FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 0-24975
HLTH Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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94-3236644
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(State of
incorporation)
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(I.R.S. employer identification
no.)
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669 River Drive, Center 2
Elmwood Park, New Jersey
(Address of principal
executive office)
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07407-1361
(Zip code)
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(201) 703-3400
(Registrants telephone
number including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.0001 per share
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The Nasdaq Stock Market LLC (Global Select Market)
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Securities registered pursuant to Section 12(g) of the
Act:
Not Applicable
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference into
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting
company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes o No þ
As of June 30, 2008, the aggregate market value of the
registrants common stock held by non-affiliates was
approximately $1,971,200,000 (based on the closing price of HLTH
Common Stock of $11.32 per share on that date, as reported on
the Nasdaq Global Select Market and, for purposes of this
computation only, the assumption that all of the
registrants directors and executive officers are
affiliates).
As of February 20, 2009, there were 102,994,349 shares
of HLTH Common Stock outstanding (including unvested
shares of restricted HLTH Common Stock).
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information in the registrants definitive proxy
statement to be filed with the Commission relating to the
registrants 2009 Annual Meeting of Stockholders is
incorporated by reference into Part III.
TABLE OF
CONTENTS
WebMD®,
WebMD Health and Benefits
Managersm,
CME
Circle®,
eMedicine®,
MedicineNet®,
Medpulse®,
Medscape®,
Medsite®,
POREX®,
Publishers
Circle®,
RxList®,
Select Quality
Care®,
Summex®,
theheart.org®
The Little Blue
Booktm
are trademarks of HLTH Corporation or its subsidiaries.
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FORWARD-LOOKING
STATEMENTS
This Annual Report on
Form 10-K
contains both historical and forward-looking statements. All
statements, other than statements of historical fact, are or may
be, forward-looking statements. For example, statements
concerning projections, predictions, expectations, estimates or
forecasts and statements that describe our objectives, future
performance, plans or goals are, or may be, forward-looking
statements. These forward-looking statements reflect
managements current expectations concerning future results
and events and can generally be identified by the use of
expressions such as may, will,
should, could, would,
likely, predict, potential,
continue, future, estimate,
believe, expect, anticipate,
intend, plan, foresee, and
other similar words or phrases, as well as statements in the
future tense.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual
results, performance or achievements to be different from any
future results, performance and achievements expressed or
implied by these statements. The following important risks and
uncertainties could affect our future results, causing those
results to differ materially from those expressed in our
forward-looking statements:
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the failure to achieve sufficient levels of usage of
www.webmd.com and our other public portals;
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failure to achieve sufficient levels of usage and market
acceptance of new or updated products and services;
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difficulties in forming and maintaining relationships with
customers and strategic partners;
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the inability to successfully deploy new or updated applications
or services;
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the anticipated benefits from acquisitions not being fully
realized or not being realized within the expected time frames;
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the inability to attract and retain qualified personnel;
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adverse economic conditions and disruptions in the capital
markets;
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general business or regulatory conditions affecting the
healthcare, information technology, Internet and plastics
industries being less favorable than expected; and
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the Risk Factors described in Item 1A of this Annual Report.
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These factors are not necessarily all of the important factors
that could cause actual results to differ materially from those
expressed in any of our forward-looking statements. Other
factors, including unknown or unpredictable ones, could also
have material adverse effects on our future results.
The forward-looking statements included in this Annual Report
are made only as of the date of this Annual Report. Except as
required by law or regulation, we do not undertake any
obligation to update any forward-looking statements to reflect
subsequent events or circumstances.
DEFINITIONS
OF CERTAIN MEASURES
In this Annual Report, we provide information regarding usage of
The WebMD Health Network that WebMD has determined using
internal technology that identifies and monitors usage by
individual computers. As used in this Annual Report:
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A unique user or unique visitor during
any calendar month is an individual computer that accesses a Web
site in The WebMD Health Network during the course of
such calendar month, as determined by WebMDs tracking
technology. Accordingly, with respect to such calendar month,
once an individual computer accesses that Web site in The
WebMD Health Network, that computer will generally be
included in the total number of unique users or visitors for
that month. Similarly, with respect to any calendar month, a
computer accessing a specific Web site in The WebMD Health
Network may only be counted once as a single unique user or
visitor regardless of the number of times such computer accesses
that Web site or the number of individuals who may use such
computer. However, if that
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computer accesses more than one site within The WebMD Health
Network during a calendar month, it will be counted once for
each such site. A computer that does not access any of the Web
sites in The WebMD Health Network during a particular
calendar month is not included in the total number of unique
users or visitors for that calendar month, even if such computer
has in the past accessed one or more of these Web sites. In
addition, if a computer blocks WebMDs tracking technology,
it will be counted as a unique user or visitor in a particular
month each time it visits one of these Web sites.
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A page view is a Web page that is sent to the
browser of a computer upon a request made by such computer and
received by a server in The WebMD Health Network. The
number of page views in The WebMD Health Network
is not limited by its number of unique users or visitors.
Accordingly, each unique user or visitor may generate multiple
page views.
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With respect to any given time period, aggregate page
views are the total number of page views
during such time period on all of the Web sites in The WebMD
Health Network.
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Third-party services that measure usage of Internet sites may
provide different usage statistics than those reported by
WebMDs internal tracking technology. These differences may
occur as a result of differences in methodologies applied and
differences in measurement periods. For example, third-party
services typically apply their own proprietary methods of
calculating usage, which may include surveying users and
estimating site usage based on surveys, rather than based upon
tracking such usage.
WebMDs private portals are licensed to employers and
health plans for use by their employees and members. These
private portals are not part of The WebMD Health Network,
do not involve advertising or sponsorship by third parties,
and their users and page views are not included in measurements
of The WebMD Health Networks traffic volume.
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PART I
INTRODUCTION
Corporate
Information
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.
Our principal executive offices are located at 669 River Drive,
Center 2, Elmwood Park, New Jersey
07407-1361
and our telephone number is
(201) 703-3400.
As of the date of this Annual Report, HLTH owns approximately
83.5% of the outstanding Common Stock of WebMD Health Corp., a
publicly traded subsidiary of HLTH; and the wholly owned
subsidiaries that constitute HLTHs Porex business.
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WebMD Health Corp. In this Annual
Report, we use the name WebMD to refer to the business conducted
by our two operating segments, as described below, and the name
WHC to refer to WebMD Health Corp., the public company that owns
the WebMD business. WHCs Class A Common Stock began
trading on the Nasdaq National Market under the symbol
WBMD on September 29, 2005 and now trades on
the Nasdaq Global Select Market. HLTH owns all 48,100,000
outstanding shares of WHCs Class B 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 HLTH represents
approximately 96.0% of the combined voting power of WHCs
outstanding Common Stock as of the date of this Annual Report.
All shares of WHC Class B Common Stock outstanding on
September 29, 2010 (the fifth anniversary of the closing
date of WHCs initial public offering) will automatically
be converted on a
share-for-share
basis to shares of WHC Class A Common Stock. See
Note 6 to the Consolidated Financial Statements included in
this Annual Report for additional information regarding
HLTHs ownership interest in, and relationships with, WHC.
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Porex. In February 2008, we announced
our intention to divest Porex and, as a result, we have
reflected our Porex segment as a discontinued operation in the
Consolidated Financial Statements contained in this Annual
Report. For additional information, see Note 3 to those
Consolidated Financial Statements. Porex develops, manufactures
and distributes proprietary porous plastic products and
components used in healthcare, industrial and consumer
applications. Porexs customers include both end-users of
its finished products, as well as manufacturers that include its
components in their products. Porex is an international business
with manufacturing operations in North America, Europe and Asia
and customers in more than 75 countries.
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Overview
of Our Operating Segments
Through WebMD, we are a leading provider of health information
services to consumers, physicians and other healthcare
professionals, employers and health plans through our public and
private online portals and health-focused publications. The
online healthcare information, decision-support applications and
communications services that we provide:
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enable consumers to obtain detailed information on a particular
disease or condition, to locate physicians, to store individual
healthcare information, to assess their personal health status,
to receive periodic
e-newsletters
and alerts on topics of individual interest, and to participate
in online communities with peers and experts;
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enable physicians and healthcare professionals to access
clinical reference sources, to stay abreast of the latest
clinical information, to learn about new treatment options, to
earn continuing medical education (or CME) and continuing
education (or CE) credit and to communicate with peers; and
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enable employers and health plans to provide their employees and
plan members with personalized health and benefit information
and decision-support technology that helps them make more
informed benefit, provider and treatment choices.
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The WebMD Health Network includes www.WebMD.com
(which we sometimes refer to as WebMD Health), our
primary public portal for consumers, and www.Medscape.com
(which we sometimes refer to as Medscape from WebMD),
our primary public portal for physicians and other healthcare
professionals, as well as other sites through which we provide
our branded health and wellness content, tools and services.
The WebMD Health Network does not include our private
portals for employers and health plans, which are described
below. In 2008, The WebMD Health Network had an average
of approximately 51 million unique users per month and
generated approximately 4.7 billion aggregate page views
and WebMD-owned sites accounted for approximately 96% of the
unique users and approximately 98% of the page views.
WebMD Health and our other consumer portals help
consumers take an active role in managing their health by
providing objective healthcare and lifestyle information. Our
content offerings for consumers include access to health and
wellness news articles and features, and decision-support
services that help them make better informed decisions about
treatment options, health risks and healthcare providers.
Medscape from WebMD and our other portals for healthcare
professionals help them improve their clinical knowledge and
practice of medicine. The original content of our professional
sites, including daily medical news, commentary, conference
coverage, expert columns and CME activities, are written by
authors from widely respected clinical and academic institutions
and edited and managed by our in-house editorial staff.
Our public portals generate revenue primarily through the sale
of advertising and sponsorship products, as well as CME services
that are described below. We do not charge user fees for access
to our public portals. We develop sponsored programs that target
specific groups of health-involved consumers, clinically-active
physicians and other healthcare professionals and place these
programs on the most relevant areas of The WebMD Health
Network so that our advertisers and sponsors are able to
reach, educate and inform these target audiences. Our
advertisers and sponsors consist primarily of pharmaceutical,
biotechnology and medical device companies and consumer products
companies whose products relate to health, wellness, diet,
fitness, lifestyle, safety and illness prevention.
