stockholders, WebMD will enter into a new Tax Sharing Agreement
with HLTH that will set forth the parties respective
rights, responsibilities and obligations with respect to any
such split-off or spin-off.
Beneficial ownership of at least 80% of the total voting power
and value of WebMDs capital stock is required in order for
HLTH to continue to include the WebMD Subgroup in its
consolidated group for federal income tax purposes. It is the
present intention of HLTH to continue to file a single
consolidated federal income tax return with its eligible
subsidiaries. Each member of the consolidated group for federal
income tax purposes will be jointly and severally liable for the
federal income tax liability of each other member of the
consolidated group. Accordingly, although the Tax Sharing
Agreement allocates tax liabilities between WebMD and HLTH
during the period in which WebMD is included in the consolidated
group of HLTH, WebMD could be liable for the federal income tax
liability of any other member of the consolidated group in the
event any such liability is incurred and not discharged by such
other member. The Tax Sharing Agreement provides, however, that
HLTH will indemnify WebMD to the extent that, as a result of
being a member of the consolidated group of HLTH, WebMD becomes
liable for the federal income tax liability of any other member
of the consolidated group, other than the WebMD Subgroup.
Correspondingly, the Tax Sharing Agreement requires WebMD to
indemnify HLTH and the other members of the consolidated group
with respect to WebMDs federal income tax liability.
Similar principles generally will apply for income tax purposes
in some state, local and foreign jurisdictions.
Indemnity
Agreement
WebMD and HLTH have entered into an Indemnity Agreement, under
which WebMD and HLTH have agreed to indemnify each other with
respect to some matters. WebMD has agreed to indemnify HLTH
against liabilities arising from or based on:
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the operations of WebMDs business;
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45
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any material untrue statements or omissions in the Prospectus
included in the IPO Registration Statement, other than material
untrue statements or omissions contained in or pertaining to
information relating solely to HLTH; and
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guarantees or undertakings made by HLTH to third parties in
respect of WebMDs liabilities or obligations or those of
WebMDs subsidiaries.
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HLTH has agreed to indemnify WebMD against liabilities arising
from or based on:
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the operations of HLTHs business;
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any material untrue statements or omissions in the Prospectus
included in the IPO Registration Statement, other than material
untrue statements or omissions contained in or pertaining to
information relating solely to WebMD; and
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certain pre-existing legal proceedings.
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The agreement contains provisions governing notice and
indemnification procedures.
Intellectual
Property License Agreement
The Intellectual Property License Agreement governs certain
rights, responsibilities, and obligations of HLTH and WebMD with
respect to the name WebMD and related intellectual
property that HLTH has used. Under the Intellectual Property
License Agreement, HLTH transferred its rights to the name
WebMD and related intellectual property to WebMD
prior to the completion of WebMDs initial public offering.
Private
Portals License
HLTH has licensed WebMDs private portal health and
benefits management services for use by HLTHs employees
and the employees of its other subsidiaries for a period of
three years, through June 30, 2008. The fees payable by
HLTH to WebMD for this license for 2007 were approximately
$250,000.
Product
Development, Marketing and Related Arrangements
On January 31, 2006, HLTH and WebMD entered into agreements
to support each others product development and marketing
of certain product lines. The parties agreed that WebMD would,
in general, manage the product development and marketing of
HLTHs and WebMDs product lines in the following
areas:
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online tools and applications that are displayed to physicians
and consumers that provide quality ratings of
providers and that analyze patient care (we refer to these types
of applications as External Clinical Quality
Applications); and
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online tools and applications that are displayed to end-user
consumers, plan members
and/or
patients to assist in (a) communicating with, or viewing
information from, providers or payers, (b) making informed
benefit, provider
and/or
treatment choices, through access to content, personal health
records, plan comparison tools, benefit comparison tools, cost
treatment indicators, calculators, etc., or (c) managing
and utilizing consumer-directed health plans and the related
health savings accounts and other consumer directed financial
accounts (we refer to all of these types of applications as
Consumer-Directed Applications).
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The agreements provided that HLTH could continue to develop and
market products and services that were principally provided for
internal use by healthcare payers. The provisions of these
agreements applicable solely to relationships between HLTH and
WebMD have been terminated. However, in connection with the EPS
Sale and the 2006 EBS Sale and 2008 EBS Sale, separate
agreements were entered into with EPS and
46
EBS with respect to certain matters under those agreements, and
the separate agreements continue in effect with respect to the
following products and services:
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EPS has agreed to continue its relationship with WebMD to
exclusively integrate WebMDs personal health record with
EPSs clinical products, including EPSs electronic
medical record.
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EBS has agreed to continue its strategic relationship with WebMD
and to offer WebMD the opportunity to provide EBS with External
Clinical Quality Applications and Consumer Directed Applications
subject to mutual agreement on certain terms. In addition, if
WebMD determines to pursue a Consumer Directed Application for
the financial administration of the patient encounter, such as
clinical messaging or a personal financial record, and requests
EBS to assist WebMD in that regard, WebMD and EBS have agreed to
use reasonable efforts to integrate and market such
applications. In addition, EBS agreed to license certain
de-identified data to HLTH for use in the development and
commercialization of certain applications. In the Termination
Agreement relating to the merger with WebMD, HLTH agreed to
assign this license to WebMD.
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Other
Business Arrangements with WebMD
HLTH has in the past entered into, and may from time to time in
the future enter into, other ordinary course business
arrangements with WebMD or its subsidiaries that are not
material to either company and may not be the subject of any
ongoing contract. For example, from time to time, HLTH has
advertised some of its products and services on WebMDs
physician portals. In addition, from time to time, WebMD and
ViPS have worked together on projects or provided services to
each other.
Other
Related Party Transactions
HLTH was reimbursed approximately $278,000 and $255,000 for 2007
and 2006, respectively, by Martin J. Wygod, HLTHs
Chairman of the Board, and a corporation that he controls, for
personal use of certain of HLTHs staff and office
facilities and for the personal portion of certain travel
expenses.
Affiliates of FMR Corp. provide services to HLTH in connection
with the HLTH 401(k) Savings and Employee Stock Ownership Plan
and the Porex 401(k) Savings Plan. FMR Corp. beneficially owned,
based on its holdings as of December 31, 2007 shares
representing approximately 13.6% of HLTHs outstanding
Common Stock and approximately 16.5% of the outstanding WebMD
Class A Common Stock. The aggregate amount charged to HLTH
for these services was approximately $37,000 for 2007 and
approximately $82,000 for 2006. In 2004, the WebMD segment
entered into an agreement with Fidelity Human Resources Services
Company LLC (FHRS) (formerly known as Fidelity
Employer Services Company LLC), an affiliate of FMR Corp., to
integrate WebMDs private portals product into the services
FHRS provides to its clients. FHRS provides human resources
administration and benefit administration services to employers.
HLTH recorded revenue of $10,362,000 in 2007 and $7,802,000 in
2006 related to the FHRS agreement, and $1,544,000 and
$2,145,000, respectively, were included in accounts receivable,
related to the FHRS agreement, as of December 31, 2007 and
December 31, 2006. For additional information, see
WebMD Private Portals Relationship
with Fidelity Human Resources Services Company LLC in
Item 1 of HLTHs Annual Report on
Form 10-K
for the year ended December 31, 2007 and Note 19 to
the Consolidated Financial Statements included as Annex A-1
to this proxy statement.
Audit
Committee Review of Related Party Transactions
Under HLTHs Code of Business Conduct, directors and
executive officers are required to disclose to HLTHs
General Counsel or Compliance Officer any transactions or
relationships they are involved in that present or may present a
conflict of interest with HLTH, including those that would be
required to be disclosed as a related party transaction under
applicable SEC rules. Under HLTHs Code of Business Conduct
and the Audit Committee Charter, the Audit Committee has
authority to determine whether to approve or ratify such
transactions and relationships on behalf of HLTH, other than
transactions between HLTH and WebMD which, as described below,
are overseen by the Related Parties Committee of the board. The
Audit
47
Committee considers whether to ratify or approve such
transactions and relationships on a
case-by-case
basis, rather than pursuant to a general policy.
If not disclosed to the Audit Committee or if, after disclosure,
not ratified or approved by the Audit Committee, a transaction
or relationship presenting a conflict of interest or potential
conflict of interest between a director or executive officer and
HLTH may violate HLTHs Code of Business Conduct and other
company policies. When reviewing such a relationship or
transaction, the Audit Committee will examine the terms of the
transaction to determine how close they are to terms that would
be likely to be found in a similar arms-length transaction
and, if not, whether they are otherwise reasonable and fair to
HLTH. In addition, the Audit Committee will consider the nature
of the related partys interest in the transaction and the
significance of the transaction to the related party. If the
transaction involves a non-employee director, the Audit
Committee may also consider whether the transaction would
compromise the directors independence. The Audit Committee
may condition its ratification or approval of a transaction or
relationship on imposition of specified limitations on the
transaction or relationship or specific monitoring requirements
on an ongoing basis.
In the case of transactions and relationships between HLTH and
WebMD, HLTHs board has delegated ongoing authority to
ratify, approve and monitor them to the Related Parties
Committee of the board. See Corporate Governance
Committees of the Board of Directors
Related Parties Committee above. The Related Parties
Committee of the HLTH board consists solely of non-employee
directors who are not also directors of WebMD. WebMD has a
similar committee with authority to ratify, approve and monitor
those transactions and relationships on its behalf, consisting
solely of non-employee directors who are not also directors of
HLTH.
48
REPORT OF
THE AUDIT COMMITTEE
The current members of the Audit Committee of HLTHs board
of directors are Paul A. Brooke, James V. Manning and Joseph E.
Smith and Mr. Manning is the Chairman. The Audit Committee
is responsible for, among other things:
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retaining and overseeing the registered public accounting firm
that serves as HLTHs independent auditor and evaluating
its performance and independence;
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reviewing the annual audit plan with HLTHs management and
registered public accounting firm;
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pre-approving any permitted non-audit services provided by
HLTHs registered public accounting firm;
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approving the fees to be paid to HLTHs registered public
accounting firm;
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reviewing the adequacy and effectiveness of HLTHs internal
controls with HLTHs management, internal auditors and
registered public accounting firm;
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reviewing and discussing the annual audited financial statements
and the interim unaudited financial statements with HLTHs
management and registered public accounting firm;
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approving HLTHs internal audit plan and reviewing reports
of HLTHs internal auditors;
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determining whether to approve related party transactions (see
Certain Relationships and Related Transactions
Audit Committee Review of Related Party Transactions
above); and
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overseeing the administration of HLTHs Code of Business
Conduct.
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The Audit Committee operates under a written charter adopted by
the board of directors.
This report reviews the actions taken by the Audit Committee
with regard to HLTHs financial reporting process for 2007
and particularly with regard to HLTHs audited consolidated
financial statements and the related schedule included in
HLTHs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007.
HLTHs management has the primary responsibility for
HLTHs financial statements and reporting process,
including the systems of internal controls. HLTHs
independent auditors are responsible for performing an
independent audit of HLTHs consolidated financial
statements and the related schedule in accordance with the
standards of the Public Company Accounting Oversight Board
(United States) and issuing a report thereon and a report on the
effectiveness of internal control over financial reporting. The
Audit Committees responsibility is to monitor and oversee
these processes. In carrying out its oversight responsibilities,
the Audit Committee is not providing any expert or special
assurance as to HLTHs financial statements or systems of
internal controls or any professional certification as to the
independent auditors work. The Audit Committee has
implemented procedures to ensure that, during the course of each
fiscal year, it devotes the attention that it deems necessary or
appropriate to fulfill its oversight responsibilities under the
Audit Committees charter.
In fulfilling its oversight responsibilities, the Audit
Committee reviewed and discussed with management the audited
financial statements and the Report of Management on Internal
Control Over Financial Reporting included in HLTHs Annual
Report on
Form 10-K
for the fiscal year ended December 31, 2007 and in
HLTHs Current Report on Form 8-K filed on
June 27, 2008. In addition, the Audit Committee reviewed
with HLTHs independent auditors, Ernst & Young
LLP, who are responsible for expressing an opinion on the
conformity of those audited financial statements with
U.S. generally accepted accounting principles, their
judgments as to the quality, rather than just the acceptability,
of HLTHs accounting principles and such other matters as
are required to be discussed with the Audit Committee under
Statement on Auditing Standards No. 61, Communication with
Audit Committees, as amended, other standards of the Public
Company Accounting Oversight Board (United States) SEC rules,
and other professional standards. The Audit Committee also
reviewed with Ernst & Young the Report of
Independent Registered Public Accounting Firm on Internal
Control Over Financial Reporting included in HLTHs
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007 and in
HLTHs Current Report on Form 8-K filed on
June 27, 2008. In
49
addition, the Audit Committee discussed with Ernst &
Young their independence from management and HLTH, including the
matters in the written disclosures required of Ernst &
Young by the applicable requirements of the Public Company
Accounting Oversight Board regarding the independent
accountants communications with the Audit Committee
concerning independence. The Audit Committee also considered
whether the provision of non-audit services (see the section
entitled Proposal 2: Ratification of Appointment of
Independent Registered Public Accounting Firm
Services and Fees of Ernst & Young below) during
2007 by Ernst & Young is compatible with maintaining
Ernst & Youngs independence.
Additionally, the Audit Committee discussed with HLTHs
independent auditors the overall scope and plan for their audit
of HLTHs financial statements and their audits of its
internal control over financial reporting. The Audit Committee
met with the independent auditors, with and without management
present, to discuss the results of their examination, their
evaluation of HLTHs internal controls and the overall
quality of HLTHs financial reporting.
In reliance on the reviews and discussions referred to above,
the Audit Committee recommended to our board of directors that
the audited financial statements and related schedule and
managements assessment of the effectiveness of HLTHs
internal control over financial reporting be included in
HLTHs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007 for filing with
the SEC. The Audit Committee has also approved the retention of
Ernst & Young as HLTHs independent auditors for
2008.
Paul A. Brooke
James V. Manning
Joseph E. Smith
50
HLTH
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
A proposal to ratify the appointment of Ernst &
Young LLP as the independent registered public accounting firm
to serve as HLTHs independent auditor for the fiscal year
ending December 31, 2008.
The Audit Committee has appointed the firm of Ernst &
Young LLP, an independent registered public accounting firm, to
be HLTHs independent auditor for the current fiscal year
and, with the endorsement of the board of directors, recommends
to stockholders that they ratify that appointment.
Ernst & Young has served as HLTHs independent
auditors since 1995.
Although stockholder approval of the Audit Committees
appointment of Ernst & Young is not required by law,
the board of directors believes that it is advisable and a
matter of good corporate practice to give stockholders an
opportunity to ratify this appointment. If this proposal is not
approved at the Annual Meeting, the Audit Committee will
reconsider its appointment of Ernst & Young.
A representative of Ernst & Young is expected to be
present at the Annual Meeting. The representative will be
afforded an opportunity to make a statement and will be
available to respond to questions by stockholders. If the
selection of Ernst & Young is ratified, the Audit
Committee nevertheless retains the discretion to select
different accounting firms in the future, should the Audit
Committee then deem such selection to be in HLTHs best
interest and in the best interest of the stockholders. Any such
selection need not be submitted to a vote of stockholders.
THE HLTH
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE APPROVAL OF PROPOSAL 2.
Services
and Fees of Ernst & Young
In addition to retaining Ernst & Young LLP to audit
its consolidated financial statements for 2007 and 2006 and to
review its quarterly financial statements during those years,
HLTH retained Ernst & Young to provide certain related
services. The fees for Ernst & Youngs services
to HLTH (including services to WebMD) were:
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Type of Fees
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2007
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2006
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Audit Fees
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$
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1,903,198
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$
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3,919,332
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Audit-Related Fees
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162,775
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2,393,470
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Tax Fees
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353,561
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280,982
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All Other Fees
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1,500
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1,500
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Total Fees
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$
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2,421,034
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$
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6,595,284
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In the above table, in accordance with applicable SEC rules:
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audit fees include: (a) fees billed for
professional services (i) for the audit of the consolidated
financial statements included in HLTHs and WebMDs
Annual Reports on
Form 10-K
for that fiscal year, (ii) for review of the consolidated
financial statements included in HLTHs and WebMDs
Quarterly Reports on Form
10-Q filed
during that fiscal year, and (iii) for the audits of
internal control over financial reporting and managements
assessment of internal control over financial reporting for that
fiscal year with respect to HLTH and WebMD; and (b) fees
billed for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings
or engagements for that year;
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audit-related fees are fees billed in the year for
assurance and related services that are reasonably related to
the performance of the audit or review of HLTHs financial
statements, which consisted of fees related to audits of
HLTHs employee benefit plans for that year and, for 2006,
included fees for the audit, due diligence and other services
related to the 2006 EBS Sale and the EPS Sale;
|
51
|
|
|
|
|
tax fees are fees billed in the year for
professional services for tax compliance, tax advice, and tax
planning and analysis; and
|
|
|
|
all other fees are fees billed in the year for any
products and services not included in the first three categories
and consisted of a subscription to Ernst &
Youngs online research tool.
|
None of these services was provided pursuant to a waiver of the
requirement that such services be pre-approved by the Audit
Committee. The Audit Committee has determined that the provision
by Ernst & Young of non-audit services to HLTH in 2007
is compatible with Ernst & Young maintaining their
independence.
The Audit Committee considers whether to pre-approve permissible
non-audit services and fees on a
case-by-case
basis, rather than pursuant to a general policy, with the
exception of acquisition-related due diligence engagements,
which have been pre-approved by the Audit Committee and are
subject to monitoring by the Chairman of the Audit Committee. To
ensure prompt handling of unexpected matters, the Audit
Committee has delegated to its Chairman the authority to
pre-approve permissible non-audit services and fees and to amend
or modify pre-approvals that have been granted by the entire
Audit Committee. A report of any such actions taken by the
Chairman is provided to the Audit Committee at the next Audit
Committee meeting.
52
STOCKHOLDER
PROPOSALS FOR 2009 ANNUAL MEETING
HLTH expects to hold its 2009 Annual Meeting of Stockholders on
September 24, 2009. Proposals that stockholders intend to
present at that meeting must be received by HLTH not later than
April 20, 2009 if they are to be eligible for consideration
for possible inclusion in HLTHs proxy statement and form
of proxy relating to that meeting, unless the date of the
meeting is changed to a later one, in which case such proposals
must be received a reasonable time before a solicitation is
made. In addition, HLTHs bylaws establish an advance
notice procedure with regard to director nominations and
proposals by stockholders intended to be presented at an annual
meeting, but not included in its proxy statement. For these
nominations or other business to be properly brought before the
meeting by a stockholder, the stockholder must provide written
notice delivered to the Secretary of HLTH at least 60 days
and not more than 90 days in advance of the annual meeting
date, which notice must contain specified information concerning
the matters to be brought before the meeting and concerning the
stockholder proposing these matters. All notices of proposals by
stockholders, whether or not intended to be included in
HLTHs proxy materials, should be sent to: Corporate
Secretary, HLTH Corporation, 669 River Drive, Center 2, Elmwood
Park, New Jersey
07407-1361.
If a stockholder intends to submit a proposal at the next annual
meeting of stockholders which is not intended for inclusion in
the proxy statement relating to that meeting, notice from the
stockholder in accordance with the requirements in HLTHs
bylaws must be received by HLTH no later than July 20, 2009
unless the date of the meeting is changed, in which case HLTH
will announce any change in the date by which the notice must be
received by HLTH when HLTH first announces the change in meeting
date.
WHERE YOU
CAN FIND MORE INFORMATION
HLTH files annual, quarterly and current reports, proxy
statements and other information with the SEC. You can inspect,
read and copy these reports, proxy statements and other
information at the public reference facilities the SEC maintains
at 100 F Street, N.E., Washington, D.C. 20549.
HLTH will provide its stockholders without charge a copy of
its Annual Report on
Form 10-K
for the year ended December 31, 2007 and of its Quarterly
Reports on
Form 10-Q
filed in 2007 and 2008, upon written request to Investor
Relations, HLTH Corporation, 669 River Drive, Center 2,
Elmwood Park, NJ 07407.
HLTH makes available free of charge at www.hlth.com (in
the Investor Relations section) copies of materials
it files with, or furnishes to, the SEC. You can also obtain
copies of these materials at prescribed rates by writing to the
Public Reference Section of the SEC at 100 F Street,
N.E., Washington, D.C. 20549. You can obtain information on
the operation of the public reference facilities by calling the
SEC at
1-800-SEC-0330.
The SEC also maintains a Web site at www.sec.gov that
makes available reports, proxy statements and other information
regarding issuers that file electronically with it.
MISCELLANEOUS
Where information contained in this proxy statement rests
particularly within the knowledge of a person other than HLTH,
we have relied upon information furnished by such person or
contained in filings made by such person with the SEC.
The material under the headings Report of the Audit
Committee (other than the description of the
responsibilities of the Audit Committee in the first paragraph
of that Report) and Report of the Compensation
Committee shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934, except to the extent that
HLTH specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
53
ANNEX A-1
HLTH
CORPORATION 2007 ANNUAL REPORT
FINANCIAL
STATEMENTS
Index to
Consolidated Financial Statements and Supplemental
Data
|
|
|
|
|
|
|
Page
|
|
Historical Financial Statements:
|
|
|
|
|
Report of Management on Internal Control Over Financial Reporting
|
|
|
2
|
|
Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting
|
|
|
3
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
4
|
|
Consolidated Balance Sheets at December 31, 2007 and 2006
|
|
|
5
|
|
Consolidated Statements of Operations for the Years Ended
December 31, 2007, 2006 and 2005
|
|
|
6
|
|
Consolidated Statements of Stockholders Equity for the
Years Ended December 31, 2007, 2006 and 2005
|
|
|
7
|
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007, 2006 and 2005
|
|
|
8
|
|
Notes to Consolidated Financial Statements
|
|
|
10
|
|
Supplemental Financial Data:
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
|
|
|
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.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 1
REPORT OF
MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management of HLTH Corporation 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.
HLTH management assessed the effectiveness of HLTHs
internal control over financial reporting as of
December 31, 2007. In making this assessment, HLTH
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, HLTH
management concluded that HLTH maintained effective internal
control over financial reporting as of December 31, 2007.
Ernst & Young LLP, the independent registered public
accounting firm that audited and reported on the Companys
financial statements as of December 31, 2007 and 2006 and
for each of the three years in the period ended
December 31, 2007, has audited the Companys internal
control over financial reporting as of December 31, 2007,
as stated in their report which appears on page 3.
February 28, 2008
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders of
HLTH Corporation
We have audited HLTH Corporations internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). HLTH
Corporations 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, HLTH Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007 based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
2007 consolidated financial statements of HLTH Corporation and
our report dated February 28, 2008 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
MetroPark, New Jersey
February 28, 2008
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
HLTH Corporation
We have audited the accompanying consolidated balance sheets of
HLTH Corporation (and subsidiaries) as of December 31, 2007
and 2006, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2007. Our audits
also included the financial statement schedule listed in the
Index. 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 HLTH Corporation (and subsidiaries) at
December 31, 2007 and 2006, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2007, 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 1 to the consolidated financial
statements, effective January 1, 2006, the Company adopted
Statement of Financial Accounting Standard No. 123(R),
Share-Based Payment using the modified prospective
transition method. Also, as discussed in Note 1 to the
consolidated financial statements, effective January 1,
2007, the Company adopted the provisions of Financial Accounting
Standards Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), HLTH
Corporations internal control over financial reporting as
of December 31, 2007, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated February 28, 2008 expressed an unqualified
opinion thereon.
MetroPark, New Jersey
February 28, 2008,
except for Notes 2 and 9, as to which the date is
June 26, 2008
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 4
HLTH
CORPORATION
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
536,879
|
|
|
$
|
614,691
|
|
Short-term investments
|
|
|
290,858
|
|
|
|
34,140
|
|
Accounts receivable, net of allowance for doubtful accounts of
$1,165 at December 31, 2007 and $956 at December 31,
2006
|
|
|
86,081
|
|
|
|
89,652
|
|
Due from EBS Master LLC
|
|
|
1,224
|
|
|
|
30,716
|
|
Prepaid expenses and other current assets
|
|
|
71,090
|
|
|
|
27,794
|
|
Assets of discontinued operations
|
|
|
262,964
|
|
|
|
274,232
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,249,096
|
|
|
|
1,071,225
|
|
Marketable equity securities
|
|
|
2,383
|
|
|
|
2,633
|
|
Property and equipment, net
|
|
|
49,554
|
|
|
|
46,076
|
|
Goodwill
|
|
|
217,323
|
|
|
|
223,484
|
|
Intangible assets, net
|
|
|
36,314
|
|
|
|
45,268
|
|
Investment in EBS Master LLC
|
|
|
25,261
|
|
|
|
1,521
|
|
Other assets
|
|
|
71,466
|
|
|
|
80,159
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,651,397
|
|
|
$
|
1,470,366
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
49,598
|
|
|
$
|
102,781
|
|
Deferred revenue
|
|
|
76,401
|
|
|
|
76,086
|
|
Liabilities of discontinued operations
|
|
|
123,131
|
|
|
|
55,098
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
249,130
|
|
|
|
233,965
|
|
1.75% convertible subordinated notes due 2023
|
|
|
350,000
|
|
|
|
350,000
|
|
31/8%
convertible notes due 2025
|
|
|
300,000
|
|
|
|
300,000
|
|
Other long-term liabilities
|
|
|
21,137
|
|
|
|
13,246
|
|
Minority interest in WHC
|
|
|
131,353
|
|
|
|
101,860
|
|
Convertible redeemable exchangeable preferred stock,
$0.0001 par value; 10,000 shares authorized; no shares
outstanding at December 31, 2007; 10,000 shares issued
and outstanding at December 31, 2006
|
|
|
|
|
|
|
98,768
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 4,990,000 shares
authorized; no shares outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 900,000,000 shares
authorized; 457,803,361 shares issued at December 31,
2007; 449,600,747 shares issued at December 31, 2006
|
|
|
46
|
|
|
|
45
|
|
Additional paid-in capital
|
|
|
12,479,574
|
|
|
|
12,290,126
|
|
Treasury stock, at cost; 275,786,634 shares at
December 31, 2007; 287,770,823 shares at
December 31, 2006
|
|
|
(2,564,948
|
)
|
|
|
(2,585,769
|
)
|
Accumulated deficit
|
|
|
(9,320,748
|
)
|
|
|
(9,341,985
|
)
|
Accumulated other comprehensive income
|
|
|
5,853
|
|
|
|
10,110
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
599,777
|
|
|
|
372,527
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
1,651,397
|
|
|
$
|
1,470,366
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 5
HLTH
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue
|
|
$
|
331,693
|
|
|
$
|
908,927
|
|
|
$
|
852,010
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
117,281
|
|
|
|
545,706
|
|
|
|
528,004
|
|
Sales and marketing
|
|
|
93,645
|
|
|
|
119,103
|
|
|
|
104,669
|
|
General and administrative
|
|
|
104,321
|
|
|
|
132,334
|
|
|
|
118,202
|
|
Depreciation and amortization
|
|
|
28,256
|
|
|
|
44,558
|
|
|
|
43,548
|
|
Interest income
|
|
|
42,035
|
|
|
|
32,339
|
|
|
|
21,527
|
|
Interest expense
|
|
|
18,593
|
|
|
|
18,794
|
|
|
|
16,321
|
|
Gain on 2006 EBS Sale
|
|
|
399
|
|
|
|
352,297
|
|
|
|
|
|
Other income (expense), net
|
|
|
3,406
|
|
|
|
(4,252
|
)
|
|
|
(27,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax (benefit)
provision
|
|
|
15,437
|
|
|
|
428,816
|
|
|
|
34,828
|
|
Income tax (benefit) provision
|
|
|
(8,741
|
)
|
|
|
50,389
|
|
|
|
(2,170
|
)
|
Minority interest in WHC
|
|
|
10,667
|
|
|
|
405
|
|
|
|
775
|
|
Equity in earnings of EBS Master LLC
|
|
|
28,566
|
|
|
|
763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
42,077
|
|
|
|
378,785
|
|
|
|
36,223
|
|
(Loss) income from discontinued operations (net of taxes of
($5,206), $36,531 and $6,109 in 2007, 2006 and 2005)
|
|
|
(22,198
|
)
|
|
|
393,132
|
|
|
|
32,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
19,879
|
|
|
$
|
771,917
|
|
|
$
|
68,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.24
|
|
|
$
|
1.36
|
|
|
$
|
0.11
|
|
(Loss) income from discontinued operations
|
|
|
(0.13
|
)
|
|
|
1.41
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.11
|
|
|
$
|
2.77
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.21
|
|
|
$
|
1.20
|
|
|
$
|
0.10
|
|
(Loss) income from discontinued operations
|
|
|
(0.12
|
)
|
|
|
1.18
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.09
|
|
|
$
|
2.38
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding used in computing income
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
179,330
|
|
|
|
279,234
|
|
|
|
341,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
188,763
|
|
|
|
331,642
|
|
|
|
352,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 6
HLTH
CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
(In
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Stock
|
|
|
Treasury Stock
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
|
Balances at January 1, 2005
|
|
|
394,041,320
|
|
|
$
|
39
|
|
|
$
|
11,776,911
|
|
|
$
|
(7,819
|
)
|
|
|
80,849,495
|
|
|
$
|
(379,968
|
)
|
|
$
|
(10,182,244
|
)
|
|
$
|
7,957
|
|
|
$
|
1,214,876
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,811
|
|
|
|
|
|
|
|
68,811
|
|
Net increase in unrealized gains on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,976
|
|
|
|
2,976
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,326
|
)
|
|
|
(3,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,461
|
|
Issuance of common stock for option exercises, ESPP, 401(k) and
other issuances
|
|
|
11,385,269
|
|
|
|
1
|
|
|
|
48,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,571
|
|
Gain on issuance of WHC Class A Common Stock
|
|
|
|
|
|
|
|
|
|
|
82,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,275
|
|
Conversion of
31/4%
convertible subordinated notes
|
|
|
23,197,650
|
|
|
|
3
|
|
|
|
214,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214,017
|
|
Accretion of convertible redeemable exchangeable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234
|
)
|
|
|
|
|
|
|
(234
|
)
|
Deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
2,241
|
|
|
|
(2,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
330
|
|
|
|
3,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,781
|
|
Purchase of treasury stock under repurchase program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,541,000
|
|
|
|
(21,246
|
)
|
|
|
|
|
|
|
|
|
|
|
(21,246
|
)
|
Purchase of treasury stock in tender offer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,905,919
|
|
|
|
(549,268
|
)
|
|
|
|
|
|
|
|
|
|
|
(549,268
|
)
|
Adjustment to deferred stock compensation for terminations
|
|
|
|
|
|
|
|
|
|
|
(2,910
|
)
|
|
|
2,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
|
428,624,239
|
|
|
|
43
|
|
|
|
12,121,431
|
|
|
|
(3,699
|
)
|
|
|
150,296,414
|
|
|
|
(950,482
|
)
|
|
|
(10,113,667
|
)
|
|
|
7,607
|
|
|
|
1,061,233
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
771,917
|
|
|
|
|
|
|
|
771,917
|
|
Net decrease in unrealized gains on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,108
|
)
|
|
|
(1,108
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,611
|
|
|
|
3,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
774,420
|
|
Issuance of common stock for option exercises, ESPP and other
issuances
|
|
|
20,976,508
|
|
|
|
2
|
|
|
|
151,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,239
|
|
Accretion of convertible redeemable exchangeable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(235
|
)
|
|
|
|
|
|
|
(235
|
)
|
Reversal of deferred stock compensation adoption of
SFAS 123R
|
|
|
|
|
|
|
|
|
|
|
(3,699
|
)
|
|
|
3,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
26,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,720
|
|
Purchase of treasury stock under repurchase program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,240,245
|
|
|
|
(83,167
|
)
|
|
|
|
|
|
|
|
|
|
|
(83,167
|
)
|
Purchase of treasury stock in tender offer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,234,164
|
|
|
|
(1,552,120
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,552,120
|
)
|
Gain on issuance of WHC Class A Common Stock
|
|
|
|
|
|
|
|
|
|
|
16,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,779
|
|
Minority interest impact of cash transferred to WHC
|
|
|
|
|
|
|
|
|
|
|
(22,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
449,600,747
|
|
|
|
45
|
|
|
|
12,290,126
|
|
|
|
|
|
|
|
287,770,823
|
|
|
|
(2,585,769
|
)
|
|
|
(9,341,985
|
)
|
|
|
10,110
|
|
|
|
372,527
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,879
|
|
|
|
|
|
|
|
19,879
|
|
Net decrease in unrealized gains on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(249
|
)
|
|
|
(249
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,318
|
|
|
|
3,318
|
|
HLTHs share of EBSCos comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,326
|
)
|
|
|
(7,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,622
|
|
Cumulative effect to prior year related to the adoption of
FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,475
|
|
|
|
|
|
|
|
1,475
|
|
Issuance of stock for option exercises, ESPP and other issuances
|
|
|
8,202,614
|
|
|
|
1
|
|
|
|
96,893
|
|
|
|
|
|
|
|
(4,715,883
|
)
|
|
|
22,840
|
|
|
|
|
|
|
|
|
|
|
|
119,734
|
|
Tax benefit realized from issuances of common stock and
valuation reversal
|
|
|
|
|
|
|
|
|
|
|
7,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,171
|
|
Gain on issuance of WHC Class A Common Stock
|
|
|
|
|
|
|
|
|
|
|
14,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,492
|
|
Conversion and accretion of convertible redeemable exchangeable
preferred stock
|
|
|
|
|
|
|
|
|
|
|
53,781
|
|
|
|
|
|
|
|
(10,638,297
|
)
|
|
|
45,104
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
98,768
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
18,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,699
|
|
Purchase of treasury stock under repurchase program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,369,991
|
|
|
|
(47,123
|
)
|
|
|
|
|
|
|
|
|
|
|
(47,123
|
)
|
Minority interest impact of cash transferred to WHC
|
|
|
|
|
|
|
|
|
|
|
(1,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
457,803,361
|
|
|
$
|
46
|
|
|
$
|
12,479,574
|
|
|
$
|
|
|
|
|
275,786,634
|
|
|
$
|
(2,564,948
|
)
|
|
$
|
(9,320,748
|
)
|
|
$
|
5,853
|
|
|
$
|
599,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 7
HLTH
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
19,879
|
|
|
$
|
771,917
|
|
|
$
|
68,811
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (income) from discontinued operations, net of tax
|
|
|
22,198
|
|
|
|
(393,132
|
)
|
|
|
(32,588
|
)
|
Depreciation and amortization
|
|
|
28,256
|
|
|
|
44,558
|
|
|
|
43,548
|
|
Minority interest in WHC
|
|
|
10,667
|
|
|
|
405
|
|
|
|
775
|
|
Equity in earnings of EBS Master LLC
|
|
|
(28,566
|
)
|
|
|
(763
|
)
|
|
|
|
|
Amortization of debt issuance costs
|
|
|
2,916
|
|
|
|
2,906
|
|
|
|
2,541
|
|
Non-cash advertising
|
|
|
5,264
|
|
|
|
7,414
|
|
|
|
10,870
|
|
Non-cash stock-based compensation
|
|
|
32,652
|
|
|
|
42,145
|
|
|
|
4,713
|
|
Deferred income taxes
|
|
|
(10,136
|
)
|
|
|
26,841
|
|
|
|
4,247
|
|
Gain on 2006 EBS Sale
|
|
|
(399
|
)
|
|
|
(352,297
|
)
|
|
|
|
|
Loss on investments
|
|
|
|
|
|
|
|
|
|
|
6,365
|
|
Loss on redemption of convertible debt
|
|
|
|
|
|
|
|
|
|
|
1,902
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,840
|
|
|
|
(41,727
|
)
|
|
|
(22,151
|
)
|
Prepaid expenses and other, net
|
|
|
5,329
|
|
|
|
(12,092
|
)
|
|
|
57
|
|
Accounts payable
|
|
|
(629
|
)
|
|
|
(722
|
)
|
|
|
(6,453
|
)
|
Accrued expenses and other long-term liabilities
|
|
|
(43,689
|
)
|
|
|
21,727
|
|
|
|
4,809
|
|
Deferred revenue
|
|
|
314
|
|
|
|
17,516
|
|
|
|
4,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations
|
|
|
47,896
|
|
|
|
134,696
|
|
|
|
91,462
|
|
Net cash provided by discontinued operations
|
|
|
27,497
|
|
|
|
64,324
|
|
|
|
69,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
75,393
|
|
|
|
199,020
|
|
|
|
161,286
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities and sales of available-for-sale
securities
|
|
|
670,326
|
|
|
|
928,284
|
|
|
|
1,063,606
|
|
Purchases of available-for-sale securities
|
|
|
(927,038
|
)
|
|
|
(686,815
|
)
|
|
|
(758,687
|
)
|
Purchases of property and equipment
|
|
|
(19,053
|
)
|
|
|
(49,420
|
)
|
|
|
(47,241
|
)
|
Cash paid in business combinations, net of cash acquired
|
|
|
|
|
|
|
(152,672
|
)
|
|
|
(93,622
|
)
|
Proceeds from the 2006 EBS Sale, net
|
|
|
2,898
|
|
|
|
1,199,872
|
|
|
|
|
|
Proceeds from advances to EBS Master LLC
|
|
|
18,792
|
|
|
|
(20,016
|
)
|
|
|
|
|
Proceeds from the sale of discontinued operations
|
|
|
11,667
|
|
|
|
522,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing operations
|
|
|
(242,408
|
)
|
|
|
1,741,837
|
|
|
|
164,056
|
|
Net cash used in discontinued operations
|
|
|
(4,741
|
)
|
|
|
(3,296
|
)
|
|
|
(15,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(247,149
|
)
|
|
|
1,738,541
|
|
|
|
148,932
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of HLTH and WHC common stock
|
|
|
133,054
|
|
|
|
156,078
|
|
|
|
48,571
|
|
Tax benefit on stock-based awards
|
|
|
6,601
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock under repurchase program
|
|
|
(47,123
|
)
|
|
|
(83,167
|
)
|
|
|
(21,246
|
)
|
Purchases of treasury stock in tender offer
|
|
|
|
|
|
|
(1,552,120
|
)
|
|
|
(549,268
|
)
|
Payments of notes payable and other
|
|
|
(20
|
)
|
|
|
(337
|
)
|
|
|
(552
|
)
|
Net proceeds from issuance of convertible debt
|
|
|
|
|
|
|
|
|
|
|
289,875
|
|
Issuance of WHC common stock in initial public offering
|
|
|
|
|
|
|
|
|
|
|
123,344
|
|
Redemption of convertible debt
|
|
|
|
|
|
|
|
|
|
|
(86,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
92,512
|
|
|
|
(1,479,546
|
)
|
|
|
(195,970
|
)
|
Net cash used in discontinued operations
|
|
|
(175
|
)
|
|
|
(100
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
92,337
|
|
|
|
(1,479,646
|
)
|
|
|
(196,049
|
)
|
Effect of exchange rates on cash
|
|
|
1,607
|
|
|
|
1,135
|
|
|
|
(678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(77,812
|
)
|
|
|
459,050
|
|
|
|
113,491
|
|
Changes in cash of discontinued operations
|
|
|
|
|
|
|
25
|
|
|
|
2,145
|
|
Cash and cash equivalents at beginning of period
|
|
|
614,691
|
|
|
|
155,616
|
|
|
|
39,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
536,879
|
|
|
$
|
614,691
|
|
|
$
|
155,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 9
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
|
|
1.
|
Summary
of Significant Accounting Policies
|
Background
HLTH Corporation (HLTH or the Company)
is a Delaware corporation that was incorporated in December 1995
and commenced operations in January 1996 as Healtheon
Corporation. HLTHs Common Stock began trading on the
Nasdaq National Market under the symbol HLTH on
February 11, 1999 and now trades on the Nasdaq Global
Select Market. The Company changed its name to Healtheon/WebMD
Corporation in November 1999 and to WebMD Corporation in
September 2000. In October 2005, WebMD Corporation changed its
name to Emdeon Corporation in connection with the initial public
offering of equity securities of WebMD Health Corp.