Our private portal applications enable employees and health plan
members to make more informed benefit, treatment and provider
decisions. We provide a secure, personalized user experience by
integrating individual user data (including personal health
information), plan-specific data from our employer or health
plan clients and much of the content, decision-support
technology and personal communication services that we make
available through our public portals. These applications are
typically accessed through a clients Web site or intranet
and provide secure access for employees and plan members. We
also provide personalized telephonic health coaching. We market
our private portal products through both our direct sales force
and through selected distributors. We generate revenue from our
private portals primarily through the licensing of our products
to employers and health plans, either directly or through our
distributors. Our private portals do not display or generate
revenue from advertising or sponsorship.
Our public portals and our private portals constitute our WebMD
Online Services segment. In addition to our online presence, we
have a WebMD Publishing and Other Services segment that provides
complementary offline health publications. Our offline
publications also increase awareness of our brand among
consumers, physicians and other healthcare professionals. These
publications include WebMD the Magazine, a consumer
publication that we distribute free of charge to physician
office waiting rooms and The WebMD Little Blue Book, a
physician directory. For additional information regarding the
results of operations of each of our segments, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Results of
Operations by Operating Segment in Item 7 below and
Note 10 to the Consolidated Financial Statements included
in this Annual Report.
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Available
Information
We make available free of charge at www.hlth.com (in the
Investor Relations section) copies of materials we
file with, or furnish to, the Securities and Exchange
Commission, or SEC, including our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and amendments to those reports, as soon as reasonably
practicable after we electronically file such materials with, or
furnish them to, the SEC.
WHC makes available free of charge at www.wbmd.com (in
the Investor Relations section) copies of materials
it files with, or furnishes to, the SEC as soon as reasonably
practicable after it electronically files such materials with,
or furnishes them to, the SEC.
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WEBMD
ONLINE SERVICES
Our
Public Portals: The WebMD Health Network
Overview
Our content and services have made our public portals the
leading online health information destinations for consumers,
physicians and other healthcare professionals. In 2008, The
WebMD Health Network had an average of approximately
51 million unique users per month and generated
approximately 4.7 billion aggregate page views.
Owned Web Sites. During 2008, WebMD-owned
sites accounted for approximately 96% of The WebMD Health
Networks unique users and approximately 98% of its
page views. The following provides a brief description of the
WebMD-owned public portals in The WebMD Health Network:
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Consumer Portal Site
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Description
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www.webmd.com
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WebMD Health, our flagship consumer portal.
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www.medicinenet.com
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A health information site for consumers offering content that is
written and edited by practicing physicians, including an online
medical dictionary with thousands of medical terms.
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www.rxlist.com
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An online drug directory with over 2,000 drug monographs, which
are comprehensive descriptions of pharmaceutical products
(including chemical name, brand names, molecular structure,
clinical pharmacology, directions and dosage, side effects, drug
interactions and precautions).
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www.emedicinehealth.com
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A health information site for consumers offering articles
written and edited by physicians for consumers, including first
aid and emergency information that is also accessible at
firstaid.webmd.com.
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www.medscape.com
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Medscape from WebMD, our flagship Web site for physicians
and other healthcare professionals.
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www.medscapecme.com
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The Web site through which Medscape, LLC distributes online CME
and CE to physicians and other healthcare professionals.
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emedicine.medscape.com
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A site for physicians and other healthcare professionals
containing articles on over 6,500 diseases and disorders.
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www.theheart.org
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One of the leading cardiology Web sites, known for its depth and
breadth of content in this area.
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Other Sites. The WebMD Health Network also
includes certain third party Web sites that WebMD supports.
Those third party sites accounted for approximately 2% of the
total page views on The WebMD Health Network during 2008.
WebMD sells the advertising and program content on the areas of
the third party Web sites that WebMD supports.
Consumer
Portals
Introduction. Healthcare consumers
increasingly seek to educate themselves online about their
healthcare related issues, motivated in part by the continued
availability of new treatment options and in part by the larger
share of healthcare costs they are being asked to bear due to
changes in the benefit designs being offered by health plans and
employers. The Internet has fundamentally changed the way
consumers obtain information, enabling them to have immediate
access to searchable information and dynamic interactive
content. The Internet is consumers fastest growing health
information resource, according to a national study
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released in August 2008 by the Center for Studying Health System
Change. Researchers found that 32 percent of American
consumers (approximately 70 million adults) conducted
online health searches in 2007, compared with 16 percent in
2001. More than half of those surveyed said the information that
they obtained from the Internet had changed their overall
approach to maintaining their health, and four in five of those
surveyed said the information helped them better understand how
to treat an illness or condition.
Overview of Content and Service Offerings. Our
goal is to provide consumers with an objective and trusted
source of information that helps them play an active role in
managing their health. WebMD Health and the other
consumer portals in The WebMD Health Network provide our
users with information, tools and applications in a variety of
content formats. These content offerings include access to news
articles and features, special reports, interactive guides,
originally produced videos, self-assessment questionnaires,
expert led Q&As and encyclopedic references. Our
approximately
90-person
in-house staff, which includes professional writers, editors,
designers and board-certified physicians, creates content for
The WebMD Health Network. Our in-house staff is
supplemented by medical advisors and authors from widely
respected academic and clinical institutions. The news stories
and other original content and reporting presented in The
WebMD Health Network are based on our editors
selections of the most important and relevant public health
events occurring on any given day, obtained from an array of
credible sources, including peer-reviewed medical journals,
medical conferences, federal or state government actions and
materials derived from interviews with medical experts. We offer
searchable access to the full content of our Web sites,
including licensed content and reference-based content.
We regularly make changes to the design of WebMD Health
and our other consumer portals in order to increase visitor
engagement with our content and to make it easier for users to
navigate within our sites and find information. We test
potential changes in design before they are made in order to
determine if such changes are likely to result in, among other
things, increased numbers of page views, video streams, slide
show views or searches in a visitor session and increased repeat
visits by our users.
Key Features of WebMD Health. WebMD Health
includes the following key features:
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Feature
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Description
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WebMD News Center
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Daily health news articles that are written by health
journalists and reviewed by our professional staff. Content
focuses on news you can use and the article topics
reflect national news stories of interest in the popular media
that day with original perspective from health and medical
experts.
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WebMD Editorial Features
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Comprehensive content focusing on major health issues that are
in the news or otherwise contemporary, with emphasis on health
trends and national health issues.
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WebMD Daily
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Originally produced multi-media content served on our custom
video player. WebMD Daily delivers a three to five minute
health-related video of real patient stories and expert
interviews, among other things, and includes narration, graphics
and links to additional content on a given health topic.
Sponsors are able to stream commercials and promotional messages
within the video feature itself and within the surrounding
viewing area.
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Feature
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Description
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WebMD Health Centers
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WebMD Health Centers are centralized locations for content and
services for both WebMD Health editorial offerings and
sponsor offerings focusing on topics related to health, wellness
and lifestyle. Each Health Center features newly organized and
medically reviewed information and enables the user to easily
locate the top articles, news, community features and health
assessments for each topic. We also provide users an
alphabetical listing of all Health Centers and other collections
of articles, organized by specific health conditions and
concerns, known as Health A-Z.
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WebMD Health Guides
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Anchored within each Health Center, WebMD Health Guides are
designed to guide users through the most current symptom,
diagnosis, treatment and care information related to a
particular health topic. These unique guides were created by our
editorial staff of professional health writers in collaboration
with our proprietary physician network.
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WebMD Videos
A-Z
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Included in the Health Centers are broadcast-quality health
videos featuring real stories and expert interviews.
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General Medical Information
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Our medical library allows consumers to research current
information, some of which we license from third parties,
relating to diseases and common health conditions by providing
searchable access and easy-to-read content, including:
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self-care articles
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drug and supplement references from leading
publications, including First Data
Bank®
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clinical trials and research study information
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a patients guide to medical tests
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interactive, illustrated presentations that visually
explain common health conditions and diseases
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a medical dictionary
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doctors views on important health topics.
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Decision-Support Services and Other Online
Tools. Our decision-support services and other
online tools help consumers make better-informed decisions about
treatment options, health risks and healthcare providers, and
assist consumers in their management and monitoring, on an
ongoing basis, of personal health goals, specific conditions and
treatment regimens.
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Feature
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Description
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WebMD HealthCheck
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Clinical, algorithm-based self assessments for major conditions
yielding a personalized risk score based upon the users
individual characteristics (e.g., gender, age, behavioral risks,
heredity), along with customized recommendations for further
education, potential treatment alternatives and a summary report
to share with the users physician.
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Feature
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Description
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Symptom Checker
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An interactive graphic interface with advanced clinical
decision-support rules that allow users to pinpoint potential
conditions associated with their physical symptoms, gender and
age. The Symptom Checker was created by an experienced group of
physicians trained in the development of clinical decision
support applications.
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Healthy Eating and Diet
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An educational channel focusing on diet, food, and fitness,
designed to help users attain their goals in personal health,
fitness and weight management. The channel includes expert
interviews, diet assessment, a personal planner, a food database
for nutritional information, as well as calculators, portion
help, and a member area for discussion boards, blogs and user
support.
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First Aid & Emergencies
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Directs users to educational and treatment information that may
be useful in the event of certain medical emergencies. Also
included in this resource is a First Aid A-Z glossary of terms.
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Tests & Tools
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Provides access to interactive calculators and quizzes to assess
or demonstrate health topics, including a target heart rate
calculator, body mass index calculator, pregnancy calculator and
ovulation calendar.
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Slideshows
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Our slideshows are designed to educate users on specific
conditions and other health topics in an engaging, visually rich
format.
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Drugs & Treatments
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Users can search for information about prescription and
over-the-counter medications by brand or generic name, or by
condition. We also recently launched Drug Insights, a
community product that allows consumers to anonymously review
and share their personal experiences with individual
prescription products.
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WebMD Physician Finder
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Enables users to find and make an appointment with a physician
based on the physician or practice name, specialty, zip code and
distance.
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Managing Healthcare & Benefits
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Offerings that educate users on issues surrounding choosing and
using health plans and managing their healthcare from a
financial and quality perspective. Other coverage topics, such
as Medicare, are addressed and resources and tools are available
to users.
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WebMD Health Manager
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A free online service featuring a personal health record (a
secure application that assists consumers in gathering, storing,
and sharing essential health data in one centralized location),
secure message center, personal health risk assessments for
overall health, condition-specific trackers, medication
summaries, health calendar with reminders and alerts, printable
health emergency card, family member health record keeping,
weight loss, fitness and smoking cessation programs, and fully
personalized e-newsletter.