(WHC). In connection with the November 2006 sale of
a 52% interest in the Companys Emdeon Business Services
segment, the Company transferred its rights to the name
Emdeon and related intellectual property to Emdeon
Business Services. Accordingly, in May 2007, the Company changed
its name to HLTH Corporation.
Basis of
Presentation
The accompanying consolidated financial statements include the
consolidated accounts of HLTH Corporation 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 include
100% of the assets and liabilities of the majority-owned WHC and
the ownership interests of minority stockholders of WHC are
recorded as minority interest in WHC in the accompanying
consolidated balance sheets.
The accompanying consolidated financial statements and footnotes
are for the same periods as the consolidated financial
statements that were included in the Companys Annual
Report on Form
10-K filed
on February 29, 2008 (the 2007 Form
10-K),
however, they reflect the reclassification of its ViPS and Porex
segments to discontinued operations (as described in
Note 2) and reflect the reclassification of segment
information for WebMD into two WebMD segments (as described in
Note 9). In connection with the Registration Statement on
Form S-4
that WHC intends to file relating to the proposed merger of the
Company and WHC, the reclassifications described above are
required with respect to the previously issued financial
statements included in the 2007 Form
10-K. While
the accompanying consolidated financial statements reflect the
reclassifications described above, they do not reflect any other
events occurring after the filing of the 2007 Form
10-K on
February 29, 2008. Other events occurring after that date
have been disclosed in other public filings made by the Company
including various Current Reports on Form
8-K and the
Companys Quarterly Report on Form
10-Q for the
quarterly period ended March 31, 2008.
On September 14, 2006, the Company completed the sale of
its Emdeon Practice Services (EPS) segment to Sage
Software, Inc. (the EPS Sale). Accordingly, the
historical results of EPS, including the gain related to the
sale, have been reclassified as discontinued operations in the
accompanying consolidated financial statements. See Note 2
for a further description of this transaction.
On November 16, 2006, the Company completed the sale of a
52% interest in its Emdeon Business Services segment, excluding
the ViPS business unit (EBS) to an affiliate of
General Atlantic LLC (the 2006 EBS Sale). The
Companys remaining 48% ownership interest in EBS is being
accounted for under the equity method since the transaction
date. Additionally, in February 2008, the Company sold its
remaining 48% ownership in EBS. See Notes 3 and 23 for
further descriptions of these transactions.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 10
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2007, the Company, through WHC, 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
(ACS/ACP Business), to Decker Intellectual
Properties Inc. and BC Decker Inc. Accordingly, the historical
financial information of the ACS/ACP Business, including the
gain related to the sale, has been reclassified as discontinued
operations in the accompanying consolidated financial
statements. See Note 2 for a further description of this
transaction.
Business
As a result of the Companys intention to divest its ViPS
and Porex segments, the Companys only remaining operating
segments are WebMD Online Services and WebMD Publishing and
Other Services (the WebMD Segments). Additionally,
until the 2006 EBS Sale, EBS also represented an operating
segment. These segments and the Companys Corporate segment
are described as follows:
|
|
|
|
|
WebMD Online Services. WebMD provides health
information services to consumers, physicians, healthcare
professionals, employees and health plans through its public and
private online portals. WebMDs public portals for
consumers enable them to obtain detailed information on a
particular disease or condition, check symptoms, locate
physicians, store individual healthcare information, receive
periodic
e-newsletters
on topics of individual interest, enroll in interactive courses
and participate in online communities with peers and experts.
WebMDs 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. WebMDs private portals 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. WebMD provides related services for use
by such employees and members, including lifestyle education and
personalized telephonic health coaching as a result of the
acquisition of Summex Corporation on June 13, 2006. WebMD
also provides
e-detailing
promotion and physician recruitment services for use by
pharmaceutical, medical device and healthcare companies as a
result of the acquisition of Medsite, Inc. on September 11,
2006.
|
|
|
|
WebMD Publishing and Other Services. WebMD
publishes The Little Blue Book, a physician directory;
and, since 2005, WebMD the Magazine, a consumer magazine
distributed to physician office waiting rooms. WebMD also
conducted in-person CME through December 31, 2006, as a
result of the acquisition of the assets of Conceptis
Technologies, Inc. in December 2005. WebMD also published
medical reference textbooks until it divested this business on
December 31, 2007. See Note 2 for further details.
|
|
|
|
Corporate includes personnel costs and other expenses
related to functions that are not directly managed by one of the
Companys segments or by the Porex and ViPS businesses
included in discontinued operations. The personnel costs include
executive personnel, legal, accounting, tax, internal audit,
risk management, human resources and certain information
technology functions. Other corporate costs and expenses include
professional fees including legal and audit services, insurance,
costs of leased property and facilities, telecommunication costs
and software maintenance expenses. Corporate expenses are net of
$3,340, $3,190 and $5,117 for the years ended December 31,
2007, 2006 and 2005, respectively, which are costs allocated to
WebMD for services provided by the Corporate segment. In
connection with the 2006 EBS Sale and EPS Sale, the Company
entered into transition services agreements whereby the Company
provided Sage Software and EBSCo certain administrative
services, including payroll, accounting, purchasing and
procurement, tax, and human resource services, as well as
information technology support. Additionally, EBSCo provided
certain administrative
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 11
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
services to the Company. See Note 2 and Note 3. These
services were provided through the Corporate segment, and the
related transition services fees that the Company charged to
EBSCo and Sage Software, net of the fee the Company paid to
EBSCo, were also included in the Corporate segment, which
approximates the cost of providing these services.
|
|
|
|
|
|
Emdeon Business Services provides solutions that automate
key business and administrative functions for healthcare payers
and providers, including electronic patient eligibility and
benefit verification; electronic and paper claims processing;
electronic and paper paid-claims communication services; and
patient billing, payment and communications services. In
addition, EBS provides clinical communications services that
improve the delivery of healthcare by enabling physicians to
manage laboratory orders and results, hospital reports and
electronic prescriptions. As a result of the 2006 EBS Sale,
beginning November 17, 2006, the results of EBS are no
longer included in the segment results. See Note 3.
|
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 of are
included in the consolidated financial statements from the
effective date of acquisition or up to the date of disposal. The
Company has made certain reclassifications to the consolidated
financial statements to provide comparative financial
information for segments reflected as discontinued operations.
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 certain estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and 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 in order 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,
environmental 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), the carrying value, capitalization and
amortization of software and Web site development costs, the
carrying value of short-term and long-term investments, the
provision for income taxes and related deferred tax accounts,
certain accrued expenses, revenue recognition, contingencies,
litigation and related legal accruals and the value attributed
to employee stock options and other stock-based awards.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 12
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Seasonality
The timing of the Companys revenue is affected by seasonal
factors. WebMDs advertising and sponsorship revenue is
seasonal, primarily as a result of the annual budget approval
process of the advertising and sponsorship clients of the public
portals. This portion of revenue is usually the lowest in the
first quarter of each calendar year, and increases during each
consecutive quarter throughout the year. WebMDs private
portal licensing revenue is historically highest in the second
half of the year as new customers are typically added during
this period in conjunction with their annual open enrollment
periods for employee benefits. Additionally, the annual
distribution cycle for certain publishing products results in a
significant portion of WebMDs publishing revenue being
recognized in the second and third quarter of each calendar year.
Minority
Interest
Minority interest represents the minority stockholders
proportionate share of equity and net income of WHC.
Additionally, minority interest includes the non-cash
stock-based compensation expense related to stock options and
other stock awards based on WHC Class A Common Stock that
have been expensed since the adoption of Statement of Financial
Accounting Standards (SFAS) No. 123,
(Revised 2004): Share-Based Payment on
January 1, 2006, and to a much lesser extent, the expense
associated with these awards that were expensed in connection
with Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to
Employees (APB 25) prior to January 1,
2006. Additionally, as of December 31, 2006, minority
interest includes the value of committed, but unissued WHC
equity, in connection with the December 2006 Subimo acquisition.
The minority stockholders proportionate share of the
equity in WHC of $131,353 and $101,860, as of December 31,
2007 and 2006, respectively, is reflected as minority interest
in WHC in the accompanying consolidated balance sheets. The
minority stockholders proportionate share of net income
for the years ended December 31, 2007, 2006 and 2005 was
$10,667, $405 and $775, respectively, and is reflected as
minority interest in WHC in the accompanying consolidated
statements of operations.
Sale of
Stock by a Subsidiary
The Company accounts for the sale of stock by a subsidiary of
the Company in accordance with the Securities and Exchange
Commissions Staff Accounting Bulletin (SAB)
No. 51, Accounting for Sales of Stock by a
Subsidiary (SAB 51), which requires that
the difference between the carrying amount of the parents
investment in a subsidiary and the underlying net book value of
the subsidiary after the issuance of stock by the subsidiary be
reflected as either a gain or loss in the statement of
operations or reflected as an equity transaction. The Company
has elected to record gains or losses resulting from the sale of
a subsidiarys stock as equity transactions. The Company
does not record any deferred taxes related to the SAB 51
gains associated with WHC, as it has under current federal tax
rules and regulations, the ability to recover its investment in
WHC on a tax free basis. On February 20, 2008, the Company
and WHC entered into a Merger Agreement, pursuant to which the
Company will merge into WHC. For federal income tax purposes,
the merger is intended to qualify as a reorganization under the
provisions of Section 368(a) of the United States Internal
Revenue Code of 1986, as amended.
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.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 13
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 also 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
stockholders equity. Realized gains and losses and
declines in value determined to be other-than-temporary are
recorded in the consolidated statements of operations. A decline
in value of a debt security is deemed to be other-than-temporary
if the Company does not have the intent and ability to retain
the investment until any anticipated recovery in market value.
The cost of securities is based on the specific identification
method.
Equity
Investment in EBS Master LLC
The Company accounts for its investment in EBS Master LLC in
accordance with APB Opinion No. 18, The Equity Method
of Accounting for Investments in Common Stock (APB
18), which stipulates that the equity method should be
used to account for investments whereby an investor has
the ability to exercise significant influence over
operating and financial policies of an investee, but does
not exercise control. APB 18 generally considers an investor to
have the ability to exercise significant influence when it owns
20% or more of the voting stock of an investee.
The Company assesses the recoverability of the carrying value of
its investments whenever events or changes in circumstances
indicate a loss in value that is other than a temporary decline.
A decline in value is deemed to be other-than-temporary, but not
limited to, if the Company does not have the intent and ability
to retain the investment until any anticipated recovery in
carrying amount of the investment, inability of the investment
to sustain an earnings capacity which would justify the carrying
amount or the current fair value of the investment is less than
its carrying amount.
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.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 14
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, fixtures and other
|
|
3 to 7 years
|
Software
|
|
3 to 5 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 betterments are
capitalized.
Goodwill
and Intangible Assets
Goodwill and intangible assets result from acquisitions
accounted for under the purchase method. Goodwill is subject to
impairment review by applying a fair value based test.
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
|
|
2 to 5 years
|
Customer relationships
|
|
2 to 12 years
|
Acquired technology and patents
|
|
3 years
|
Trade names
|
|
3 to 10 years
|
Recoverability
In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142), the Company
reviews the carrying value of goodwill annually and whenever
indicators of impairment are present. The Company measures
impairment losses by comparing the carrying value of its
reporting units to the fair value of its reporting units
determined using an income approach valuation. The
Companys reporting units are determined in accordance with
SFAS 142, which defines a reporting unit as an operating
segment or one level below an operating segment.
In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets
(SFAS 144), 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 fair value. Long-lived assets held for
sale are reported at the lower of cost or fair value less costs
to sell.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 15
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Software
Development Costs
Internal
Use Software
The Company accounts for internal use software development costs
in accordance with Statement of Position (SOP)
No. 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use
(SOP 98-1).
Software development costs that are incurred in the preliminary
project stage are expensed as incurred. Once certain criteria of
SOP 98-1
have been met, internal and external direct costs incurred in
developing or obtaining computer software are capitalized in the
accompanying consolidated balance sheets as property and
equipment. Training and data conversion costs are expensed as
incurred. Capitalized software costs are depreciated over a
three-year period. The Company capitalized $5,423 and $18,391
during the years ended December 31, 2007 and 2006,
respectively. Depreciation expense related to internal use
software was $3,492, $7,307 and $7,122 for the years ended
December 31, 2007, 2006 and 2005, respectively.
Web
Site Development Costs
In accordance with Emerging Issues Task Force (EITF)
Issue
No. 00-2,
Accounting for Web Site Development Costs, costs
related to the planning and post implementation phases of the
Companys 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 $7,980 and $12,187 during the years ended
December 31, 2007 and 2006, 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 $4,501 and $446 during the years ended
December 31, 2007 and 2006, respectively. There was no
depreciation expense related to Web site development costs
during the year ended December 31, 2005.
Restricted
Cash
The Companys restricted cash primarily relates to
collateral for letters of credit obtained to support the
Companys operations. As of December 31, 2007 and
2006, the total restricted cash was $15,093 and $16,260,
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 $10,731 of issuance costs in connection with
the issuance of the
$300,00031/8% Convertible
Notes due 2025 and $10,354 of issuance costs in connection with
the issuance of the $350,000 1.75% Convertible Subordinated
Notes due 2023. As of December 31, 2007 and 2006, the total
unamortized issuance costs for all outstanding convertible notes
were $11,192 and $14,108, 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
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 16
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 is derived from the Companys WebMD Segments and
was derived from the Companys EBS segment until the date
of its sale on November 16, 2006.
|
|
|
|
|
WebMD Online Services. The Company generates
revenue from its public portals through the sale of advertising
and sponsorship products. The Company generates revenue from
private portals through the licensing of its content and
technology to employers, payers and others. The Company also
distributes its online content and services to other entities
and generates revenue from these arrangements from the sale of
advertising and sponsorship products and from content
syndication fees.
|
|
|
|
WebMD Publishing and Other Services. The
Company generates revenue from sales of The Little Blue Book
physician directory and from sales of advertisements in
those directories and WebMD the Magazine. As a result of
the acquisition of the assets of Conceptis Technologies, Inc. in
December 2005, the Company also generated revenue from in-person
CME programs in 2006. As of December 31, 2006, these
services were no longer offered by the Company.
|
Through the WebMD Segments, the Company generates revenue from
advertising which is recognized as advertisements are delivered
or as publications are distributed. Revenue from sponsorship
arrangements, content syndication and distribution arrangements
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.
Through the date of the 2006 EBS Sale on November 16, 2006,
the Company generated revenue by selling transaction services to
healthcare payers and providers, generally on either a per
transaction basis or, in the case of some providers, on a
monthly fixed fee basis. The Company also generated revenue
through EBS by selling its document conversion, patient
statement and paid-claims communication services, typically on a
per document, per statement or per communication basis. Revenue
for transaction services, patient statement and paid-claims
communication services was recognized as the services were
provided. EBS generally charged a one-time implementation fee to
healthcare payers and providers at the inception of a contract,
in connection with their related setup to submit and receive
medical claims and other related transactions through EBSs
clearinghouse network. The implementation fees were deferred and
amortized to revenue on a straight-line basis over the contract
period of the related transaction processing services, which
generally vary from one to three years.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 17
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash receipts or billings in advance of revenue recognition are
recorded as deferred revenue in the accompanying consolidated
balance sheets. The deferred revenue is reversed at the time
revenue is recognized.
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
included in sales, marketing, general and administrative expense
in the accompanying consolidated statements of operations.
Advertising expense totaled $15,714, $18,825 and $18,862 in
2007, 2006 and 2005, respectively. Included in advertising
expense were non-cash advertising costs of $5,264, $7,414 and
$10,534 in 2007, 2006 and 2005, respectively. These non-cash
advertising costs resulted from the issuance of the
Companys equity securities in connection with past
advertising agreements with certain service providers. The
values of the equity securities issued were capitalized and are
being amortized as the advertisements are broadcast or over the
term of the underlying agreement. As of December 31, 2007
and 2006, the current portion of unamortized prepaid advertising
costs was $2,329 and $2,656, respectively, and is included in
prepaid expenses and other current assets. As of
December 31, 2007 and 2006, the long-term portion of
unamortized prepaid advertising costs was $4,521 and $9,459,
respectively, and is included in other assets.
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 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 stockholders
equity. Foreign currency transaction gains and losses are
included in net income and were not material in any of the
periods presented. The Companys foreign operations, which
are part of the Companys Porex segment, are included in
discontinued operations.
Concentration
of Credit Risk
None of the Companys customers individually accounted for
more than 10% of the Companys revenue in 2007, 2006 or
2005 or more than 10% of the Companys accounts receivable
as of December 31, 2007, 2006 or 2005, 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. Due to the acquisition of Conceptis Technologies,
Inc., the Company recorded revenue from foreign customers of
$3,660, $3,475 and $405 during the years ended December 31,
2007, 2006 and 2005, respectively.
Income
Taxes
Income taxes are accounted for using the liability method in
accordance with SFAS No. 109, Accounting for
Income Taxes (SFAS 109). Under this
method, deferred income taxes are recognized for
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 18
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
On January 1, 2007, the Company adopted the Financial
Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), which clarifies the
accounting for uncertainty in income taxes recognized in the
financial statements in accordance with SFAS 109. The
interpretation 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 in the accompanying consolidated balance sheet. In
addition, the Company reduced $5,213 of a deferred tax asset and
its associated valuation allowance upon adoption of FIN 48.
Accounting
for Stock-Based Compensation
On January 1, 2006, the Company adopted
SFAS No. 123, (Revised 2004): Share-Based
Payment (SFAS 123R), which replaces SFAS
No. 123, Accounting for Stock-Based
Compensation (SFAS 123) and supersedes
APB 25. SFAS 123R 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 Company elected to
use the modified prospective transition method and as a result,
prior period results were not restated. Under the modified
prospective transition method, awards that were granted or
modified on or after January 1, 2006 are measured and
accounted for in accordance with SFAS 123R. Unvested stock
options and restricted stock awards that were granted prior to
January 1, 2006 will continue to be accounted for in
accordance with SFAS 123, using the same grant date fair
value and same expense attribution method used under
SFAS 123, except that all awards are recognized in the
results of operations over the remaining vesting periods. The
impact of forfeitures that may occur prior to vesting is also
estimated and considered in the amount recognized for all
stock-based compensation beginning January 1, 2006.
Prior to January 1, 2006, the Company accounted for
stock-based employee compensation using the intrinsic value
method under the recognition and measurement principles of APB
25, and related interpretations. In accordance with APB 25, the
Company did not recognize stock-based compensation cost with
respect to stock options granted with an exercise price equal to
the market value of the underlying common stock on the date of
grant. As a result, the recognition of stock-based compensation
expense was generally limited to the expense related to
restricted stock awards and stock option modifications, as well
as the amortization of deferred compensation related to certain
acquisitions in 2000. Additionally, all restricted stock awards
and stock options granted prior to January 1, 2006 had
graded vesting, and the Company valued these awards and
recognized actual and pro-forma expense, with respect to
restricted stock awards and stock options, as if each vesting
portion of the award was a separate award. This resulted in an
accelerated attribution of compensation expense over the vesting
period. As permitted under SFAS 123R, the Company
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 19
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
began using a straight-line attribution method beginning
January 1, 2006 for all stock options and restricted stock
awards granted on or after January 1, 2006, but will
continue to apply the accelerated attribution method for the
remaining unvested portion of any awards granted prior to
January 1, 2006.
Net
Income Per Common Share
Basic income (loss) per common share and diluted income (loss)
per common share are presented in conformity with
SFAS No. 128, Earnings Per Share
(SFAS 128). In accordance with SFAS 128,
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. Diluted income per common share has been computed using
the weighted-average number of shares of common stock
outstanding during the period, increased to give effect to
potentially dilutive securities and assumes that any dilutive
convertible notes were converted, only in the periods in which
such effect is dilutive. Additionally, for purposes of
calculating diluted income (loss) per common share of the
Company, the numerator has been adjusted to consider the effect
of potentially dilutive securities of WHC, which can dilute the
portion of WHCs net income otherwise retained by the
Company. The following table presents the calculation of basic
and diluted income (loss) per common share (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
42,077
|
|
|
$
|
378,785
|
|
|
$
|
36,223
|
|
Convertible redeemable exchangeable preferred stock fee
|
|
|
174
|
|
|
|
350
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations Basic
|
|
|
42,251
|
|
|
|
379,135
|
|
|
|
36,573
|
|
Interest expense on convertible notes
|
|
|
|
|
|
|
18,406
|
|
|
|
|
|
Effect of WHC dilutive securities
|
|
|
(2,053
|
)
|
|
|
(189
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations Diluted
|
|
$
|
40,198
|
|
|
$
|
397,352
|
|
|
$
|
36,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net of
tax Basic
|
|
$
|
(22,198
|
)
|
|
$
|
393,132
|
|
|
$
|
32,588
|
|
Effect of WHC dilutive securities
|
|
|
(108
|
)
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net of
tax Diluted
|
|
$
|
(22,306
|
)
|
|
$
|
393,136
|
|
|
$
|
32,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 20
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
174,052
|
|
|
|
268,596
|
|
|
|
331,109
|
|
Convertible redeemable exchangeable preferred stock
|
|
|
5,278
|
|
|
|
10,638
|
|
|
|
10,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares Basic
|
|
|
179,330
|
|
|
|
279,234
|
|
|
|
341,747
|
|
Employee stock options, restricted stock and warrants
|
|
|
9,433
|
|
|
|
10,392
|
|
|
|
11,105
|
|
Convertible notes
|
|
|
|
|
|
|
42,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares Diluted
|
|
|
188,763
|
|
|
|
331,642
|
|
|
|
352,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.24
|
|
|
$
|
1.36
|
|
|
$
|
0.11
|
|
(Loss) income from discontinued operations
|
|
|
(0.13
|
)
|
|
|
1.41
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.11
|
|
|
$
|
2.77
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.21
|
|
|
$
|
1.20
|
|
|
$
|
0.10
|
|
(Loss) income from discontinued operations
|
|
|
(0.12
|
)
|
|
|
1.18
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.09
|
|
|
$
|
2.38
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has excluded convertible subordinated notes and
convertible notes, as well as certain outstanding warrants and
stock options, from the calculation of diluted income (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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Options and warrants
|
|
|
19,762
|
|
|
|
50,505
|
|
|
|
60,007
|
|
Convertible notes
|
|
|
42,016
|
|
|
|
|
|
|
|
42,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,778
|
|
|
|
50,505
|
|
|
|
102,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations
The Company accounts for discontinued operations in accordance
with SFAS 144. Under SFAS 144, 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.
Recent
Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141
(Revised 2007), Business Combinations
(SFAS 141R), a replacement of FASB Statement
No. 141. SFAS 141R is effective for fiscal years
beginning on or after December 15, 2008 and applies to all
business combinations. SFAS 141R provides that, upon
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 21
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
initially obtaining control, an acquirer shall recognize
100 percent of the fair values of acquired assets,
including goodwill, and assumed liabilities, with only limited
exceptions, even if the acquirer has not acquired
100 percent of its target. As a consequence, the current
step acquisition model will be eliminated. Additionally,
SFAS 141R changes current practice, in part, as follows:
(1) contingent consideration arrangements will be fair
valued at the acquisition date and included on that basis in the
purchase price consideration; (2) transaction costs will be
expensed as incurred, rather than capitalized as part of the
purchase price; (3) pre-acquisition contingencies, such as
legal issues, will generally have to be accounted for in
purchase accounting at fair value; and (4) in order to
accrue for a restructuring plan in purchase accounting, the
requirements in FASB Statement No. 146, Accounting
for Costs Associated with Exit or Disposal Activities,
would have to be met at the acquisition date. While there is no
expected impact to the Companys consolidated financial
statements on the accounting for acquisitions completed prior to
December 31, 2008, the adoption of SFAS 141R on
January 1, 2009 could materially change the accounting for
business combinations consummated subsequent to that date.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51,
(SFAS 160). SFAS 160 requires the
recognition of a noncontrolling interest (minority interest) as
equity in the financial statements and separate from the
parents equity. The amount of net income attributable to
the noncontrolling interest will be included in consolidated net
income on the face of the results of operations. SFAS 160
clarifies that changes in a parents ownership interest in
a subsidiary that do not result in deconsolidation are equity
transactions if the parent retains its controlling financial
interest. In addition, this statement requires that a parent
recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the
fair value of the noncontrolling equity investment on the
deconsolidation date. SFAS 160 also includes expanded
disclosure requirements regarding the interests of the parent
and its noncontrolling interest. SFAS 160 is effective for
financial statements issued for fiscal years beginning after
December 15, 2008 and is to be applied prospectively as of
the beginning of the fiscal year in which the statement is
applied. Early adoption is not permitted. The Company is
currently evaluating the impact that SFAS 160 will have on
its operations, financial position and cash flows.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of
SFAS 115 (SFAS 159), which permits
but does not require us to measure financial instruments and
certain other items at fair value. Unrealized gains and losses
on items for which the fair value option has been elected are
reported in earnings. This statement is effective for financial
statements issued for fiscal years beginning after
November 15, 2007. As the Company does not expect to elect
to fair value any of our financial instruments under the
provisions of SFAS 159, the adoption of this statement is
not expected to have any impact on the Companys
consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in GAAP and establishes a hierarchy that
categorizes and prioritizes the sources to be used to estimate
fair value. SFAS 157 also expands financial statement
disclosures about fair value measurements. On February 6,
2008, the FASB issued FASB Staff Position 157-b
(FSP 157-b) which delays the effective date of
SFAS 157 for one year for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a
recurring basis (at least annually). SFAS 157 and
FSP 157-b are effective for financial statements issued for
fiscal years beginning after November 15, 2007. The Company
has elected a partial deferral of SFAS 157 under the
provisions of FSP 157-b related to the measurement of fair
value used when evaluating goodwill, other intangible assets and
other long-lived assets for impairment and valuing asset
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 22
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
retirement obligations and liabilities for exit or disposal
activities. The impact of partially adopting SFAS 157
effective January 1, 2008 is not expected to be material to
the Companys consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the prior period
financial statements to conform to the current year presentation.
|
|
2.
|
Discontinued
Operations
|
ViPS and
Porex
In November 2007, the Company announced its intention to propose
a transaction that would allow HLTHs stockholders to
participate more directly in the ownership of WHC stock. Also at
that time, the Company announced its intention to explore
potential sales transactions for its ViPS and Porex businesses,
as the cash proceeds from the potential sales of ViPS and Porex
would partially fund the cash necessary to consummate the
potential transaction with WHC.
In February 2008, the Company announced the WHC Merger (as
defined in Note 23) and its intention to divest the
ViPS and Porex segments. These divestitures are not dependent on
the WHC Merger and do not require shareholder approval. The
Company expects the disposal of these entities will be completed
within one year. As a result of the Companys intention to
divest the ViPS and Porex segments, the financial information of
these businesses has been reclassified to discontinued
operations in the accompanying consolidated financial statements.
ViPS
Summarized operating results for ViPS for the years ended
December 31, 2007, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue
|
|
$
|
103,083
|
|
|
$
|
98,874
|
|
|
$
|
90,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before taxes
|
|
$
|
6,601
|
|
|
$
|
6,752
|
|
|
$
|
4,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 23
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The major classes of assets and liabilities of ViPS as of
December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets of discontinued operations:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
17,240
|
|
|
$
|
19,378
|
|
Property and equipment, net
|
|
|
4,020
|
|
|
|
4,182
|
|
Goodwill
|
|
|
71,253
|
|
|
|
71,253
|
|
Intangible assets, net
|
|
|
47,815
|
|
|
|
58,498
|
|
Deferred tax assets
|
|
|
804
|
|
|
|
1,075
|
|
Other assets
|
|
|
2,833
|
|
|
|
3,154
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
143,965
|
|
|
$
|
157,540
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,599
|
|
|
$
|
1,595
|
|
Accrued expenses and other
|
|
|
4,370
|
|
|
|
5,213
|
|
Deferred revenue
|
|
|
10,982
|
|
|
|
9,757
|
|
Deferred tax liability
|
|
|
16,924
|
|
|
|
21,525
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,875
|
|
|
$
|
38,090
|
|
|
|
|
|
|
|
|
|
|
Porex
Summarized operating results for Porex for the years ended
December 31, 2007, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue
|
|
$
|
92,581
|
|
|
$
|
85,702
|
|
|
$
|
79,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before taxes
|
|
$
|
20,790
|
|
|
$
|
16,862
|
|
|
$
|
16,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 24
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The major classes of assets and liabilities of Porex as of
December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Assets of discontinued operations:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
12,922
|
|
|
$
|
12,658
|
|
Inventory
|
|
|
11,772
|
|
|
|
9,966
|
|
Property and equipment, net
|
|
|
21,176
|
|
|
|
21,782
|
|
Goodwill
|
|
|
43,283
|
|
|
|
42,932
|
|
Intangible assets, net
|
|
|
24,872
|
|
|
|
25,707
|
|
Deferred tax assets
|
|
|
1,420
|
|
|
|
1,204
|
|
Other assets
|
|
|
3,554
|
|
|
|
2,395
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
118,999
|
|
|
$
|
116,644
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,533
|
|
|
$
|
1,624
|
|
Accrued expenses
|
|
|
7,684
|
|
|
|
6,243
|
|
Deferred tax liability
|
|
|
24,375
|
|
|
|
7,296
|
|
Other long-term liabilities
|
|
|
101
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,693
|
|
|
$
|
15,363
|
|
|
|
|
|
|
|
|
|
|
ACS/ACP
Business
As of December 31, 2007, the Company, through WHC, 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, to Decker Intellectual
Properties Inc. and BC Decker Inc. ACP Medicine and ACS Surgery
are official publications of the American College of Physicians
and the American College of Surgeons, respectively. As a result
of the sale, the historical financial information of the ACS/ACP
Business has been reclassified as discontinued operations in the
accompanying consolidated financial statements. The Company will
receive net cash proceeds of $2,809, consisting of $1,328
received in January 2008 and $1,481 which will be received by
June 30, 2008. The Company incurred approximately $800 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 gain
of $3,394, which is included in income from discontinued
operations in the accompanying consolidated statement of
operations for the year ended December 31, 2007. Summarized
operating results for the ACS/ACP Business and the gain
recognized on the sale are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue
|
|
$
|
4,219
|
|
|
$
|
5,105
|
|
|
$
|
5,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before taxes
|
|
$
|
(129
|
)
|
|
$
|
385
|
|
|
$
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal before taxes
|
|
$
|
3,394
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 25
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The assets and liabilities of the ACS/ACP Business are reflected
as discontinued operations as of December 31, 2006 and were
comprised of the following:
|
|
|
|
|
Assets of discontinued operations:
|
|
|
|
|
Other assets
|
|
$
|
48
|
|
|
|
|
|
|
Total
|
|
$
|
48
|
|
|
|
|
|
|
Liabilities of discontinued operations:
|
|
|
|
|
Deferred revenue
|
|
$
|
1,645
|
|
|
|
|
|
|
Total
|
|
$
|
1,645
|
|
|
|
|
|
|
EPS
In February 2006, the Company announced that, in connection with
inquiries received from several third parties expressing an
interest in acquiring EPS and EBS, the Companys Board of
Directors authorized commencing a process to evaluate strategic
alternatives relating to EPS and EBS. For information regarding
the sale transaction involving EBS, see Note 3.
On August 8, 2006, the Company entered into a Stock
Purchase Agreement for the sale of EPS to Sage Software, Inc.
(Sage Software), an indirect wholly owned subsidiary
of The Sage Group plc. On September 14, 2006, the Company
completed the sale of Emdeon Practice Services, Inc., which
together with its subsidiaries comprised EPS (the EPS
Sale). Accordingly, the historical financial information
of EPS has been reclassified as discontinued operations in the
accompanying consolidated financial statements. The Company and
Sage Software made an IRC Section 338(h)(10) election and
treated the EPS Sale as a sale of assets for tax purposes. The
Company received cash proceeds of $532,991, net of professional
fees and other expenses associated with the EPS Sale. These cash
proceeds include the receipt of $11,667 that was released from
escrow in September 2007, but does not include $23,333 being
held in escrow as security for the Companys
indemnification obligations under the Stock Purchase Agreement.