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Mobile Applications. WebMD has launched iPhone
mobile versions of WebMDs Symptom Checker, Pill Identifier
and First Aid applications. These WebMD applications are among
the most downloaded health applications in the iTunes Store.
Membership; Online Communities. We also
provide interactive communication services to our registered
members. For example, members can opt-in to receive
e-newsletters
on health-related topics or specific conditions and to access
topic-specific events and online communities. Our online
communities allow our members to participate in real-time
discussions in chat rooms or on message boards, where they can
share experiences and exchange information with other members
who share common health conditions or concerns.
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Description
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Community Centers
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Community Centers are designed to allow members to share their
experiences and exchange information with other members with
similar health conditions or concerns. Community Centers may
include blogs, moderated message boards and posted member
columns.
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e-Newsletters
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Our selection of e-Newsletters allows consumers to choose to
receive regular updates on topics targeted to their particular
health concerns and on general health-related subjects based on
their interests.
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Expert Blogs
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Expert healthcare professionals and non-healthcare professional
members alike chronicle their experiences with one another in
these online journals.
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Ask an Expert
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Health and wellness forums within which users can post their
health questions and receive support and information from health
experts, moderators and other members.
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There are no membership fees and no general usage charges for
our consumer portals. However, we offer one paid subscription
service for consumers: The WebMD Weight Loss Clinic, which
provides weight loss programs customized for individual users.
Professional
Portals
Introduction. The Internet has become a
primary source of information for physicians and other
healthcare professionals, and is growing relative to other
sources, such as conferences, meetings and offline journals. We
believe that our professional portals, which include Medscape
from WebMD, MedscapeCME, theheart.org, and
eMedicine, reach more physicians than any other network
of Web sites for healthcare professionals. We believe that we
are well positioned to increase usage by existing and new
members because we offer physicians and other healthcare
professionals a broad range of current clinical information and
resources. We expect that Medscape from WebMD, MedscapeCME
and our other professional portals will continue to benefit
from the general trend towards increased reliance on, and usage
of, the Internet by physicians and other healthcare
professionals.
There are no membership fees and no general usage charges for
our professional portals. However, users must register to access
the content and features of our professional portals. We
generate revenue from our professional portals by selling
advertising and sponsorship programs primarily to companies that
wish to target physicians and other healthcare professionals,
and also through educational grants.
Medscape from WebMD. Medscape from WebMD
(www.medscape.com) enables physicians and other
healthcare professionals to stay abreast of the latest clinical
information through access to resources that include:
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timely medical news relating to a variety of specialty areas and
coverage of professional meetings and conferences;
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full-text medical journal articles and drug and medical
literature databases; and
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video and written commentary from leading medical experts.
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Medscape from WebMDs original content includes
daily medical news, commentary, conference coverage, and expert
columns written by our in-house news team and authors from
widely respected academic and clinical institutions and edited
and managed by our in-house editorial staff. We regularly
produce in-depth interviews with medical experts and newsmakers,
and provide alerts on critical clinical issues, including
pharmaceutical recalls and product advisories. Medscape from
WebMD also provides access to wire service stories and other
news-related content. Medscape from WebMD develops the
majority of its content internally and supplements that with
third party content in areas such as drug information and
full-text journal articles.
Medscape from WebMD is organized by physician specialty
and profession, and also includes areas for nurses, pharmacists,
medical students, and members interested in medical policy and
business of medicine topics. Registration by users enables us to
deliver targeted medical content based on such users
registration profiles. The registration process also enables
professional members to choose a home page tailored to their
medical specialty or interest. Medscape from WebMD offers
more than 30 specialty areas for its members. Medscape from
WebMD members receive
MedPulse®,
a weekly
e-mail
newsletter, which is published in more than 30
specialty-specific editions and highlights new information on
the Medscape from WebMD site.
eMedicine Online Medical Reference. eMedicine
(emedicine.medscape.com) publishes online
medical reference information for physicians and other
healthcare professionals. Thousands of attributed physician
authors and editors contribute to the eMedicine Clinical
Knowledge Base, which contains peer-reviewed articles on over
6,500 diseases and disorders, many of which are illustrated with
multimedia files. The evidence-based eMedicine content, updated
regularly by the physician authors and editors, provides
practice information covering most medical specialties.
theheart.org Cardiology Site. theheart.org
(www.theheart.org) is one of the leading cardiology
Web sites, known for its depth and breadth of content in this
area.
Continuing Medical Education (CME). MedscapeCME
(www.medscapecme.com) is the Web site through which
our ACCME-accredited CME provider, Medscape, LLC, distributes
online CME and CE to physicians and other healthcare
professionals. The ACCME (the Accreditation Council for
Continuing Medical Education) accredits and oversees providers
of CME credit, as described under Government Regulation,
Industry Standards and Related Matters Regulation
and Accreditation of Continuing Medical Education below.
Medscape is also accredited as a provider of continuing nursing
education by the American Nurses Credentialing Centers
Commission on Accreditation and as a provider of continuing
pharmacy education by the Accreditation Council for Pharmacy
Education.
MedscapeCME offers a wide selection of free, regularly
updated online CME and CE activities designed to educate
healthcare professionals about important diagnostic and
therapeutic issues, including both original CME and CE
activities that it develops as well as activities developed by
accredited third parties. In 2008, over 5.2 million
continuing education activities were completed by physicians and
other healthcare professionals on MedscapeCME, an
increase of approximately 68% over 2007. MedscapeCME
educational activities are supported by independent
educational grants provided by pharmaceutical and medical device
companies, as well as foundations and government agencies. The
following are some of the types of continuing education
activities on MedscapeCME:
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Conference Coverage. Coverage of major medical
conferences.
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CME Circle. Third party CME activities,
including symposia, monographs and CD-ROMs that MedscapeCME
distributes online.
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CME Live. Original online events featuring
live streaming video, audio and synchronized visual
presentations by experts on key topics and conditions. These
live Webcasts also allow participants to interact with faculty.
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CME Cases. Original CME activities presented
by healthcare professionals in a patient case format.
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Resource Centers. Grant-based collections of
CME-certified content on the diagnosis and treatment of medical
conditions.
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Online Physician Community. Physician Connect
is our online community for physicians, which was launched
in April 2008, building on our history of online physician
interaction. The Physician Connect social networking
platform allows physicians to exchange information online on a
range of topics, including patient care, drug information,
healthcare-related legislation and practice management.
Physicians can also create polls to elicit tailored,
constructive feedback from other physicians. By the end of 2008,
Physician Connect had attracted more than 100,000
physician members.
e-Detailing. Through
WebMD Professional Services, we provide
e-detailing
services for pharmaceutical, medical device and healthcare
companies, including activity development, targeted recruitment
and online distribution and delivery. Traditional
details are in-person meetings between
pharmaceutical company sales representatives and physicians to
discuss particular products.
E-details
are promotional interactive online programs that provide
clinical education and information to physicians about medical
conditions, treatments and products. We provide our
pharmaceutical and medical device customers with a set of online
solutions that help increase the sales efficiencies of their own
direct detailing efforts. In an effort to improve operating
efficiencies, several pharmaceutical companies have recently
announced reductions in their field sales forces. We believe
that, in their effort to achieve greater overall market
efficiency, pharmaceutical companies will increase their use of
online promotional marketing, including
e-detailing.
Advertising
and Sponsorship
We believe that The WebMD Health Network offers an
efficient means for advertisers and sponsors to reach a large
audience of health-involved consumers, clinically-active
physicians and other healthcare professionals. The WebMD
Health Network enables advertisers and sponsors to reach
either our entire audience or specific groups of consumers,
physicians and other healthcare professionals based on their
interests or specialties. Currently, the majority of our
advertisers and sponsors are pharmaceutical, biotechnology or
medical device firms or consumer products companies. These
companies currently spend only a very small portion of their
marketing and educational budgets on online media. However, we
expect their online spending to increase as a result of
increased recognition of its potential advantages over offline
marketing and educational activities. The WebMD Health
Network ran approximately 1,400 branded or sponsored
programs for its customers during 2008, approximately 1,000 such
programs during 2007, and approximately 800 such programs during
2006.
Our public portals provide advertisers and sponsors with
customized marketing campaigns that go beyond traditional
Internet advertising media. We work with our advertisers and
sponsors to develop marketing programs that are appropriately
customized to target specific groups of consumers, physicians or
healthcare professionals. Our public portal services are
typically priced at an aggregate price that takes into account
the overall scope of the services provided, based upon the
amount of content, tools and features we supply as well as the
degree of customization that we provide for the program. In
addition, our contracts often include guarantees with respect to
the number of users that visit the client-sponsored area, but do
not generally include assurances with respect to the number of
clicks or actions taken through such Web sites. To a much lesser
extent, we also sell advertising on a CPM (cost per thousand
impressions) basis, where an advertiser can purchase a set
amount of impressions on a cost per thousand basis. An
impression is a single instance of an ad appearing
on a Web page. Our private portals do not generate revenue from
advertising or sponsorship. See Our Private
Portals: WebMD Health Services below.
We provide healthcare advertisers and other sponsors with the
means to communicate with targeted groups of consumers and
physicians by offering placements and programs in the most
relevant locations on our portals. The following are some of the
types of placements and programs we offer to advertisers and
sponsors:
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Media Solutions. These are traditional online
advertising solutions, such as banners, used to reach
health-involved consumers, physicians and other healthcare
professionals. In addition, clients can
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sponsor a variety of condition-specific or specialty-specific
e-newsletters,
keyword searches and educational programs.
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Sponsored Editorial Solutions. These are
customized collections of articles, topics, and decision-support
tools and applications, sponsored by clients and distributed
within WebMD Health.
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E-details. E-details
are promotional interactive online programs that provide
clinical education and information to physicians about medical
conditions, treatments and products.
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Key benefits that The WebMD Health Network offers
healthcare advertisers and other sponsors include:
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our display of approximately 4.7 billion pages of
healthcare information to users visiting our sites in 2008;
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our ability to help advertisers and sponsors reach specific
groups of consumers and physicians by specialty, product,
disease, condition or wellness topic, which typically produces a
more efficient and productive marketing campaign; and
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our ability to provide advertisers and other sponsors with
objective measures of the effectiveness of their online
marketing, such as activity levels within the sponsored content
area.
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Sales
and Marketing
Our sales, marketing and account management personnel work with
pharmaceutical, medical device, biotechnology and consumer
products companies to place their advertisements and other
sponsored products on our public portals and in some of our
publications. These individuals work closely with clients and
potential clients to develop innovative ways to bring their
companies and their products and services to the attention of
targeted groups of consumers and healthcare professionals, and
to create channels of communication with these audiences.
We have sole discretion for determining the types of advertising
that we accept on our Web sites. All advertisements,
sponsorships and promotions that appear on our Web sites must
comply with our advertising and promotions policies. We do not
accept advertising that, in our opinion, is not factually
accurate or is not in good taste. Under our sponsorship
policies, we take appropriate steps to identify content created
by, provided by or influenced by a sponsor, so users of our
sites can distinguish it from our editorial content and news
reporting.
Our
Private Portals: WebMD Health Services
Introduction
According to data made available by The Centers for
Medicare & Medicaid Services (CMS) Office of the
Actuary in January 2009, healthcare spending in the United
States grew 6.1% in 2007, to $2.2 trillion (or an average of
$7,421 per person), and continued to outpace overall economic
growth, which grew by 4.8% in 2007. While the 2007 increase in
healthcare spending was not as large as those in some recent
years, healthcare spending as a percentage of gross domestic
product continued to increase according to the CMS data, from
16.0% to 16.2%. CMS also indicated that private health insurance
premiums grew 6.0% in 2007, the same rate as in 2006. In
response to increasing healthcare costs, employers and health
plans have been:
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changing benefit plan designs to increase deductibles,
co-payments and other
out-of-pocket
costs;
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enhancing health management and wellness programs and providing
incentives for participation in those programs; and
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taking other steps to motivate employees and plan members to use
healthcare in a cost-effective manner.
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In connection with the ongoing effort to shift greater
responsibility for healthcare costs to consumers, employers and
health plans are making available more health and benefits
information and decision-support applications to help their
employees and plan members make informed decisions about
treatment options,
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health risks and healthcare providers. The goal is to encourage
employees and plan members to take a more active role in
managing their healthcare by providing relevant information,
including data related to healthcare costs and quality promoting
transparency. Our WebMD Health and Benefits
Managersm
provides an integrated health and benefits management platform
that helps employers and health plans present actionable
information and applications through a convenient, custom
private portal. Our online solutions complement the
employers or payers existing benefit-related
services and offline educational efforts.
We generate revenue from our private portals primarily through
the licensing of our technology and content to employers and
health plans, either directly or through our distributors. Our
private portals are not part of The WebMD Health Network
and do not involve advertising or sponsorship by third
parties; and we do not include private portal users or page
views when we measure The WebMD Health Networks
traffic volume.
The
WebMD Health and Benefits Manager
We provide our integrated health and benefits management
solution suite, known as the Health and Benefits Manager,
through private online portals that we host for our employer and
health plan clients. Our applications are typically accessed
through a clients Web site or intranet and provide secure
access for registered members. We provide a personalized user
experience by integrating: individual user data (including
personal health information); plan-specific data from clients;
and WebMD content, decision-support technology and personal
communication services. The WebMD Insight
Enginesm
is the platform we use to integrate third party applications, to
consolidate and analyze data from multiple sources, and to drive
the delivery of personalized information for each user of the
Health and Benefits Manager. The Insight Engine also powers
reporting services that help employers and plans identify
population health risks, track program utilization, document the
impact of health promotion initiatives, and measure results of
ongoing campaigns.
Membership for each of our private portals is limited to the
employees and members (and their dependants) of the respective
employer and health plan clients. Each member must initially
register on the private portal provided, at which point a unique
user identification name and passcode is assigned. The portal is
presented to each employee or health plan member as a personal
home page, with direct access to relevant content, tools and
other resources specific to the individuals eligibility,
coverage and health profile. The Health and Benefits Manager
enables registered members to access and manage the individually
tailored health and benefits information and decision-support
technology in one location, with a common look and feel, and
with a single sign-on. The WebMD Health and Benefits Manager
includes the following product suites:
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The WebMD Health Management Suite gives employees and
plan members access to personalized content and tools that
empower them to evaluate and manage their healthcare, motivate
them to make healthier lifestyle choices, and help them improve
their overall health. The Health Management Suite incorporates
our WebMD
HealthQuotientsm
health risk assessment applications, which enable users to
assess their overall health risks and to understand their unique
risk factors with regard to specific conditions. The results of
the health risk assessment are then used, along with the
individuals usage patterns, to give each user a
personalized experience relevant to his or her specific needs
and interests. Users can get consistent reinforcement from
lifestyle improvement programs and condition centers, health
management content, and targeted health messaging. We complement
our Health Management Suite with personalized telephonic health
coaching services. Health coaches work
one-on-one
with employees and plan members to motivate them to improve
their own health status by better managing existing health
conditions, by pursuing health conscious lifestyles, by actively
seeking health and wellness knowledge and by understanding the
financial and health impact of lifestyle decisions.
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The WebMD Benefits & Financial Suite helps
employees and plan members to better understand the financial
implications of their benefits options and make more informed
benefits-related purchase decisions. Using WebMD Coverage
Advisorsm,
they can compare costs across available health plan options
based on personalized information regarding coverage
alternatives, along with cost-modeling and projection utilities.
WebMD Health Expense
Advisorsm
helps individuals manage and track their healthcare expenses,
create budgets and analyze the benefits available under their
health plan. WebMD
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HSA
Advisorsm
provides personalized resources to assist in determining
appropriate amounts for individuals to contribute to medical
savings accounts based on their profile. The
Benefits & Financial Suite is integrated with WebMD
Health Management Suite applications and content, so users can
align their benefits choices with their personal health profile
and individual financial circumstances. Cost-modeling and
projection tools help users to understand and adopt the right
health plan for their situation.
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The WebMD Provider & Treatment Suite gives
employees and plan members access to information and services
that can help them factor quality and cost into decisions about
care and treatment options. The Provider & Treatment
Suite helps users analyze provider quality, identify appropriate
drug and treatment choices, and understand the costs associated
with their care. This suite leverages multiple data sources for
cost and quality comparisons and provides a personalized,
consistent user experience across a full set of integrated
tools. The quality comparisons are based on evidence-based
measures, such as volume of patients treated for particular
illnesses or procedures, mortality rates, unfavorable outcomes
for specific problems, and average length of hospital stay. The
WebMD Provider Selection
Advisorsm
included in this Suite allows users to search for healthcare
providers (including physicians, hospitals, medical practices,
dental providers and others) by name, specialty, location or
healthcare need/situation and provides profiles and comparative
information on these providers.
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The WebMD Health Record Suite helps employees and plan
members gather, store, manage and share their essential health
data. The Health Record Suite provides a secure personal health
record for self-reported and imported health information, and
prompts employees and plan members with secure, personalized
health alerts describing potential care or medication issues.
This suite includes ID-enabled healthcare provider access that
encourages communication with providers to reduce errors or
duplications and to improve healthcare outcomes.
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Whether used independently or as part of an integrated platform,
these product suites help employees and health plan members
become better-informed health consumers, make better healthcare
choices, and feel more satisfied with their benefits choices. We
also assist employers and plan members to motivate their
employees and members to use the tools and information provided
by the Health and Benefits Manager and to implement wellness
incentive programs that encourage and reward specific health
behaviors. For example, the Insight Engine enables targeted
communications campaigns that inform and motivate employees and
plan members to change their behaviors and improve health
status. Messages can be targeted based on health profile
characteristics, demographics, or site usage, and they can be
designed to raise awareness of specific programs, motivate a
lifestyle change, or increase utilization of health resources.
We believe that our private portals and related services provide
the following potential benefits to an employer or health plan:
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reduced benefits administration, communication, and customer
service costs;
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more efficient coordination of messaging through the use of
integrated member profiles;
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increased employee participation in Flexible Spending Accounts
(FSAs) and Health Savings Accounts (HSAs);
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reduced hospital, physician and drug costs through more informed
utilization of the benefit plan;
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increased enrollment in health management programs, including
disease management or health coaching;
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increased member satisfaction with the employer and the benefit
plan;
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increased conformance with benefit plan and clinical protocols;
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enhanced health risk stratification that assists employers and
health plans in selecting health management programs that are
appropriate to the needs of their specific populations; and
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reduction in overall health risks and increased employee
productivity.
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In addition, we believe that our private portals and related
services provide the following potential benefits to employees
or plan members:
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increased tax savings through increased participation in FSAs
and HSAs;
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reduced benefit costs through more informed choice of benefit
plan options and more informed use of the chosen benefit plan;
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improved health outcomes, through more informed choices of
providers and treatments; and
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improved understanding and management of health conditions
through access to support tools and educational information.
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Relationships
with Customers
Companies utilizing our private portal applications include
employers, such as PepsiCo, Inc., International Business
Machines Corporation, Metropolitan Life Insurance Company,
Verizon Services Corp., Honda of America, The Kroger Co., J.C.
Penney Corporation, Inc., Electronic Data Systems Corporation,
Medtronic, Inc., EMC Corporation, Walmart Stores, Inc., and
Hewlett-Packard Company, and health plans, such as Wellpoint,
Inc., Blue Cross Blue Shield of Alabama, HealthNet,
ConnecticutCare, Pacific Source Health Plans, Cigna and Horizon
Blue Cross and Blue Shield.
A typical contract for a private portal license provides for a
multi-year term. The pricing of these contracts is generally
based on several factors, including the complexity involved in
installing and integrating our private portal platform, the
number of our private portal tools and applications licensed,
the services being provided, the degree of customization of the
services involved and the anticipated number of employees or
members covered by such license.
Relationship
with Fidelity Human Resources Services Company LLC
In February 2004, we entered into a relationship with Fidelity
Human Resources Services Company LLC, or FHRS, a provider of
human resources and benefits outsourcing administration
services. Pursuant to the agreement, FHRS serves as a
distributor of our private portal services, and in connection
therewith, FHRS integrates our products with FHRSs
products to offer employer customers of FHRS an integrated
solution through FHRSs
NetBenefits®
Web site. FHRSs integrated solutions provide employees
with employer-provided health plan information and our personal
health management tools allow employees to access a personalized
view of their healthcare options so that they can make more
informed healthcare decisions. In May 2006, we expanded our
agreement with FHRS to integrate our online health care cost
planning tools with FHRSs 401(k) savings, pension and
retirement accounts.
Pursuant to the agreement, we have agreed to cooperate in
marketing and selling to clients that are purchasing FHRSs
health and welfare benefits outsourcing services. For those
clients, the NetBenefits site is marketed as the preferred
delivery mechanism for the WebMD private portal applications.