The amount in escrow is scheduled to be released in March 2008,
subject to pending and paid claims, if any, and is included in
other current assets in the accompanying consolidated balance
sheet as of December 31, 2007. In connection with the EPS
Sale, the Company recognized a gain of $353,158, which is
included in income from discontinued operations, net of tax of
$33,037, in the accompanying consolidated statements of
operations during the year ended December 31, 2006.
In connection with the EPS Sale, the Company entered into a
transition services agreement with EPS whereby it provided EPS
with certain administrative services, including payroll,
accounting, purchasing and procurement, tax and human resource
services, as well as IT support. The transition services
agreement terminated on December 31, 2007 and the fee
charged to EPS for the year ended December 31, 2007 and the
period from September 15, 2006 to December 31, 2006
was $3,894 and $2,099, respectively. The fee is included in the
Companys Corporate segment, and within other expense, net
in the accompanying consolidated statement of operations for the
years ended December 31, 2007 and 2006.
In connection with the EPS Sale, EPS agreed to continue its
strategic relationship with WebMD and to integrate WebMDs
personal health record with the clinical products, including the
electronic medical record, of EPS to allow import of data from
one to the other, subject to applicable law and privacy and
security requirements.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 26
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has certain indemnity obligations to advance amounts
for reasonable defense costs for initially ten and now nine
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 12, Commitments and Contingencies. In
connection with the sale of EPS, the Company agreed to indemnify
Sage Software relating to these indemnity obligations. During
the quarter ended June 30, 2007, based on information it
had recently received at that time, the Company determined a
reasonable estimate of the range of probable costs with respect
to its indemnification obligation and accordingly, recorded a
pre-tax charge of $57,774, 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. During the quarter ended December 31, 2007, the
Company updated the estimate of the range of its indemnification
obligation, and as a result, recorded an additional pre-tax
charge of $15,573, which reflects the increase in the low end of
the probable range of costs related to this matter. As of
December 31, 2007, the probable range of future costs with
respect to this matter is approximately $46,600 to $70,500. The
increase in this estimate is primarily due to a delay in the
expected trial date and an increase in the estimated costs
during the pre-trial period. The ultimate outcome of this matter
is still uncertain, and 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
remaining accrual related to this obligation is $55,563 and is
reflected as liabilities of discontinued operations in the
accompanying consolidated balance sheet as of December 31,
2007.
Also included in loss from discontinued operations for the year
ended December 31, 2007 is stock-based compensation expense
from the Companys equity held by EPS employees, offset by
a reduction of certain sales and use tax contingencies, which
were indemnified by the Company for Sage Software, resulting
from the expiration of statutes.
Summarized operating results for the discontinued operations of
EPS through September 14, 2006, the indemnification
obligation and the gain recorded on disposal were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
212,329
|
|
|
$
|
304,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before taxes (a)
|
|
$
|
(58,722
|
)
|
|
$
|
19,469
|
|
|
$
|
16,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal before taxes
|
|
$
|
662
|
|
|
$
|
386,195
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
In 2007, the amount includes
(i) the aggregate charge of $73,347 related to the
indemnification obligation and (ii) the benefit of $14,625
related to insurance settlements (see Note 12).
|
|
|
3.
|
Emdeon
Business Services
|
Sale of
Interest in Emdeon Business Services
On November 16, 2006, the Company completed the sale of a
52% interest in EBS to an affiliate of General Atlantic LLC
(GA). The 2006 EBS Sale was structured so that the
Company and GA each own interests in a limited liability
company, EBS Master LLC (EBSCo), which owns the
entities comprising EBS through a wholly owned limited liability
company, Emdeon Business Services LLC. The Company
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 27
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
received gross cash proceeds of approximately $1,209,000 at
closing, and received $11,099 subsequent to December 31,
2006 in connection with the working capital adjustment.
Additionally, the Company advanced cash of $10,000 to EBSCo at
closing, to support general working capital needs, and paid
$10,016 of expenses on EBSCos behalf through
December 31, 2006. These amounts are included in due from
EBS Master LLC in the accompanying consolidated balance sheet as
of December 31, 2006 and were repaid in full subsequent to
December 31, 2006. The acquisition was financed with
approximately $925,000 in bank debt and an investment of
approximately $320,000 by GA. The bank debt is an obligation of
Emdeon Business Services LLC and is guaranteed by EBSCo, but is
not an obligation of or guaranteed by the Company. In connection
with the 2006 EBS Sale, the Company recognized a gain of
$352,297, which considers approximately $16,103 of professional
fees and other expenses associated with the 2006 EBS Sale.
During the three months ended March 31, 2007, the Company
recognized a gain of $399 which relates to the finalization of
the working capital adjustment.
In connection with the 2006 EBS Sale, the Company entered into a
transition services agreement whereby it provided EBSCo with
certain administrative services, including payroll, accounting,
tax, treasury, contract and litigation support, real estate
vendor management and human resource services, as well as IT
support. Additionally, EBSCo provided certain administrative
services to the Company, including telecommunication
infrastructure and management services, data center support,
purchasing and procurement and certain other services. Some of
the services provided by EBSCo to HLTH were, in turn, used to
fulfill HLTHs obligation to provide transition services to
EPS. The transition services agreement terminated on
December 31, 2007 and the fee charged to EBSCo of $3,009
and $610 for the year ended December 31, 2007 and the
period from November 17, 2006 to December 31, 2006;
net of the amount charged to the Company of $1,070 and $185,
respectively, is included in the Companys Corporate
segment, and within other income (expense), net in the
accompanying statements of operations for the year ended
December 31, 2007 and 2006.
In connection with the 2006 EBS Sale, EBSCo agreed to continue
its strategic relationship with WebMD and to market WebMDs
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 HLTH and its subsidiaries, including
WebMD, for use in the development and commercialization of
certain applications that use clinical information, including
consumer decision-support applications.
Equity
Investment in EBSCo
The Companys 48% ownership interest in EBSCo is reflected
as an investment in the Companys consolidated financial
statements, accounted for under the equity method. The 48%
equity interest is $25,261 at December 31, 2007, which
results in a difference of $119,987 in the carrying value and
the underlying equity in the investment. This 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
Companys share of EBSCos net earnings after the date
of sale is reported as equity in earnings of EBS Master LLC in
our accompanying consolidated statements of operations. On
February 8, 2008, the Company entered into a Securities
Purchase Agreement and simultaneously completed the sale of its
48% minority ownership interest in EBSCo for $575,000 in cash to
an affiliate of GA and affiliates of Hellman &
Friedman, LLC. See Note 23 for a further description of
this transaction.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 28
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is summarized financial information of EBSCo for
the year ended December 31, 2007, for the period from
November 17, 2006 to December 31, 2006 and as of
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period From
|
|
|
|
|
|
|
November 17, 2006
|
|
|
|
Year Ended
|
|
|
through
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
808,537
|
|
|
$
|
87,903
|
|
Cost of operations
|
|
|
517,884
|
|
|
|
56,775
|
|
Net income (loss)
|
|
|
34,493
|
|
|
|
(1,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
168,108
|
|
|
$
|
164,207
|
|
Noncurrent assets
|
|
|
1,179,116
|
|
|
|
1,197,641
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,347,224
|
|
|
$
|
1,361,848
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
104,404
|
|
|
$
|
125,837
|
|
Noncurrent liabilities
|
|
|
940,220
|
|
|
|
959,535
|
|
Members equity
|
|
|
302,600
|
|
|
|
276,476
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Members Equity
|
|
$
|
1,347,224
|
|
|
$
|
1,361,848
|
|
|
|
|
|
|
|
|
|
|
2006
Acquisitions
On December 15, 2006, the Company acquired, through WHC,
all of the outstanding limited liability company interests of
Subimo, LLC (Subimo), a privately held provider of
healthcare decision support applications to large employers,
health plans and financial institutions. The total purchase
consideration for Subimo was approximately $59,320, comprised of
$32,820 in cash paid at closing, net of cash acquired, $26,000
of WHC equity and $500 of estimated acquisition costs. Pursuant
to the terms of the purchase agreement, WHC deferred the
issuance of the $26,000 of equity, equal to 640,930 shares
of WHC Class A Common Stock (the Deferred
Shares), until December 2008. While a maximum of 246,508
of these shares may be used to settle any outstanding claims or
warranties against the seller, the remaining 394,422 of these
shares will be issued with certainty. Issuance of a portion of
these shares may be further deferred until December 2010 subject
to certain conditions. If the Deferred Shares have a market
value that is less than $24.34 per share when issued, then WHC
will pay additional consideration equal to this shortfall,
either in the form of WHC Class A Common Stock or cash, in
its sole discretion. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase
price was allocated to the tangible and intangible assets
acquired and the liabilities assumed on the basis of their
respective fair values. In connection with the allocation of the
purchase price and intangible asset valuation, goodwill of
$47,776 and intangible assets subject to amortization of $12,300
were recorded. The goodwill and intangible assets recorded will
be deductible for tax purposes. The intangible assets are
comprised of $10,000 relating to customer relationships with
estimated useful lives of twelve years and $2,300 relating to
acquired technology with an estimated useful life of three
years. The results of operations of Subimo have been included in
the financial statements
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 29
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of the Company from December 15, 2006, the closing date of
the acquisition, and are included in the WebMD Online Services
segment.
On September 11, 2006, the Company acquired, through WHC,
the interactive medical education, promotion and physician
recruitment businesses of Medsite, Inc. (Medsite).
Medsite provides
e-detailing
services for pharmaceutical, medical device and healthcare
companies, including program development, targeted recruitment
and online distribution and delivery. In addition, Medsite
provides educational programs to physicians. The total purchase
consideration for Medsite was approximately $31,467, comprised
of $30,682 in cash, net of cash acquired, and $785 of
acquisition costs. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase
price was allocated to the tangible and intangible assets
acquired and the liabilities assumed on the basis of their
respective fair values. In connection with the allocation of the
purchase price and intangible asset valuation, goodwill of
$31,934 and intangible assets subject to amortization of $11,000
were recorded. The goodwill and intangible assets recorded will
be deductible for tax purposes. The intangible assets are
comprised of $6,000 relating to customer relationships with
estimated useful lives of twelve years, $2,000 relating to a
trade name with an estimated useful life of ten years, $2,000
relating to content with an estimated useful life of four years
and $1,000 relating to acquired technology with an estimated
useful life of three years. The results of operations of Medsite
have been included in the financial statements of the Company
from September 11, 2006, the closing date of the
acquisition, and are included in the WebMD Online Services
segment.
On July 18, 2006, the Company acquired, through EBS,
Interactive Payer Network, Inc. (IPN), a privately
held provider of healthcare electronic data interchange
services. The total purchase consideration for IPN was
approximately $3,907, comprised of $3,799 in cash, net of cash
acquired, and $108 of acquisition costs. In addition, the
Company agreed to pay up to an additional $3,000 in cash over a
two-year period beginning in August 2007 if certain financial
milestones are achieved. The acquisition was accounted for using
the purchase method of accounting and, accordingly, the purchase
price was allocated to the tangible and intangible assets
acquired and the liabilities assumed on the basis of their
respective fair values. In connection with the preliminary
allocation of the purchase price, goodwill of $3,692 was
recorded. The goodwill recorded will be deductible for tax
purposes. The IPN business is part of the EBS businesses that
were sold on November 16, 2006. Accordingly, the results of
operations of IPN have been included in the financial statements
of the Company, specifically within the Emdeon Business Services
segment, from July 18, 2006 (the closing date of the
acquisition) through November 16, 2006 (the closing date of
the 2006 EBS Sale). The obligation to pay up to $3,000 in earn
out payments was also transferred in connection with the 2006
EBS Sale and is no longer an obligation of the Company.
On June 13, 2006, the Company acquired, through WHC, Summex
Corporation (Summex), a provider of health and
wellness programs that include online and offline health risk
assessments, lifestyle education and personalized telephonic
health coaching. The total purchase consideration for Summex was
approximately $30,191, comprised of $29,691 in cash, net of the
cash acquired, and $500 of acquisition costs. In addition, the
Company has agreed to pay up to an additional $5,000 in cash in
June 2008 if certain financial milestones are achieved. The
acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to
the tangible and intangible assets acquired and the liabilities
assumed on the basis of their respective fair values. In
connection with the allocation of the purchase price and
intangible asset valuation, goodwill of $19,000 and intangible
assets subject to amortization of $11,300 were recorded. The
goodwill and intangible assets recorded will not be deductible
for tax purposes. The intangible assets are comprised of $6,000
relating to customer relationships with estimated useful lives
of eleven years, $2,700 relating to acquired technology with an
estimated useful life of three years, $1,100 relating to content
with an estimated useful life of four years and $1,500 relating
to a trade name with an estimated useful life of ten years.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 30
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The results of operations of Summex have been included in the
financial statements of the Company from June 13, 2006, the
closing date of the acquisition, and are included in the WebMD
Online Services segment.
On January 17, 2006, the Company acquired, through WHC,
eMedicine.com, Inc. (eMedicine), a privately held
online publisher of medical reference information for physicians
and other healthcare professionals. The total purchase
consideration for eMedicine was approximately $25,195, comprised
of $24,495 in cash, net of cash acquired, and $700 of
acquisition costs. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase
price was allocated to the tangible and intangible assets
acquired and the liabilities assumed on the basis of their
respective fair values. In connection with the allocation of the
purchase price and intangible asset valuation, goodwill of
$20,704 and an intangible asset subject to amortization of
$6,390 were recorded. The goodwill and intangible asset recorded
will not be deductible for tax purposes. The intangible assets
recorded were $4,300 relating to content with an estimated
useful life of three years, $1,000 relating to acquired
technology with an estimated useful life of three years, $790
relating to a trade name with an estimated useful life of ten
years and $300 relating to customer relationships with estimated
useful lives of ten years. The results of operations of
eMedicine have been included in the financial statements of the
Company from January 17, 2006, the closing date of the
acquisition, and are included in the WebMD Online Services
segment
2005
Acquisitions
On December 2, 2005, the Company acquired, through WHC, the
assets of and assumed certain liabilities of Conceptis
Technologies, Inc. (Conceptis), a privately held
Montreal-based provider of online and offline medical education
and promotion aimed at physicians and other healthcare
professionals. The total purchase consideration for Conceptis
was approximately $19,859, comprised of $19,256 in cash and $603
of estimated acquisition costs. The acquisition was accounted
for using the purchase method of accounting and, accordingly,
the purchase price was allocated to the tangible and intangible
assets acquired and the liabilities assumed on the basis of
their respective fair values. In connection with the allocation
of the purchase price and intangible asset valuation, goodwill
of $14,694 and intangible assets subject to amortization of
$6,140 were recorded. The goodwill and intangible assets
recorded will be deductible for tax purposes. The intangible
assets recorded were $1,900 relating to content with an
estimated useful life of two years, $3,300 relating to acquired
technology with an estimated useful life of three years and $940
relating to a trade name with an estimated useful life of ten
years. The results of operations of Conceptis have been included
in the financial statements of the Company from December 2,
2005, the closing date of the acquisition, and are included in
the WebMD Online Services and the WebMD Publishing and Other
Services segments.
On March 14, 2005, the Company acquired HealthShare
Technology, Inc. (HealthShare), a privately held
company that provides online tools that compare cost and quality
measures of hospitals for use by consumers, providers and health
plans. The total purchase consideration for HealthShare was
approximately $29,985, comprised of $29,533 in cash, net of cash
acquired, and $452 of acquisition costs. The acquisition was
accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the tangible
and intangible assets acquired and the liabilities assumed on
the basis of their respective fair values. In connection with
the allocation of the purchase price, goodwill of $24,609 and
intangible assets subject to amortization of $8,500 were
recorded. The goodwill and intangible assets recorded will not
be deductible for tax purposes. The intangible assets are
comprised of $7,500 relating to customer relationships with
estimated useful lives of five years and $1,000 relating to
acquired technology with an estimated useful life of three
years. The results of operations of HealthShare have been
included in the financial statements of the Company from
March 14, 2005, the closing date of the acquisition, and
are included in the WebMD Online Services segment.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 31
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Balance Sheet Data
The following table summarizes the tangible and intangible
assets acquired, the liabilities assumed and the consideration
paid for each acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Accounts
|
|
|
Deferred
|
|
|
Tangible Assets
|
|
|
Intangible
|
|
|
|
|
|
Purchase
|
|
|
|
Receivable
|
|
|
Revenue
|
|
|
(Liabilities), net
|
|
|
Assets
|
|
|
Goodwill
|
|
|
Price
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subimo
|
|
$
|
1,725
|
|
|
$
|
(6,900
|
)
|
|
$
|
4,419
|
|
|
$
|
12,300
|
|
|
$
|
47,776
|
|
|
$
|
59,320
|
|
Medsite
|
|
|
2,469
|
|
|
|
(13,124
|
)
|
|
|
(812
|
)
|
|
|
11,000
|
|
|
|
31,934
|
|
|
|
31,467
|
|
IPN
|
|
|
358
|
|
|
|
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
3,692
|
|
|
|
3,907
|
|
Summex
|
|
|
1,064
|
|
|
|
(1,173
|
)
|
|
|
|
|
|
|
11,300
|
|
|
|
19,000
|
|
|
|
30,191
|
|
eMedicine
|
|
|
1,717
|
|
|
|
(2,612
|
)
|
|
|
(1,004
|
)
|
|
|
6,390
|
|
|
|
20,704
|
|
|
|
25,195
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conceptis
|
|
|
2,893
|
|
|
|
(2,866
|
)
|
|
|
(1,002
|
)
|
|
|
6,140
|
|
|
|
14,694
|
|
|
|
19,859
|
|
HealthShare
|
|
|
1,925
|
|
|
|
(4,622
|
)
|
|
|
(427
|
)
|
|
|
8,500
|
|
|
|
24,609
|
|
|
|
29,985
|
|
Unaudited
Pro Forma Information
The following unaudited pro forma financial information for the
year ended December 31, 2006 gives effect to the
acquisitions of Subimo, Medsite, IPN, Summex and eMedicine,
including the amortization of intangible assets, as if the
acquisitions had occurred on January 1, 2006. The
information is provided for illustrative purposes only and is
not necessarily indicative of the operating results that would
have occurred if the transactions had been consummated on the
date indicated, nor is it necessarily indicative of future
operating results of the consolidated companies, and should not
be construed as representative of these results for any future
period.
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2006
|
|
|
Revenue
|
|
$
|
933,788
|
|
Income from continuing operations
|
|
|
370,837
|
|
Net income
|
|
|
763,969
|
|
Basic income per common share:
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.33
|
|
|
|
|
|
|
Net income
|
|
$
|
2.74
|
|
|
|
|
|
|
Diluted income per common share:
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.17
|
|
|
|
|
|
|
Net income
|
|
$
|
2.36
|
|
|
|
|
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 32
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Initial
Public Offering
In May 2005, the Company formed WHC as a wholly-owned subsidiary
to act as a holding company for the business of the WebMD
Segments and to issue shares in an initial public offering. In
September 2005, the Company contributed to WHC the subsidiaries,
the assets and the liabilities included in the Companys
WebMD segment. On September 28, 2005, WHC sold, in an
initial public offering, 7,935,000 shares of its
Class A Common Stock at $17.50 per share. This resulted in
proceeds of approximately $129,142, net of underwriting
discounts of $9,721, which was retained by WHC to be used for
working capital and general corporate purposes. Additionally,
the Company incurred approximately $5,800 of legal, accounting,
printing and other expenses related to the offering.
Minority
Interest
The Company owned, on December 31, 2007 and 2006, the
48,100,000 shares of WHC Class B Common Stock that it
owned at the time of the initial public offering, representing
ownership of 84.1% and 85.2%, respectively, of the outstanding
WHC Common Stock. WHC Class A Common Stock has one vote per
share, while WHC Class B Common Stock has five votes per
share. As a result, the WHC Class B Common Stock owned by
the Company represented, as of December 31, 2007 and 2006,
96.2% and 96.5%, respectively, of the combined voting power of
WHCs outstanding Common Stock. Each share of WHC
Class B Common Stock is convertible at the Companys
option into one share of WHC Class A Common Stock. In
addition, shares of WHC Class B Common Stock will
automatically be converted, on a one-for-one basis, into shares
of WHC Class A Common Stock on a transfer to any person
other than a majority-owned subsidiary of the Company or a
successor of the Company. On the fifth anniversary of the
closing date of the initial public offering, all then
outstanding shares of WHC Class B Common Stock will
automatically be converted, on a one-for-one basis, into shares
of WHC Class A Common Stock.
As of December 31, 2007 and 2006, the minority
stockholders proportionate share of the equity in WHC of
$131,353 and $101,860, respectively, is reflected as Minority
Interest in WHC in the accompanying consolidated balance sheets.
The minority stockholders proportionate share of net
income for the years ended December 31, 2007, 2006 and 2005
was $10,667, $405 and $775, respectively.
Relationships
between the Company and WHC
The Company entered into a number of agreements with WHC
governing the future relationship of the companies, including a
Services Agreement, a Tax Sharing Agreement and an Indemnity
Agreement. These agreements cover a variety of matters,
including responsibility for certain liabilities, including tax
liabilities, as well as matters related to providing WHC with
administrative services, such as payroll, accounting, tax,
employee benefit plan, employee insurance, intellectual
property, legal and information processing services. Under the
Services Agreement, the Company will receive an amount that
reasonably approximates its cost of providing services to WHC.
The Company has agreed to make the services available to WHC for
up to five years; however, WHC is not required, under the
Services Agreement, to continue to obtain services from the
Company and is able to terminate services, in whole or in part,
at any time generally by providing, with respect to the
specified services or groups of services, 60 days
prior notice and, in some cases, paying a nominal termination
fee to cover costs relating to the termination. On
January 31, 2006, the Company entered into additional
agreements with WHC in which both parties agreed to support each
others product development and marketing efforts of
specific product lines for agreed upon fees, as defined in the
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 33
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
agreements. These agreements were amended, in connection with
the EPS Sale and 2006 EBS Sale, to separate the provisions
applicable to each of HLTH, EPS and EBS and to make certain
modifications in the relationships between WebMD and each of
those parties. In amended agreements with WebMD, EPS agreed to
continue its strategic relationship with WebMD and to integrate
WebMDs personal health record with the clinical products
of EPS, including the electronic medical record, to allow import
of data from one to the other, subject to applicable law and
privacy and security requirements. In amended agreements with
WebMD, EBS agreed to continue its strategic relationship with
WebMD and to market WebMDs 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 offerings. In
addition, EBS agreed to license certain de-identified data to
HLTH and its subsidiaries, including WebMD, for use in the
development and commercialization of certain applications that
use clinical information, including consumer decision-support
applications.
On February 15, 2006, the Company amended the Tax Sharing
Agreement with WHC. Under the amended Tax Sharing Agreement, the
Company agreed to reimburse WHC, at the current federal
statutory tax rate of 35%, for net operating loss carryforwards
attributable to WHC that are utilized by the Company as a result
of certain types of extraordinary transactions, as defined in
the Tax Sharing Agreement, which includes the EPS Sale and 2006
EBS Sale. During 2007, the Company reimbursed WHC $149,682 as
the payment required pursuant to the Tax Sharing Agreement with
respect to the EPS Sale and the 2006 EBS Sale. The total cash
reimbursement resulted in an increase to minority interest and a
decrease to additional paid-in capital of $23,930, reflecting
the portion of the aggregate reimbursement of $149,862 that
related to the minority interest shareholders.
Gain Upon
Sale of WHC Class A Common Stock
In connection with the initial public offering on
September 28, 2005, the Company recorded a gain on the sale
of WHC Class A Common Stock in the amount of approximately
$82,275, which was reflected as an adjustment to additional
paid-in capital in accordance with SAB 51. As a result of
the sale of WHC Class A Common Stock at the time of the
initial public offering, the Companys ownership of WHC was
reduced to 85.8%.
During the years ended December 31, 2007 and 2006, the
issuance of WHC Class A Common Stock resulted in an
aggregate SAB 51 gain to equity of $14,492 and $5,152,
respectively, in connection with stock option exercises,
restricted stock releases and annual board retainers discussed
in Note 13.
Also during 2006, WHC purchased Subimo for cash and $26,000 of
WHC equity (see Note 4). Pursuant to the terms of the
purchase agreement, the $26,000 of WHC equity, equal to
640,930 shares of WHC Class A Common Stock, will not
be issued until December 2008, subject to certain conditions.
While a maximum of 246,508 of these shares may be used to settle
any outstanding claims or warranties against the sellers, the
remaining 394,422 of these shares will be issued with certainty.
Accordingly, the Company recorded an additional SAB 51 gain
to equity of $11,627, in connection with the issuance of these
394,422 shares.
As a result of the issuance of the WHC Class A Common Stock
in 2006 and 2007, the Companys ownership percentage in WHC
decreased from 85.8% in 2005 to 85.2% in 2006 and then to 84.1%
in 2007.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 34
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Significant
Transactions
|
America
Online, Inc.
In May 2001, the Company entered into an agreement for a
strategic alliance with Time Warner, Inc. (Time
Warner). Under the agreement, the Company was the primary
provider of healthcare content, tools and services for use on
certain America Online (AOL) properties. The
agreement ended on May 1, 2007. Under the agreement, the
Company and AOL shared certain revenue from advertising,
commerce and programming on the health channels of the AOL
properties and on a co-branded service created for AOL by the
Company.
The Company was entitled to share in revenue and was guaranteed
a minimum of $12,000 during each contract year from May 1,
2005 through May 1, 2007 when the agreement ended, for its
share of advertising revenue. Included in the accompanying
consolidated statement of operations during the years ended
December 31, 2007, 2006 and 2005 was revenue of $2,658,
$8,312 and $7,805, respectively, related to sales to third
parties of advertising and sponsorship on the AOL health
channels, primarily sold through the Companys sales
organization. Also included in revenue during the years ended
December 31, 2007, 2006 and 2005 was revenue of $1,515,
$5,125 and $5,951, respectively, related to such guarantee.
News
Corporation
In connection with the strategic relationship with News
Corporation entered into in 2000 and amended in 2001, the
Company received the rights to an aggregate of $205,000 of
advertising services from News Corporation to be used over nine
years expiring in 2009 in exchange for equity securities of the
Company. The amount of advertising services received in any
contract year is based on the current market rates in effect at
the time the advertisement is placed. Additionally, the amount
of advertising services that can be used in any contract year is
subject to contract limitations. The advertising services were
recorded at fair value determined using a discounted cash flow
methodology. Also as part of the same relationship, the Company
licensed its content to News Corporation for use across News
Corporations media properties for four years, which ended
in January 2005, for cash payments totaling $12,000 per contract
year. The remaining current and long-term portions of the
prepaid advertising services are included in prepaid expenses
and other current assets, and other assets, respectively, in the
accompanying consolidated balance sheets.
|
|
7.
|
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 10,638,297 shares of
HLTHs Common Stock in the aggregate, representing a
conversion price of $9.40 per share of common stock. So long as
the Preferred Stock remained outstanding, the Company was
required to pay to CalPERS/PCG Corporate Partners, on a
quarterly basis, an aggregate annual fee of 0.35% of the face
amount of the then outstanding Preferred Stock. Holders of the
Preferred Stock had the right to vote, together with the holders
of HLTHs 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
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 35
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 to Common Stock. In aggregate,
10,000 shares of Preferred Stock were converted to
10,638,297 shares of HLTH Common Stock during 2007.
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 over the period from issuance through
March 19, 2012. In 2007, 2006 and 2005, $117, $235 and
$234, respectively, were recorded to accretion of convertible
redeemable exchangeable preferred stock, included within
stockholders 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 stockholders equity.
$300,000
31/8% Convertible
Notes due 2025
On August 24, 2005, the Company issued $300,000 aggregate
principal amount of
31/8% Convertible
Notes due 2025 (the
31/8% Notes)
in a private offering. Unless previously redeemed or converted,
the
31/8% Notes
will mature on September 1, 2025. Interest on the
31/8% Notes
accrues at the rate of
31/8%
per annum and is payable semiannually on March 1 and
September 1, commencing March 1, 2006. The Company
will also pay contingent interest of 0.25% per annum to the
holders of the
31/8% Notes
during specified six-month periods, commencing with the
six-month period beginning on September 1, 2012, if the
average trading price of a
31/8% Note
for the specified period equals 120% or more of the principal
amount of the
31/8% Note.
The
31/8% Notes
are convertible into an aggregate of 19,273,393 shares of
the Companys common stock (representing a conversion price
of $15.57 per share). 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.
$350,000
1.75% Convertible Subordinated Notes due 2023
On June 25, 2003, the Company issued $300,000 aggregate
principal amount of 1.75% Convertible Subordinated Notes
due 2023 (the 1.75% Notes) in a private
offering. On July 7, 2003, the Company issued an additional
$50,000 aggregate principal amount of the 1.75% Notes.
Unless previously redeemed or converted, the 1.75% Notes
will mature on June 15, 2023. Interest on the
1.75% Notes accrues at the rate of 1.75% per annum and is
payable semiannually on June 15 and December 15, commencing
December 15,
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 36
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2003. The Company will also pay contingent interest of 0.25% per
annum of the average trading price of the 1.75% Notes
during specified six-month periods, commencing on June 20,
2010, if the average trading price of the 1.75% Notes for
specified periods equals 120% or more of the principal amount of
the 1.75% Notes.
The 1.75% Notes are convertible into an aggregate of
22,742,040 shares of HLTHs Common Stock (representing
a conversion price of $15.39 per share) if the sale price of
HLTHs 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 HLTHs
Common Stock exceeding certain levels for specified periods. If
the 1.75% Notes are redeemed by the Company during this
period, the Company will be required to make additional interest
payments. After June 20, 2010, the 1.75% Notes are
redeemable at any time for cash at 100% of their principal
amount. Holders of the 1.75% Notes may require the Company
to repurchase their 1.75% Notes on June 15, 2010,
June 15, 2013 and June 15, 2018, for cash at 100% of
the principal amount of the 1.75% Notes, plus accrued
interest. Upon a change in control, holders may require the
Company to repurchase their 1.75% Notes for, at the
Companys option, cash or shares of HLTHs Common
Stock, or a combination thereof, at a price equal to 100% of the
principal amount of the 1.75% Notes being repurchased.
$300,000
31/4% Convertible
Subordinated Notes due 2007
On April 1, 2002, the Company issued $300,000 aggregate
principal amount of
31/4% Convertible
Subordinated Notes due 2007 (the
31/4% Notes)
in a private offering. Interest on the
31/4% Notes
accrued at the rate of
31/4%
per annum and was payable semiannually on April 1 and
October 1. At the time of issuance, the
31/4% Notes
were convertible into an aggregate of approximately
32,386,916 shares of HLTHs Common Stock (representing
a conversion price of $9.26 per share). During the three months
ended June 30, 2003, $1 principal amount of the
31/4% Notes
was converted into 107 shares of HLTHs Common Stock
in accordance with the provisions of the
31/4% Notes.
On June 2, 2005, the Company completed the redemption of
all of the outstanding
31/4% Notes.
Prior to the redemption, the holders of the
31/4% Notes
converted a total of $214,880 principal amount of the
31/4% Notes
into 23,197,650 shares of common stock of the Company, plus
cash in lieu of fractional shares, at a price of $9.26 per
share. The Company redeemed the balance of $85,119 principal
amount of the
31/4% Notes
at an aggregate redemption price, together with accrued interest
and redemption premium, of $86,694. In connection with this
transaction, the Company wrote off the remaining unamortized
portion of its deferred issuance costs related to the
31/4% Notes
of $2,854, of which $2,009 was reflected as a reduction to
additional paid-in capital, representing the portion related to
the
31/4% Notes
converted by the holders. The write-off of the remaining
unamortized deferred issuance costs related to the portion of
the
31/4% Notes
that was redeemed, and the payment of the redemption premium
resulted in a total charge of $1,902. This charge is included in
other income (expense), net in the accompanying consolidated
statements of operations and in loss on redemption of
convertible debt in the accompanying consolidated statements of
cash flows.
Segment information has been prepared in accordance with
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information
(SFAS 131). The accounting policies of the
segments are the same as the accounting policies for the
consolidated Company. Inter-segment revenue primarily represents
printing services provided by the EBS segment and certain
services provided by the WebMD Segments. The performance of the
Companys business is monitored based on earnings before
interest, taxes, non-cash and other items. Other items include:
legal expenses incurred by the Company, which reflect costs and
expenses
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 37
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
related to the investigation by the United States Attorney for
the District of South Carolina and the SEC; income related to
the reduction of certain sales and use tax contingencies;
professional fees in 2007, primarily consisting of legal,
accounting and financial advisory services, related to the
merger of HLTH into WHC, the sale of the Companys 48%
ownership interest in EBSCo and the 2006 EBS Sale; a charge
related to the redemption of the
31/4% Notes;
loss recognized related to the sale of marketable securities;
and costs and expenses related to the settlement of litigation
in 2005.
Reclassification of Segment Information. As a
result of the Companys intention to divest the ViPS and
Porex segments and due to the December 31, 2007 sale of
WHCs ACS/ACP business, the financial information for these
businesses has been reclassified to discontinued operations for
the current and prior year periods. In addition, certain
expenses of Porex related to activities that were previously
managed by, and therefore reported within, the Corporate
segment, were also reclassified to discontinued operations, as
these expenses do not relate to the Companys continuing
operations. These expenses were reclassified for the current and
prior year periods and amounted to $609, $1,684 and $290 in
2007, 2006 and 2005, respectively. Additionally, as a result of
the discontinued operations presentation for ViPS and Porex, the
Companys only remaining operating segment is WebMD. The
Company expanded its segment disclosure for WebMD to provide
additional information related to the WebMD Online Services
segment and the WebMD Publishing and Other Services segment.
This additional information for WebMD has been provided for all
periods presented.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 38
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized financial information for each of the Companys
operating segments and Corporate segment and reconciliation to
net income are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006(a)
|
|
|
2005
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Emdeon Business Services
|
|
$
|
|
|
|
$
|
661,090
|
|
|
$
|
689,305
|
|
WebMD Online Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and sponsorship
|
|
|
229,333
|
|
|
|
170,626
|
|
|
|
109,850
|
|
Licensing
|
|
|
81,471
|
|
|
|
55,621
|
|
|
|
33,540
|
|
Content syndication and other
|
|
|
2,378
|
|
|
|
3,518
|
|
|
|
8,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WebMD Online Services
|
|
|
313,182
|
|
|
|
229,765
|
|
|
|
151,600
|
|
WebMD Publishing and Other Services
|
|
|
18,772
|
|
|
|
19,011
|
|
|
|
11,610
|
|
Inter-segment eliminations
|
|
|
(261
|
)
|
|
|
(939
|
)
|
|
|
(505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
331,693
|
|
|
$
|
908,927
|
|
|
$
|
852,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes, non-cash and other items
|
|
|
|
|
|
|
|
|
|
|
|
|
Emdeon Business Services
|
|
$
|
|
|
|
$
|
152,911
|
|
|
$
|
138,529
|
|
WebMD Online Services
|
|
|
80,594
|
|
|
|
52,324
|
|
|
|
27,766
|
|
WebMD Publishing and Other Services
|
|
|
4,103
|
|
|
|
362
|
|
|
|
(386
|
)
|
Corporate
|
|
|
(24,502
|
)
|
|
|
(41,730
|
)
|
|
|
(49,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,195
|
|
|
|
163,867
|
|
|
|
116,718
|
|
Interest, taxes, non-cash and other items
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(28,256
|
)
|
|
|
(44,558
|
)
|
|
|
(43,548
|
)
|
Non-cash stock-based compensation
|
|
|
(32,652
|
)
|
|
|
(42,145
|
)
|
|
|
(4,713
|
)
|
Non-cash advertising
|
|
|
(5,264
|
)
|
|
|
(7,414
|
)
|
|
|
(10,870
|
)
|
Interest income
|
|
|
42,035
|
|
|
|
32,339
|
|
|
|
21,527
|
|
Interest expense
|
|
|
(18,593
|
)
|
|
|
(18,794
|
)
|
|
|
(16,321
|
)
|
Income tax benefit (provision)
|
|
|
8,741
|
|
|
|
(50,389
|
)
|
|
|
2,170
|
|
Minority interest in WHC
|
|
|
(10,667
|
)
|
|
|
(405
|
)
|
|
|
(775
|
)
|
Equity in earnings of EBS Master LLC
|
|
|
28,566
|
|
|
|
763
|
|
|
|
|
|
Gain on 2006 EBS Sale
|
|
|
399
|
|
|
|
352,297
|
|
|
|
|
|
Other expense, net
|
|
|
(2,427
|
)
|
|
|
(6,776
|
)
|
|
|
(27,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
42,077
|
|
|
|
378,785
|
|
|
|
36,223
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
(22,198
|
)
|
|
|
393,132
|
|
|
|
32,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
19,879
|
|
|
$
|
771,917
|
|
|
$
|
68,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The EBS segment was sold on
November 16, 2006 and, therefore, the operations of the EBS
segment are included only for the period January 1, 2006
through November 16, 2006.