However, a client always retains the right to contract directly
with us, and we are permitted to provide our services directly
to a client if a client so requests. Under our agreement with
FHRS, FHRS has retained the right to terminate the distribution
of the WebMD private portal tools to an individual client at any
time.
The May 2006 amendment also extended the initial term of the
agreement to August 31, 2009, and FHRS has the right to
renew the agreement for additional terms of one year after the
initial term (not to exceed two (2) one-year renewal
terms). FHRS has agreed to certain minimum levels of employees
to be covered under the agreement. FHRS is an affiliate of FMR
Corp, which reported beneficial ownership of shares representing
approximately 5.2% of our Class A Common Stock at
December 31, 2008, and approximately 9.9% of HLTHs
common stock at December 31, 2008.
Sales
and Marketing
We market our private online portals and health coaching
services to employers and health plans through a dedicated
sales, marketing and account management team and through
relationships with employee benefits
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consultants, distributors and other companies that assist
employers in purchasing or managing employee benefits, including
FHRS. See Relationship with Fidelity Human
Resources Services Company LLC above for more information
regarding our relationship with FHRS.
Technological
Infrastructure
Our Internet-based services are delivered through Web sites
designed to address the healthcare information needs of
consumers and healthcare professionals with easy-to-use
interfaces, search functions and navigation capabilities. We use
customized content management and publishing technology to
develop, edit, publish, manage, and organize the content for our
Web sites. We use ad-serving technology to store, manage and
serve online advertisements in a contextually relevant manner to
the extent possible. We also use specialized software for
delivering personalized content through the WebMD Health and
Benefits Manager and, for registered members, through our public
Web sites. We have invested and intend to continue to invest in
software and systems that allow us to meet the demands of our
users and sponsors.
Continued development of our technological infrastructure is
critical to our success. Our development teams work closely with
marketing and account management employees to create content
management capabilities, interactive tools and other
applications for use across all of our portals. The goal of our
current and planned investments is to further develop our
content and technology platform serving various end-users,
including consumers and physicians, and to create innovative
services that provide value for healthcare advertisers,
employers, payers, and other sponsors.
User
Privacy and Trust
General. We have adopted internal
policies and practices relating to, among other things, content
standards and user privacy, designed to foster our relationships
with our users. In addition, we participate in the following
external, independent verification programs:
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URAC. We were awarded
e-Health
accreditation from URAC, an independent accrediting body that
has reviewed and approved the WebMD.com site and our private
portal deployment of WebMD Personal Health Manager for
compliance with its quality and ethics standards.
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TRUSTe. We are a licensee of the TRUSTe
Privacy Seal and the TRUSTe EU Safe Harbor programs. TRUSTe is
an independent, non-profit organization whose goal is to build
users trust and confidence in the Internet. Each year
since 2005, TRUSTe and the Ponemon Institute have sponsored an
independently administered user-based ranking of the most
trusted companies in America and WebMD has consistently ranked
among the most trusted in each of those rankings.
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Health on the Net Foundation. Our WebMD.com,
eMedicine.com, eMedicineHealth.com, MedicineNet.com and
Subimo.com sites and WebMD Personal Health Manager comply with
the principles of the HON Code of Conduct established by the
Health on the Net Foundation.
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Privacy Policies. We understand how
important the privacy of personal information is to our users.
Our Privacy Policies are posted on our Web sites and inform
users regarding the information we collect about them and about
their use of our portals and our services. Our Privacy Policies
also explain the choices users have about how their personal
information is used and how we protect that information.
Content-Sharing
and Marketing Relationships
FDA. WebMD is working with the
U.S. Food and Drug Administration (or FDA) to expand
consumer access to the FDAs timely and reliable important
health information. The collaboration includes:
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A new online consumer health information resource on WebMD.com
(www.webmd.com/fda), through which consumers can access
information on the safety of FDA-regulated products, including
food, medicine and cosmetics, as well as learn how to report
problems involving the safety of these products directly to the
FDA. In addition, WebMD will provide FDA public health alerts to
all WebMD registered users and site visitors that request them.
The cross-linked joint resource also features the
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FDAs Consumer Updates timely and
easy-to-read
articles that are also posted on the FDAs main consumer
Web page (www.fda.gov/consumer).
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FDA Consumer Updates will also be featured at least three times
a year in WebMD the Magazine.
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GNC. WebMD has entered into a marketing
relationship with General Nutrition Corporation (GNC), a
specialty retailer of nutritional products, to increase consumer
awareness and understanding of the importance of vitamins and
supplements to improve overall health and wellness. As part of
the relationship, a new Live Well Topic Center is
being hosted on GNC.com and on WebMD.com, giving users access to
WebMD content on health and wellness. GNC is being featured in
targeted areas on The WebMD Health Network where
consumers go most often for information on personal health, diet
and nutrition and an interactive, personal health assessment is
available to help consumers establish their health goals and
identify nutritional supplements that would be beneficial for
them. In addition, consumer education and product information is
being distributed across GNCs U.S. retail locations.
Yahoo! In November 2007, WebMD entered
into a four year Service Agreement with a wholly owned
subsidiary of Yahoo! Inc., a global Internet company, pursuant
to which we have agreed to exclusively use Yahoo!s
sponsored search results product (which delivers paid
advertisements in search results) across WebMDs network of
consumer sites. WebMD has also agreed to exclusively use
Yahoo!s algorithmic Web search product. Under this
agreement, WebMD shares revenues with Yahoo! based upon the
amounts received by Yahoo! from advertisers for sponsored search
results that appear on The WebMD Health Network, subject
to certain minimum payment guarantees. At the same time, WebMD
also entered into a four year Distribution Agreement with Yahoo!
pursuant to which WebMD sells advertisements to third parties
for display on Yahoo! owned and operated Web sites and certain
third-party Web sites (which we refer to as the Yahoo!
Properties). WebMDs rights to sell such inventory are
exclusive against certain other online health publishers. The
Distribution Agreement includes mutual restrictions on the use
of end-user data of a party received by the other party. Under
the Distribution Agreement, WebMD pays Yahoo! a specified
percentage of advertising revenues for advertisements that we
sell and display on the Yahoo! Properties. During the term of
the Distribution Agreement, if WebMD does not achieve certain
minimums, Yahoo! may elect to terminate the exclusivity
provisions.
International Relationships. We see a
significant opportunity for international growth of our public
portal services. Generally, we expect that we would accomplish
this through alliances or joint ventures with other companies
having expertise in the specific country or region. During the
third quarter of 2007, we announced our first such relationship,
an alliance with the leading provider of online pharmaceutical
and medical information in Latin America, Spain and Portugal,
pursuant to which we are delivering Medscape from
WebMDs clinical information to these markets. We
continue to evaluate opportunities for further international
growth.
Other Relationships. WebMD has an
editorial partnership with Hearst Communications, a leading
publisher of consumer health, wellness and lifestyle magazines,
who provides WebMD with branded content. In addition, WebMD
provides its branded content to the CBS Evening News, CBS Early
Show, and CBSNews.com.
WEBMD
PUBLISHING AND OTHER SERVICES
WebMD the Magazine. WebMD the
Magazine, which WebMD launched in 2005, is a full size,
consumer publication delivered free of charge to
physicians offices in the United States. WebMD the
Magazine reaches consumers right before they meet with their
physicians. This allows sponsors to extend their advertising
reach and to deliver their message when consumers are actively
engaged in the healthcare process, and allows us to extend the
WebMD brand into offline channels. The editorial format of
WebMD the Magazine is specifically designed for the
physicians waiting room. Its editorial features and highly
interactive format of assessments, quizzes and questions are
designed to inform consumers about important health and wellness
topics. The editorial content in the magazine is medically
reviewed and approved by WebMD staff physicians.
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We market WebMD the Magazine through a team comprised of
in-house sales persons and third party marketers.
The WebMD Little Blue Book. The
WebMD Little Blue Book is a physician directory published
annually in over 140 distinct geographic editions, and contains
practice information on an aggregate of more than 400,000
physicians. Physicians utilize The WebMD Little Blue Book
for local and
up-to-date
physician, pharmacy and hospital contact information. Physicians
are listed free of charge in their local area edition, along
with their specialties, HMO affiliations, office addresses and
telephone numbers. We also use the information used to produce
The WebMD Little Blue Book to generate both online and
offline directory and information products.
We market The WebMD Little Blue Book directly through an
in-house sales team.
POREX
Introduction
Porex develops, manufactures and distributes proprietary porous
plastic products and components used in healthcare, industrial
and consumer applications. Porexs products also include
porous structures using other materials, such as fiber and
membranes. Porexs customers include both end-users of its
finished products as well as manufacturers that include our
components in their products, which we refer to as original
equipment manufacturers or OEMs.
Porex is an international business with manufacturing operations
in North America, Europe and Asia. Porexs global sales and
customer service network markets its products to customers in
more than 75 countries. In 2008, Porex derived approximately
46.3% of its revenues from the United States, approximately
39.3% from Europe, approximately 9.0% from Asia and
approximately 5.4% from Canada and Latin America. In 2007, Porex
derived approximately 50.4% of its revenues from the United
States, approximately 31.9% from Europe, approximately 13.0%
from Asia and approximately 4.8% from Canada and Latin America.
In February 2008, we announced our intention to divest Porex
and, as a result, we have reflected our Porex segment as a
discontinued operation in the Consolidated Financial Statements
contained in this Annual Report. For additional information, see
Note 3 to those Consolidated Financial Statements.
Porex
Products
Porous Plastics. Porous plastics are
permeable plastic structures having omni-directional (porous in
all directions) inter-connecting pores to permit the flow of
fluids and gases. These pores, depending upon the number and
size, control the flow of liquids and gases. Porex manufactures
porous plastics with pore sizes between approximately 1 and 500
micrometers. One micrometer is equal to one-millionth of a
meter; an object of 40 micrometers in size is about as small as
can be discerned by the naked eye. Our ability to control pore
size provides the opportunity to serve numerous applications,
including:
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Filtering. In filtration applications, the
pore structure acts as both a surface filter and a depth filter.
The structure acts as a surface filter by trapping particles
larger than its average pore size and as a depth filter by
trapping much smaller particles deep in its complex channels.
Examples of filtering applications for porous plastics include:
filters for drinking water purification, air filters, fuel
filters for power tools and appliances and other liquid filters
for clarification of drugs, blood separation and chemicals.
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Venting. In venting applications, the pore
structure allows gases to easily escape while retaining fluids.
Examples of these applications include: vents for medical
devices, printers and automotive batteries; and caps and
closures.
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Wicking. When used as a wicking device, the
pore structure creates capillary channels for liquid transfer
allowing fluid to flow, or wick, from a reservoir. Examples of
these applications include: nibs
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or tips for writing instruments, such as highlighters and
coloring markers; fluid delivery components for printers and
copiers; fragrance wicks; and absorbent media for diagnostic
testing.
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Diffusing. When used in diffusion
applications, porous plastic components emit a multitude of
small, evenly distributed bubbles. Examples of these
applications include air diffusers for fermentation, metal
finishing and plating.
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Muffling. In muffling applications, exhaust
air is channeled through a tortuous path, causing significant
sound reduction by breaking up and diffusing the sound waves.
Examples of these applications include industrial mufflers for
pneumatic equipment.
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Porex combines its expertise in materials science and product
development with proprietary manufacturing capabilities,
including in-house design and construction of manufacturing
equipment. Porex produces porous plastic components and products
in its own manufacturing facilities, which are equipped to
manufacture products in sheets, tubes, rods and custom-molded
shapes, depending on customer needs.
Markets for Porex
Products. Porexs products are used in
healthcare, consumer and industrial applications, including the
following:
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Healthcare Products. Porex manufactures a
variety of porous plastic components for the healthcare industry
that are incorporated into the products of other manufacturers.
These components are used to vent or diffuse gases or fluids and
are used as membrane supports, including catheter vents,
self-sealing valves in surgical vacuum canisters, fluid
filtration components and components for diagnostic devices.
Porex also manufactures components for diagnostic devices sold
over the counter for home use. Porex also makes porous plastic
components that are used as barrier materials for several
laboratory products, including pipette tip filters. Porex also
manufactures blood serum filters as a finished medical device
for use in laboratory applications.
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Surgical Products. Porex also uses proprietary
porous plastic technology to produce implantable products for
use in reconstructive and aesthetic surgery of the head and
face. These implants are designed to integrate with the
patients underlying bone structure. Their porous structure
allows in-growth of the patients tissue and capillary
blood vessels. Porexs implants are designed for use in
areas throughout the skull and face, including cranial, ear,
cheek, jaw, chin, nasal shape and ocular implants. Porex offers
its implant products in standard shapes and sizes and also
provides customized implants to fit individual patient
specifications. Porex has also begun to manufacture and sell
implants made from a combination of porous plastic and
medical-grade titanium mesh. Porex also produces two product
lines for the operating room supplies market: surgical markers
and surgical drainage systems.
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Consumer Products. Porexs porous
plastics are used in a variety of office and home products.
These products include writing instrument tips, or nibs, which
Porex supplies to manufacturers of highlighting pens and
childrens coloring markers. The porous nib conducts the
ink stored in the pen barrel to the writing surface by capillary
action. Porexs porous plastic components are also found in
products such as air fresheners, power tool dust canisters and
computer printers. Porex also produces a variety of porous
plastic water filters used to improve the taste and safety of
drinking water.
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Industrial Products. Porex manufactures a
variety of custom porous plastic components for industrial
applications, designed to customer specifications as to size,
rigidity, porosity and other needs, including automobile battery
vents and various types of filters and filtration components.
Filtration applications include water and wastewater, paints,
inks, polishing slurries, catalyst recovery and metal finishing.
Advanced filtration solutions are becoming more important to
numerous industries as they actively seek to lower costs and
gain efficiencies by reducing waste and conserving resources.
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The use of porous plastics can provide advantages over other
available materials in specific applications because porous
plastics:
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are easily moldable in various shapes;
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allow for precise control of pore size;
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are sterilizable;
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can be designed for chemical and corrosion resistance; and
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can provide for easy cleaning and maintenance.
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In addition, porous plastics are often stronger and more durable
than other available alternatives. However, in some applications
that Porex addresses for customers, fiber and other porous
membranes are preferred over porous plastic materials. For
example, Porex uses fiber technology for certain applications
requiring high flow rates. Based on the same principles used in
making Porexs porous plastic products, fibers are
thermally bonded into a matrix. This fiber material is
well-suited for use in filtration and wicking applications,
including Porexs products for the consumer fragrance
market. Porex also uses
sub-micron
porous polytetrafluoroethylene, or PTFE, membranes to serve
product markets where other porous plastics do not have the
physical properties to meet application demands. PTFE material
is commonly known as
Teflon®.
Raw
Materials
The principal raw materials used by Porex include a variety of
plastic resins that are generally available from a number of
suppliers. Many of Porexs products also require high-grade
plastic resins with specific properties as raw materials. While
Porex has not experienced any material difficulty in obtaining
adequate supplies of high-grade plastic resins that meet its
requirements, it relies on a limited number of sources for some
of these plastic resins. If Porex experiences a reduction or
interruption in supply from these sources, it may not be able to
access alternative sources of supply within a reasonable period
of time or at commercially reasonable rates, which could have a
material adverse effect on its business and financial results.
Marketing
Sales and marketing of Porexs products are conducted by a
sales and marketing team of professionals with in-depth
knowledge of Porexs technologies. Marketing activities
include advertising in various trade publications and
directories and participating in tradeshows. Sales to OEM
customers in the United States of our porous plastic products
are made directly by Porexs sales and marketing team.
Internationally, these products are sold by Porexs sales
and marketing team and through independent distributors and
agents.
Porex sells its implant products directly to medical centers,
trauma centers, hospitals and private practice surgeons using
independent and direct sales representatives. Internationally,
these products are sold in over 53 countries through local
distributors. Porex provides training, materials and other
support to the sales representatives and distributors. Market
awareness is primarily achieved through exhibitions in
conjunction with medical specialty meetings, presentations by
surgeons at medical meetings, journal publication of clinical
papers, group sponsored visiting speaker programs
and direct mail programs. Journal advertising is placed on a
selected basis and we maintain an active database of contacts
for targeted direct mail programs.
COMPETITION
Introduction
The markets we participate in are intensely competitive,
continually evolving and may, in some cases, be subject to rapid
change. Some of our competitors have greater financial,
technical, marketing and other resources than we do and some are
better known than we are. We cannot provide assurance that we
will be able to compete successfully against these
organizations. We also compete, in some cases, with joint
ventures or other alliances formed by two or more of our
competitors or by our competitors with other third parties.
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WebMD
Public
Portals
Our public portals face competition from numerous other
companies, both in attracting users and in generating revenue
from advertisers and sponsors. We compete with online services
and Web sites that provide health-related information, including
both commercial sites and
not-for-profit
sites. These competitors include:
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general purpose consumer Web sites that offer specialized health
sub-channels,
including yahoo.com, msn.com and AOL.com; and
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other high traffic Web sites that include healthcare-related and
non-healthcare-related content and services.
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Our competitors also include search engines that offer
specialized search within the area of health information,
including google.com, yahoo.com and msn.com, as well as
advertising networks that aggregate traffic from multiple Web
sites, including ad.com, bluelithium.com and everydayhealth.com.
Other competitors for advertising and sponsorship revenue
include:
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publishers and distributors of traditional offline media,
including television and magazines targeted to consumers, as
well as print journals and other specialized media targeted to
healthcare professionals, many of which have established or may
establish their own Web sites or partner with other Web sites;
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offline medical conferences, CME programs and symposia;
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vendors of
e-detailing
services and our clients own in-house detailing
efforts; and
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vendors of healthcare information, products and services
distributed through other means, including direct sales, mail
and fax messaging.
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Competitors for the attention of healthcare professionals and
consumers also include:
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the competitors for advertisers and sponsors described
above; and
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public sector, non-profit and other Web sites that provide
healthcare information without advertising or sponsorships from
third parties, such as NIH.gov, CDC.gov and AHA.org.
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Since there are no substantial barriers to entry into the
markets in which our public portals participate, we expect that
additional competitors will continue to enter these markets.
Private
Portals
Our private portal services compete, directly or indirectly,
with various types of services provided by many different types
of companies, including:
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wellness and disease management vendors, including Mayo
Foundation for Medical Education and Research, StayWell
Productions/MediMedia USA, Inc., Healthways, Health Dialog, and
Alere (a division of Inverness Medical Innovations);
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suppliers of online and offline electronic personal health
records and related applications and platforms, including Medem,
CapMed, Epic Systems, Microsoft, Google and a variety of other
companies;
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suppliers of other online and offline health management
applications, including HealthMedia, Health
A-Z, which
is owned by United Healthcare, A.D.A.M. Inc., and Consumer
Health Interactive;
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health information services and health management offerings of
health plans and their affiliates, including those of Humana,
Aetna and United Healthcare; and
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other providers of health and benefits decision-support tools.
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Offline
Publications
Our offline publications compete with numerous other online and
offline sources of healthcare information, including the online
ones described earlier in this section. In addition, WebMD
the Magazine competes with other offline health-focused
magazines for consumers and The WebMD Little Blue Book
competes with other offline physician-office media.
Porex
Porex operates in highly competitive markets and its products
are, in general, used in applications that are affected by
technological change and product obsolescence. The competitors
for Porexs porous plastic products include other producers
of porous plastic materials as well as companies that
manufacture and sell products made from materials other than
porous plastics that can be used for the same purposes as
Porexs products. For example, Porexs porous plastic
pen nibs compete with felt and fiber tips manufactured by a
variety of suppliers worldwide. Other Porex porous plastic
products compete, depending on the application, with membrane
material, porous metals, metal screens, fiberglass tubes,
pleated paper, resin-impregnated felt, ceramics and other
substances and devices. Porexs competitors include, among
others, the Filtrona Fibertec division of Filtrona plc, Genpore
(a division of General Polymeric Corporation), Micropore
Plastics, Inc., Millipore Corporation, Pall Corporation, Porvair
plc and Whatman plc. Porex also competes with in-house design
and manufacturing capabilities of its OEM customers.
Porexs implantable products compete for surgical use
against autogenous and allograph materials and other alloplastic
biomaterials. Porexs surgical drains and markers compete
against a variety of products from several manufacturers.
Some of Porexs competitors may have greater financial,
technical, product development, marketing and other resources
than Porex does. In addition, some of Porexs competitors
may have their manufacturing facilities located in, or may move
them to, countries where manufacturing costs, including but not
limited to labor and utility costs, are lower than those in the
countries where Porexs facilities are located or may have
other cost advantages not available to Porex. We cannot provide
assurance that Porex will be able to compete successfully
against these companies or against particular products and
services they provide or may provide in the future.