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 39
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table represents supplemental financial data for
the Companys segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emdeon
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
WebMD
|
|
|
Corporate
|
|
|
|
|
|
|
Services
|
|
|
Segments
|
|
|
and Other (a)
|
|
|
Total (b)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
|
|
|
$
|
18,058
|
|
|
$
|
995
|
|
|
$
|
19,053
|
|
Total assets
|
|
|
|
|
|
|
713,605
|
|
|
|
674,828
|
|
|
|
1,388,433
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
20,835
|
|
|
|
28,452
|
|
|
|
133
|
|
|
|
49,420
|
|
Total assets
|
|
|
|
|
|
|
475,184
|
|
|
|
720,950
|
|
|
|
1,196,134
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
28,808
|
|
|
|
18,126
|
|
|
|
307
|
|
|
|
47,241
|
|
|
|
|
(a)
|
|
Includes the Companys
investment in EBS Master LLC.
|
|
(b)
|
|
Excludes information related to the
Companys discontinued operations.
|
Property
and Equipment
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Computer equipment
|
|
$
|
18,114
|
|
|
$
|
14,859
|
|
Office equipment, furniture, fixtures and other
|
|
|
6,754
|
|
|
|
5,412
|
|
Software
|
|
|
17,100
|
|
|
|
16,798
|
|
Web site development costs
|
|
|
21,389
|
|
|
|
13,409
|
|
Leasehold improvements
|
|
|
16,799
|
|
|
|
16,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,156
|
|
|
|
67,221
|
|
Less: accumulated depreciation
|
|
|
(30,602
|
)
|
|
|
(21,145
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
49,554
|
|
|
$
|
46,076
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $15,202, $22,253 and $22,194 in 2007,
2006 and 2005, respectively.
Goodwill
and Intangible Assets
SFAS No. 141, Business Combinations
(SFAS 141) requires business combinations
initiated after June 30, 2001 to be accounted for using the
purchase method of accounting. It also specifies the types of
acquired intangible assets that are required to be recognized
and reported separately from goodwill. SFAS 142 requires
that goodwill and certain intangibles no longer be amortized,
but instead tested for impairment at least annually.
SFAS 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful
lives and reviewed for impairment in accordance with
SFAS 144. Based on the
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 40
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys analysis, there was no impairment of goodwill in
connection with the annual impairment tests that were performed
during the years ended December 31, 2007, 2006 and 2005.
The changes in the carrying amount of goodwill during the years
ended December 31, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WebMD
|
|
|
|
|
|
|
Emdeon
|
|
|
WebMD
|
|
|
Publishing
|
|
|
|
|
|
|
Business
|
|
|
Online
|
|
|
And Other
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
Services
|
|
|
Total
|
|
|
Balance as of January 1, 2006
|
|
$
|
681,612
|
|
|
$
|
89,624
|
|
|
$
|
11,045
|
|
|
$
|
782,281
|
|
Acquisitions during the period
|
|
|
3,692
|
|
|
|
122,782
|
|
|
|
|
|
|
|
126,474
|
|
Contingent consideration for prior period acquisitions(a)
|
|
|
(1,913
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,913
|
)
|
Tax reversals(b)
|
|
|
(40,522
|
)
|
|
|
(1,636
|
)
|
|
|
|
|
|
|
(42,158
|
)
|
Adjustments to finalize purchase price allocations
|
|
|
|
|
|
|
1,669
|
|
|
|
|
|
|
|
1,669
|
|
2006 EBS Sale
|
|
|
(642,869
|
)
|
|
|
|
|
|
|
|
|
|
|
(642,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2007
|
|
|
|
|
|
|
212,439
|
|
|
|
11,045
|
|
|
|
223,484
|
|
Tax reversals(b)
|
|
|
|
|
|
|
(2,793
|
)
|
|
|
|
|
|
|
(2,793
|
)
|
Adjustments to finalize purchase price allocations
|
|
|
|
|
|
|
(3,368
|
)
|
|
|
|
|
|
|
(3,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
|
|
|
$
|
206,278
|
|
|
$
|
11,045
|
|
|
$
|
217,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The Company adjusted goodwill by
$2,539 in connection with an over accrual of contingent
consideration in the Emdeon Business Services segment. In
addition, the Company made a contingent consideration payment in
the amount of $626 for a 2003 acquisition within the Emdeon
Business Services segment.
|
|
(b)
|
|
Represents a reduction to goodwill
as a result of the reversal of a portion of the income tax
valuation allowances that were originally established in
connection with the purchase accounting of prior acquisitions.
In 2006, a portion of these income tax valuation allowances, or
$11,454, was reversed in connection with the utilization of net
operating losses attributable to the discontinued operations,
including the gain on disposal.
|
Intangible assets subject to amortization consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Useful
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Useful
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Life(a)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Life(a)
|
|
|
Content
|
|
$
|
15,954
|
|
|
$
|
(12,581
|
)
|
|
$
|
3,373
|
|
|
|
2.1
|
|
|
$
|
16,854
|
|
|
$
|
(7,893
|
)
|
|
$
|
8,961
|
|
|
|
2.6
|
|
Customer relationships
|
|
|
33,191
|
|
|
|
(10,183
|
)
|
|
|
23,008
|
|
|
|
9.2
|
|
|
|
28,191
|
|
|
|
(6,677
|
)
|
|
|
21,514
|
|
|
|
9.4
|
|
Technology and patents
|
|
|
14,967
|
|
|
|
(10,126
|
)
|
|
|
4,841
|
|
|
|
1.5
|
|
|
|
14,967
|
|
|
|
(6,036
|
)
|
|
|
8,931
|
|
|
|
2.3
|
|
Trade names
|
|
|
7,817
|
|
|
|
(2,725
|
)
|
|
|
5,092
|
|
|
|
7.7
|
|
|
|
7,817
|
|
|
|
(1,955
|
)
|
|
|
5,862
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,929
|
|
|
$
|
(35,615
|
)
|
|
$
|
36,314
|
|
|
|
7.3
|
|
|
$
|
67,829
|
|
|
$
|
(22,561
|
)
|
|
$
|
45,268
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The calculation of the weighted
average remaining useful life is based on the net book value and
the remaining amortization period (reflected in years) of each
respective intangible asset.
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 41
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization expense was $13,054, $22,305 and $21,354 in 2007,
2006 and 2005, respectively. Aggregate amortization expense for
intangible assets is estimated to be:
|
|
|
|
|
Years Ending December
31,
|
|
|
|
|
2008
|
|
$
|
9,715
|
|
2009
|
|
|
6,401
|
|
2010
|
|
|
3,337
|
|
2011
|
|
|
2,464
|
|
2012
|
|
|
2,464
|
|
Thereafter
|
|
|
11,933
|
|
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Accrued compensation
|
|
$
|
20,146
|
|
|
$
|
22,272
|
|
Accrued outside services
|
|
|
8,525
|
|
|
|
17,227
|
|
Accrued income, sales and other taxes
|
|
|
5,781
|
|
|
|
34,794
|
|
Other accrued liabilities
|
|
|
15,146
|
|
|
|
28,488
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,598
|
|
|
$
|
102,781
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Commitments
and Contingencies
|
Legal
Proceedings
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 is conducting an investigation of the
Company, which the Company 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 the
Company (by its merger into the Company in September 2000), and,
more specifically, its Medical Manager Health Systems, Inc.
subsidiary. Medical Manager Health Systems was a predecessor to
Emdeon Practice Services, Inc., a subsidiary that the Company
sold to Sage Software in September 2006. The Company has been
cooperating and intends to continue to cooperate fully with the
U.S. Attorneys Office. As previously reported, the
Board of Directors of the Company has formed a special committee
consisting solely of independent directors to oversee this
matter with the sole authority to direct the Companys
response to the allegations that have been raised. As previously
disclosed, the Company understands that the SEC is also
conducting a formal investigation into this matter. In
connection with the EPS Sale, the Company agreed to indemnify
Sage Software with respect to this matter.
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
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 42
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
while they were employed by Medical Manager Health Systems. The
three former employees include a Vice President of Medical
Manager Health Systems responsible for acquisitions who was
terminated for cause in January 2003; an executive who served in
various accounting roles at Medical Manager Health Systems until
his resignation in March 2002; and a former independent Medical
Manager dealer who was a paid consultant to Medical Manager
Health Systems until the termination of his services in 2002.
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 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 inflate artificially 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 the Company in September 2000. A fourth
former officer of Medical Manager Health Systems pleaded guilty
to similar activities later in 2005.
The fraudulent accounting practices cited by the government in
the January 7, 2005 District Court filings included:
causing companies acquired by Medical Manager Health Systems to
reclassify previously recognized sales revenue as deferred
income so that such deferred income could subsequently be
reported as revenue by Medical Manager Health Systems and its
parents in later periods; fabricating deferred revenue entries
which could be used to inflate earnings when Medical Manager
Health Systems acquired companies; causing companies acquired by
Medical Manager Health Systems to inflate reserve accounts so
that these reserves could be reversed in later reporting periods
in order to artificially inflate earnings for Medical Manager
Health Systems and its parents; accounting for numerous
acquisitions through the pooling of interests method in order to
fraudulently inflate Medical Manager Health Systems
quarterly earnings, when the individuals involved knew the
transactions failed to qualify for such treatment; causing
companies acquired by Medical Manager Health Systems to enter
into sham purchases of software from Medical Manager Health
Systems in connection with the acquisition, which purchases were
funded by increasing the purchase price paid by Medical Manager
Health Systems to the acquired company and using these
round trip sales to create fraudulent revenue for
Medical Manager Health Systems and its parents; and causing
Medical Manager Health Systems to book and record sales and
training revenue before the revenue process was complete in
accordance with Generally Accepted Accounting Principles, and
thereby fraudulently inflating Medical Manager Health
Systems reported revenues and earnings. According to the
Informations to which the former employees have pled guilty, the
fraudulent accounting practices resulted in the reported
revenues of Medical Manager Health Systems and its parents being
overstated materially between June 1997 and at least
December 31, 2001, and reported quarterly earnings being
overstated by at least one cent per share in every quarter
during that period.
The documents filed by the United States Attorney in January
2005 stated that the former employees engaged in their
fraudulent conduct in concert with senior
management, and at the direction of senior Medical
Manager officers. In its statement at that time, the
United States Attorney for the District of South Carolina stated
that the senior management and officers referred to in the
Court documents were members of senior management of the Medical
Manager subsidiary during the relevant time period.
On December 15, 2005, the United States Attorney announced
indictments of the following former officers and employees of
Medical Manager Health Systems: Ted W. Dorman, a former Regional
Vice President of Medical Manager Health Systems, who was
employed until March 2003; Charles L. Hutchinson, a former
Controller of Medical Manager Health Systems, who was employed
until June 2001; Maxie L.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 43
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Juzang, a former Vice President of Medical Manager Health
Systems, who was employed until August 2005; John H. Kang, a
former President of Medical Manager Health Systems, who was
employed until May 2001; Frederick B. Karl, Jr., a former
General Counsel of Medical Manager Health Systems, who was
employed until April 2000; Franklyn B. Krieger, a former
Associate General Counsel of Medical Manager Health Systems, who
was employed until February 2002; Lee A. Robbins, a former Vice
President and Chief Financial Officer of Medical Manager Health
Systems, who was employed until September 2000; John P.
Sessions, a former President and Chief Operating Officer of
Medical Manager Health Systems, who was employed until September
2003; Michael A. Singer, a former Chief Executive Officer of
Medical Manager Health Systems and a former director of the
Company, who was most recently employed by the Company as its
Executive Vice President, Physician Software Strategies until
February 2005; and David Ward, a former Vice President of
Medical Manager Health Systems, who was employed until June
2005. The indictment charges the persons listed above 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). The
indictment charges Messrs. Sessions and Ward with
substantive counts of money laundering, violations of
Title 18, United States Code, Section 1957. 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.
On February 27, 2007, the United States Attorney filed a
Second Superseding Indictment with respect to the former
officers and employees of Medical Manager Health Systems charged
under the prior Indictment, other than Mr. Juzang. The
allegations set forth in the Second Superseding Indictment are
substantially similar to those described above.
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 its 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 the Companys
management. The Company has not uncovered information that it
believes would require a restatement for any of the years
covered by its 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 the Company to the extent required.
The Company has certain indemnity obligations to advance amounts
for reasonable defense costs for the initial ten, and now nine
former officers and directors of EPS. During the year ended
December 31, 2007, the Company recorded a pre-tax charge of
$73,347, related to its estimated liability with respect to
these indemnity obligations. See Note 2 for a more detailed
discussion regarding this charge.
Directors &
Officers Liability Insurance Coverage Litigation
On July 23, 2007, the Company 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 is 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 is seeking an order requiring
the Defendants to advance
and/or
reimburse expenses that the Company has incurred and expects to
continue to incur for the advancement of the reasonable defense
costs of initially ten and now nine former officers and
directors of the Companys former EPS subsidiary who were
indicted in
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 44
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
connection with the Investigation described above in this
Note 12. The Company subsequently has settled with two of
the insurance companies during January 2008, through which the
Company received an aggregate amount of $14,625. This amount is
included within (loss) income from discontinued operations in
the accompanying statement of operations for the year ended
December 31, 2007 and is included within prepaid expenses
and other current assets in the accompanying consolidated
balance sheet as of December 31, 2007.
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 the Company and to EPS, a
former subsidiary of the Company, 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 the Companys
sale of EPS to Sage Software, the Company 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. The Company
retained the right to assert claims and recover proceeds under
the Policies on behalf of SSHI.
The Policies at issue in the Coverage Litigation consist 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 the Company) 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). To date, $31,000 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 and
settlement. As a result of these payments, the Company has
exhausted its coverage under the EPS Policies. Additionally, as
of December 31, 2007, $16,414 has been paid under the
Synetic Policies and the Company has remaining coverage under
such policies of approximately $80,000. 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 $14,625 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.
The carrier with the third level of coverage in the Synetic
Policies has filed a motion for summary judgment in the Coverage
Litigation, which most of the carriers who have issued the
Synetic policies have joined, seeking 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 have not 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. The Company believes that such
assertion is without merit. The Company is due to file its
opposition to the motion by February 29, 2008 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. Oral argument with respect to both
motions is set for May 5, 2008.
The Company believes that the Defendants are required to advance
and/or
reimburse amounts that the Company has incurred and expects to
continue to incur for the advancement of the reasonable defense
costs of the indicted individuals and as described above several
carriers have reimbursed the Company through a combination of
payment under the terms of the Policies, payment under
reservation of rights and settlement.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 45
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
However, there can be no assurance that the Company will prevail
in the Coverage Litigation or that the Defendants 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.
Litigation
Regarding Distribution of Shares in Healtheon Initial Public
Offering
As previously disclosed, seven purported class action lawsuits
were filed against Morgan Stanley & Co. Incorporated
and Goldman Sachs & Co., underwriters of the initial
public offering of the Company (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 the Company and certain of its
former officers and directors as defendants. These suits were
filed in the wake of reports of governmental investigations of
the underwriters practices in the distribution of shares
in certain initial public offerings. Similar suits were filed in
connection with over 300 other initial public offerings that
occurred in 1999, 2000 and 2001.
The complaints against the Company 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 1933
because of failure to disclose certain practices alleged to have
occurred in connection with the distribution of shares in the
Healtheon IPO. 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. The plaintiffs have dismissed the
claims against the four former officers and directors of the
Company without prejudice, pursuant to Reservation of Rights
Tolling Agreements with those individuals. On July 15,
2002, the issuer defendants in the consolidated action,
including the Company, filed a joint motion to dismiss the
consolidated complaints. On February 18, 2003, the District
Court denied, with certain exceptions not relevant to the
Company, the issuer defendants motion to dismiss.
After a lengthy mediation under the auspices of former United
States District Judge Nicholas Politan, the issuer defendants in
the consolidated action (including the Company), the affected
insurance companies, and the plaintiffs reached an agreement on
a settlement to resolve the matter among the participating
issuer defendants, their insurers, and the plaintiffs. The
settlement called for the participating issuers insurers
jointly to guarantee that plaintiffs recover a certain amount in
the IPO litigation and certain related litigation from the
underwriters and other non-settling defendants. Accordingly, in
the event the guarantee became payable, the agreement called for
the Companys insurance carriers, not the Company, to pay
the Companys pro rata share.
The Company, and virtually all of the approximately 260 other
issuer defendants who were eligible to participate, elected to
participate in the settlement. Although the Company believed
that the claims alleged in the lawsuits were primarily directed
at the underwriters and, as they relate to the Company, were
without merit, the Company believed that the settlement was
beneficial to the Company because it would have reduced the
time, expense and risks of further litigation, particularly
since virtually all the other issuer defendants elected to
participate and the Companys insurance carriers strongly
supported the settlement.
On June 10, 2004, plaintiffs submitted to the court a
Stipulation and Agreement of Settlement with Defendant Issuers
and Individuals. On February 15, 2005, the court certified
the proposed settlement class and preliminarily approved the
settlement, subject to certain modifications, to which the
parties agreed. On April 24, 2006, the court held a hearing
for final approval of the settlement.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 46
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On December 5, 2006, in response to an appeal by the
underwriter defendants, the United States Court of Appeals for
the Second Circuit reversed the district courts
certification of the classes in six related focus
cases dealing with the offerings of other issuers. On
April 6, 2007, the Second Circuit denied the
plaintiffs petition for rehearing. In the view of counsel
for the issuers and the insurance carriers and the district
court, the definition of the proposed settlement class embodied
in the settlement was inconsistent with the Second
Circuits ruling on class certification in the focus cases.
Accordingly, the parties to the previously-negotiated settlement
agreement terminated the settlement agreement. On June 28,
2007, the court entered a Stipulation and Order terminating the
settlement.
On August 14, 2007, the plaintiffs filed amended complaints
in the six focus cases, in which they proposed a new
class definition, and on September 27, 2007, they moved for
class certification. Briefing on the amended complaints was
completed on January 28, 2008, and briefing on the motion
for class certification is underway. At this point, it is
impossible to determine whether a class will be certified.
Porex
Corporation v. Kleanthis Dean Haldopoulos, Benjamin T.
Hirokawa and Micropore Plastics, Inc.
On September 24, 2005, the Companys subsidiary Porex
Corporation 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. On February 13, 2006, the Superior Court
granted a motion by the defendants for summary judgment with
respect to Porexs trade secret claims, ruling that those
claims are barred by the statute of limitations. Porex appealed
that ruling to the Georgia Court of Appeals and, on
March 27, 2007, the Georgia Court of Appeals reversed the
ruling of the Superior Court. On April 16, 2007, the
defendants filed a petition for certiorari with the Georgia
Supreme Court, requesting that the Georgia Supreme Court review
and reverse the March 27, 2007 decision of the Court of
Appeals. On June 25, 2007, the Georgia Supreme Court denied
the defendants petition for certiorari. On or about
July 31, 2007, the Georgia Court of Appeals formally
returned the case to the Superior Court for further proceedings,
and the parties are proceeding with discovery. Porex is
continuing to seek to vigorously enforce its rights in this
litigation.
Other
Legal Proceedings
In the normal course of business, the Company is involved in
various other claims and legal proceedings. While the ultimate
resolution of these matters, and those discussed above, has yet
to be determined, the Company does not believe that their
outcome will have a material adverse effect on the
Companys consolidated financial position, results of
operations or liquidity.
Leases
During 2004, the Company entered into a ten-year and ten-month
lease agreement for its WebMD Segments headquarters in New York,
New York. In connection with this lease the Company received ten
months of rent abatement and a landlord contribution totaling
$5,393 in connection with leasehold
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 47
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
improvements. The Company recorded $4,854 as a deferred rent
credit during 2005 related to this contribution and the
remaining $539 during 2006. The balance of this deferred rent
credit was $3,941 and $4,439 as of December 31, 2007 and
2006, respectively. According to the terms of the lease, the
Company began making payments in December 2005. Payments will
increase approximately 2% per annum with a one-time increase in
December 2010 of approximately 15%. The lease terminates on
November 30, 2015; however, the Company may exercise a five
year renewal option at its discretion.
The Company leases its offices and other facilities under
operating lease agreements that expire at various dates through
2015. Total rent expense for all operating leases was
approximately $7,918, $12,266 and $13,063 in 2007, 2006 and
2005, respectively. Included in other long-term liabilities as
of December 31, 2007 and 2006 were $9,278 and $7,888,
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, 2007 were as follows:
|
|
|
|
|
Years Ending December
31,
|
|
|
|
|
2008
|
|
$
|
7,238
|
|
2009
|
|
|
7,260
|
|
2010
|
|
|
7,011
|
|
2011
|
|
|
5,437
|
|
2012
|
|
|
3,998
|
|
Thereafter
|
|
|
10,995
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
41,939
|
|
|
|
|
|
|
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.
|
|
13.
|
Stock-Based
Compensation
|
The Company has various stock-based compensation plans
(collectively, the Plans) under which directors,
officers and other eligible employees receive awards of options
to purchase HLTH Common Stock and restricted shares of HLTH
Common Stock. Additionally, WHC has two similar stock-based
compensation plans that provide for stock options and restricted
stock awards based on WHC Class A Common Stock. The Company
also maintains an Employee Stock Purchase Plan which provides
employees with the ability to buy shares of HLTH Common Stock at
a discount. The following sections of this note summarize the
activity for each of these plans.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 48
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
HLTH
Plans
The Company had an aggregate of 5,726,256 shares of HLTH
Common Stock available for future grants under the Plans as of
December 31, 2007. In addition to the Plans, the Company
has granted options to certain directors, officers and key
employees pursuant to individual stock option agreements. At
December 31, 2007, there were options to purchase
4,139,881 shares of HLTH Common Stock outstanding to these
individuals. The terms of these grants are similar to the terms
of the options granted under the Plans and accordingly, the
stock option activity of these individuals is included in all
references to the Plans. Beginning in April 2007, shares are
issued from treasury stock when options are exercised or
restricted stock is granted. Prior to this time, new shares were
issued in connection with these transactions.
Stock
Options
Generally, options under the Plans vest and become exercisable
ratably over a three to five year period based on their
individual grant dates subject to continued employment on the
applicable vesting dates. The majority of options granted under
the Plans expire within ten years from the date of grant.
Options are granted at prices not less than the fair market
value of HLTH Common Stock on the date of grant. The following
table summarizes activity for the Plans for the years ended
December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
(In Years)
|
|
|
Value(1)
|
|
|
Outstanding at January 1, 2005
|
|
|
106,257,252
|
|
|
$
|
12.44
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,920,913
|
|
|
|
9.03
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(9,235,018
|
)
|
|
|
4.81
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(12,760,052
|
)
|
|
|
13.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
88,183,095
|
|
|
|
12.96
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
9,845,500
|
|
|
|
10.10
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(20,277,247
|
)
|
|
|
7.40
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(14,151,477
|
)
|
|
|
14.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
63,599,871
|
|
|
|
14.04
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
170,000
|
|
|
|
12.86
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(12,081,643
|
)
|
|
|
10.08
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(4,394,651
|
)
|
|
|
22.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
47,293,577
|
|
|
$
|
14.35
|
|
|
|
3.8
|
|
|
$
|
86,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at the end of the year
|
|
|
41,266,988
|
|
|
$
|
14.98
|
|
|
|
3.2
|
|
|
$
|
66,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The aggregate intrinsic value is
based on the market price of HLTHs Common Stock on
December 31, 2007, which was $13.40, less the applicable
exercise price of the underlying option. This aggregate
intrinsic value represents the amount that would have been
realized if all of the option holders had exercised their
options on December 31, 2007.
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 49
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information with respect to
options outstanding and options exercisable at December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
|
|
|
Price Per
|
|
Exercise Prices
|
|
Shares
|
|
|
Per Share
|
|
|
(In Years)
|
|
|
Shares
|
|
|
Share
|
|
|
$0.68-$8.55
|
|
|
5,185,877
|
|
|
$
|
6.52
|
|
|
|
5.3
|
|
|
|
4,000,998
|
|
|
$
|
6.29
|
|
$8.58-$9.88
|
|
|
6,661,016
|
|
|
|
8.85
|
|
|
|
6.7
|
|
|
|
4,671,339
|
|
|
|
8.75
|
|
$9.89-$11.55
|
|
|
5,394,666
|
|
|
|
11.47
|
|
|
|
2.7
|
|
|
|
5,236,893
|
|
|
|
11.49
|
|
$11.60-$12.50
|
|
|
5,405,950
|
|
|
|
11.97
|
|
|
|
6.7
|
|
|
|
2,761,690
|
|
|
|
12.09
|
|
$12.54-$13.50
|
|
|
6,287,297
|
|
|
|
13.00
|
|
|
|
2.6
|
|
|
|
6,287,297
|
|
|
|
13.00
|
|
$13.63-$15.20
|
|
|
3,112,565
|
|
|
|
14.20
|
|
|
|
1.9
|
|
|
|
3,062,565
|
|
|
|
14.21
|
|
$15.38-$16.06
|
|
|
4,951,000
|
|
|
|
16.06
|
|
|
|
2.5
|
|
|
|
4,951,000
|
|
|
|
16.06
|
|
$16.13-$20.00
|
|
|
5,059,878
|
|
|
|
17.96
|
|
|
|
2.4
|
|
|
|
5,059,878
|
|
|
|
17.96
|
|
$20.50-$94.69
|
|
|
5,235,328
|
|
|
|
31.15
|
|
|
|
2.1
|
|
|
|
5,235,328
|
|
|
|
31.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,293,577
|
|
|
$
|
14.35
|
|
|
|
3.8
|
|
|
|
41,266,988
|
|
|
$
|
14.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option pricing model,
considering the assumptions noted in the following table.
Expected volatility is based on implied volatility from traded
options of HLTH Common Stock combined with historical volatility
of HLTH Common Stock. Prior to January 1, 2006, only
historical volatility was considered. 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
0.31
|
|
|
|
0.37
|
|
|
|
0.50
|
|
Risk-free interest rate
|
|
|
4.67
|
%
|
|
|
4.54
|
%
|
|
|
3.48
|
%
|
Expected term (years)
|
|
|
3.94
|
|
|
|
4.46
|
|
|
|
3.25-5.50
|
|
Weighted average fair value of options granted during the year
|
|
|
$4.01
|
|
|
|
$3.79
|
|
|
|
$3.68
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 50
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock Awards
HLTH Restricted Stock consists of shares of HLTH 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, HLTH Restricted Stock awards vest ratably over
a three to five year period from their individual award dates
subject to continued employment on the applicable vesting dates.
The following table summarizes the activity of non-vested HLTH
Restricted Stock for the years ended December 31, 2007,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
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
|
|
|
2,300,846
|
|
|
$
|
10.44
|
|
|
|
1,042,557
|
|
|
$
|
8.24
|
|
|
|
1,637,609
|
|
|
$
|
8.02
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
2,298,010
|
|
|
|
10.66
|
|
|
|
239,000
|
|
|
|
9.38
|
|
Vested
|
|
|
(967,881
|
)
|
|
|
10.14
|
|
|
|
(562,575
|
)
|
|
|
8.39
|
|
|
|
(481,716
|
)
|
|
|
8.04
|
|
Forfeited
|
|
|
(92,668
|
)
|
|
|
9.50
|
|
|
|
(477,146
|
)
|
|
|
9.13
|
|
|
|
(352,336
|
)
|
|
|
8.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
1,240,297
|
|
|
$
|
10.74
|
|
|
|
2,300,846
|
|
|
$
|
10.44
|
|
|
|
1,042,557
|
|
|
$
|
8.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from the exercise of options to purchase HLTH
Common Stock were $121,725, $150,065 and $44,456 for the years
ended December 31, 2007, 2006 and 2005, respectively. The
intrinsic value related to the exercise of these stock options,
as well as the fair value of shares of HLTH Restricted Stock
that vested was $67,393, $92,574 and $46,756 for the years ended
December 31, 2007, 2006 and 2005, respectively.
WebMD
Plans
During September 2005, WHC adopted the 2005 Long-Term Incentive
Plan (the WHC Plan). In connection with the
acquisition of Subimo in December 2006, WHC adopted the WebMD
Health Corp. Long-Term Incentive Plan for Employees of Subimo
(the Subimo Plan). The terms of the Subimo Plan are
similar to the terms of the WHC Plan but it has not been
approved by WHC stockholders. Awards under the Subimo Plan were
made on the date of the Companys acquisition of Subimo in
reliance on the NASDAQ Global Select Market exception to
shareholder approval for equity grants to new hires. No
additional grants will be made under the Subimo Plan. The WHC
Plan and the Subimo Plan are included in all references as the
WebMD Plans. The maximum number of shares of WHC
Class A Common Stock that may be subject to options or
restricted stock awards under the WebMD Plans is 9,480,574,
subject to adjustment in accordance with the terms of the WebMD
Plans. WHC had an aggregate of 2,701,478 shares of
Class A Common Stock available for future grants under the
WebMD Plans at December 31, 2007.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 51
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Options
Generally, options under the WebMD Plans vest and become
exercisable ratably over a four year period based on their
individual grant dates subject to continued employment on the
applicable vesting dates. The options granted under the WebMD
Plans expire within ten years from the date of grant. Options
are granted at prices not less than the fair market value of
WHCs Class A Common Stock on the date of grant. The
following table summarizes activity for the WebMD Plans for the
years ended December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
(In Years)
|
|
|
Value(1)
|
|
|
Outstanding at January 1, 2005
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
4,574,900
|
|
|
|
18.31
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(41,800
|
)
|
|
|
17.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
4,533,100
|
|
|
|
18.31
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,683,700
|
|
|
|
38.16
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(291,154
|
)
|
|
|
18.05
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(523,863
|
)
|
|
|
27.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
5,401,783
|
|
|
|
23.59
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
998,850
|
|
|
|
47.49
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(684,909
|
)
|
|
|
20.96
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(695,173
|
)
|
|
|
31.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
5,020,551
|
|
|
$
|
27.56
|
|
|
|
8.3
|
|
|
$
|
74,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at the end of the year
|
|
|
1,382,091
|
|
|
$
|
20.41
|
|
|
|
7.9
|
|
|
$
|
28,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The aggregate intrinsic value is
based on the market price of WHCs Class A Common
Stock on December 31, 2007, which was $41.07, less the
applicable exercise price of the underlying option. This
aggregate intrinsic value represents the amount that would have
been realized if all of the option holders had exercised their
options on December 31, 2007.
|
The following table summarizes information with respect to
options outstanding and options exercisable at December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
|
|
|
Price Per
|
|
Exercise Prices
|
|
Shares
|
|
|
Per Share
|
|
|
(In Years)
|
|
|
Shares
|
|
|
Share
|
|
|
$17.50
|
|
|
2,891,630
|
|
|
$
|
17.50
|
|
|
|
7.7
|
|
|
|
1,137,776
|
|
|
$
|
17.50
|
|
$24.00-$38.01
|
|
|
686,731
|
|
|
|
33.19
|
|
|
|
8.4
|
|
|
|
187,967
|
|
|
|
31.88
|
|
$38.03-$42.98
|
|
|
634,890
|
|
|
|
40.43
|
|
|
|
8.9
|
|
|
|
45,548
|
|
|
|
39.93
|
|
$43.09-$51.48
|
|
|
627,950
|
|
|
|
47.34
|
|
|
|
9.5
|
|
|
|
10,800
|
|
|
|
45.32
|
|
$51.50-$61.35
|
|
|
179,350
|
|
|
|
53.52
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,020,551
|
|
|
$
|
27.56
|
|
|
|
8.3
|
|
|
|
1,382,091
|
|
|
$
|
20.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 52
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option pricing model,
considering the assumptions noted in the following table. Prior
to August 1, 2007, expected volatility was based on implied
volatility from traded options of stock of comparable companies
combined with historical stock price volatility of comparable
companies. Beginning on August 1, 2007, expected volatility
is based on implied volatility from traded options of WHC
Class A Common Stock combined with historical volatility of
WHC Class A 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 of WHC employees who were previously granted HLTH
stock options. 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
0.44
|
|
|
|
0.60
|
|
|
|
0.60
|
|
Risk-free interest rate
|
|
|
4.25
|
%
|
|
|
4.69
|
%
|
|
|
4.05
|
%
|
Expected term (years)
|
|
|
3.40
|
|
|
|
3.24
|
|
|
|
3.25-5.50
|
|
Weighted average fair value of options granted during the year
|
|
|
$17.26
|
|
|
|
$17.33
|
|
|
|
$8.75
|
|
Restricted
Stock Awards
WHC Restricted Stock consists of shares of WHC Class A
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, WHC Restricted Stock awards
vest ratably over a four year period from their individual award
dates subject to continued employment on the applicable vesting
dates. The following table summarizes the activity of non-vested
WHC Restricted Stock for the years ended December 31, 2007,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
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
|
|
|
441,683
|
|
|
$
|
25.49
|
|
|
|
376,621
|
|
|
$
|
17.55
|
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
71,700
|
|
|
|
47.02
|
|
|
|
184,710
|
|
|
|
39.50
|
|
|
|
376,621
|
|
|
|
17.55
|
|
Vested
|
|
|
(104,809
|
)
|
|
|
21.92
|
|
|
|
(94,418
|
)
|
|
|
17.61
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(100,852
|
)
|
|
|
32.42
|
|
|
|
(25,230
|
)
|
|
|
39.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
|
307,722
|
|
|
$
|
29.46
|
|
|
|
441,683
|
|
|
$
|
25.49
|
|
|
|
376,621
|
|
|
$
|
17.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from the exercise of options to purchase WHC
Class A Common Stock were $14,355 and $5,257 for the years
ended December 31, 2007 and 2006, respectively. The
intrinsic value related to the exercise of these stock options,
as well as the fair value of shares of WHC Restricted Stock that
vested was $24,821 and $9,115 for the years ended
December 31, 2007 and 2006, respectively.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 53
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Employee
Stock Purchase Plan
The Companys 1998 Employee Stock Purchase Plan, as amended
from time to time (the ESPP), allows eligible
employees the opportunity to purchase shares of HLTH Common
Stock through payroll deductions, up to 15% of a
participants annual compensation with a maximum of
5,000 shares available per participant during each purchase
period. The purchase price of the stock is 85% of the fair
market value on the last day of each purchase period. As of
December 31, 2007, a total of 8,075,172 shares of HLTH
Common Stock were reserved for issuance under the ESPP. The ESPP
provides for annual increases equal to the lesser of
1,500,000 shares, 0.5% of the outstanding common shares, or
a lesser amount determined by the Board of Directors. There were
69,800, 274,378 and 383,658 shares issued under the ESPP
during the years ended December 31, 2007, 2006 and 2005,
respectively.
Other
At the time of the WHC initial public offering and each year on
the anniversary of the IPO, WHC issued shares of WHC
Class A Common Stock to each non-employee director with a
value equal to their annual board and committee retainers. The
Company recorded $340, $340 and $85 of stock-based compensation
expense during the years ended December 31, 2007, 2006 and
2005, respectively, in connection with these issuances.
Additionally, the Company recorded $1,094 and $69 of stock-based
compensation expense during 2007 and 2006, respectively, in
connection with a stock transferability right for shares
required to be issued in connection with the acquisition of
Subimo by WHC.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 54
HLTH
CORPORATION
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
HLTH Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
11,310
|
|
|
$
|
20,685
|
|
|
$
|
462
|
|
Restricted stock
|
|
|
7,231
|
|
|
|
5,635
|
|
|
|
3,318
|
|
WebMD Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
14,006
|
|
|
|
17,810
|
|
|
|
|
|
Restricted stock
|
|
|
2,768
|
|
|
|
3,736
|
|
|
|
874
|
|
Employee Stock Purchase Plan
|
|
|
162
|
|
|
|
406
|
|
|
|
|
|
Other
|
|
|
1,455
|
|
|
|
409
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
36,932
|
|
|
$
|
48,681
|
|
|
$
|
4,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
5,063
|
|
|
$
|
11,541
|
|
|
$
|
|
|
Sales and marketing
|
|
|
5,056
|
|
|
|
7,461
|
|
|
|
|
|
General and administrative
|
|
|
22,533
|
|
|
|
23,143
|
|
|
|
4,713
|
|
Gain on 2006 EBS Sale
|
|
|
|
|
|
|
30
|
|
|
|
|
|
Equity in earnings of EBS Master LLC
|
|
|
2,107
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
34,759
|
|
|
|
42,485
|
|
|
|
4,713
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
2,173
|
|
|
|
6,196
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
36,932
|
|
|
$
|
48,681
|
|
|
$
|
4,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits attributable to stock-based compensation expense
were only realized in certain states in which the Company does
not have operating loss carryforwards because a valuation
allowance was maintained for substantially all net deferred tax
assets. As of December 31, 2007, approximately $23,480 and
$39,840 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
1.2 years and 1.6 years, related to the HLTH Plans and
the WHC Plans, respectively.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 55
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes pro forma net income and net
income per common share as if the Company had applied the fair
value recognition provisions of SFAS 123 to stock-based
employee compensation (including non-cash stock-based
compensation expense related to discontinued operations) for the
year ended December 31, 2005:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2005
|
|
|
Net income as reported
|
|
$
|
68,811
|
|
Add:
|
|
|
|
|
Non-cash stock-based employee compensation expense included in
reported net income
|
|
|
4,739
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards
|
|
|
(37,218
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
36,332
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
Basic and diluted as reported
|
|
$
|
0.20
|
|
|
|
|
|
|
Basic pro forma
|
|
$
|
0.11
|
|
|
|
|
|
|
Diluted pro forma
|
|
$
|
0.10
|
|
|
|
|
|
|
The Company maintains various defined contribution retirement
plans covering substantially all of its employees. During 2005,
the Company amended one of the defined contribution retirement
plans to provide for Company matching contributions. Certain of
these plans provide for discretionary contributions and, as a
result of this amendment, substantially all of the plans provide
for Company matching contributions. The Company has recorded
expenses related to these plans of $1,116, $1,746 and $1,154 for
2007, 2006 and 2005, 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 October 20, 2006, the Company commenced a tender offer
to purchase shares of its common stock (2006 Tender
Offer). On December 4, 2006, the 2006 Tender Offer
was completed and, as a result, the Company repurchased
129,234,164 shares of its common stock at a price of $12.00
per share. The total cost of the 2006 Tender Offer was
approximately $1,552,120, which includes approximately $1,309 of
costs directly attributable to the purchase.
On November 23, 2005, the Company commenced a tender offer
to purchase shares of its common stock (2005 Tender
Offer). On December 21, 2005, the 2005 Tender Offer
was completed and, as a result, the Company repurchased
66,905,919 shares of its common stock at a price of $8.20
per share. The total cost of
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 56
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the 2005 Tender Offer was approximately $549,268, which includes
approximately $640 of costs directly attributable to the
purchase.
Stock
Repurchase Programs
On January 23, 2006, the Company announced the
authorization of a stock repurchase program (the 2006
Repurchase Program), at which time the Company was
authorized to use up to $48,000 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. On February 8, 2006, the
maximum aggregate amount authorized for purchases under the 2006
Repurchase Program was increased to $68,000 and was then further
increased on March 28, 2006 to $83,000. During 2006,
7,329,305 shares were repurchased under the 2006 Repurchase
Program at a cost of approximately $71,843. In December 2006,
the Company terminated the 2006 Repurchase Program and announced
a new stock repurchase program (New Repurchase
Program). Under the New Repurchase Program, the Company is
authorized to use up to $100,000 to purchase shares of
HLTHs Common Stock from time to time beginning on
December 19, 2006, subject to market conditions. As of
December 31, 2007 and 2006, respectively, the Company had
repurchased 4,280,931 and 910,940 shares at a cost of
approximately $58,447 and $11,324 under the New Repurchase
Program.
On March 29, 2001, the Company announced a stock repurchase
program. Under that program, the Company was originally
authorized to use up to $50,000 to purchase shares of
HLTHs Common Stock from time to time beginning on
April 2, 2001, subject to market conditions. The maximum
aggregate amount of purchases under that program was
subsequently increased to $100,000, $150,000, $200,000 and
$345,000 on November 2, 2001, November 7, 2002,
August 19, 2004 and November 1, 2005, respectively. As
of December 31, 2005, the Company had repurchased
29,126,986 shares at a cost of approximately $159,714 under
that program, of which 2,541,000 shares were repurchased
during 2005 for an aggregate purchase price of $21,246 and
4,272,630 shares were repurchased during 2004 for an
aggregate purchase price of $32,110. On November 23, 2005,
in connection with the 2005 Tender Offer, the Company announced
the termination of the Program.
Preferred
Stock
On September 23, 2004, two related proposals were approved
at the Companys annual meeting of stockholders. The first
proposal reduced the number of authorized shares of the
Companys Convertible Redeemable Exchangeable Preferred
Stock from 5,000,000 to 10,000. The other proposal authorized
the Companys Board of Directors to approve the issuance of
up to 4,990,000 shares of preferred stock from time to time
in one or more series, to establish from time to time the number
of shares to be included in any such series, and to fix the
designation, powers, preferences and rights of the shares of
each such series and the qualifications, limitations and
restrictions thereof. No shares have been issued pursuant to
that authority and the 10,000 shares of Convertible
Redeemable Exchangeable Preferred Stock were the only shares of
preferred stock of the Company that were issued and outstanding
and then converted in 2007. For a description of the
Companys Convertible Redeemable Exchangeable Preferred
Stock, see Note 7.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 57
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Warrants
At December 31, 2007, the Company had warrants outstanding
to purchase 2,440,838 shares of common stock which are all
vested and exercisable. The following table summarizes
information with respect to warrants outstanding at
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Average
|
|
|
Contractual Life
|
|
Exercise Prices
|
|
Shares
|
|
|
Exercise Price
|
|
|
(In Years)
|
|
|
$9.25
|
|
|
2,408,908
|
|
|
$
|
9.25
|
|
|
|
0.35
|
|
$30.00
|
|
|
31,930
|
|
|
|
30.00
|
|
|
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,440,838
|
|
|
$
|
9.52
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2007 and 2005, warrants to purchase a total of
4,971 shares and 1,416,668 shares, of the
Companys Common Stock at a weighted average exercise price
of $6.43 per share and $1.53 per share, respectively, were
exercised. In 2006 there were no exercises of warrants. Also
during 2007, 2006 and 2005, warrants to purchase a total of
3,014,229 shares, 100,000 shares and
599,197 shares, of the Companys Common Stock at a
weighted average price of $15.03 per share, $38.13 per share and
$8.04 per share, respectively, expired.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 58
HLTH
CORPORATION
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Federal net operating loss carryforwards
|
|
$
|
427,007
|
|
|
$
|
418,391
|
|
State net operating loss carryforwards
|
|
|
59,024
|
|
|
|
67,316
|
|
Federal tax credits
|
|
|
28,809
|
|
|
|
33,963
|
|
Other accrued expenses
|
|
|
40,142
|
|
|
|
27,842
|
|
Stock-based compensation
|
|
|
18,610
|
|
|
|
12,230
|
|
Investment in EBS Master LLC
|
|
|
19,950
|
|
|
|
30,072
|
|
Intangible assets
|
|
|
12,313
|
|
|
|
14,173
|
|
Other
|
|
|
10,118
|
|
|
|
8,688
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
615,973
|
|
|
|
612,675
|
|
Valuation allowance
|
|
|
(503,900
|
)
|
|
|
(554,204
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
112,073
|
|
|
|
58,471
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(8,855
|
)
|
|
|
(5,233
|
)
|
Convertible notes
|
|
|
(52,206
|
)
|
|
|
(36,506
|
)
|
Other
|
|
|
(356
|
)
|
|
|
(668
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(61,417
|
)
|
|
|
(42,407
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
50,656
|
|
|
$
|
16,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Current deferred tax assets, net:
|
|
|
|
|
|
|
|
|
Current deferred tax assets, net of deferred tax liabilities
|
|
$
|
58,396
|
|
|
$
|
28,310
|
|
Valuation allowance
|
|
|
(47,770
|
)
|
|
|
(28,310
|
)
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets, net
|
|
|
10,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets, net:
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets, net of deferred tax liabilities
|
|
|
496,160
|
|
|
|
541,958
|
|
Valuation allowance
|
|
|
(456,130
|
)
|
|
|
(525,894
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets, net
|
|
|
40,030
|
|
|
|
16,064
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
50,656
|
|
|
$
|
16,064
|
|
|
|
|
|
|
|
|
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 59
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The income tax (benefit) provision was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(366
|
)
|
|
$
|
7,494
|
|
|
$
|
(5,610
|
)
|
State and other
|
|
|
(2,199
|
)
|
|
|
16,054
|
|
|
|
(807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax (benefit) provision
|
|
|
(2,565
|
)
|
|
|
23,548
|
|
|
|
(6,417
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(13,012
|
)
|
|
|
(3,526
|
)
|
|
|
3,812
|
|
State
|
|
|
308
|
|
|
|
(403
|
)
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (benefit) provision
|
|
|
(12,704
|
)
|
|
|
(3,929
|
)
|
|
|
4,247
|
|
Reversal of valuation allowance applied to goodwill
|
|
|
2,610
|
|
|
|
30,770
|
|
|
|
|
|
Reversal of valuation allowance applied to additional paid-in
capital
|
|
|
3,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) provision
|
|
$
|
(8,741
|
)
|
|
$
|
50,389
|
|
|
$
|
(2,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between the federal statutory rate and the
effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
United States federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes (net of federal benefit)
|
|
|
20.8
|
|
|
|
1.2
|
|
|
|
0.4
|
|
Goodwill amortization
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
(12.2
|
)
|
Gain on 2006 EBS Sale
|
|
|
(17.3
|
)
|
|
|
14.1
|
|
|
|
|
|
Minority interest
|
|
|
11.2
|
|
|
|
|
|
|
|
0.8
|
|
Valuation allowance
|
|
|
(124.9
|
)
|
|
|
(84.5
|
)
|
|
|
37.2
|
|
Cumulative effect of change in tax rate
|
|
|
|
|
|
|
|
|
|
|
(68.0
|
)
|
Non-deductible officer compensation
|
|
|
6.3
|
|
|
|
1.0
|
|
|
|
1.6
|
|
Settlement of tax contingencies
|
|
|
(1.7
|
)
|
|
|
(0.6
|
)
|
|
|
(18.1
|
)
|
Reversal of valuation allowance applied to goodwill
|
|
|
7.8
|
|
|
|
7.2
|
|
|
|
|
|
Reversal of valuation allowance applied to additional paid-in
capital
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
Losses benefited to discontinued operations
|
|
|
20.1
|
|
|
|
40.0
|
|
|
|
14.1
|
|
Other
|
|
|
4.7
|
|
|
|
(0.9
|
)
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(26.2
|
)%
|
|
|
11.7
|
%
|
|
|
(6.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Until the quarter ended December 31, 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. During the quarter ended
December 31, 2007, after consideration of the relevant
positive and negative evidence, the Company reversed $24,652 of
its valuation allowance, of which $16,327 reversed through the
tax provision and the remainder primarily reversed through
discontinued operations.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 60
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The valuation allowance for deferred tax assets decreased by
$50,304 and $369,951 in 2007 and 2006, respectively. The
reduction in the valuation allowance in 2006 primarily relates
to the utilization of net operating losses to offset the gain on
the EPS Sale and the 2006 EBS Sale.
At December 31, 2007, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$1.3 billion, which expire in 2011 through 2028, and
federal tax credits of approximately $34,022, which excludes the
impact of any unrecognized tax benefits, which expire in 2008
through 2028. Approximately $440,424 and $29,739 of these net
operating loss carryforwards were recorded through additional
paid-in capital and goodwill, respectively. 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 and goodwill, respectively.
The Company uses the
with-and-without
approach as described in EITF Topic
No. D-32
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 tax
attributes currently available to the Company have been
utilized. As a result of this approach, tax net operating loss
carryforwards generated from operations and acquired entities
are considered utilized before the current periods
share-based deduction.
The Company has excess tax benefits, related to stock option
exercises subsequent to the adoption of SFAS 123(R) of
$147,140 that are not recorded as a deferred tax asset as the
amounts would not have resulted in a reduction in current taxes
payable as all other tax attributes currently available to the
Company were utilized. The benefit of these deductions will be
recorded to additional paid-in capital at the time the tax
deduction results in a reduction of current taxes payable.
A portion of net operating loss carryforwards and tax credit
carryforwards may be subject to an annual limitation regarding
their utilization against taxable income in future periods due
to the change of ownership provisions of the
Internal Revenue Code and similar state provisions. A portion of
these carryforwards may expire before becoming available to
reduce future income tax liabilities.
The income taxes for 2007 and 2006 include a provision for
federal taxes of $2,565 and $28,783, respectively, that has not
been reduced by the decrease in valuation allowance as these tax
benefits were acquired through business combinations. In
addition, in 2005 the Joint Committee of the Internal Revenue
Service completed its review of claims related to 2001 and 2002.
The 2005 federal tax benefit reflects approximately $5,610 of a
reduction in tax expense primarily as a result of the
reevaluation of our liabilities and contingencies in light of
the completion of the review.
Some of the Companys operating companies are profitable in
certain states in which the Company does not have net operating
losses to offset that income, or are utilizing net operating
losses established through additional paid-in capital.
Accordingly, the Company provided for taxes of $2,860, $19,330,
and $544 related to state and other jurisdictions during 2007,
2006 and 2005, respectively. In addition, the income tax expense
in 2007 and 2006 includes a provision for state taxes of $45 and
$1,987, respectively, that has not been reduced by the decrease
in valuation allowance as these tax benefits were acquired
through business combinations. The state tax provision in 2007,
2006 and 2005 also reflects approximately $1,138, $3,446 and
$1,511, respectively, of a reduction in tax expense related to
discrete items associated with the reversal of contingencies for
various statute expirations.
As of January 1, 2007 and December 31, 2007, the
Company had unrecognized income tax benefits, including those of
its discontinued operations, of $12,044 and $11,529, which if
recognized, would result in $6,831 and $6,315, respectively,
being reflected as a component of the income tax provision.
Included in the
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 61
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
unrecognized income tax benefits as of January 1, 2007 and
December 31, 2007 are accrued interest and penalties of
$1,135 and $978, 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 year ended December 31, 2007:
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
10,909
|
|
Increases related to prior year tax positions
|
|
|
140
|
|
Increases related to current year tax positions
|
|
|
1,364
|
|
Settlements with tax authorities
|
|
|
(769
|
)
|
Expiration of the statute of limitations for the assessment of
taxes
|
|
|
(1,093
|
)
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
10,551
|
|
|
|
|
|
|
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 a reduction in the unrecognized income tax benefits, prior
to any annual increase, may occur from $1,400 to $1,500 within
the next twelve months. With the exception of adjusting net
operating loss carryforwards that may be utilized, the Company
is no longer subject to federal income tax examinations for tax
years before 2004 and for state and local income tax
examinations for years before 2002.
|
|
17.
|
Fair
Value of Financial Instruments
|
The following disclosure of the estimated fair value of
financial instruments is made in accordance with the
requirements of SFAS No. 107, Disclosures about
Fair Value of Financial Instruments. The estimated fair
values have been determined using available market information
as of December 31, 2007. However, considerable judgment is
required in interpreting market data to develop estimates of
fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different
market assumptions
and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Cost Basis
|
|
|
Fair Value
|
|
|
Cost Basis
|
|
|
Fair Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
536,879
|
|
|
$
|
536,879
|
|
|
$
|
614,691
|
|
|
$
|
614,691
|
|
Short-term investments
|
|
|
290,858
|
|
|
|
290,858
|
|
|
|
34,140
|
|
|
|
34,140
|
|
Marketable securities long term
|
|
|
1,473
|
|
|
|
2,383
|
|
|
|
1,474
|
|
|
|
2,633
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
650,000
|
|
|
|
654,083
|
|
|
|
650,000
|
|
|
|
636,996
|
|
Convertible redeemable exchangeable preferred stock
|
|
|
|
|
|
|
|
|
|
|
98,768
|
|
|
|
132,500
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 62
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with the requirements of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, below is a summary of the fair value, gains
and losses relating to the Companys investments in debt
and equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Short-Term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities
|
|
$
|
269,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
269,500
|
|
|
$
|
29,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
29,500
|
|
Settlement due from broker
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposits and other
|
|
|
1,358
|
|
|
|
|
|
|
|
|
|
|
|
1,358
|
|
|
|
4,640
|
|
|
|
|
|
|
|
|
|
|
|
4,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term
|
|
$
|
290,858
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
290,858
|
|
|
$
|
34,140
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
34,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
1,473
|
|
|
$
|
912
|
|
|
$
|
2
|
|
|
$
|
2,383
|
|
|
$
|
1,474
|
|
|
$
|
1,161
|
|
|
$
|
2
|
|
|
$
|
2,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 and 2006, all of the Companys
investments were classified as
available-for-sale.
As reflected in the table above, the Companys investment
portfolio includes investments in auction rate securities
(ARS). The types of ARS investments that the Company
owns are backed by student loans, almost all 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. Refer to Note 23 for a discussion regarding
recent developments with respect to the Companys ARS
investments.
During 2007 and 2006, the Company did not realize any gains or
losses from the sales and maturities of its investments. During
2005, the Company sold investments in
available-for-sale
marketable debt securities for total proceeds of $1,063,606
which are included in proceeds from maturities and sales of
available-for-sale
securities in the accompanying consolidated statements of cash
flows. The Company realized a total gain of $1,961 and realized
a total loss of $8,326 in connection with these sales. These
gains and losses have been included in other income (expense),
net in the accompanying consolidated statements of operations,
for the year ended December 31, 2005. Prior to the
recognition of this loss, any excess of book value over the
market value of these investments was reflected in accumulated
other comprehensive income in the accompanying consolidated
balance sheets.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 63
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
18.
|
Other
Income (Expense), Net
|
Other income (expense), net consists of the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Transition service fees(a)
|
|
$
|
5,833
|
|
|
$
|
2,524
|
|
|
$
|
|
|
Reduction of tax contingencies(b)
|
|
|
1,497
|
|
|
|
|
|
|
|
|
|
Legal expense(c)
|
|
|
(1,397
|
)
|
|
|
(2,578
|
)
|
|
|
(17,835
|
)
|
Advisory expense(d)
|
|
|
(2,527
|
)
|
|
|
(4,198
|
)
|
|
|
|
|
Loss on investments(e)
|
|
|
|
|
|
|
|
|
|
|
(6,365
|
)
|
Loss on redemption of convertible note(f)
|
|
|
|
|
|
|
|
|
|
|
(1,902
|
)
|
Settlement of litigation(g)
|
|
|
|
|
|
|
|
|
|
|
(1,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
$
|
3,406
|
|
|
$
|
(4,252
|
)
|
|
$
|
(27,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents the net fees received
from 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.
|
|
(d)
|
|
In 2007, represents professional
fees, primarily consisting of legal, accounting and financial
advisory services incurred by the Company related to the
potential merger of HLTH into WHC and the related 2008 EBSCo
Sale. In 2006, represents similar professional fees related to
the 2006 EBS Sale through September 26, 2006, the date the
Company entered into a definitive agreement with General
Atlantic regarding the 2006 EBS Sale.
|
|
(e)
|
|
Represents the loss recognized
related to the sale of marketable securities.
|
|
(f)
|
|
Represents a write-off of the
remaining unamortized deferred issuance costs related to the
portion of the
31/4% Notes
that were redeemed, and the payment of the redemption premium.
|
|
(g)
|
|
Represents the settlement of
litigation in 2005, in which the Company was named as a
defendant.
|
|
|
19.
|
Related
Party Transactions
|
In 2004, the Companys WebMD Segments entered into an
agreement with Fidelity Human Resources Services Company LLC
(FHRS) to integrate WebMDs private portals
product into the services FHRS provides to its clients. FHRS
provides human resources administration and benefit
administration services to employers. The Company recorded
revenue of $10,362, $7,802 and $2,960 in 2007, 2006 and 2005,
respectively, and $1,544 and $2,145 were included in accounts
receivable as of December 31, 2007 and 2006, respectively,
related to the FHRS agreement. FHRS is an affiliate of FMR Corp,
which reported beneficial ownership of shares that represent
approximately 13.6% of HLTHs Common Stock and
approximately 16.5% of WHC Class A Common Stock as of
December 31, 2007. Affiliates of FMR Corp. provide services
to the Company in connection with certain of the Companys
401(k) plans.
Comprehensive income is comprised of net income and other
comprehensive (loss) income. Other comprehensive (loss) income
includes foreign currency translation adjustments and certain
changes in equity
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 64
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that are excluded from net income, such as changes in unrealized
holding (losses) gains on
available-for-sale
marketable securities. The following table presents the
components of other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Foreign currency translation gains (losses)
|
|
$
|
3,318
|
|
|
$
|
3,611
|
|
|
$
|
(3,326
|
)
|
Comprehensive loss of EBSCo.
|
|
|
(7,326
|
)
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses
|
|
|
(249
|
)
|
|
|
(1,108
|
)
|
|
|
(3,389
|
)
|
Less: reclassification adjustment for net losses realized in net
income
|
|
|
|
|
|
|
|
|
|
|
(6,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (losses) gains on securities
|
|
|
(249
|
)
|
|
|
(1,108
|
)
|
|
|
2,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
(4,257
|
)
|
|
|
2,503
|
|
|
|
(350
|
)
|
Net income
|
|
|
19,879
|
|
|
|
771,917
|
|
|
|
68,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
15,622
|
|
|
$
|
774,420
|
|
|
$
|
68,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in comprehensive loss of EBSCo is the Companys
share of unrealized loss on the fair value of EBSCos
interest rate swap agreements.
Deferred taxes are not included within accumulated other
comprehensive income because a valuation allowance was
maintained for substantially all net deferred tax assets.
Accumulated other comprehensive income includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Unrealized holding gains on securities
|
|
$
|
910
|
|
|
$
|
1,159
|
|
|
$
|
2,267
|
|
Foreign currency translation gains
|
|
|
12,269
|
|
|
|
8,951
|
|
|
|
5,340
|
|
Comprehensive loss of EBSCo.
|
|
|
(7,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
5,853
|
|
|
$
|
10,110
|
|
|
$
|
7,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 65
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
21.
|
Supplemental
Disclosures of Cash Flow Information
|
Supplemental information related to the consolidated statements
of cash flows is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
15,764
|
|
|
$
|
15,821
|
|
|
$
|
13,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes paid, net of refunds(a)
|
|
$
|
27,375
|
|
|
$
|
23,210
|
|
|
$
|
5,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Non-Cash Investing and Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible redeemable exchangeable preferred
stock to HLTH Common Stock
|
|
$
|
100,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of convertible redeemable exchangeable preferred stock
|
|
$
|
117
|
|
|
$
|
235
|
|
|
$
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAB 51 gain
|
|
$
|
14,492
|
|
|
$
|
16,779
|
|
|
$
|
82,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of $300,000
31/4% Convertible
Subordinated Notes to HLTH Common Stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
214,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock compensation related to restricted stock awards
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 66
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
22.
|
Quarterly
Financial Data (Unaudited)
|
The following table summarizes the quarterly financial data for
2007 and 2006. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Revenue
|
|
$
|
71,881
|
|
|
$
|
77,197
|
|
|
$
|
86,034
|
|
|
$
|
96,581
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
28,618
|
|
|
|
28,997
|
|
|
|
30,021
|
|
|
|
29,645
|
|
Sales and marketing
|
|
|
22,868
|
|
|
|
21,928
|
|
|
|
22,462
|
|
|
|
26,387
|
|
General and administrative
|
|
|
28,445
|
|
|
|
26,951
|
|
|
|
25,715
|
|
|
|
23,210
|
|
Depreciation and amortization
|
|
|
6,325
|
|
|
|
7,239
|
|
|
|
7,390
|
|
|
|
7,302
|
|
Gain on 2006 EBS Sale
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
4,965
|
|
|
|
5,484
|
|
|
|
6,204
|
|
|
|
6,789
|
|
Other income (expense), net
|
|
|
2,483
|
|
|
|
1,396
|
|
|
|
989
|
|
|
|
(1,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income tax
(benefit) provision
|
|
|
(6,528
|
)
|
|
|
(1,038
|
)
|
|
|
7,639
|
|
|
|
15,364
|
|
Income tax (benefit) provision
|
|
|
(231
|
)
|
|
|
1,658
|
|
|
|
2,977
|
|
|
|
(13,145
|
)
|
Minority interest in WHC
|
|
|
115
|
|
|
|
843
|
|
|
|
1,800
|
|
|
|
7,909
|
|
Equity in earnings of EBS Master LLC
|
|
|
7,099
|
|
|
|
7,575
|
|
|
|
8,005
|
|
|
|
5,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
687
|
|
|
|
4,036
|
|
|
|
10,867
|
|
|
|
26,487
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
5,015
|
|
|
|
(49,499
|
)
|
|
|
5,704
|
|
|
|
16,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,702
|
|
|
$
|
(45,463
|
)
|
|
$
|
16,571
|
|
|
$
|
43,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.00
|
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
$
|
0.15
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
0.03
|
|
|
|
(0.27
|
)
|
|
|
0.03
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.03
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.09
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.00
|
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
$
|
0.13
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
0.03
|
|
|
|
(0.26
|
)
|
|
|
0.03
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.03
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.09
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 67
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Revenue
|
|
$
|
231,200
|
|
|
$
|
242,792
|
|
|
$
|
252,580
|
|
|
$
|
182,355
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
148,813
|
|
|
|
150,177
|
|
|
|
150,908
|
|
|
|
95,808
|
|
Sales and marketing
|
|
|
28,034
|
|
|
|
29,286
|
|
|
|
32,082
|
|
|
|
29,701
|
|
General and administrative
|
|
|
32,514
|
|
|
|
33,058
|
|
|
|
33,714
|
|
|
|
33,048
|
|
Depreciation and amortization
|
|
|
12,167
|
|
|
|
12,934
|
|
|
|
13,826
|
|
|
|
5,631
|
|
Gain on 2006 EBS Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352,297
|
|
Interest (expense) income, net
|
|
|
(280
|
)
|
|
|
(244
|
)
|
|
|
1,871
|
|
|
|
12,198
|
|
Other (expense) income, net
|
|
|
(542
|
)
|
|
|
(2,347
|
)
|
|
|
(2,809
|
)
|
|
|
1,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax provision
|
|
|
8,850
|
|
|
|
14,746
|
|
|
|
21,112
|
|
|
|
384,108
|
|
Income tax provision (benefit)
|
|
|
1,821
|
|
|
|
2,596
|
|
|
|
3,428
|
|
|
|
42,544
|
|
Minority interest in WHC (loss) income
|
|
|
(472
|
)
|
|
|
(121
|
)
|
|
|
69
|
|
|
|
929
|
|
Equity in earnings of EBS Master LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
7,501
|
|
|
|
12,271
|
|
|
|
17,615
|
|
|
|
341,398
|
|
Income from discontinued operations, net of tax
|
|
|
8,089
|
|
|
|
9,815
|
|
|
|
362,852
|
|
|
|
12,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,590
|
|
|
$
|
22,086
|
|
|
$
|
380,467
|
|
|
$
|
353,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.06
|
|
|
$
|
1.33
|
|
Income from discontinued operations, net of tax
|
|
|
0.02
|
|
|
|
0.04
|
|
|
|
1.26
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.05
|
|
|
$
|
0.08
|
|
|
$
|
1.32
|
|
|
$
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.06
|
|
|
$
|
1.12
|
|
Income from discontinued operations, net of tax
|
|
|
0.02
|
|
|
|
0.03
|
|
|
|
1.21
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.05
|
|
|
$
|
0.07
|
|
|
$
|
1.27
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in Auction Rate Securities Backed by Federally Guaranteed
Student Loans
As of February 21, 2008, the Company had approximately
$1.45 billion in consolidated cash, cash equivalents and
marketable securities, which includes approximately $364,000 of
investments in certain ARS. Also as of this date, WHC had
approximately $327,000 of the Companys consolidated cash,
cash equivalents and marketable securities, including
approximately $169,000 of the Companys consolidated ARS
investments. The types of ARS investments that the Company owns
are backed by student loans, 97% of which are guaranteed under
the Federal Family Education Loan Program (FFELP), and all had
credit ratings of AAA or Aaa when purchased. The Company and its
subsidiaries do not own any other type of ARS investments.
The interest rates on these ARS investments are reset every
28 days by an auction process. Historically, these types of
ARS investments have been highly liquid. In mid-February 2008,
auctions for ARS investments backed by student loans failed,
including auctions for the ARS investments held by the Company.
The result of a failed auction is that these ARS investments
continue to bear interest in accordance with their terms until
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 68
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the next successful auction; however, liquidity will be limited
until there is a successful auction or until such time as other
markets for these ARS investments develop. The Company believes
that the underlying credit quality of the assets backing its ARS
investments has not been impacted by the reduced liquidity of
these ARS investments. As a result of these recent events, the
Company is in the process of evaluating the extent of any
impairment in its ARS investments resulting from the current
lack of liquidity; however, the Company is not yet able to
quantify the amount of any impairment. The Company believes that
any lack of liquidity relating to its ARS investments will not
have an impact on its ability to fund its current operations.
WHC
Merger
On February 20, 2008, the Company and WHC entered into a
Merger Agreement, pursuant to which the Company will merge into
WHC ( the WHC Merger), with WHC continuing as the
surviving company. In the WHC Merger, each outstanding share of
Company common stock will be converted into 0.1979 shares
of WHC common stock and $6.89 in cash, which cash amount is
subject to a downward adjustment as described below (the
Merger Consideration). The shares of WHC
Class A Common Stock currently outstanding will remain
outstanding and will be unchanged in the WHC Merger. The WHC
Merger will eliminate both the controlling class of WHC stock
held by the Company and WHCs existing dual-class stock
structure. The terms of the Merger Agreement were negotiated
between the Company and a Special Committee of the Board of
Directors of WHC. The Merger Agreement was approved by the Board
of WHC based on the recommendations of the Special Committee and
by the Board of the Company.
The cash portion of the Merger Consideration will be funded from
cash and investments at WHC and the Company, and proceeds from
the Companys anticipated sales of its ViPS and Porex
businesses. The cash portion of the Merger Consideration is
subject to downward adjustment prior to the closing, based on
the amount of proceeds received from the disposition of the
Companys investment in certain ARS, which, under the terms
of the Merger Agreement, must be liquidated by the Company prior
to closing of the WHC Merger. The Company cannot predict, at
this time, the amount of such downward adjustment. See
Investment in Auction Rate Securities Backed by Federally
Guaranteed Student Loans above. If either ViPS or Porex
has not been sold at the time the WHC Merger is ready to be
consummated, WHC may issue up to $250,000 in redeemable notes to
the stockholders of the Company in lieu of a portion of the cash
consideration otherwise payable in the WHC Merger. The notes
would bear interest at a rate of 11% per annum, payable in kind
annually in arrears. The notes would be subject to mandatory
redemption by WHC from the proceeds of the divestiture of the
remaining ViPS or Porex business. The redemption price would be
equal to the principal amount of the notes to be redeemed plus
accrued but unpaid interest through the date of the redemption.
Completion of the WHC Merger is subject to: the Company and WHC
receiving required stockholder approvals; a requirement that the
surviving company have an amount of cash, as of the closing, at
least equal to an agreed upon threshold, calculated in
accordance with a formula contained in the Merger Agreement;
completion of the sale by the Company of either ViPS or Porex
and the sale of the Companys ARS investments; and other
customary closing conditions. The Company, which owns shares of
WHC constituting approximately 96% of the total number of votes
represented by outstanding shares, has agreed to vote its shares
of WHC in favor of the WHC Merger. The transaction is expected
to close in the second or third quarter of 2008.
Following the WHC Merger, WHC as the surviving corporation will
assume the obligations of the Company under the Companys
31/8% Convertible
Notes due September 1, 2025 and the Companys
1.75% Convertible Subordinated Notes due June 15, 2023
(Convertible Notes). In the event a holder of these
Convertible Notes converts these Convertible Notes into shares
of HLTH Common Stock pursuant to the terms of the applicable
indenture prior to the effective time of the WHC Merger, those
shares would be treated in the WHC Merger like all other shares
of HLTH Common Stock. In the event a holder of the
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 69
HLTH
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Convertible Notes converts those Convertible Notes pursuant to
the applicable indenture following the effective time of the WHC
Merger, those Convertible Notes would be converted into the
right to receive the Merger Consideration payable in respect of
the shares of HLTH Common Stock into which such Convertible
Notes would have been convertible. For additional information
regarding these Convertible Notes, see Note 8, above.
Sale of
EBSCo
On February 8, 2008, the Company entered into a Securities
Purchase Agreement (the Purchase Agreement) and
simultaneously completed the sale (the 2008 EBSCo
Sale) of its 48% minority ownership interest in EBSCo for
$575,000 in cash to an affiliate of GA and affiliates of
Hellman & Friedman, LLC (H&F). The
Purchase Agreement contains representations and warranties and
covenants that are customary for transactions of this type. The
Company and WHC will be continuing their product development and
marketing relationships with EBSCo. The Company expects to
recognize a taxable gain on the 2008 EBSCo Sale and expects to
utilize a portion of its federal NOL carryforward to offset a
portion of the tax liability that would otherwise result from
the 2008 EBSCo Sale. Under the existing Tax Sharing Agreement
between the Company and WHC, the Company has agreed to reimburse
WHC for any NOL carryforward attributable to WHC that is
utilized by the Company in connection with this transaction. The
amount of the NOL carryforward attributable to WHC to be
utilized and the amount of the resulting reimbursement depend on
numerous factors and cannot be determined at this time. This
reimbursement obligation would be extinguished by the completion
of the WHC Merger.
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE 70
Schedule II.
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
of Year
|
|
|
Expenses
|
|
|
Acquired
|
|
|
Write-offs
|
|
|
Other
|
|
|
End of Year
|
|
|
|
(In thousands)
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
$
|
956
|
|
|
$
|
1,177
|
|
|
$
|
|
|
|
$
|
(968
|
)
|
|
$
|
|
|
|
$
|
1,165
|
|
Valuation Allowance for Deferred Tax Assets
|
|
|
554,204
|
|
|
|
(42,953
|
)
|
|
|
1,449
|
|
|
|
|
|
|
|
(8,800
|
)(c)
|
|
|
503,900
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
6,245
|
|
|
|
1,852
|
|
|
|
229
|
|
|
|
(3,731
|
)
|
|
|
(3,639
|
)(b)
|
|
|
956
|
|
Valuation Allowance for Deferred Tax Assets
|
|
|
924,155
|
|
|
|
(370,313
|
)
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
554,204
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
5,957
|
|
|
|
2,202
|
|
|
|
60
|
|
|
|
(1,974
|
)
|
|
|
|
|
|
|
6,245
|
|
Valuation Allowance for Deferred Tax Assets
|
|
|
881,438
|
|
|
|
12,733
|
|
|
|
12,893
|
|
|
|
|
|
|
|
17,091
|
(a)
|
|
|
924,155
|
|
|
|
|
(a)
|
|
Represents valuation allowance
created through equity as a result of stock option and warrant
exercises.
|
|
(b)
|
|
Represents the sale of the Emdeon
Business Services segment on November 16, 2006.
|
|
(c)
|
|
Represents valuation allowance
released as a result of (i) the adoption of FIN 48,
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.
|
HLTH 2007 Annual
Report Financial Statements Annex
ANNEX A-1
PAGE S-1
ANNEX A-2
HLTH
CORPORATION 2007 ANNUAL REPORT
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth selected historical consolidated
financial information for HLTH. The selected historical
information is presented as of June 30, 2008 and for the
six months ended June 30, 2008 and 2007 and as of and for
the years ended December 31, 2007, 2006, 2005, 2004 and
2003. HLTH derived the historical information for the years
ended December 31, 2007, 2006, 2005, 2004, and 2003 from
its audited consolidated financial statements and the notes
thereto. HLTH derived the historical information for the six
months ended June 30, 2008 and 2007 from its unaudited
consolidated financial statements for those periods. In the
opinion of HLTH management, the unaudited consolidated interim
financial statements incorporated by reference herein for the
six months ended June 30, 2008 and 2007 have been prepared
on a basis consistent with HLTHs audited consolidated
financial statements and include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations
for these periods. The operating results for the six months
ended June 30, 2008 are not necessarily indicative of the
results that may be expected for the entire year ending
December 31, 2008 of HLTH or the combined company.