GOVERNMENT
REGULATION, INDUSTRY STANDARDS AND RELATED MATTERS
Introduction
This section of the Annual Report contains a description of laws
and regulations applicable to us, either directly or through
their effect on our healthcare industry customers, as well as
healthcare and Internet industry standards that serve a
self-regulatory function, and related matters. Existing and
future laws, regulations and industry standards affecting the
healthcare, information technology and Internet industries could
create unexpected liabilities for us, cause us to incur
additional costs and restrict our operations. Many of the laws
that affect us, and particularly those applying to healthcare,
are very complex and may be subject to varying interpretations
by courts and other governmental authorities. We cannot provide
assurance that we will be able to accurately anticipate the
application of laws, regulations and industry standards to our
operations.
Most of WebMDs revenue and a significant portion of
Porexs revenue flows either directly from the healthcare
industry or from other sources that could be affected by changes
affecting healthcare spending. The healthcare industry is highly
regulated and is subject to changing political, regulatory and
other influences. These factors affect the purchasing practices
and operations of healthcare organizations as well as the
behavior and attitudes of consumers. Federal and state
legislatures and agencies periodically consider programs to
reform or revise aspects of the United States healthcare system.
These programs may contain proposals to increase governmental
involvement in healthcare, change reimbursement rates or
otherwise change the environment in which healthcare industry
participants operate. Healthcare industry participants may
respond by reducing their expenditures or postponing expenditure
decisions, including expenditures for our products
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and services. We are unable to predict future proposals with any
certainty or to predict the effect they could have on our
businesses.
Many healthcare laws are complex, and their application to
specific products and services may not be clear. In particular,
many existing healthcare laws and regulations, when enacted, did
not anticipate the healthcare information services that we
provide. However, these laws and regulations may nonetheless be
applied to our products and services. Our failure to accurately
anticipate the application of these laws and regulations to our
businesses, or other failure to comply, could create liability
for us, result in adverse publicity and negatively affect our
businesses.
This section of the Annual Report also contains a description of
other laws and regulations, including general consumer
protection laws and Internet-related laws that affect some of
WebMDs businesses. Laws and regulations have been adopted,
and may be adopted in the future, that address Internet-related
issues, including online content, privacy, online marketing,
unsolicited commercial email, taxation, pricing, and quality of
products and services. Some of these laws and regulations,
particularly those that relate specifically to the Internet,
were adopted relatively recently, and their scope and
application may still be subject to uncertainties.
Interpretations of these laws, as well as any new or revised law
or regulation, could decrease demand for our services, increase
our cost of doing business, or otherwise cause our business to
suffer.
WebMD
Regulation
of Drug and Medical Device Advertising and Promotion
The Food and Drug Administration, or FDA, and the Federal Trade
Commission, or FTC, regulate the form, content and dissemination
of labeling, advertising and promotional materials prepared by,
or for, pharmaceutical or medical device companies, including
direct-to-consumer
(or DTC) prescription drug and medical device advertising. The
FTC regulates
over-the-counter
drug advertising and, in some cases, medical device advertising.
Generally, based on FDA requirements, regulated companies must
limit advertising and promotional materials to discussions of
FDA-approved uses and claims. In limited circumstances,
regulated companies may disseminate certain non-promotional
scientific information regarding product uses or claims not yet
approved by the FDA.
Information on our Web sites that promotes the use of
pharmaceutical products or medical devices is subject to the
full array of FDA and FTC requirements and enforcement actions
and information regarding other products and services is subject
to FTC requirements. If the FDA or the FTC finds that any
information on our Web site violates FDA or FTC regulations or
guidance, they may take regulatory or judicial action against us
or the advertiser or sponsor of that information. State
attorneys general may also take similar action based on their
states consumer protection statutes. Areas of our Web
sites that could be the primary focus of regulators include
pages and programs that discuss use of an FDA-regulated product
or that the regulators believe may lack editorial independence
from the influence of sponsoring pharmaceutical or medical
device companies. Our television broadcast advertisements may
also be subject to FTC and FDA regulation, depending on the
content. The FDA and the FTC place the principal burden of
compliance with advertising and promotional regulations on
advertisers and sponsors to make truthful, substantiated claims.
The Federal Food, Drug, and Cosmetic Act, or FDC Act, requires
that prescription drugs (including biological products) be
approved by the FDA prior to marketing. It is a violation of the
FDC Act and of FDA regulations to market, advertise or otherwise
commercialize such products prior to approval. The FDA allows
for preapproval exchange of scientific information, provided it
is nonpromotional in nature and does not draw conclusions
regarding the ultimate safety or effectiveness of the unapproved
drug. Upon approval, the FDAs regulatory authority extends
to the labeling and advertising of prescription drugs offered in
interstate commerce. Such products may be promoted and
advertised only for uses reviewed and approved by the FDA. In
addition, the labeling and advertising can be neither false nor
misleading, and must present all material information, including
risk information, in a clear, conspicuous and neutral manner.
There are also requirements for certain information (the
prescribing information or package
insert for promotional
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labeling and the brief summary for advertising) to
be part of labeling and advertising. Labeling and advertising
that violate these legal standards are subject to FDA
enforcement action.
The FDA also regulates the safety, effectiveness, and labeling
of
over-the-counter
(OTC) drugs under the FDC Act either through specific product
approvals or through regulations that define approved claims for
specific categories of such products. The FTC regulates the
advertising of OTC drugs under the section of the Federal Trade
Commission Act that prohibits unfair or deceptive trade
practices. The FDA and FTC regulatory framework requires that
OTC drugs be formulated and labeled in accordance with FDA
approvals or regulations and promoted in a manner that is
truthful, adequately substantiated, and consistent with the
labeled uses. OTC drugs that do not meet these requirements are
subject to FDA or FTC enforcement action depending on the nature
of the violation. In addition, state attorneys general may bring
enforcement actions for alleged unfair or deceptive advertising.
There are several administrative, civil and criminal sanctions
available to the FDA for violations of the FDC Act or FDA
regulations as they relate to labeling and advertising.
Administrative sanctions may include a written request that
violative advertising or promotion cease
and/or that
corrective action be taken, such as requiring a company to
provide to healthcare providers
and/or
consumers information to correct misinformation previously
conveyed. In addition, the FDA may use publicity, such as press
releases, to warn the public about false and misleading
information concerning a drug or medical device product. More
serious civil sanctions include seizures, injunctions, fines and
consent decrees. Such measures could prevent a company from
introducing or maintaining its product in the marketplace.
Criminal penalties for severe violations can result in a prison
term and/or
substantial fines. State attorneys general have similar
investigative tools and sanctions available to them.
Any increase in FDA regulation of the Internet or other media
used for DTC advertisements of prescription drugs could make it
more difficult for us to obtain advertising and sponsorship
revenue. In the last 15 years, the FDA has gradually
relaxed its formerly restrictive policies on DTC advertising of
prescription drugs. Companies may now advertise prescription
drugs to consumers in any medium, provided that they satisfy FDA
requirements. However, legislators, physician groups and others
have criticized the FDAs current policies, and have called
for restrictions on advertising of prescription drugs to
consumers and increased FDA enforcement. These critics point
both to public health concerns and to the laws of many other
countries that make DTC advertising of prescription drugs a
criminal offense. Congress and the FDA have shown interest in
these issues as well and there is a possibility that Congress,
the FDA or the FTC may alter present policies on DTC advertising
of prescription drugs or medical devices in a material way. We
cannot predict what effect any such changes would have on our
business.
Industry trade groups, such as the Pharmaceuticals Research and
Manufacturers of America (PhRMA), have implemented voluntary
guidelines for DTC advertising in response to public concerns.
The PhRMA Guiding Principles for Direct to Consumer
Advertisement of Prescription Medicines (referred to as the
PhRMA Guidelines), which originally went into effect in January
2006, have recently been revised with an effective date of
March 2, 2009. The PhRMA Guidelines address various aspects
of DTC, including: balancing presentation of benefits and risks;
timing of DTC campaigns, including allowing for a period for
education of healthcare professionals prior to launching a
branded DTC campaign; use of healthcare professionals and
celebrities in DTC advertisements; and timing and placement of
advertisements with adult-oriented content. PhRMA has also
implemented a voluntary Code On Interactions With Health Care
Professionals, adopted in 2009, with an effective date of
January 1, 2009 (which we refer to as the PhRMA Code), that
revised a predecessor Code from 2002. The new PhRMA Code, among
other things: prohibits distribution of non-educational items
(such as pens, mugs and other reminder objects
typically adorned with a company or product logo) to healthcare
providers and their staff; and prohibits company sales
representatives from providing restaurant meals to healthcare
professionals, but allows them to provide occasional meals in
healthcare professionals offices in conjunction with
informational presentations. The new PhRMA Code also reaffirms
and strengthens statements in its predecessor that companies
should not provide any entertainment or recreational benefits to
healthcare professionals.
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Regulation
and Accreditation of Continuing Medical Education
Activities and information provided in the context of an
independent medical or scientific educational program, often
referred to as continuing medical education or CME,
usually are treated as non-promotional and fall outside the
FDAs jurisdiction. The FDA does, however, evaluate CME
activities to determine whether they are independent of the
promotional influence of the activities supporters. To
determine whether a CME providers activities are
sufficiently independent, the FDA looks at a number of factors
related to the planning, content, speakers and audience
selection of such activities. To the extent that the FDA
concludes that such activities are not independent, such content
must fully comply with the FDAs requirements and
restrictions regarding promotional activities.
Medscape, LLC distributes online CME to physicians and other
healthcare professionals and is accredited by the Accreditation
Council for Continuing Medical Education (ACCME), which oversees
providers of CME credit. MedscapeCME
(www.medscapecme.com) is the Web site through which
Medscape, LLC distributes online CME. If any CME activity that
Medscape, LLC provides is considered promotional, Medscape, LLC
may face regulatory action or the loss of accreditation by the
ACCME. Supporters of CME activities may also face regulatory
action, potentially leading to termination of support.
Medscape, LLCs current ACCME accreditation expires at the
end of July 2010. In order for Medscape, LLC to renew its
accreditation, it will be required to demonstrate to the ACCME
that it continues to meet ACCME requirements. If Medscape, LLC
fails to maintain its status as an accredited ACCME provider
(whether at the time of such renewal or at an earlier time as a
result of a failure to comply with existing or additional ACCME
standards), Medscape, LLC would not be permitted to accredit CME
activities for physicians and other healthcare professionals.