The selected information set forth below should be read in
conjunction with HLTHs consolidated financial statements
and related footnotes, as well as the disclosure under the
heading Managements Discussion and Analysis of
Financial Condition and Results of Operations, included in
Annex A-1
and
Annex A-2,
respectively, to this proxy statement and in HLTHs
quarterly reports on
Form 10-Q
filed with the Securities and Exchange Commission. The
historical results of operations are not necessarily indicative
of future results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31,(1)
|
|
|
|
2007
|
|
|
2006(2)(3)(4)
|
|
|
2005
|
|
|
2004
|
|
|
2003(5)
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
331,693
|
|
|
$
|
908,927
|
|
|
$
|
852,010
|
|
|
$
|
811,267
|
|
|
$
|
629,994
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
117,281
|
|
|
|
545,706
|
|
|
|
528,004
|
|
|
|
512,679
|
|
|
|
404,186
|
|
Sales and marketing
|
|
|
93,645
|
|
|
|
119,103
|
|
|
|
104,669
|
|
|
|
114,216
|
|
|
|
91,798
|
|
General and administrative
|
|
|
104,321
|
|
|
|
132,334
|
|
|
|
118,202
|
|
|
|
106,703
|
|
|
|
98,615
|
|
Depreciation and amortization
|
|
|
28,256
|
|
|
|
44,558
|
|
|
|
43,548
|
|
|
|
39,134
|
|
|
|
47,053
|
|
Interest income
|
|
|
42,035
|
|
|
|
32,339
|
|
|
|
21,527
|
|
|
|
18,708
|
|
|
|
22,855
|
|
Interest expense
|
|
|
18,593
|
|
|
|
18,794
|
|
|
|
16,321
|
|
|
|
19,249
|
|
|
|
15,201
|
|
Gain on 2006 EBS Sale
|
|
|
399
|
|
|
|
352,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of EBS Master LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of auction rate securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
|
|
3,406
|
|
|
|
(4,252
|
)
|
|
|
(27,965
|
)
|
|
|
(13,308
|
)
|
|
|
1,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax
provision (benefit)
|
|
|
15,437
|
|
|
|
428,816
|
|
|
|
34,828
|
|
|
|
24,686
|
|
|
|
(2,086
|
)
|
Income tax provision (benefit)
|
|
|
(8,741
|
)
|
|
|
50,389
|
|
|
|
(2,170
|
)
|
|
|
4,272
|
|
|
|
3,148
|
|
Minority interest in WebMD (loss) income
|
|
|
10,667
|
|
|
|
405
|
|
|
|
775
|
|
|
|
|
|
|
|
|
|
Equity in earnings of EBS Master LLC
|
|
|
28,566
|
|
|
|
763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
42,077
|
|
|
|
378,785
|
|
|
|
36,223
|
|
|
|
20,414
|
|
|
|
(5,234
|
)
|
(Loss) income from discontinued operations, net of tax
|
|
|
(22,198
|
)
|
|
|
393,132
|
|
|
|
32,588
|
|
|
|
16,197
|
|
|
|
(13,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,879
|
|
|
$
|
771,917
|
|
|
$
|
68,811
|
|
|
$
|
36,611
|
|
|
$
|
(18,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTH 2007 Annual
Report Selected Financial Data
ANNEX A-2
PAGE 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31,(1)
|
|
|
|
2007
|
|
|
2006(2)(3)(4)
|
|
|
2005
|
|
|
2004
|
|
|
2003(5)
|
|
|
|
(In thousands, except per share data)
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.24
|
|
|
$
|
1.36
|
|
|
$
|
0.11
|
|
|
$
|
0.06
|
|
|
$
|
(0.02
|
)
|
(Loss) income from discontinued operations
|
|
|
(0.13
|
)
|
|
|
1.41
|
|
|
|
0.09
|
|
|
|
0.05
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.11
|
|
|
$
|
2.77
|
|
|
$
|
0.20
|
|
|
$
|
0.11
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.21
|
|
|
$
|
1.20
|
|
|
$
|
0.10
|
|
|
$
|
0.06
|
|
|
$
|
(0.02
|
)
|
(Loss) income from discontinued operations
|
|
|
(0.12
|
)
|
|
|
1.18
|
|
|
|
0.10
|
|
|
|
0.05
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.09
|
|
|
$
|
2.38
|
|
|
$
|
0.20
|
|
|
$
|
0.11
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding used in computing income
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
179,330
|
|
|
|
279,234
|
|
|
|
341,747
|
|
|
|
320,080
|
|
|
|
304,858
|
|
Diluted
|
|
|
188,763
|
|
|
|
331,642
|
|
|
|
352,852
|
|
|
|
333,343
|
|
|
|
304,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December
31,(1)
|
|
|
|
2007
|
|
|
2006(2)(3)
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
827,737
|
|
|
$
|
648,831
|
|
|
$
|
423,003
|
|
|
$
|
101,655
|
|
|
$
|
266,097
|
|
Long-term marketable equity securities
|
|
|
2,383
|
|
|
|
2,633
|
|
|
|
4,430
|
|
|
|
515,838
|
|
|
|
456,034
|
|
Working capital (excluding assets and liabilities of
discontinued operations)
|
|
|
860,133
|
|
|
|
618,126
|
|
|
|
398,751
|
|
|
|
44,607
|
|
|
|
194,217
|
|
Total assets
|
|
|
1,651,397
|
|
|
|
1,470,366
|
|
|
|
2,214,879
|
|
|
|
2,309,012
|
|
|
|
2,129,642
|
|
Convertible notes
|
|
|
650,000
|
|
|
|
650,000
|
|
|
|
650,000
|
|
|
|
649,999
|
|
|
|
649,999
|
|
Minority interest in WebMD
|
|
|
131,353
|
|
|
|
101,860
|
|
|
|
43,096
|
|
|
|
|
|
|
|
|
|
Convertible redeemable exchangeable preferred stock
|
|
|
|
|
|
|
98,768
|
|
|
|
98,533
|
|
|
|
98,299
|
|
|
|
|
|
Stockholders equity
|
|
|
599,777
|
|
|
|
372,527
|
|
|
|
1,061,233
|
|
|
|
1,214,876
|
|
|
|
1,171,980
|
|
|
|
|
(1)
|
|
On February 21, 2008, HLTH
announced its intention to divest its ViPS and Porex segments.
Accordingly, this selected consolidated financial data has been
reclassified to reflect the historical results of these two
segments as discontinued operations for all periods presented.
|
|
(2)
|
|
For the year ended
December 31, 2006, the consolidated financial position and
results of operations reflect the sale of a 52% interest in
HLTHs Emdeon Business Services segment (which is referred
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, includes an investment in EBS
Master LLC accounted for under the equity method of accounting
related to HLTHs 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
HLTHs 48% equity in earnings of EBS Master LLC from
November 17, 2006 through December 31, 2006.
|
|
(3)
|
|
On September 14, 2006, HLTH
completed the sale of the Emdeon Practice Services segment.
Accordingly, this selected consolidated financial data has been
reclassified to reflect the historical results of the Emdeon
Practice Services segment as a discontinued operation for this
and all prior periods presented.
|
|
(4)
|
|
On January 1, 2006, HLTH
adopted Statement of Financial Accounting Standards No. 123
(Revised 2004): Share Based Payment that resulted in
additional non-cash stock-based compensation expense during 2006
and the subsequent period.
|
|
(5)
|
|
On August 1, 2003, HLTH
completed the sale of two operating units of its Porex
businesses. Accordingly, this selected consolidated financial
data has been reclassified to reflect the historical results of
these two operating units as discontinued operations for the
year ended December 31, 2003.
|
HLTH 2007 Annual
Report Selected Financial Data
ANNEX A-2
PAGE 2
ANNEX A-3
HLTH
CORPORATION 2007 ANNUAL REPORT
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This managements discussion and analysis of financial
condition and results of operations, or MD&A, contains
forward-looking statements with respect to possible events,
outcomes or results that are, and are expected to continue to
be, subject to risks, uncertainties and contingencies, including
those identified in this
Annex A-3
and in the Risk Factors included in the proxy
statement to which this
Annex A-3
is attached. See Forward-Looking Statements in the
proxy statement to which this
Annex A-3
is attached.
Except for adjustments to references to where to find the
Consolidated Financial Statements of HLTH, the text of this
MD&A is taken directly from the MD&A included in
Exhibit 99.3 to the Current Report on
Form 8-K
filed by HLTH Corporation on June 29, 2008 and is for the
same periods as the MD&A included in HLTHs Annual
Report on
Form 10-K
filed on February 29, 2008 (which we refer to as the 2007
Form 10-K);
however, it reflects the reclassification of our ViPS and Porex
segments to discontinued operations (see
Introduction Recent and Pending
Corporate Transactions) and reflects the reclassification
of segment information for WebMD into two WebMD segments (see
Results of Operations by Operating
Segment). While this MD&A reflects the
reclassifications described above, it does not reflect any other
events occurring after the filing of the 2007
Form 10-K
on February 29, 2008.
Overview
Our MD&A is provided as a supplement to the Consolidated
Financial Statements and notes thereto included in
Annex A-1
above and to provide an understanding of our results of
operations, financial condition and changes in financial
condition. Our MD&A is organized as follows:
|
|
|
|
|
Introduction. This section provides a general
description of our company, a brief discussion of our operating
segments, descriptions of recent and pending corporate
transactions and other significant developments, a summary of
the acquisitions we completed during the last three years,
background information on certain trends and strategies and a
discussion on how our business is impacted by seasonality.
|
|
|
|
Critical Accounting Estimates and Policies. This section
discusses those accounting policies that both are considered
important to our financial condition and results of operations,
and require us to exercise subjective or complex judgments in
making estimates and assumptions. In addition, all of our
significant accounting policies, including our critical
accounting policies, are summarized in Note 1 to the
Consolidated Financial Statements included in
Annex A-1
above.
|
|
|
|
Results of Operations and Results of Operations by Operating
Segment. These sections provide our analysis and outlook for
the significant line items on our consolidated statements of
operations, as well as other information that we deem meaningful
to understand our results of operations on both a company-wide
and a
segment-by-segment
basis.
|
|
|
|
Liquidity and Capital Resources. This section
provides an analysis of our liquidity and cash flows and
discussions of our contractual obligations and commitments, as
well as our outlook on our available liquidity as of
December 31, 2007.
|
|
|
|
Recent Accounting Pronouncements. This section
provides a summary of the most recent authoritative accounting
standards and guidance that have either been recently adopted or
may be adopted in the future.
|
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 1
In this MD&A, dollar amounts are in thousands, unless
otherwise noted.
Introduction
HLTH Corporation is a Delaware corporation that was incorporated
in December 1995 and commenced operations in January 1996 as
Healtheon Corporation. We changed our name to Healtheon/WebMD
Corporation in November 1999, to WebMD Corporation in September
2000, to Emdeon Corporation in October 2005 and to HLTH
Corporation in May 2007. Our common stock began trading on the
Nasdaq National Market under the symbol HLTH on
February 11, 1999 and now trades under that symbol on the
Nasdaq Global Select Market.
As of December 31, 2007, we owned approximately 84% of the
aggregate amount of outstanding shares of WHC Class A
Common Stock and Class B Common Stock and, accordingly, our
consolidated financial statements reflect the minority
shareholders 16% share of equity and net income of WHC.
On February 21, 2008, we announced our intention to divest
our ViPS and Porex segments. As a result of our intention to
divest these segments and our expectation that these
divestitures will be completed within one year, we reflected
these segments as discontinued operations within the
consolidated financial statements contained in Exhibit 99.3.
On December 31, 2007, through WHC, we sold certain assets
and liabilities of our medical reference publications and
textbook publication business, including the publications ACP
Medicine and ACS Surgery: Principles and Practice (which we
collectively refer to as the ACS/ACP Business), to Decker
Intellectual Properties Inc. and BC Decker Inc. Accordingly, the
results of the ACS/ACP Business have been presented as
discontinued operations in our consolidated financial statements
for the years ended December 31, 2007, 2006 and 2005.
From November 16, 2006 to February 8, 2008, we owned
48% of EBS Master LLC (which we refer to as EBSCo), which owns
Emdeon Business Services LLC. Emdeon Business Services LLC
conducts the business that comprised our Emdeon Business
Services segment until we sold a 52% interest in that business
to an affiliate of General Atlantic LLC (which we refer to as
GA) on November 16, 2006 (we refer to that transaction as
the 2006 EBS Sale). In this MD&A, we use the names Emdeon
Business Services and EBS to refer to the business owned by
EBSCo and, with respect to periods prior to the consummation of
the EBS Sale, to the reporting segment of our company. See
Background Information on Certain Trends and
Strategies Strategic Considerations Relating to the
EPS Sale and the 2006 EBS Sale below for background
information regarding the 2006 EBS Sale.
On September 14, 2006, we completed the sale of our Emdeon
Practice Services segment (which we refer to as EPS) to Sage
Software, Inc. (which we refer to as Sage Software). We refer to
this transaction in this MD&A as the EPS Sale. Accordingly,
the results of EPS have been presented as discontinued
operations in our consolidated financial statements for the
years ended December 31, 2006 and 2005. Discontinued
operations for the year ended December 31, 2007 consist of
post-sale activities related to EPS, including litigation costs
that were indemnified as part of the EPS Sale. See
Introduction Other Significant
Developments below with respect to this matter and see
Background Information on Certain Trends and
Strategies Strategic Considerations Relating to the
EPS Sale and the 2006 EBS Sale below for background
information regarding the EPS Sale.
Segments
As a result of our intention to divest our ViPS and Porex
segments, our only remaining operating segments are WebMD Online
Services and WebMD Publishing and Other Services (which we refer
to together, as our WebMD Segments). The following is a
description of each of our current operating segments,
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 2
our corporate segment and the EBS segment (which ceased being a
separate segment in connection with the 2006 EBS Sale):
|
|
|
|
|
WebMD Online Services. WebMD owns and operates
both public and private online portals. WebMDs public
portals enable consumers to become more informed about
healthcare choices and assist them in playing an active role in
managing their health. The public portals also enable physicians
and other healthcare professionals to improve their clinical
knowledge and practice of medicine, as well as their
communication with patients. WebMDs public portals
generate revenue primarily through the sale of advertising and
sponsorship products, including continuing medical education
(which we refer to as CME) services. WebMDs sponsors and
advertisers include pharmaceutical, biotechnology, medical
device and consumer products companies. WebMD provides
information and services that enable employees and members,
respectively, to make more informed benefit, treatment and
provider decisions through WebMDs private portals for
employers and health plans. WebMD also provides related services
for use by such employees and members, including lifestyle
education and personalized telephonic health coaching as a
result of the acquisition of Summex on June 13, 2006. WebMD
generates revenue from its private portals through the licensing
of these portals to employers and health plans either directly
or through distributors. WebMD also distributes its 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. WebMD also
provides
e-detailing
promotion and physician recruitment services for use by
pharmaceutical, medical device and healthcare companies as a
result of the acquisition of Medsite on September 11, 2006.
|
|
|
|
WebMD Publishing and Other Services. WebMD
provides several offline products and services: The Little
Blue Book, a physician directory; and WebMD the
Magazine, a consumer-targeted publication launched in early
2005 that is distributed free of charge to physician office
waiting rooms. WebMD generates revenue from sales of The
Little Blue Book directories and advertisements in those
directories, and sales of advertisements in WebMD the
Magazine. WebMD also conducted in person medical
education through December 31, 2006, as a result of the
acquisition of the assets of Conceptis Technologies, Inc. in
December 2005. Until December 31, 2007, WebMD published
ACP Medicine and ACS Surgery: Principles of Practice, its
medical reference textbooks. WebMD sold this business in 2007
and it has now been reflected as a discontinued operation in our
financial statements. WebMDs Publishing and Other Services
segment complements its Online Services segment and extends the
reach of WebMDs brand and WebMDs influence among
health-involved consumers and clinically-active physicians.
|
|
|
|
Corporate. Corporate includes personnel costs
and other expenses related to functions that are not directly
managed by one of our segments, or by the ViPS and Porex
businesses which are reflected within discontinued operations.
The personnel costs include executive personnel, legal,
accounting, tax, internal audit, risk management, human
resources and certain information technology functions. Other
corporate costs and expenses include professional fees including
legal and audit services, insurance, costs of leased property
and facilities, telecommunication costs and software maintenance
expenses. Corporate expenses are net of $3,340, $3,190 and
$5,117 for the years ended December 31, 2007, 2006 and
2005, respectively, which are costs allocated to WebMD for
services provided by the Corporate segment. In connection with
the sale of our EBS and EPS segments during the second half of
2006, we entered into transition services agreements whereby we
provided Sage Software and EBSCo certain administrative
services, including payroll, accounting, purchasing and
procurement, tax, and human resource services, as well as
information technology support. Additionally, EBSCo provides us
certain administrative services, including telecommunication
infrastructure and management services, data center support and
purchasing and procurement services. Some of the services
provided by EBSCo to HLTH are, in turn, used to fulfill
HLTHs obligations to provide transition services to Sage
Software. These services are provided through the Corporate
segment, and the related transition services fee we
|
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 3
|
|
|
|
|
charge to EBSCo and Sage Software, net of the fee we pay to
EBSCo, is also included in the Corporate segment, which
approximates the cost of providing these services.
|
|
|
|
|
|
Emdeon Business Services. EBS provides
solutions that automate key business and administrative
functions for healthcare payers and providers, including
electronic patient eligibility and benefit verification;
electronic and paper claims processing; electronic and paper
paid-claims communication services; and patient billing, payment
and communications services. In addition, EBS provides clinical
communications services that improve the delivery of healthcare
by enabling physicians to manage laboratory orders and results,
hospital reports and electronic prescriptions. As a result of
the 2006 EBS Sale, beginning November 17, 2006, the results
of EBS are no longer included in the segment results but are
reflected as an equity investment in our operating results.
|
Recent
and Pending Corporate Transactions
Proposed WHC Merger. On February 20,
2008, HLTH and WHC entered into a Merger Agreement, pursuant to
which HLTH will merge into WHC (which we refer to as the WHC
Merger), with WHC continuing as the surviving company. In the
WHC Merger, each outstanding share of HLTH common stock will be
converted into 0.1979 shares of WHC common stock and $6.89
in cash, which cash amount is subject to a downward adjustment
as described below (which we refer to as the Merger
Consideration). The shares of WHC Class A Common Stock
currently outstanding will remain outstanding and will be
unchanged in the WHC Merger. The WHC Merger will eliminate both
the controlling class of WHC stock held by HLTH and WHCs
existing dual-class stock structure. The terms of the Merger
Agreement were negotiated between HLTH and a Special Committee
of the Board of Directors of WHC. The Merger Agreement was
approved by the Board of WHC based on the recommendations of the
Special Committee and by the Board of HLTH.
The cash portion of the Merger Consideration will be funded from
cash and investments at WHC and HLTH, and proceeds from
HLTHs anticipated sales of its ViPS and Porex businesses.
See Proposed Divestitures of Porex and
ViPS below. The cash portion of the Merger Consideration
is subject to downward adjustment prior to the closing, based on
the amount of proceeds received from the disposition of
approximately $195,000 of HLTHs investment (which excludes
the portion held by WHC) in certain ARS, which, under the terms
of the Merger Agreement, must be liquidated by HLTH prior to
closing of the WHC Merger. We cannot predict, at this time, the
amount of such downward adjustment. See Other
Significant Developments Investment in Auction Rate
Securities Backed by Federally Guaranteed Student Loans
below. If either ViPS or Porex has not been sold at the time the
WHC Merger is ready to be consummated, WHC may issue up to
$250,000 in redeemable notes to the stockholders of HLTH in lieu
of a portion of the cash consideration otherwise payable in the
WHC Merger. The notes would bear interest at a rate of 11% per
annum, payable in kind annually in arrears. The notes would be
subject to mandatory redemption by WHC from the proceeds of the
divestiture of the remaining ViPS or Porex business. The
redemption price would be equal to the principal amount of the
notes to be redeemed plus accrued but unpaid interest through
the date of the redemption.
Completion of the WHC Merger is subject to: HLTH and WHC
receiving required stockholder approvals; a requirement that the
surviving company have an amount of cash, as of the closing, at
least equal to an agreed upon threshold, calculated in
accordance with a formula contained in the Merger Agreement;
completion of the sale by HLTH of either ViPS or Porex and the
sale of HLTHs ARS investments; and other customary closing
conditions. HLTH, which owns shares of WHC constituting
approximately 96% of the total number of votes represented by
outstanding shares, has agreed to vote its shares of WHC in
favor of the WHC Merger. The transaction is expected to close in
the second or third quarter of 2008.
Following the WHC Merger, WHC as the surviving corporation will
assume the obligations of HLTH under HLTHs
31/8% Convertible
Notes due September 1, 2025 and HLTHs
1.75% Convertible Subordinated Notes due June 15, 2023
(collectively referred to as Notes). In the event a holder of
these Notes converts these Notes into shares of HLTH Common
Stock pursuant to the terms of the applicable indenture prior to
the
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 4
effective time of the WHC Merger, those shares would be treated
in the WHC Merger like all other shares of HLTH Common Stock. In
the event a holder of the Notes converts those Notes pursuant to
the applicable indenture following the effective time of the WHC
Merger, those Notes would be converted into the right to receive
the Merger Consideration payable in respect of the shares of
HLTH Common Stock into which such Notes would have been
convertible.
Sale of EBSCo. On February 8, 2008, we
entered into a Securities Purchase Agreement (which we refer to
as the Purchase Agreement) and simultaneously completed the sale
(which we refer to as the 2008 EBSCo Sale) of our 48% minority
ownership interest in EBSCo for $575,000 in cash to an affiliate
of GA and affiliates of Hellman & Friedman, LLC (which
we refer to as H&F). The Purchase Agreement contains
representations and warranties and covenants that are customary
for transactions of this type. We, including the WebMD Segments,
will be continuing our product development and marketing
relationships with EBSCo. We expect to recognize a taxable gain
on the 2008 EBSCo Sale and expect to utilize a portion of our
federal net operating loss carryforward to offset a portion of
the tax liability that would otherwise result from the 2008
EBSCo Sale. Under the existing Tax Sharing Agreement between
HLTH and WHC, HLTH has agreed to reimburse WHC for any net
operating loss carryforward attributable to WHC that is utilized
by HLTH in connection with this transaction. The amount of the
net operating loss carryforward attributable to WHC to be
utilized and the amount of the resulting reimbursement depend on
numerous factors and cannot be determined at this time. This
reimbursement obligation would be extinguished by the completion
of the WHC Merger.
Proposed Divestitures of Porex and ViPS. On
February 21, 2008, HLTH announced that it intends to divest
its ViPS and Porex segments. These divestitures are not
dependent on the WHC Merger and do not require shareholder
approval. As a result of our intention to divest these segments
and our expectation that these divestitures will be completed
within one year, we reflected these segments as discontinued
operations within the Consolidated Financial Statements
contained in
Annex A-1
above.
Strategic Considerations Relating to the Recent and Pending
Transactions. In late 2007, HLTHs Board of
Directors initiated the process leading to the entry into the
Merger Agreement with WHC because it believed that the primary
reason of many of the holders of HLTH common stock for owning
those shares was HLTHs controlling interest in WHC and
that the value of HLTHs other businesses was not
adequately reflected in the trading price of HLTH common stock.
Accordingly, HLTH sought to negotiate a transaction with the
Special Committee of the Board of WHC that would allow
HLTHs stockholders to participate more directly in the
ownership of WHC and would unlock the value of the other HLTH
assets. Cash on hand at HLTH and WHC (including proceeds from
the sales of ViPS, Porex and HLTHs remaining 48% interest
in EBS) would be used as a portion of the consideration in the
WHC Merger, reducing the need for issuance of shares of WHC
common stock. Upon completion of the WHC Merger, as structured
in the definitive Merger Agreement, HLTH stockholders will own
approximately 80% of the outstanding common stock of WHC, based
on shares currently outstanding at HLTH and WHC. The WHC Merger
will eliminate HLTHs controlling interest in WHC, and is
expected to enhance the liquidity of WHC shares by significantly
increasing the public float. In connection with the entry by
HLTH and WHC into the merger agreement, the HLTH Board made a
determination to divest Porex and VIPS (which divestitures are
not, however, dependent on the merger occurring). The decisions
relating to the divestitures of ViPS, Porex and HLTHs 48%
interest in EBS were based on the corporate strategic
considerations described above and not the performance of, or
underlying business conditions affecting, the respective
businesses.
Other
Significant Developments
Investment in Auction Rate Securities Backed by Federally
Guaranteed Student Loans. As of February 21,
2008, HLTH had investments of approximately $364,000 in certain
auction rate securities (which we refer to as ARS). The types of
ARS investments that HLTH owns are backed by student loans, 97%
of which are guaranteed under the Federal Family Education Loan
Program (which we refer to as FFELP), and
HLTH 2007 Annual
Report MD&A Annex
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all had credit ratings of AAA or Aaa when purchased. HLTH does
not own any other type of ARS investments. The interest rates on
these ARS investments are reset every 28 days by an auction
process. Historically, these types of ARS investments have been
highly liquid. In mid-February 2008, auctions for ARS
investments backed by student loans failed, including auctions
for the ARS investments held by HLTH. The result of a failed
auction is that these ARS investments continue to pay interest
in accordance with their terms until the next successful
auction; however, liquidity will be limited until there is a
successful auction or until such time as other markets for these
ARS investments develop. HLTH believes that the underlying
credit quality of the assets backing its ARS investments has not
been impacted by the reduced liquidity of these ARS investments.
As a result of these recent events, HLTH is in the process of
evaluating the extent of any impairment in its ARS investments
resulting from the current lack of liquidity; however, it is not
yet able to quantify the amount of any impairment. HLTH believes
that the lack of liquidity relating to its ARS investments will
not have an impact on its ability to fund its current operations.
Directors & Officers Liability Insurance Coverage
Litigation. On July 23, 2007, we 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 we are 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). We are seeking an order
requiring the Defendants to advance
and/or
reimburse expenses that we have incurred and expect to continue
to incur for the advancement of the reasonable defense costs of
initially ten and now nine former officers and directors of our
former EPS subsidiary who were indicted in connection with the
previously disclosed investigation by the United States Attorney
for the District of South Carolina (which we refer to as the
Investigation) described in Note 12, Commitments and
Contingencies located in the Notes to the Consolidated
Financial Statements included in
Annex A-1
above. We subsequently have settled with two of the insurance
companies during January 2008, through which we received an
aggregate amount of $14,625. This amount is included within
(loss) income from discontinued operations in the accompanying
statement of operations for the year ended December 31,
2007 and is included within prepaid expenses and other current
assets in the accompanying consolidated balance sheet as of
December 31, 2007.
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 our company and to EPS, our
former subsidiary, which is our co-plaintiff 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 our sale of EPS to Sage Software, we
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. We
retained the right to assert claims and recover proceeds under
the Policies on behalf of SSHI.
The Policies at issue in the Coverage Litigation consist 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). To date, $31,000 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 and
settlement. As a result of these payments, we have exhausted our
coverage under the EPS Policies. Additionally, as of
December 31, 2007, $16,414 has been paid under the Synetic
Policies and we have remaining coverage under such policies of
approximately $80,000. 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 our company, although the
$14,625 that we
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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.
The carrier with the third level of coverage in the Synetic
Policies has filed a motion for summary judgment in the Coverage
Litigation, which most of the carriers who have issued the
Synetic policies have joined, seeking summary judgment that any
liability to pay defense costs should be allocated among the
three sets of policies available to our company (including the
policies with respect to which the Coverage Litigation relates
and a third set of policies the issuers of which have not been
named by our 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. We believe that such assertion is
without merit. We are due to file our opposition to the motion
by February 29, 2008 together with our 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. Oral
argument with respect to both motions is set for May 5,
2008.
We believe that the Defendants are required to advance
and/or
reimburse amounts that we have incurred and expect to continue
to incur for the advancement of the reasonable defense costs of
the indicted individuals and as described above several carriers
have reimbursed us through a combination of payment under the
terms of the Policies, payment under reservation of rights and
settlement. However, there can be no assurance that we will
prevail in the Coverage Litigation or that the Defendants 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. We have certain
indemnity obligations to advance amounts for reasonable defense
costs for initially ten and now nine former officers and
directors of EPS, who were indicted in connection with the
Investigation. In connection with the sale of EPS, we agreed to
indemnify Sage Software relating to these indemnity obligations.
During the quarter ended June 30, 2007, based on
information we had recently received at that time, we determined
a reasonable estimate of the range of probable costs with
respect to our indemnification obligation and accordingly,
recorded a pre-tax charge of $57,774, 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 the quarter
ended December 31, 2007, we updated the estimate of the
range of our indemnification obligation, and as a result,
recorded an additional pre-tax charge of $15,573, which reflects
the increase in the low end of the probable range of costs
related to this matter. As of December 31, 2007, the
probable range of future costs with respect to this matter is
approximately $46,600 to $70,500. The increase in this estimate
is primarily due to a delay in the expected trial date and an
increase in the estimated costs during the pre-trial period. The
ultimate outcome of this matter is still uncertain, and
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 consolidated statement of operations in future periods.
The remaining accrual related to this obligation is $55,563 and
is reflected as liabilities of discontinued operations in our
consolidated balance sheet as of December 31, 2007.
Acquisitions
2006 Acquisitions. During 2006, we acquired
five companies, Subimo LLC (which we refer to as Subimo),
Medsite, Inc. (which we refer to as Medsite), Interactive Payer
Network, Inc. (which we refer to as IPN), Summex Corporation
(which we refer to as Summex) and eMedicine.com, Inc. (which we
refer to as eMedicine), or which we collectively called the 2006
Acquisitions.
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PAGE 7
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On December 15, 2006, through WHC, we acquired Subimo, a
privately held provider of healthcare decision support
applications to large employers, health plans and financial
institutions. The total purchase consideration for Subimo was
approximately $59,320, comprised of $32,820 in cash paid at
closing, net of cash acquired, $26,000 of WHC equity and $500 of
acquisition costs. The $26,000 of WHC equity, equal to
640,930 shares of WHC Class A Common Stock, will not
be issued until December 2008, subject to certain conditions.
While a maximum of 246,508 of these shares may be used to settle
any outstanding claims or warranties against the sellers, the
remaining 394,422 of these shares will be issued with certainty.
Accordingly, we recorded a gain to equity of $11,627, in
connection with the issuance of these 394,422 WHC shares. The
results of operations of Subimo have been included in our
financial statements from December 15, 2006, the closing
date of the acquisition, and are included in the WebMD Online
Services segment.
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On September 11, 2006, through WHC, we acquired the
interactive medical education, promotion and physician
recruitment businesses of Medsite. The total purchase
consideration for Medsite was approximately $31,467, comprised
of $30,682 in cash, net of cash acquired, and $785 of
acquisition costs. The results of operations of Medsite have
been included in our financial statements from
September 11, 2006, the closing date of the acquisition,
and are included in the WebMD Online Services segment.
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On July 18, 2006, through EBS, we acquired IPN, a privately
held provider of healthcare electronic data interchange
services. The total purchase consideration for IPN was
approximately $3,907, comprised of $3,799 in cash, net of cash
acquired, and $108 of acquisition costs. In addition, we agreed
to pay up to an additional $3,000 in cash over a two-year period
beginning in August 2007 if certain financial milestones are
achieved. The IPN business is part of the EBS businesses that
were sold on November 16, 2006. Accordingly, the results of
operations of IPN have been included in our financial
statements, specifically within our EBS segment, from
July 18, 2006, the closing date of the acquisition, through
November 16, 2006, the closing date of the 2006 EBS Sale.
The obligation to pay up to $3,000 in earn out payments was
transferred in connection with the 2006 EBS Sale and is no
longer our obligation.
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On June 13, 2006, through WHC, we acquired Summex, a
provider of health and wellness programs that include online and
offline health risk assessments, lifestyle education and
personalized telephonic health coaching. The total purchase
consideration for Summex was approximately $30,191, comprised of
$29,691 in cash, net of cash acquired, and $500 of acquisition
costs. In addition, we have agreed to pay up to an additional
$5,000 in cash in June 2008 if certain financial milestones are
achieved. The results of operations of Summex have been included
in our financial statements from June 13, 2006, the closing
date of the acquisition, and are included in the WebMD Online
Services segment.
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On January 17, 2006, through WHC, we acquired eMedicine, a
privately held online publisher of medical reference information
for physicians and other healthcare professionals. The total
purchase consideration for eMedicine was approximately $25,195,
comprised of $24,495 in cash, net of cash acquired, and $700 of
acquisition costs. The results of operations of eMedicine have
been included in our financial statements from January 17,
2006, the closing date of the acquisition, and are included in
the WebMD Online Services segment.
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2005 Acquisitions. During 2005, we acquired
the assets of Conceptis Technologies, Inc. (which we refer to as
Conceptis) and HealthShare Technology, Inc. (which we refer to
as HealthShare), or which we collectively called the 2005
Acquisitions.
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On December 2, 2005, through WHC, we acquired the assets of
and assumed certain liabilities of Conceptis, a Montreal-based
provider of online and offline medical education and promotion
aimed at physicians and other healthcare professionals. The
total purchase consideration for Conceptis was approximately
$19,859, comprised of $19,256 in cash and $603 of acquisition
costs. The results of
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operations of Conceptis have been included in our financial
statements from December 2, 2005, the closing date of the
acquisition, and are included in the WebMD Online Services and
the WebMD Publishing and Other Services segments.
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On March 14, 2005, through WHC, we acquired HealthShare,
which provides online tools that compare cost and quality
measures of hospitals for use by consumers, providers and health
plans. The total purchase consideration for HealthShare was
approximately $29,985, comprised of $29,533 in cash, net of cash
acquired, and $452 of acquisition costs. The results of
operations of HealthShare have been included in our financial
statements from March 14, 2005, the closing date of the
acquisition, and are included in the WebMD Online Services
segment.
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Strategic Considerations Relating to the 2006 Acquisitions
and 2005 Acquisitions by WebMD. The 2006
Acquisitions and the 2005 Acquisitions made by WebMD reflect
WebMDs efforts to acquire businesses that have products
and services that it believes are complementary to its own
health information products and services, including:
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products and services intended for or sought by WebMDs
existing users and clients; and
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products and services that can be distributed through
WebMDs existing infrastructure.
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The acquisitions of eMedicine, Conceptis and Medsite
strengthened WebMDs public portals and related services.
The acquisitions of HealthShare, Summex and Subimo strengthened
WebMDs private portal offerings and related services for
employers and health plans.
Background
Information on Certain Trends and Strategies
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. As consumers are required to assume
greater financial responsibility for rising healthcare costs,
the Internet serves as a valuable resource by providing them
with immediate access to searchable and dynamic interactive
content to check symptoms, assess risks, understand diseases,
find providers and evaluate treatment options. 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 WebMDs
advertisers and sponsors, 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 WebMDs services.
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. WebMD believes that through WebMDs
Health and Benefits Manager tools, including WebMDs
personal health record application, WebMD is well positioned to
play a role in this consumer-directed healthcare environment,
and these services will be a significant driver for the growth
of WebMDs private portals during the next several years.
However, WebMDs growth strategy depends, in part, on
increasing usage of WebMDs private portal services by
WebMDs employer and health plan clients employees
and members, respectively. Increasing usage of WebMDs
services requires WebMD to
HLTH 2007 Annual
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ANNEX A-3
PAGE 9
continue to deliver and improve the underlying technology and
develop new and updated applications, features and services. In
addition, WebMD faces competition in the area of healthcare
decision-support tools and online health management applications
and health information services. Many of WebMDs
competitors have greater financial, technical, product
development, marketing and other resources than WebMD does, and
may be better known than WebMD is.
Strategic Considerations Relating to the EPS Sale and the
2006 EBS Sale. In February 2006, we announced
that, in connection with inquiries received from several third
parties expressing an interest in acquiring our EBS and EPS
segments, our Board of Directors had authorized commencing a
process to evaluate strategic alternatives relating to these
businesses (other than the ViPS business then included in EBS)
to maximize stockholder value. After seeking offers from
qualified purchasers for EPS and EBS, we announced, in August
2006, that we had entered into a definitive agreement with Sage
Software, a wholly-owned subsidiary of The Sage Group plc with
respect to the EPS Sale, for a purchase price of
$565 million, subject to customary adjustments. The EPS
Sale was completed in September 2006. Also in September 2006, we
entered into a definitive agreement with respect to the 2006 EBS
Sale, which was completed in November 2006. The 2006 EBS Sale
allowed us to realize proceeds of approximately
$1.2 billion in cash while preserving our ability to
participate in the future growth of EBS through our 48%
ownership stake. We used proceeds from the 2006 EBS Sale and the
EPS Sale to fund a tender offer for our common stock, pursuant
to which we purchased approximately 129.2 million shares of
our common stock at a purchase price of $12.00 per share, for a
total cost of approximately $1.55 billion. By significantly
reducing the number of outstanding shares of our common stock
and simplifying our corporate structure through these
transactions, our shareholders increased their participation in
the performance of WebMD, which became our primary business.
Seasonality
The timing of our revenue is affected by seasonal factors.
WebMDs advertising and sponsorship revenue is seasonal,
primarily as a result of the annual budget approval process of
the advertising and sponsorship clients of the public portals.
This portion of revenue is usually the lowest in the first
quarter of each calendar year, and increases during each
consecutive quarter throughout the year. WebMDs private
portal licensing revenue is historically highest in the second
half of the year as new customers are typically added during
this period in conjunction with their annual open enrollment
periods for employee benefits. Additionally, the annual
distribution cycle for certain publishing products results in a
significant portion of WebMDs publishing revenue being
recognized in the second and third quarter of each calendar year.
Critical
Accounting Estimates and Policies
Critical
Accounting Estimates
Our discussion and analysis of HLTHs financial condition
and results of operations are based upon our Consolidated
Financial Statements and Notes to Consolidated Financial
Statements, which were prepared in conformity with
U.S. generally accepted accounting principles. The
preparation of financial statements requires us to make certain
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 in order to form a basis for making
judgments about the carrying values of assets and liabilities,
the recorded amounts of revenue and expenses, and disclosure of
contingent assets and liabilities. We are subject to
uncertainties such as the impact of future events, economic,
environmental and political factors, and changes in our business
environment; therefore, actual results could differ from these
estimates. Accordingly, the accounting estimates used in
preparation of our financial statements will change as new
events occur, as more experience is acquired, as additional
information is obtained and as our operating environment
changes. Changes in estimates are made when circumstances
warrant. Such changes in estimates and refinements in estimation
methodologies are
HLTH 2007 Annual
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ANNEX A-3
PAGE 10
reflected in reported results of operations; if material, the
effects of changes in estimates are disclosed in the notes to
our consolidated financial statements.
We evaluate our estimates on an ongoing basis, including those
related to revenue recognition, short-term and long-term
investments, income taxes and tax contingencies, collectibility
of customer receivables, long-lived assets including goodwill
and other intangible assets, software and Web site development
costs, prepaid advertising services, 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 Our revenue recognition
policies are as follows:
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WebMD Segments. Revenue from advertising is
recognized as advertisements are delivered or as publications
are distributed. Revenue from sponsorship arrangements, content
syndication and distribution arrangements, 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 WebMD 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.
Emdeon Business Services. Through the date of
the 2006 EBS Sale on November 16, 2006, healthcare payers
and providers paid us fees for transaction services, generally
on either a per transaction basis or, in the case of some
providers, on a monthly fixed fee basis. Healthcare payers and
providers also paid us fees for document conversion, patient
statement and paid-claims communication services, typically on a
per document, per statement or per communication basis. EBS
generally charged a one-time implementation fee to healthcare
payers and providers at the inception of a contract, in
connection with their related setup to submit and receive
medical claims and other related transactions through EBSs
clearinghouse network. Revenue for transaction services, patient
statement services and paid-claims communication services was
recognized as the services were provided. The implementation
fees were deferred and amortized to revenue on a straight line
basis over the contract period of the related transaction
processing services, which generally vary from one to three
years.
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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 our estimates of
the future benefit of the intangible asset using accepted
valuation techniques, such as discounted cash flow and
replacement cost models. Our long-lived assets, excluding
goodwill, 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, whenever indicators of impairment
are present. We evaluate the carrying value of goodwill
annually, or whenever indicators of impairment are present. We
use a discounted cash flow approach to determine the fair value
of goodwill. Long-lived assets held for sale are reported at the
lower of cost or fair value less costs to sell. There was no
impairment of goodwill noted as a result of our impairment
testing in 2007.
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Investments Our investments, at
December 31, 2007, consisted principally of money market
funds and investments in certain ARS. All of our investments
were classified as available-for-sale and were carried at fair
value. Unrealized gains and losses associated with
available-for-sale securities are recorded as a component of
accumulated other comprehensive income within stockholders
equity. Realized gains and losses and declines in value
determined to be other-than-temporary are recorded in the
consolidated statements of operations. A decline in value is
deemed to be other-than-temporary if we do not have the intent
and ability to retain the investment until any anticipated
recovery in market value. The cost of securities is based on the
specific identification method.
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As discussed in more detail above in
Introduction Other Significant
Developments, during mid-February 2008, auctions for ARS
investments backed by student loans failed, including auctions
for the ARS investments we held. The result of a failed auction
is that these ARS investments continue to bear interest in
accordance with their terms until the next successful auction;
however, liquidity will be limited until there is a successful
auction or until such time as other markets for these ARS
investments develop. We believe that the underlying credit
quality of the assets backing its ARS investments have not been
impacted by the reduced liquidity of these ARS investments. As a
result of these recent events, we are in the process of
evaluating the extent of any impairment in our ARS investments
resulting from the current lack of liquidity; however, we are
not yet able to quantify the amount of any impairment.
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Sale of Subsidiary Stock Our WHC
subsidiary issues its Class A Common Stock in various
transactions, which results in a dilution of our percentage
ownership in WHC. We account for the sale of WHC Class A
Common Stock in accordance with the SECs Staff Accounting
Bulletin No. 51 Accounting for Sales of Stock by a
Subsidiary. The difference between the carrying amount of
our investment in WHC before and after the issuance of WHC
Class A Common Stock is considered either a gain or loss
and is reflected as a component of our stockholders
equity. During 2007 and 2006, WHC issued Class A Common
Stock for the following transactions, which resulted in our
ownership in WHC decreasing to 84.1% as of December 31,
2007 from 85.2% as of December 31, 2006:
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Compensation Related. During 2007 and 2006,
WHC stock options were exercised and restricted stock awards
were released in accordance with WHCs 2005 Long-Term
Incentive Plan and WHC issued WHC Class A Common Stock to
its Board of Directors as payment for their services. The
issuance of these shares resulted in an aggregate gain of
$14,492 and $5,152 in 2007 and 2006. We expect to continue to
record gains in the future related to the future issuances of
WHC Class A Common Stock in these types of transactions.
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Acquisition of Subimo. During 2006, WHC
purchased Subimo for cash and agreed to the future issuance of
WHC Class A Common Stock (see
Introduction Acquisitions
above for further details) and, accordingly, we recorded a gain
to equity of $11,627 in connection with the issuance of the
non-contingent portion of this WHC Class A Common Stock.
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Equity Investment in EBSCo We
accounted for our equity investment in EBSCo (which, as
described above, was sold on February 8, 2008) in
accordance with Accounting Principles Board (which we refer to
as APB) Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock (which we refer
to as APB 18), which stipulates that the equity method should be
used to account for investments whereby an investor has
the ability to exercise significant influence over
operating and financial policies of an investee, but does
not exercise control. APB 18 generally considers an investor to
have the ability to exercise significant influence when it owns
20% or more of the voting stock of an investee. We believe that
our equity investment in EBSCo met these criteria. We assess the
recoverability of the carrying value of our investment whenever
events or changes in circumstances indicate a loss in value that
is other than a temporary decline. Factors indicating a decline
in value that is deemed to be other-than-temporary include the
lack of intent and our inability
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to retain the investment until any anticipated recovery in the
carrying amount of the investment, or the inability of the
investment to sustain an earnings capacity which would justify
the carrying amount. As of December 31, 2007, the current
fair value of our equity investment in EBSCo exceeded its
carrying amount of $25,261.
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Stock-Based Compensation On
January 1, 2006, we adopted SFAS No. 123,
(Revised 2004): Share-Based Payment (which we refer
to as SFAS 123R), which replaces SFAS No. 123,
Accounting for Stock-Based Compensation (which we
refer to as SFAS 123) and supersedes APB Opinion
No. 25, Accounting for Stock Issued to
Employees (which we refer to as APB 25). SFAS 123R
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. We elected to use the modified prospective transition
method. Under the modified prospective transition method, awards
that were granted or modified on or after January 1, 2006
are measured and accounted for in accordance with
SFAS 123R. Unvested stock options and restricted stock
awards that were granted prior to January 1, 2006 will
continue to be accounted for in accordance with SFAS 123,
using the same grant date fair value and same expense
attribution method used under SFAS 123, except that all awards
are recognized in the results of operations over the remaining
vesting periods. The impact of forfeitures that may occur prior
to vesting is also estimated and considered in the amount
recognized for all stock-based compensation beginning
January 1, 2006. As of December 31, 2007,
approximately $23,480 and $39,840 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 1.2 years and
1.6 years, related to the HLTH and WHC stock-based
compensation plans. The total recognition period for the
remaining unrecognized stock-based compensation expense for both
the HLTH and WHC stock-based compensation plans is approximately
four years; however, the majority of this cost will be
recognized over the next two years, in accordance with our
vesting provisions.
|
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.
The expected volatility for stock options to purchase HLTH
Common Stock is based on implied volatility from traded options
of HLTH Common Stock combined with historical volatility of HLTH
Common Stock. Prior to August 1, 2007, the expected
volatility for stock options to purchase WHC Class A Common
Stock was based on implied volatility from traded options of
stock of comparable companies combined with historical stock
price volatility of comparable companies. Beginning on
August 1, 2007, expected volatility is based on implied
volatility from traded options of WHC Class A Common Stock
combined with historical volatility of WHC Class A Common
Stock.
|
|
|
|
|
Deferred Taxes Our deferred tax assets
are comprised primarily of net operating loss carryforwards. At
December 31, 2007, we had net operating loss carryforwards
of approximately $1.3 billion, which expire at varying
dates from 2011 through 2028. These loss carryforwards may be
used to offset taxable income in future periods, reducing the
amount of taxes we might otherwise be required to pay. Until the
quarter ended December 31, 2007, a full valuation allowance
had been provided against all net deferred taxes, except for a
deferred tax liability originating from business combinations
that resulted in tax deductible goodwill. During the quarter
ended December 31, 2007, after consideration of the
relevant positive and negative evidence, we reversed a portion
of our valuation allowance primarily through the tax provision
and discontinued operations. In determining the need for a
valuation allowance, management determined 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, and in the future,
should management determine that realization of the net deferred
tax asset is more likely than not,
|
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 13
|
|
|
|
|
some or all of the remaining valuation allowance will be
reversed, and our effective tax rate may be reduced by such
reversal.
|
|
|
|
|
|
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 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. As of December 31, 2007, accrued
interest and penalties were $978.
|
On January 1, 2007, we adopted Financial Accounting
Standards Board (which we refer to as FASB) Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes (which we refer to as FIN 48), which clarifies
the accounting for uncertainty in income taxes recognized in the
financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes. The interpretation
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. Upon adoption, we reduced the 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. In addition, we reduced $5,213 of a deferred tax asset
and its associated valuation allowance upon adoption of
FIN 48.
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Revenue
|
|
$
|
331,693
|
|
|
|
100.0
|
|
|
$
|
908,927
|
|
|
|
100.0
|
|
|
$
|
852,010
|
|
|
|
100.0
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
117,281
|
|
|
|
35.3
|
|
|
|
545,706
|
|
|
|
60.0
|
|
|
|
528,004
|
|
|
|
61.9
|
|
Sales and marketing
|
|
|
93,645
|
|
|
|
28.2
|
|
|
|
119,103
|
|
|
|
13.1
|
|
|
|
104,669
|
|
|
|
12.3
|
|
General and administrative
|
|
|
104,321
|
|
|
|
31.5
|
|
|
|
132,334
|
|
|
|
14.6
|
|
|
|
118,202
|
|
|
|
13.9
|
|
Depreciation and amortization
|
|
|
28,256
|
|
|
|
8.5
|
|
|
|
44,558
|
|
|
|
4.9
|
|
|
|
43,548
|
|
|
|
5.1
|
|
Interest income
|
|
|
42,035
|
|
|
|
12.7
|
|
|
|
32,339
|
|
|
|
3.6
|
|
|
|
21,527
|
|
|
|
2.5
|
|
Interest expense
|
|
|
18,593
|
|
|
|
5.6
|
|
|
|
18,794
|
|
|
|
2.1
|
|
|
|
16,321
|
|
|
|
1.9
|
|
Gain on 2006 EBS Sale
|
|
|
399
|
|
|
|
0.1
|
|
|
|
352,297
|
|
|
|
38.8
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
3,406
|
|
|
|
1.0
|
|
|
|
(4,252
|
)
|
|
|
(0.5
|
)
|
|
|
(27,965
|
)
|
|
|
(3.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax (benefit)
provision
|
|
|
15,437
|
|
|
|
4.7
|
|
|
|
428,816
|
|
|
|
47.2
|
|
|
|
34,828
|
|
|
|
4.1
|
|
Income tax (benefit) provision
|
|
|
(8,741
|
)
|
|
|
(2.6
|
)
|
|
|
50,389
|
|
|
|
5.6
|
|
|
|
(2,170
|
)
|
|
|
(0.3
|
)
|
Minority interest in WHC
|
|
|
10,667
|
|
|
|
3.2
|
|
|
|
405
|
|
|
|
0.0
|
|
|
|
775
|
|
|
|
0.1
|
|
Equity in earnings of EBS Master LLC
|
|
|
28,566
|
|
|
|
8.6
|
|
|
|
763
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
42,077
|
|
|
|
12.7
|
|
|
|
378,785
|
|
|
|
41.7
|
|
|
|
36,223
|
|
|
|
4.3
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
(22,198
|
)
|
|
|
(6.7
|
)
|
|
|
393,132
|
|
|
|
43.2
|
|
|
|
32,588
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
19,879
|
|
|
|
6.0
|
|
|
$
|
771,917
|
|
|
|
84.9
|
|
|
$
|
68,811
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 14
Revenue is currently derived from the WebMD Segments and was
derived through our EBS segment through the date of the 2006 EBS
Sale on November 16, 2006. The WebMD Online Services
segment derives revenue from advertising, sponsorship (including
online CME services),
e-detailing
promotion and physician recruitment services, content
syndication and distribution, and licenses of private online
portals to employers, healthcare payers and others, along with
related services including lifestyle education and personalized
telephonic coaching. The WebMD Publishing and Other Services
segment derives revenue from sales of, and advertising in, its
physician directories, and advertisements in WebMD the
Magazine, and from in-person CME programs from December 2005
through December 31, 2006. As of December 31, 2006,
these in-person CME programs were no longer offered by WebMD.
Additionally, WebMD sold its ACS/ACP Business as of
December 31, 2007 and the revenue and expenses of this
business are shown as discontinued operations for all periods
presented. WebMDs customers include pharmaceutical,
biotechnology, medical device and consumer products companies,
as well as employers and health plans. WebMDs customers
also include physicians and other healthcare providers who buy
our physician directories and reference text books. EBS, which
was a segment through November 16, 2006, the date of the
2006 EBS Sale, provided solutions that automate key business and
administrative functions for healthcare payers and providers,
including: electronic patient eligibility and benefit
verification; electronic and paper claims processing; electronic
and paper paid-claims communication services; and patient
billing, payment and communications services. EBS also provided
clinical communications services that enable physicians to
manage laboratory orders and results, hospital reports and
electronic prescriptions. A significant portion of EBS revenue
was generated from the countrys largest national and
regional healthcare payers.
Cost of operations consists of costs related to services and
products WebMD provides to customers and costs associated with
the operation and maintenance of WebMDs public and private
portals. These costs relate to editorial and production
operations, Web site operations, non-capitalized Web site
development costs, and costs related to the production and
distribution of WebMDs publications. These costs consist
of expenses related to salaries and related expenses, non-cash
stock-based compensation, creating and licensing content,
telecommunications, leased properties and printing and
distribution and non-cash advertising costs. Prior to the 2006
EBS Sale on November 16, 2006, cost of operations also
related to EBS products and services including the cost of
postage related to EBS automated
print-and-mail
services and paid-claims communication services, as well as
sales commissions paid to certain distributors of EBS
products.
Sales and marketing expense consists primarily of advertising,
product and brand promotion, salaries and related expenses, and
non-cash stock-based compensation. These expenses include items
related to salaries and related expenses of account executives,
account management and 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, which are
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.
These expenses include costs of 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. We consider non-cash expenses to be those
expenses that result from the issuance of our equity
instruments. The following is a summary of our principal
non-cash expenses:
|
|
|
|
|
Non-cash stock-based compensation
expense. Expense for 2007 and 2006 reflects the
adoption of SFAS 123R on January 1, 2006, 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. Expense for 2005 primarily related to restricted stock
awards. Non-cash stock-based compensation expense is reflected
in the same expense captions as the related salary costs of the
respective employee.
|
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 15
|
|
|
|
|
Non-cash advertising expense. Expense related
to the use of WebMDs prepaid advertising inventory that
WHC received from News Corporation in exchange for equity
instruments 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 cost of
operations when WHC utilizes this advertising inventory in
conjunction with offline advertising and sponsorship programs
and is included in sales and marketing expense when WHC uses the
asset for promotion of WHCs brand.
|
The following table is a summary of our non-cash expenses
included in the respective statements of operations captions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
5,063
|
|
|
$
|
11,541
|
|
|
$
|
|
|
Sales and marketing
|
|
|
5,056
|
|
|
|
7,461
|
|
|
|
|
|
General and administrative
|
|
|
22,533
|
|
|
|
23,143
|
|
|
|
4,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,652
|
|
|
$
|
42,145
|
|
|
$
|
4,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
336
|
|
Sales and marketing
|
|
|
5,264
|
|
|
|
7,414
|
|
|
|
10,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,264
|
|
|
$
|
7,414
|
|
|
$
|
10,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modification
to the Classification of Results
The following discussion of our operating results reflects the
reclassification of EPS as a discontinued operation for the
years ended December 31, 2006 and 2005, as a result of the
EPS Sale that was completed on September 14, 2006, and the
reclassification of our ViPS and Porex businesses as
discontinued operations in all periods presented, as a result
our intention to divest these segments.
In contrast to the discontinued operations presentation for EPS,
ViPS and Porex, the 2006 EBS Sale did not result in the
accounting for EBS as a discontinued operation, because the 2006
EBS Sale was only a partial sale, through which we retained a
48% ownership interest in EBSCo following the transaction.
Accordingly, the historical results of operations for EBS are
included in our financial statements from January 1, 2006
through the date of the 2006 EBS Sale on November 16, 2006
and for the year ended 2005. Subsequent to the 2006 EBS Sale on
November 17, 2006, our 48% portion of EBSCos income
is reflected in the line item Equity in earnings of EBS
Master LLC. Because of this treatment, our consolidated
results of operations for 2007, 2006 and 2005, as well as the
EBS segment results for these periods, are presented on a basis
that makes prior period results not directly comparable to the
results for the full year 2007 and 2006. In the discussion of
those consolidated operating results, in addition to noting the
effect of the 2006 EBS Sale (which is relatively large as
compared to all other differences between the periods), we have
provided comparative information on items that reflect trends in
our operating results based on their materiality to our
consolidated operating results for the years ended 2007, 2006
and 2005. The results of the WebMD Segments were not affected by
the 2006 EBS Sale and comparisons with prior periods are not
subject to the considerations applicable to EBS and to our
consolidated results.
2007
and 2006
The following discussion is a comparison of our results of
operations for the year ended December 31, 2007, to the
year ended December 31, 2006.
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 16
Revenue
Our revenue decreased 63.5% to $331,693 in 2007 from $908,927 in
2006. Revenue attributable to EBS decreased by $661,090 as a
result of the 2006 EBS Sale. Partially offsetting this decrease
was higher revenue in our WebMD Segments. The WebMD Online
Services segment accounted for $83,417 of the higher revenue,
partially offset by lower revenue of $239 within the WebMD
Publishing and Other Services segment. Excluding the impact of
the acquisitions WebMD made in 2006, our total revenue
attributable to WebMD increased by approximately $60,000
from 2006 to 2007. A more detailed discussion regarding
changes in revenue is included below under
Results of Operations by Operating
Segment.
Costs and
Expenses
Cost of Operations. Cost of operations was
$117,281 in 2007, compared to $545,706 in 2006. Our cost of
operations represented 35.3% of revenue in 2007, compared to
60.0% of revenue in 2006. Included in cost of operations are
non-cash expenses related to stock-based compensation of $5,063
in 2007, compared to $11,541 in 2006. The decrease in non-cash
stock-based compensation expense for 2007 was primarily due to
the graded vesting schedule that was used for all stock options
and restricted stock awards granted prior to the January 1,
2006 adoption date of SFAS 123R, including the WHC options
and restricted stock granted at the time of the initial public
offering, as well as approximately $2,600 of non-cash
stock-based compensation expense related to EBS employees, which
was included in the prior year period.
Cost of operations, excluding the non-cash stock-based
compensation expense discussed above, was $112,218 or 33.8% of
revenue in 2007, compared to $534,165 or 58.8% of revenue in
2006. The decrease in cost of operations excluding non-cash
stock-based compensation expense, as a percentage of revenue and
in dollars, was primarily due to the 2006 EBS Sale, which was
the reason for approximately $441,200 of the decrease in cost of
operations, as EBS services and products had lower gross margins
than our WebMD Segments. Partially offsetting this impact of the
2006 EBS Sale was higher cost of operations of approximately
$19,300 related to the WebMD Segments as a result of the growth
within that business.
Sales and Marketing. Sales and marketing
expense was $93,645 in 2007, compared to $119,103 in 2006. Our
sales and marketing expense represented 28.2% of revenue in
2007, compared to 13.1% of revenue in 2006. Non-cash expense
related to advertising was $5,264 in 2007, compared to $7,414 in
2006. This decrease was due to lower utilization of WebMDs
prepaid advertising inventory. Non-cash stock-based compensation
was $5,056 in 2007, compared to $7,461 in 2006. The decrease in
non-cash stock-based compensation expense in 2007, when compared
to 2006, is due to approximately $1,600 related to the 2006 EBS
Sale, as well as approximately $800 in lower non-cash
stock-based compensation expense for our WebMD Segments which
primarily related to the graded vesting methodology used in
determining stock-based compensation expense related to
WebMDs stock options and restricted stock awards granted
at the time of the initial public offering.
Sales and marketing expense, excluding the non-cash expenses
discussed above, was $83,325 or 25.1% of revenue in 2007,
compared to $104,228 or 11.5% of revenue in 2006. The increase
in sales and marketing expense, excluding the non-cash expenses
discussed above, as a percentage of revenue, was primarily due
to the 2006 EBS Sale, as EBS had lower sales and marketing
expense as a percentage of revenue than our WebMD Segments. The
2006 EBS Sale was also the primary reason for the decrease in
sales and marketing expense, in the amount of approximately
$41,300. This decrease was partially offset by approximately
$20,400 in higher expenses within our WebMD Segments related to
an increase in compensation related costs due to increased
staffing and sales commissions related to higher revenue and to
expenses related to WebMDs acquisitions of Summex, Medsite
and Subimo.
General and Administrative. General and
administrative expense was $104,321 in 2007, compared to
$132,334 in 2006. Our general and administrative expense
represented 31.5% of revenue in 2007, compared to 14.6% of
revenue in 2006. Included in general and administrative expense
were non-cash expenses related to
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 17
stock-based compensation. Non-cash stock-based compensation was
$22,533 in 2007, compared to $23,143 in 2006. Non-cash
stock-based compensation expense was lower in 2007, when
compared to 2006 in our WebMD Segments by approximately $2,600
as a result of the graded vesting methodology used in
determining stock-based compensation expense related to
WebMDs stock options and restricted stock awards granted
at the time of the initial public offering. Additionally, our
non-cash stock compensation expense was lower in 2007, as
compared to 2006 by approximately $1,700 as a result of the 2006
EBS Sale. These decreases were offset by approximately $3,700 in
our Corporate segment primarily related to additional stock
compensation expense related to new equity awards granted during
the second half of 2006.
General and administrative expense, excluding the non-cash
stock-based compensation expense discussed above, was $81,788 or
24.7% of revenue in 2007, compared to $109,191 or 12.0% of
revenue in 2006. The increase in general and administrative
expense, excluding the non-cash stock-based compensation
expense, as a percentage of revenue, was primarily due to the
impact of the 2006 EBS Sale. The 2006 EBS Sale was also the
primary reason for the decrease in general and administrative
expense in dollars, in the amount of approximately $25,000. Also
contributing to the decrease in general and administrative
expense were approximately $13,900 of lower shared service costs
and other corporate expenses primarily due to the 2006 EBS Sale
and EPS Sale. This decrease was partially offset by higher
expenses within our WebMD Segments of approximately $11,500
primarily related to an increase in compensation related costs
and expenses due to increased staffing levels and outside
personnel expenses and expenses related to WebMDs
acquisitions of Summex, Medsite and Subimo.
Depreciation and Amortization. Depreciation
and amortization expense was $28,256 or 8.5% of revenue in 2007,
compared to $44,558 or 4.9% of revenue in 2006. Depreciation and
amortization expense decreased by approximately $25,900 due to
the 2006 EBS Sale. Partially offsetting this decrease was the
impact of recent acquisitions and capital improvements within
our WebMD Segments, which resulted in additional depreciation
and amortization expense of approximately $9,600 when compared
to 2006.
Interest Income. Interest income increased to
$42,035 in 2007, from $32,339 in 2006. The increase was due to
higher average investment balances and higher rates of return in
2007, as compared to 2006.
Interest Expense. Interest expense of $18,593
in 2007 was consistent with interest expense of $18,794 in 2006.
Interest expense in both 2007 and 2006 primarily included the
interest expense and the amortization of debt issuance costs for
our $350,000 of 1.75% Convertible Subordinated Notes due
2023 and our $300,000 of
31/8% Convertible
Notes due 2025.
Gain on 2006 EBS Sale. The gain on the 2006
EBS Sale of $399 in 2007 represented a gain recognized in
connection with the working capital adjustment associated with
the 2006 EBS Sale, while the gain on sale of $352,297 in 2006
represents the gain recognized in connection with the 2006 EBS
Sale as of the November 16, 2006 closing date.
Other Income (Expense), Net. Other income, net
was $3,406 in 2007, compared to other expense, net of $4,252 in
2006. Other income (expense), net includes transition services
income of $5,833 and $2,524 in 2007 and 2006 related to the
services we provide to EBSCo and Sage Software, net of services
EBSCo provides to us, related to each of their respective
transition services agreements, and $1,497 in 2007 related to
the reversal of certain sales and use tax contingencies
resulting from the expiration of various statutes. We expect
these transaction service fees to be lower in 2008. Other
expense of $2,527 and $4,198 in 2007 and 2006 represents
advisory expenses for professional fees, primarily consisting of
legal, accounting and financial advisory services related to our
exploration of strategic alternatives for WHC in 2007 and our
former EBS segment in 2006. See
Introduction Recent and Pending
Corporate Transactions above for more information on the
WHC Merger. Also included in other income (expense), net was
$1,397 and $2,578 in 2007 and 2006 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.
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 18
Income Tax (Benefit) Provision. The income tax
benefit of $8,741 in 2007 and provision of $50,389 in 2006,
includes tax expense for operations that were profitable in
certain states and other jurisdictions in which we do not have
net operating loss carryforwards to offset that income. The
income tax provision includes a non-cash provision for taxes of
$2,610 and $30,770 in 2007 and 2006, respectively, that has not
been reduced by the reversal of the valuation allowance as these
tax benefits were acquired through business combinations and
therefore the related valuation allowance was reversed through
goodwill. Additionally, included in the income tax provision in
2007 and 2006 is a deferred tax provision of $3,623 and a
benefit of $3,929, respectively, primarily related to a certain
portion of our goodwill that is deductible for tax purposes. The
2007 tax provision also includes a benefit of $16,327 related to
the reversal of our valuation allowance related to the estimated
utilization of our net operating losses in 2008. The income tax
provision in 2006 was considerably higher than in 2007 and prior
periods as a result of the gain we recorded in connections with
the 2006 EBS Sale and the reversal of a portion of our valuation
allowance at December 31, 2007.
Minority Interest in WHC. Minority interest
expense of $10,667 in 2007, compared to $405 in 2006, represents
the minority stockholders proportionate share of income
for WHC. The ownership interest of minority shareholders
fluctuates based on the net income or loss reported by WHC,
combined with changes in the percentage ownership of WHC held by
the minority interest shareholders. The minority interest
shareholders percentage ownership changes as a result of the
issuance of WHC Class A Common Stock for the exercise of
stock options, the release of restricted awards and stock issued
for acquisitions, such as Subimo.
(Loss) Income from Discontinued Operations, Net of
Tax. Loss from discontinued operations was
$22,198 in 2007, which includes a pre-tax charge of $73,347
related to the estimate of our indemnity obligations to advance
amounts for reasonable defense costs for initially ten and now
nine 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.
Partially offsetting the pre-tax charge, is the reimbursement of
$14,625 by two of the nine insurance companies we have been
seeking to honor their obligations under certain directors and
officers liability insurance policies. For a description of this
matter, see
Introduction Other
Significant Developments above. Income from discontinued
operations in 2006 was $393,132, which included a gain of
$353,158, net of tax, recognized in connection with the EPS
Sale, as well as EPSs net operating results of $17,902
during the period from January 1, 2006 through the date of
sale on September 16, 2006. Also included in (loss) income
from discontinued operations, net of tax, during 2007 and 2006
was the net operating results of ViPS, Porex and WebMDs
ACS/ACP Business, which, in the aggregate amounted to $32,119 in
2007 and $22,072 in 2006, including the gain on the sale of the
ACS/ACP business on December 31, 2007 of $3,571.
2006
and 2005
The following discussion is a comparison of our results of
operations for the year ended December 31, 2006, to the
year ended December 31, 2005.
Revenue
Our total revenue increased 6.7% to $908,927 in 2006 from
$852,010 in 2005. The WebMD Online Services and the WebMD
Publishing and Other Services segments accounted for $78,165 and
$7,401 of the revenue increase for 2006 and 2005, respectively,
which was partially offset by a decrease in revenue of $28,215
as a result of the 2006 EBS Sale. A more detailed discussion
regarding changes in revenue is included below under
Results of Operations by Operating
Segment.
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 19
Costs and
Expenses
Cost of Operations. Cost of operations was
$545,706 in 2006, compared to $528,004 in 2005. Our cost of
operations represented 60.0% of revenue in 2006, compared to
61.9% of revenue in 2005. Included in cost of operations are
non-cash stock-based compensation expenses of $11,541 for the
year ended December 31, 2006, with no corresponding amount
in the prior year period, as a result of the adoption of
SFAS 123R.
Cost of operations, excluding the non-cash stock-based
compensation expense, was $534,165 or 58.8% of revenue in 2006.
This increase of $6,161 was primarily due to higher compensation
expenses as a result of higher staffing levels and outside
personnel expenses related to WebMDs Web site operations
and development, increased expenses associated with creating and
licensing WebMD content, increased production costs related to
the WebMD the Magazine which shipped larger issues in
2006, as compared to 2005, and expenses related to WebMDs
acquisitions. In the aggregate, the increase in cost of
operations related to our WebMD Segments was approximately
$27,600. This increase was partially offset by lower cost of
operations in our EBS segment as a result of the 2006 EBS Sale
and also as a result of lower direct expenses in our EBS segment
during 2006, when compared to 2005, through operating
efficiencies and cost savings. In the aggregate, the decrease in
cost of operations attributed to the EBS segment in 2006, when
compared to 2005, was approximately $21,400.
Sales and Marketing. Sales and marketing
expense was $119,103 in 2006, compared to $104,669 in 2005. Our
sales and marketing expense represented 13.1% of revenue in
2006, compared to 12.3% of revenue in 2005. Included in sales
and marketing expense were non-cash expenses related to
stock-based compensation and advertising services. Non-cash
stock-based compensation was $7,461 in 2006, with no
corresponding amount in the prior year period, as a result of
the adoption of SFAS 123R. Non-cash expenses related to
advertising services were $7,414 in 2006, compared to $10,534 in
2005. The decrease in non-cash advertising expense for 2006 was
due to lower utilization of our prepaid advertising inventory.
Sales and marketing expense excluding the non-cash expenses
discussed above was $104,228, or 11.5% of revenue in 2006,
compared to $94,135, or 11.0% of revenue in 2005. The increase
in dollars in 2006, compared to 2005, was primarily due to
increased compensation related costs due to increased staffing
levels and sales commission related to WebMDs
acquisitions, which were not included, or only partially
included a year ago. In the aggregate and excluding the non-cash
expenses discussed above, sales and marketing expense related to
the WebMD Segments increased by approximately $20,300 in 2006,
as compared to 2005. In contrast, these higher costs at WebMD
were partially offset by approximately $9,300 of lower costs for
EBS in 2006, compared to 2005, as a result of the 2006 EBS Sale.
General and Administrative. General and
administrative expense was $132,334 in 2006, compared to
$118,202 in 2005. Our general and administrative expense
represented 14.6% of revenue in 2006, compared to 13.9% of
revenue in 2005. Included in general and administrative expense
were non-cash expenses related to stock-based compensation.
Non-cash stock-based compensation expense increased to $23,143
in 2006, compared to $4,713 in 2005, reflecting the adoption of
SFAS 123R on January 1, 2006.
General and administrative expense, excluding the non-cash
expense discussed above, was $109,191 or 12.0% of revenue in
2006, compared to $113,489 or 13.3% of revenue in 2005. The
decrease in dollars in 2006, compared to 2005, was primarily due
to the 2006 EBS Sale, in the amount of approximately $12,300,
and our Corporate segment, in the amount of approximately
$4,000. The decrease was partially offset by an increase in our
WebMD Segments, which in the aggregate was approximately
$12,000, as a result of higher staffing levels and increased
expenses related to WebMDs acquisitions and public company
related costs. Additionally, within 2005 is a charge of
approximately $2,200 related to the resignation of WebMDs
former CEO and recruitment of WebMDs Executive Vice
President of Product and Programming and Chief Technology
Officer.
Depreciation and Amortization. Depreciation
and amortization expense was $44,558 or 4.9% of revenue in 2006,
compared to $43,548 or 5.1% of revenue in 2005. The 2006
Acquisitions and 2005 Acquisitions in
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 20
our WebMD Segments, as well as increased capital expenditures
throughout 2006 and 2005 within our WebMD Segments resulted in
higher depreciation and amortization expense of approximately
$7,000 in 2006 when compared to 2005. This increase was offset
by a decrease of approximately $6,400 in depreciation and
amortization expense as a result of the 2006 EBS Sale. The EBS
business was deemed to be an asset held for sale on
September 26, 2006 in connection with the signing of a
definitive agreement for the partial sale of that business, and
accordingly, no depreciation or amortization expense was
recorded for the EBS business during the fourth quarter of 2006.
Interest Income. Interest income increased to
$32,339 in 2006, from $21,527 in 2005. The increase was mainly
due to higher rates of return in 2006, compared to 2005. Also
contributing to the increase in interest income were higher
investment balances, particularly during the fourth quarter of
2006, as a result of the proceeds received in connection with
the EPS Sale on September 14, 2006 and the 2006 EBS Sale on
November 16, 2006, partially offset by the
$1.55 billion used in connection with the 2006 Tender Offer
that was completed on December 4, 2006.
Interest Expense. Interest expense increased
to $18,794 in 2006, from $16,321 in 2005, primarily due to
higher weighted average debt outstanding during 2006, compared
to 2005.
Gain on 2006 EBS Sale. The gain on 2006 EBS
Sale represents a gain of $352,297, recognized in connection
with the 2006 EBS Sale, for gross cash proceeds of approximately
$1,209,000.
Other Income (Expense), Net. Other expense,
net was $4,252 and $27,965 in 2006 and 2005. Other expense, net
in 2006 includes advisory expenses of $4,198 for professional
fees, primarily consisting of legal, accounting and financial
advisory services related to our exploration of strategic
alternatives for our EBS business, from the time we initiated
this exploration, through the date we signed the definitive
agreement for the 2006 EBS Sale on September 26, 2006. Also
included in other expense, net was transition services income of
$2,524 earned from the service fee charged to EBSCo and Sage
Software for services rendered under each of their respective
transition services agreement and external legal costs and
expenses of $2,578 and $17,835 that we incurred related to the
investigation by the United States Attorney for the District of
South Carolina and the SEC. Other expense, net in 2005
represents a charge of $1,863 related to the settlement of
litigation in 2005, a loss of $1,902 related to the redemption
of our $300,000
31/4% Convertible
Notes on June 2, 2005 and a net loss of $6,365 on
marketable securities.
Income Tax (Benefit) Provision. The income tax
provision of $50,389 and benefit of $2,170 in 2006 and 2005
includes tax expense for operations that are profitable in
certain states and other jurisdictions in which we do not have
net operating losses to offset that income. In addition, the
income tax provision includes a non-cash provision for taxes of
$30,770 in 2006 that has not been reduced by the reversal of the
valuation allowance as these tax benefits were acquired through
business combinations and therefore the related valuation
allowance was reversed through goodwill. Additionally, included
in the income tax provision in 2006 and 2005 is a deferred tax
benefit of $3,929 and expense of $4,247, respectively, primarily
related to a certain portion of our goodwill that is deductible
for tax purposes. The income tax provision in 2006 was
considerably higher than in prior periods, as a result of the
gain we recorded in connection with the 2006 EBS Sale. In 2005,
the tax expense was partially offset by the reversal of reserves
for tax contingencies resulting from the completion of an IRS
Joint Committee review and, to a lesser extent, the expiration
of the statutes of limitation periods applicable to certain of
our tax returns.
Minority Interest in WHC. Minority interest of
$405 and $775 in 2006 and 2005, respectively, represents the
minority stockholders proportionate share of income for
WHC. The ownership interest of minority shareholders was created
as part of our initial public offering of WHC on
September 28, 2005 and fluctuates based on the net income
or loss reported by WHC, combined with changes in the percentage
ownership of WHC held by the minority interest shareholders.
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 21
(Loss) Income from Discontinued Operations, Net of
Tax. Income from discontinued operations, net of
tax includes EPSs net operating results of $17,902 during
the period from January 1, 2006 through the date of sale on
September 14, 2006 and $16,265 for the year ended
December 31, 2005, as well as a gain of $353,158, net of
tax, recognized in 2006 in connection with the completed EPS
Sale. In addition, included in income from discontinued
operations, net of tax, is the net operating results of our ViPS
segment, our Porex segment and WebMDs ACS/ACP Business,
which, in the aggregate, amounted to $22,072 and $16,323 in 2006
and 2005, respectively.
Results
of Operations by Operating Segment
We monitor the performance of our business based on earnings
before interest, taxes, non-cash and other items. Other items
include: legal expenses we incurred which reflect costs and
expenses related to the investigation by the United States
Attorney for the District of South Carolina and the SEC; income
related to the reduction of certain sales and use tax
contingencies; professional fees in 2007, primarily consisting
of legal, accounting and financial advisory services, related to
the merger of HLTH and WHC, the sale of our 48% ownership
interest in EBSCo and the 2006 EBS Sale; a charge related to the
redemption of $300,000
31/4% Convertible
Subordinated Notes; loss recognized related to the sale of
marketable securities; and costs and expenses related to the
settlement of litigation in 2005. Inter-segment revenue
primarily represents printing services provided by EBS during
2006 and 2005 and certain services provided by our WebMD
Segments during 2007, 2006 and 2005.
Reclassification of Segment Information. As a
result of our intention to divest the ViPS and Porex segments
and due to the December 31, 2007 sale of WHCs ACS/ACP
business, the financial information for these businesses has
been reclassified to discontinued operations for the current and
prior year periods. In addition, certain expenses of Porex
related to activities that were previously managed by, and
therefore reported within, the Corporate segment, were also
reclassified to discontinued operations, as these expenses do
not relate to our continuing operations. These expenses were
reclassified for the current and prior year periods and amounted
to $609, $1,684 and $290 in 2007, 2006 and 2005, respectively.
Additionally, as a result of the discontinued operations
presentation for ViPS and Porex, our only remaining operating
segment is WebMD. We expanded our segment disclosure for WebMD
to provide additional information related to the WebMD Online
Services segment and the WebMD Publishing and Other Services
segment. This additional information for WebMD has been provided
for all periods presented.
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 22
Summarized financial information for each of our operating
segments and our Corporate segment and a reconciliation to net
income are presented below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006(a)
|
|
|
2005
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Emdeon Business Services
|
|
$
|
|
|
|
$
|
661,090
|
|
|
$
|
689,305
|
|
WebMD Online Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and sponsorship
|
|
|
229,333
|
|
|
|
170,626
|
|
|
|
109,850
|
|
Licensing
|
|
|
81,471
|
|
|
|
55,621
|
|
|
|
33,540
|
|
Content syndication and other
|
|
|
2,378
|
|
|
|
3,518
|
|
|
|
8,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WebMD Online Services
|
|
|
313,182
|
|
|
|
229,765
|
|
|
|
151,600
|
|
WebMD Publishing and Other Services
|
|
|
18,772
|
|
|
|
19,011
|
|
|
|
11,610
|
|
Inter-segment eliminations
|
|
|
(261
|
)
|
|
|
(939
|
)
|
|
|
(505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
331,693
|
|
|
$
|
908,927
|
|
|
$
|
852,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes, non-cash and other items
|
|
|
|
|
|
|
|
|
|
|
|
|
Emdeon Business Services
|
|
$
|
|
|
|
$
|
152,911
|
|
|
$
|
138,529
|
|
WebMD Online Services
|
|
|
80,594
|
|
|
|
52,324
|
|
|
|
27,766
|
|
WebMD Publishing and Other Services
|
|
|
4,103
|
|
|
|
362
|
|
|
|
(386
|
)
|
Corporate
|
|
|
(24,502
|
)
|
|
|
(41,730
|
)
|
|
|
(49,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,195
|
|
|
|
163,867
|
|
|
|
116,718
|
|
Interest, taxes, non-cash and other items
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(28,256
|
)
|
|
|
(44,558
|
)
|
|
|
(43,548
|
)
|
Non-cash stock-based compensation
|
|
|
(32,652
|
)
|
|
|
(42,145
|
)
|
|
|
(4,713
|
)
|
Non-cash advertising
|
|
|
(5,264
|
)
|
|
|
(7,414
|
)
|
|
|
(10,870
|
)
|
Interest income
|
|
|
42,035
|
|
|
|
32,339
|
|
|
|
21,527
|
|
Interest expense
|
|
|
(18,593
|
)
|
|
|
(18,794
|
)
|
|
|
(16,321
|
)
|
Income tax benefit (provision)
|
|
|
8,741
|
|
|
|
(50,389
|
)
|
|
|
2,170
|
|
Minority interest in WHC
|
|
|
(10,667
|
)
|
|
|
(405
|
)
|
|
|
(775
|
)
|
Equity in earnings of EBS Master LLC
|
|
|
28,566
|
|
|
|
763
|
|
|
|
|
|
Gain on 2006 EBS Sale
|
|
|
399
|
|
|
|
352,297
|
|
|
|
|
|
Other expense, net
|
|
|
(2,427
|
)
|
|
|
(6,776
|
)
|
|
|
(27,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
42,077
|
|
|
|
378,785
|
|
|
|
36,223
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
(22,198
|
)
|
|
|
393,132
|
|
|
|
32,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
19,879
|
|
|
$
|
771,917
|
|
|
$
|
68,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The EBS segment was sold on
November 16, 2006 and, therefore, the operations of the EBS
segment are included only for the period January 1, 2006
through November 16, 2006.
|
2007
and 2006
The following discussion is a comparison of the results of
operations for our WebMD Segments and our corporate segment for
the year ended December 31, 2007, to the year ended
December 31, 2006.
WebMD Online Services. Revenue was $313,182 in
2007, an increase of $83,417 or 36.3% from 2006. Advertising and
sponsorship revenue increased $58,707 or 34.4% in 2007, compared
to 2006. The increase in advertising and sponsorship revenue was
primarily attributable to an increase in the number of brands
and sponsored programs promoted on WebMDs Web sites as
well as the acquisition of Medsite in September 2006. The
acquisition of Medsite contributed $16,291 and $4,852 of
advertising and sponsorship revenue in
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 23
2007 and 2006, respectively. Including the Medsite acquisition,
the number of such programs grew to approximately 1,000 in 2007
compared to approximately 800 in 2006. In general, pricing
remained relatively stable for our advertising and sponsorship
programs and was not a significant source of the revenue
increase. Licensing revenue increased $25,850 or 46.5% in 2007
compared to 2006. This increase was due to an increase in the
number of companies using WebMDs private portal platform
to 117 from 99 last year. WebMD also had approximately 150
additional customers who purchase stand alone decision support
services as a result of the acquisitions completed in 2006. The
acquisitions of Summex and Subimo contributed $19,526 and $4,398
in licensing revenue for the years ended December 31, 2007
and 2006, respectively. Content syndication and other revenue
decreased $1,140 in 2007 from $3,518 in 2006, primarily as a
result of the completion of certain contracts and our decision
not to seek new content syndication business.
WebMD Online Services earnings before interest, taxes, non-cash
and other items was $80,594 or 25.7% of revenue in 2007,
compared to $52,324 or 22.8% of revenue in 2006. This increase
as a percentage of revenue was primarily due to higher revenue
from the increase in the number of brands and sponsored programs
in WebMDs public portals as well as the increase in
companies using WebMDs private online portal without
incurring a proportionate increase in overall expenses, due to
the benefits achieved from WebMDs infrastructure
investments as well as acquisition synergies.
WebMD Publishing and Other Services. Revenue
was $18,772 in 2007, a decrease of $239 or 1.3% from 2006. The
decrease was primarily attributable to WebMDs decision to
discontinue offline CME products.
WebMD Publishing and Other Services earnings before interest,
taxes, non-cash and other items was $4,103 or 21.9% of revenue
in 2007, compared to $362 or 1.9% of revenue in 2006. The
increase was primarily attributable to a change in mix of
revenues to higher margin products compared to the same period
last year.
Corporate. Corporate includes costs and
expenses for functions that are not directly managed by one of
our segments, or by the Porex and ViPS businesses which are
reflected within discontinued operations. Corporate expenses
decreased to $24,502, or 7.4% of consolidated revenue in 2007,
compared to $41,730, or 4.6% of consolidated revenue in 2006.
The decrease in corporate expenses, in dollars, for 2007 was the
result of the 2006 EBS Sale and the EPS Sale which occurred in
the second half of 2006 and resulted in a significant reduction
in a portion of the shared services performed at corporate,
which previously supported those operations. The most
significant reductions in expenses were related to certain
outside services including legal and accounting services, as
well as personnel expenses. Additionally, included in corporate
is transition service income, net of expenses, of $5,833 and
$2,524 in 2007 and 2006, related to the services we continue to
provide to EBSCo and Sage Software, which were only partially
included in the prior year period. These amounts were reflected
within our Corporate segment, partially offsetting the cost of
providing these services. We expect these transaction service
fees to be lower in 2008. The increase in corporate expenses as
a percentage of revenue was due to the impact of lower revenue
as a result of the 2006 EBS Sale, combined with the effect of
certain corporate expenses that are fixed in nature, and
accordingly, did not decrease in proportion to the reduction in
revenue.
Inter-Segment Eliminations. Inter-segment
eliminations primarily represents printing services provided by
the EBS segment in 2006 and certain services provided by the
WebMD Segments.
2006
and 2005
The following discussion is a comparison of the results of
operations for each of our operating segments and corporate
segment for the year ended December 31, 2006, to the year
ended December 31, 2005.
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 24
Emdeon Business Services. Revenue was $661,090
in 2006, a decrease of $28,215 or 4.1% from 2005. The decrease
in revenue was primarily due to the impact of the 2006 EBS Sale
that occurred on November 6, 2006. As a result, the 2006
period is not directly comparable to the full year of 2005.
Earnings before interest, taxes, non-cash and other items was
$152,911 in 2006, compared to $138,529 in 2005. As a percentage
of revenue, earnings before interest, taxes, non-cash and other
items was 23.1% in 2006, compared to 20.1% in 2005. The increase
in operating margin, as a percentage of revenue, was primarily
the result of revenue growth experienced in the period prior to
the 2006 EBS Sale, without a proportionate increase in costs.
This was due to a combination of certain costs that are more
fixed in nature and do not increase proportionately with revenue
including certain personnel related costs, as well as the result
of operating efficiencies and cost savings. The operating
efficiencies and costs savings included lower direct expenses in
the areas of telecommunication expenses and other direct
material costs related to our patient statement and remittance
and payment service offerings.
WebMD Online Services. Revenue was $229,765 in
2006, an increase of $78,165 or 51.6% from 2005. Advertising and
sponsorship revenue increased $60,776 or 55.3% in 2006 compared
to 2005. The increase in advertising and sponsorship revenue was
primarily attributable to an increase in the number of brands
and sponsored programs promoted on WebMDs Web sites as
well as the acquisitions of Conceptis in December 2005,
eMedicine in January 2006 and Medsite in September 2006. The
acquisitions of Conceptis, eMedicine and Medsite contributed
approximately $21,200 of advertising and sponsorship revenue in
2006. Including the Conceptis, eMedicine and Medsite
acquisitions, the number of such programs grew to approximately
800 in 2006 compared to approximately 570 in 2005. In general,
pricing remained relatively stable for our advertising and
sponsorship programs and was not significant source of the
revenue increase. Licensing revenue increased $22,081 or 65.8%
in 2006 compared to 2005. This increase was due to an increase
in the number of companies using WebMDs private portal
platform to 99 from 78 last year. WebMD also has approximately
150 additional customers who purchase stand alone decision
support services as a result of the acquisitions completed in
2005 and 2006. The acquisitions of Summex and Subimo contributed
approximately $4,400 in licensing revenue in 2006. HealthShare
pre-acquisition revenue not included in our results for the
period from January 1, 2005 to March 13, 2005 was
$1,824. Content syndication and other revenue declined $4,692 in
2006 from $8,210 in 2005, primarily as a result of the
completion of certain contracts and our decision not to seek new
content syndication business.
WebMD Online Services earnings before interest, taxes, non-cash
and other items was $52,324 or 22.8% of revenue in 2006,
compared to $27,766 or 18.3% of revenue in 2005. This increase
as a percentage of revenue was primarily due to higher revenue
from the increase in number of brands and sponsored programs in
WebMDs public portals as well as the increase in companies
using WebMDs private online portal without incurring a
proportionate increase in overall expenses, offset by a charge
of approximately $3,150 during the year ended December 31,
2005 related to the resignation of WebMDs former CEO and
other personnel, and the recruitment of WebMDs Executive
Vice President of Product and Programming and Chief Technology
Officer.
WebMD Publishing and Other Services. Revenue
was $19,011 in 2006, an increase of $7,401 or 63.7% from 2005.
The increase was primarily attributable to WebMDs
acquisition of Conceptis in December 2005, which contributed
approximately $4,000 in offline medical education revenue in
2006 and higher revenue of approximately $1,500 from The
Little Blue Book physician oriented offerings.
WebMD Publishing and Other Services earnings before interest,
taxes, non-cash and other items was $362 or 1.9% of revenue in
2006, compared to a loss of $386 or 3.3% of revenue in 2005. The
increase was primarily attributable to a change in mix of
revenues to higher margin products compared to the same period
last year.
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 25
Corporate. Corporate includes costs and
expenses for functions that are not directly managed by one of
our segments, or by the Porex and ViPS businesses which are
reflected within discontinued operations. Corporate expenses
decreased to $41,730, or 4.6% of consolidated revenue in 2006,
compared to $49,191, or 5.8% of consolidated revenue in 2005.
These expenses, in dollars, decreased as a result of lower
personnel related costs due to lower headcount. Additionally,
our corporate expenses as a percentage of revenue continue to
decrease when compared to the prior periods reflecting our
ability to increase revenue without a proportionate increase in
corporate costs which are generally more fixed in nature.
Additionally, in connection with the transition services we are
providing to EPS and EBSCo following the EPS Sale and 2006 EBS
Sale, we charged EPS and EBSCo transition services fees of
$2,524 during 2006, which is net of certain fees we pay to
EBSCo, related to certain services they perform for us. This
amount was reflected within our Corporate segment during 2006,
partially offsetting the cost of providing these services.
Inter-Segment Eliminations. Inter-segment
eliminations primarily represents printing services provided by
the EBS segment and certain services provided by the WebMD
Segments.
Liquidity
and Capital Resources
Cash
Flows
Cash provided by operating activities from our continuing
operations was $47,896 in 2007, compared to $134,696 in 2006.
The $86,800 decrease in cash provided by operating activities
from our continuing operations when compared to a year ago
primarily relates to EBS being treated as an equity investment
during 2007, compared to it being treated as part of our
operations for the period January 1, 2006 through
November 16, 2006. While we are sharing 48% of EBSCos
earnings, we did not receive cash distributions from the
investment during the current year period. Also contributing to
this decrease in cash flow from operating activities, when
compared to the prior year, were estimated payments for income
taxes, which were higher than the prior year period due to the
gain recognized for the 2006 EBS Sale during the three months
ended December 31, 2006.
Cash used in investing activities from our continuing operations
was $242,408 in 2007, compared to cash provided by investing
activities from our continuing operations of $1,741,837 in 2006.
Cash used in investing activities from our continuing operations
in 2007 included net disbursements of $256,712 from purchases,
net of maturities and sales, of available for sale securities,
compared to $241,469 of proceeds from maturities and sales, net
of purchases, in 2006. Partially offsetting this disbursement of
cash during 2007, is the receipt of $18,792 in repayment of
advances to EBSCo, which primarily consisted of $10,000 advanced
to EBSCo at closing on November 16, 2006 to support working
capital needs and $10,016 of expenses paid by us on EBSCos
behalf through December 31, 2006. In addition, during 2007,
we received $11,667, which was released from escrow, related to
the EPS Sale. Cash provided by investing activities from our
continuing operations in 2006 was primarily attributable to
$1,199,872 and $522,604 of proceeds received from the 2006 EBS
Sale and EPS Sale, respectively. Cash paid in business
combinations, net of cash acquired, was $152,672 in 2006, which
primarily related to the acquisitions of Subimo, Medsite, Summex
and eMedicine, as well as contingent consideration payments
related to our acquisitions of Advanced Business Fulfillment,
Inc. and MedicineNet. Investments in property and equipment were
$19,053 in 2007, compared to $49,420 in 2006.
Cash provided by financing activities from our continuing
operations was $92,512 in 2007, compared to cash used in
financing activities from our continuing operations of
$1,479,546 in 2006. Cash provided by financing activities for
2007 principally related to proceeds of $133,054 from the
issuance of HLTH Common Stock and WHC Class A Common Stock
resulting from the exercises of employee stock options, as well
as a tax benefit of $6,601 from the exercise of employee stock
options, partially offset by the repurchases of 3.4 million
shares of HLTH Common Stock for $47,123. Cash used in financing
activities in 2006 principally related to the repurchases of a
total of 137.5 million shares of HLTH Common Stock for
$1,635,287, offset by
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 26
proceeds from the issuance of HLTH Common Stock and WHC
Class A Common Stock (primarily resulting from exercises of
employee stock options) of $156,078.
Included in our consolidated statements of cash flows are cash
flows from our discontinued operations, which include
(i) cash provided by the operations of the EPS segment
through the date of the EPS Sale on September 14, 2006,
(ii) the operating activities of the ViPS and Porex
businesses and (iii) the operations of WebMDs ACS/ACP
Business through the date of its sale on December 31, 2007.
Other cash flow activity related to our discontinued operations
during 2007 includes (i) $17,784 in payments of legal fees
related to our indemnity obligations of the initially ten and
now nine former officers and directors of EPS, who were indicted
in connection with the Investigation and (ii) the January
2008 reimbursement of $14,625 from two of the nine insurance
companies for these costs related to this obligation. Our
remaining reserve relating to this indemnity obligation was
$55,563 as of December 31, 2007. The ultimate outcome of
this matter is still uncertain, and accordingly, the amount of
cost we may ultimately incur could be substantially more than
the reserve we have currently provided.
Outlook
on Future Liquidity
Our liquidity during 2008 is expected to be significantly
impacted as a result of the planned WHC Merger, and also as a
result of the planned divestitures of ViPS and Porex, see
Introduction Recent and Pending
Corporate Transactions above. The planned merger with WHC
will result in the payment of up to $6.89 in cash for each
outstanding share of HLTH Corporation as of the closing date of
the merger. We expect to use available cash on hand, as well as
cash proceeds to be received from the divestitures of Porex and
ViPS to fund the cash portion of the merger consideration.
Additionally, if either Porex or ViPS has not been sold at the
time the WHC Merger is ready to be consummated, WHC could issue
up to $250,000 in redeemable notes to the HLTH stockholders in
lieu of a portion of the cash consideration otherwise payable in
the merger.
As of February 21, 2008, we have approximately
$1.45 billion in consolidated cash, cash equivalents and
marketable securities, which reflects the receipt of $575,000 in
cash on February 8, 2008 as a result of the sale of our
remaining 48% interest in EBSCo. Also as of February 21,
2008, and as discussed in more detail above (see
Introduction Other Significant
Developments), we owned investments in approximately
$364,000 of ARS investments, including approximately $169,000 of
ARS investments held at WHC. In mid-February 2008, auctions for
ARS investments backed by student loans failed, including
auctions for the ARS investments we held. The result of a failed
auction is that these ARS investments continue to bear interest
in accordance with their terms until the next successful
auction; however, liquidity will be limited until there is a
successful auction or until such time as other markets for these
ARS investments develop. We believe that any lack of liquidity
relating to our ARS investments will not have an impact on our
ability to fund our operations.
We believe that our available cash resources and future cash
flow from operations, will provide sufficient cash resources to
meet the commitments described above and to fund our currently
anticipated working capital and capital expenditure
requirements, for up to twenty-four months. Our future liquidity
and capital requirements will depend upon numerous factors,
including retention of customers at current volume and revenue
levels, our existing and new application and service offerings,
competing technological and market developments, cost of
maintaining and upgrading the information technology platforms
and communications systems that WebMD uses to provide its
services and potential future 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.
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. 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.
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 27
Contractual
Obligations and Commitments
The following table summarizes our principal commitments as of
December 31, 2007 for future specified contractual
obligations, including those of our discontinued operations,
that are not reflected in our consolidated balance sheets, 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 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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|
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Less Than
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|
|
|
|
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More Than
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Total
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1 Year
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|
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1-3 Years
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4-5 Years
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|
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5 Years
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|
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|
(In thousands)
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|
Long-term debt(a)
|
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$
|
712,188
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|
|
$
|
15,500
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|
|
$
|
377,938
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|
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$
|
318,750
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|
|
$
|
|
|
Leases(b)
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64,415
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|
|
|
11,063
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|
|
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22,131
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|
|
|
16,260
|
|
|
|
14,961
|
|
Purchase obligations(c)
|
|
|
7,626
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|
|
|
5,439
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|
|
|
2,187
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|
|
|
|
|
|
|
|
|
Other long-term obligation
|
|
|
456
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|
|
|
280
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|
|
|
176
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|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Total
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$
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784,685
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|
|
$
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32,282
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|
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$
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402,432
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|
|
$
|
335,010
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|
|
$
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14,961
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|
|
|
|
|
|
|
|
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|
|
|
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|
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(a)
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Long-term debt includes our
31/8% Notes,
and our 1.75% Convertible Subordinated Notes due 2023,
which are first puttable 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
puttable by the holder.
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(b)
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The lease amounts are net of
sublease income.
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(c)
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Purchase obligations include
amounts committed under legally enforceable contracts or
purchase orders for goods and services with defined terms as to
price, quantity and delivery.
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The above table excludes $11,529 of uncertain tax positions,
including interest and penalties, under FIN 48, as we are
unable to reasonably estimate the timing of the settlement of
these items. These uncertain tax positions include those of our
discontinued operations. See Note 16, Income
Taxes located in the Notes to Consolidated Financial
Statements included in
Annex A-1
above.
Off-Balance
Sheet Arrangements
We have no material off-balance sheet arrangements.
Recent
Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(which we refer to as FASB) issued SFAS No. 141
(Revised 2007), Business Combinations (which we
refer to as SFAS 141R), a replacement of FASB Statement
No. 141. SFAS 141R is effective for fiscal years
beginning on or after December 15, 2008 and applies to all
business combinations. SFAS 141R provides that, upon
initially obtaining control, an acquirer shall recognize
100 percent of the fair values of acquired assets,
including goodwill, and assumed liabilities, with only limited
exceptions, even if the acquirer has not acquired
100 percent of its target. As a consequence, the current
step acquisition model will be eliminated. Additionally,
SFAS 141R changes current practice, in part, as follows:
(1) contingent consideration arrangements will be fair
valued at the acquisition date and included on that basis in the
purchase price consideration; (2) transaction costs will be
expensed as incurred, rather than capitalized as part of the
purchase price; (3) pre-acquisition contingencies, such as
legal issues, will generally have to be accounted for in
purchase accounting at fair value; and (4) in order to
accrue for a restructuring plan in purchase accounting, the
requirements in FASB Statement No. 146, Accounting
for Costs Associated with Exit or Disposal Activities,
would have to be met at the acquisition date. While there is no
expected impact to our consolidated financial statements on the
accounting for acquisitions completed
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 28
prior to December 31, 2008, the adoption of SFAS 141R
on January 1, 2009 could materially change the accounting
for business combinations consummated subsequent to that date.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51,
(which we refer to as SFAS 160). SFAS 160 requires the
recognition of a noncontrolling interest (minority interest) as
equity in the financial statements and separate from the
parents equity. The amount of net income attributable to
the noncontrolling interest will be included in consolidated net
income on the face of the results of operations. SFAS 160
clarifies that changes in a parents ownership interest in
a subsidiary that do not result in deconsolidation are equity
transactions if the parent retains its controlling financial
interest. In addition, this statement requires that a parent
recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the
fair value of the noncontrolling equity investment on the
deconsolidation date. SFAS 160 also includes expanded
disclosure requirements regarding the interests of the parent
and its noncontrolling interest. SFAS 160 is effective for
financial statements issued for fiscal years beginning after
December 15, 2008 and is to be applied prospectively as of
the beginning of the fiscal year in which the statement is
applied. We are currently evaluating the impact that
SFAS 160 will have on our operations, financial positions
and cash flows.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of
SFAS 115 (which we refer to as SFAS 159), which
permits but does not require us to measure financial instruments
and certain other items at fair value. Unrealized gains and
losses on items for which the fair value option has been elected
are reported in earnings. This statement is effective for
financial statements issued for fiscal years beginning after
November 15, 2007. As we do not expect to elect to fair
value any of our financial instruments under the provisions of
SFAS 159, the adoption of this statement is not expected to
have any impact to our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (which we refer to as
SFAS 157). SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principles and establishes a hierarchy that
categorizes and prioritizes the sources to be used to estimate
fair value. SFAS 157 also expands financial statement
disclosures about fair value measurements. On February 6,
2008, the FASB issued FASB Staff Position 157-b (which we refer
to as FSP 157-b) which delays the effective date of
SFAS 157 for one year for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a
recurring basis (at least annually). SFAS 157 and
FSP 157-b are effective for financial statements issued for
fiscal years beginning after November 15, 2007. We have
elected a partial deferral of SFAS 157 under the provisions
of FSP 157-b related to the measurement of fair value used
when evaluating goodwill, other intangible assets and other
long-lived assets for impairment and valuing asset retirement
obligations and liabilities for exit or disposal activities. The
impact of partially adopting SFAS 157 effective
January 1, 2008 is not expected to be material to our
consolidated financial statements.
HLTH 2007 Annual
Report MD&A Annex
ANNEX A-3
PAGE 29
ANNEX A-4
HLTH
CORPORATION 2007 ANNUAL REPORT
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.
Changes in prevailing interest rates will cause the principal
amount of the investment to fluctuate. To minimize this risk, we
maintain our portfolio of cash equivalents, short-term
investments and various types of marketable securities.
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 is 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 has not engaged in
foreign currency hedging activities to date. Foreign currency
translation gains (losses) were $3.3 million,
$3.6 million and $(3.3) million in 2007, 2006 and
2005, respectively. We believe that future exchange rate
sensitivity related to Porex will not have a material effect on
our financial condition or results of operations.
ANNEX B
HLTH
CORPORATION 2007 ANNUAL REPORT
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
We completed the initial public offering of our Common Stock on
February 10, 1999. Our Common Stock began trading on
the Nasdaq National Market under the symbol HLTH on
February 11, 1999 and now trades on the Nasdaq Global
Select Market.
The high and low prices for each quarterly period during the
last two fiscal years are as follows:
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High
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Low
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2006
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First quarter
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$
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11.18
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$
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8.32
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Second quarter
|
|
|
12.44
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|
|
|
10.41
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Third quarter
|
|
|
12.60
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|
|
|
11.45
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Fourth quarter
|
|
|
12.78
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|
|
|
11.37
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2007
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
16.23
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|
|
$
|
12.28
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Second quarter
|
|
|
16.56
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|
|
|
13.72
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Third quarter
|
|
|
15.25
|
|
|
|
12.56
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Fourth quarter
|
|
|
16.39
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|
|
|
12.93
|
|
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 and other securities may result from,
among other things:
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|
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quarter-to-quarter variations in operating results;
|
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|
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operating results being different from analysts estimates
or opinions;
|
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changes in analysts earnings estimates;
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changes in financial guidance or other forward-looking
information;
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announcements of new technologies, products, services or pricing
policies by us or our competitors;
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announcements of acquisitions or strategic partnerships by us or
our competitors;
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developments in existing customer or strategic relationships;
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actual or perceived changes in our business strategy;
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developments in new or pending litigation and claims;
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sales of large amounts of our Common Stock;
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changes in market conditions in the healthcare, information
technology, Internet or plastic industries;
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changes in general economic conditions; and
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fluctuations in the securities markets in general.
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In addition, the market prices of Internet and healthcare
information technology stocks in general, and of our Common
Stock in particular, have experienced large fluctuations,
sometimes quite rapidly. These
HLTH 2007 Annual
Report Market for Common Equity
ANNEX B
PAGE 1
fluctuations often may be unrelated or disproportionate to the
operating performance of these companies. Any negative change in
the publics perception of the prospects of these
companies, as well as other broad market and industry factors,
may result in changes in the prices of our Common Stock.
Performance
Graph
The following graph compares the cumulative total stockholder
return on HLTH Common Stock with the comparable cumulative
return of the NASDAQ Composite Index, a Peer Group Index (as
described below) and the Research Data Group (RDG) Internet
Composite Index over the period of time from December 31,
2002 through December 31, 2007. The graph assumes that $100
was invested in HLTH Common Stock and each index on
December 31, 2002. The stock price performance on the graph
is not necessarily indicative of future stock price performance.
Pursuant to applicable rules under the Securities Exchange Act
of 1934, we are required to include in the graph below an index
of companies in our industry or line-of-business. We have
included an index of a specific group of companies (which we
refer to as the Peer Group Index) to meet this requirement. This
group of companies consists of Allscripts Healthcare Solutions,
Amicas, Inc. (formerly known as Vitalworks Inc.), Cerner
Corporation, Drugstore.com, Inc., Eclipsys Corporation,
ProxyMed, Inc., QuadraMed Corporation, Quality Systems, Inc. and
TriZetto Group, Inc. In addition, we have included in the graph
the RDG Internet Composite Index, which WebMD Health Corp uses
in the Performance Graph in its Annual Report as an index of
companies in its industry or line-of-business.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
HLTH Corporation, The NASDAQ Composite Index,
The RDG Internet Composite Index And A Peer Group
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* |
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$100 invested on 12/31/02 in stock or index-including
reinvestment of dividends.
Fiscal year ending December 31. |
HLTH 2007 Annual
Report Market for Common Equity
ANNEX B
PAGE 2
HLTH CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER
10, 2008
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of Mark D. Funston, Lewis H. Leicher and Charles A. Mele
as proxies, each with full power of substitution, to represent the undersigned and to vote all
shares of stock which the undersigned is entitled in any capacity to vote at the 2008 Annual
Meeting of Stockholders of HLTH CORPORATION, to be held at The
Waldorf-Astoria Hotel, 301 Park Avenue, New York, NY 10022, on
December 10,
2008, at 9:30 a.m., Eastern time, and at any adjournment or postponement thereof, on the
matters set forth below and, in their discretion, upon all matters incident to the conduct of the
Annual Meeting and upon such other matters as may properly be brought before the Annual Meeting or
any adjournment or postponement thereof. This proxy revokes all prior proxies given by the
undersigned.
WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, THIS PROXY WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER OR, IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR EACH OF THE PROPOSALS AND NOMINEES SET FORTH BELOW.
MAIL Please date, sign and mail your proxy card in the envelope provided as soon as possible.
or
TELEPHONE
Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718- 921-8500 from foreign countries and follow the instructions. Have your proxy card available when you call.
or
INTERNET
Access www.voteproxy.com and follow the on-screen instructions. Have your proxy card available
when you access the web page.
You may
enter your voting instructions at 1-800-PROXIES in the United States
or 1-718-921-8500 from foreign countries or www.voteproxy.com up until 11:59 PM Eastern Time the day before the cut-off or meeting.
x Please mark your votes as in this example.
The Board of Directors recommends a vote FOR the election of each of the director
nominees listed in Proposal 1 and FOR Proposal 2.
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WITHHOLD |
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FOR ALL |
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AUTHORITY |
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EXCEPT
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FOR ALL |
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FOR ALL |
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(See instructions |
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NOMINEES |
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NOMINEES |
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below) |
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1.
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To elect the
persons listed
below to each serve
a three-year term
as a Class I
director.
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NOMINEES: |
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O Neil F. Dimick |
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O Joseph E. Smith |
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(INSTRUCTION: To
withhold authority
to vote for any
individual nominee,
mark FOR ALL
EXCEPT and fill in
the circle next to each nominee you
wish to withhold,
as shown here: l) |
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FOR |
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AGAINST |
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ABSTAIN |
2.
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To ratify the
appointment of
Ernst & Young LLP
as the independent
registered public
accounting firm to
serve as HLTHs
independent auditor
for the fiscal year
ending December 31,
2008.
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The undersigned acknowledges receipt of the accompanying Notice of Annual Meeting and Proxy
Statement.
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Signature: |
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Signature: |
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Date:
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Date:
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NOTE: |
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Please sign exactly as your name or names
appear on this Proxy Card. When shares
are held jointly, each holder should
sign. When signing as executor,
administrator, attorney, trustee or
guardian, please give your full title as
such. If the signer is a corporation,
please print the full corporate name and
the full title of the duly authorized
officer executing on behalf of the
corporation. If the signer is a
partnership, please print full
partnership name and the full title of
the duly authorized person executing on
behalf of the partnership. |