Instead, Medscape, LLC would be required to use third parties to
provide such CME-related services. That, in turn, could
discourage potential supporters from engaging Medscape, LLC to
develop CME or education related activities, which could have a
material adverse effect on our business.
Medscape, LLCs CME activities are planned and implemented
in accordance with the Essential Areas and Policies of the ACCME
and other applicable accreditation standards. ACCMEs
standards for commercial support of CME are intended to ensure,
among other things, that CME activities of ACCME-accredited
providers, such as Medscape, LLC, are independent of
commercial interests, which are now defined as
entities that produce, market, re-sell or distribute health care
goods and services, excluding certain organizations.
Commercial interests, and entities owned or
controlled by commercial interests, are ineligible
for accreditation by the ACCME. The standards also provide that
accredited CME providers may not place their CME content on Web
sites owned or controlled by a commercial interest.
In addition, accredited CME providers may not ask
commercial interests for speaker or topic
suggestions, and are also prohibited from asking
commercial interests to review CME content prior to
delivery.
From time to time, the ACCME revises its standards for
commercial support of CME. As a result of certain past ACCME
revisions, we adjusted our corporate structure and made changes
to our management and operations intended to allow Medscape, LLC
to provide CME activities that are developed independently from
those programs developed by its sister companies, which may not
be independent of commercial interests. We believe
that these changes allow Medscape, LLC to satisfy the applicable
standards.
In June 2008, the ACCME published for comment several proposals,
including the following:
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Potential New Paradigm for Commercial
Support: The ACCME stated that due consideration
should be given to eliminating commercial support of CME. To
frame the debate, the ACCME proposed several possible scenarios:
(a) maintaining the current system of commercial support;
(b) completely eliminating commercial support; (c) a
new paradigm that provides for commercial support if the
following conditions are met: (1) educational needs are
identified and verified by organizations that do not receive
commercial support and are free of financial relationships with
industry; (2) the CME addresses a professional practice gap
of a particular group of learners that is corroborated by bona
fide performance measurements of the learners own
practice; (3) the CME content is from a continuing
education curriculum specified by a bona fide organization or
entity; and (4) the CME is verified as
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free of commercial bias; and (d) an alternative new
paradigm in which the four conditions described above would
provide a basis for a mechanism to distribute commercial support
derived from industry-donated, pooled funds.
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Defining Appropriate Interactions between ACCME Accredited
Providers and Commercial Supporters. The ACCME has proposed
that: (a) accredited providers must not receive
communications from commercial interests announcing or
prescribing any specific content that would be a preferred, or
sought-after, topic for commercially supported CME (e.g.,
therapeutic area, product-line, patho-physiology); and
(b) receiving communications from commercial interests
regarding a commercial interests internal criteria for
providing commercial support would also not be permissible.
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The comment period for these proposals ended on
September 12, 2008. The comments submitted to the ACCME
indicated significant backing from the medical profession for
commercially-supported CME and, accordingly, we believe that it
is unlikely that a proposal for complete elimination of such
support would be adopted. However, we cannot predict the
ultimate outcome of the process, including what other
alternatives may be considered by ACCME as a result of comments
it has received. The elimination of, or restrictions on,
commercial support for CME could adversely affect the volume of
sponsored online CME programs implemented through our Web sites.
During the past several years, educational activities, including
CME, directed at physicians have been subject to increased
governmental scrutiny to ensure that sponsors do not influence
or control the content of the activities. For example, the
U.S. Senate Finance Committee conducted an investigation of
the sponsorship of CME activities, including an examination of
the ACCMEs role in ensuring that CME activities are
independent from the influence of their supporters. In response,
pharmaceutical companies and medical device companies have
developed and implemented internal controls and procedures that
promote adherence to applicable regulations and requirements. In
implementing these controls and procedures, supporters of CME
may interpret the regulations and requirements differently and
may implement varying procedures or requirements. These controls
and procedures:
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may discourage pharmaceutical companies from providing grants
for independent educational activities;
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may slow their internal approval for such grants;
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may reduce the volume of sponsored educational programs that
Medscape LLC produces to levels that are lower than in the past,
thereby reducing revenue; and
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may require Medscape LLC to make changes to how it offers or
provides educational programs, including CME.
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In addition, future changes to laws, regulations or
accreditation standards, or to the internal compliance programs
of supporters or potential supporters, may further discourage,
significantly limit, or prohibit supporters or potential
supporters from engaging in educational activities with Medscape
LLC, or may require Medscape LLC to make further changes in the
way it offers or provides educational activities.
HIPAA
Privacy Standards and Security Standards
The Privacy Standards and Security Standards under the Health
Insurance Portability and Accountability Act of 1996 (or HIPAA)
establish a set of national privacy and security standards for
the protection of individually identifiable health information
by health plans, healthcare clearinghouses and healthcare
providers (sometimes referred to as covered entities
for purposes of HIPAA). The Privacy Standards and Security
Standards do not currently apply directly to our businesses.
However, the American Recovery and Reinvestment Act of 2009
(ARRA) enhances and strengthens the HIPAA Privacy
and Security Standards and makes certain provisions applicable
to those portions of our business, such as those managing
employee or plan member health information for employers or
health plans, that are business associates of
covered entities. Currently, we are bound by certain contracts
and agreements with covered entities that require us to use and
disclose protected health information in a manner consistent
with the Privacy Standards and Security Standards in providing
services to those covered entities. Beginning on
February 17, 2010, some provisions of
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the HIPAA Privacy and Security rules will apply directly to us.
In addition, ARRA imposes data breach notification requirements
on vendors of Personal Health Records that will require us to
notify affected individuals and the Federal Trade Commission in
the event of a data breach involving the unsecured personal
information of our users. These new Privacy and Security
provisions will require us to incur additional costs and may
restrict our business operations. In addition, these new
provisions will result in additional regulations and guidance
issued by HHS and will be subject to interpretation by various
courts and other governmental authorities, thus creating
potentially complex compliance issues for us and our customers
and strategic partners.
Currently, only covered entities are directly subject to
potential civil and criminal liability under the Privacy
Standards and Security Standards. However, depending on the
facts and circumstances, we could be subject to criminal
liability for aiding and abetting or conspiring with a covered
entity to violate those Standards. As of February 17, 2010,
we will be directly subject to HIPAAs criminal and civil
penalties.
Other
Restrictions Regarding Confidentiality, Privacy and Security of
Health Information
In addition to HIPAA, numerous other state and federal laws
govern the collection, dissemination, use, access to,
confidentiality and security of patient health and prescriber
information. In addition, Congress and some states are
considering new laws and regulations that further protect the
privacy and security of medical records or medical information.
In many cases, these state laws are not preempted by the HIPAA
Standards and may be subject to interpretation by various courts
and other governmental authorities, thus creating potentially
complex compliance issues for us and our customers and strategic
partners.
These laws at a state or federal level, or new interpretations
of these laws, could create liability for us, could impose
additional operational requirements on our business, could
affect the manner in which we use and transmit patient
information and could increase our cost of doing business.
Claims of violations of privacy rights or contractual breaches,
even if we are not found liable, could be expensive and
time-consuming to defend and could result in adverse publicity
that could harm our business.
Consumer
Protection Regulation
General. Advertising and promotional
activities presented to visitors on our Web sites are subject to
federal and state consumer protection laws that regulate unfair
and deceptive practices. We are also subject to various other
federal and state consumer protection laws, including the
specific ones described later in this section.
The FTC and many state attorneys general are applying federal
and state consumer protection laws to require that the online
collection, use and dissemination of data, and the presentation
of Web site content, comply with certain standards for notice,
choice, security and access. Courts may also adopt these
developing standards. In many cases, the specific limitations
imposed by these standards are subject to interpretation by
courts and other governmental authorities. We believe that we
are in compliance with the consumer protection standards that
apply to our Web sites, but a determination by a state or
federal agency or court that any of our practices do not meet
these standards could result in liability and adversely affect
our business. New interpretations of these standards could also
require us to incur additional costs and restrict our business
operations. In addition, claims that we are violating any such
standards could, even if we are not found liable, be expensive
and time-consuming to defend and could result in adverse
publicity that could harm our business.
In February 2009 the FTC published Self Regulatory Principles
for Online Behavioral Advertising to address consumer privacy
issues that may arise from so-called behavioral
advertising (i.e., the tracking of online activities) and
to encourage industry self-regulation. These principles serve as
guidelines to industry. In addition, there is the possibility of
proposed legislation, as well as of enforcement activities,
relating to behavioral advertising. To the extent that our
existing practices are inconsistent with the final principles,
with proposed legislation
and/or with
future enforcement activities, our business may become subject
to restrictions that could reduce our revenues or increase our
cost of doing business.
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Data Protection Regulation. With the
recent increase in publicity regarding data breaches resulting
in improper dissemination of consumer information, many states
have passed laws regulating the actions that a business must
take if it experiences a data breach, such as prompt disclosure
to affected customers. Generally, these laws are limited to
electronic data and make some exemptions for smaller breaches.
Congress has also been considering similar federal legislation
relating to data breaches. The FTC has also prosecuted some data
breach cases as unfair
and/or
deceptive acts or practices under the FTC Act. We intend to
continue to comprehensively protect all consumer data and to
comply with all applicable laws regarding the protection of this
data.
CAN-SPAM Act. On January 1, 2004,
the Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003, or the CAN-SPAM Act, became effective.
The CAN-SPAM Act regulates commercial emails, provides a right
on the part of the recipient to request the sender to stop
sending messages, and establishes penalties for the sending of
email messages that are intended to deceive the recipient as to
source or content. Under the CAN-SPAM Act, senders of commercial
emails (and other persons who initiate those emails) are
required to make sure that those emails do not contain false or
misleading transmission information. Commercial emails are
required to include a valid return email address and other
subject heading information so that the sender and the Internet
location from which the message has been sent are accurately
identified. Recipients must be furnished with an electronic
method of informing the sender of the recipients decision
to not receive further commercial emails. In addition, the email
must include a postal address of the sender and notice that the
email is an advertisement. We are applying the CAN-SPAM
requirements to these email communications, and believe that our
email practices comply with the requirements of the CAN-SPAM
Act, even though we believe that FTC regulations issued in May
2008 confirmed our existing understanding that these email
newsletter communications are not generally commercial emails.
Many states have also enacted anti-spam laws. The CAN-SPAM Act
preempts many of these statutes. To the extent that these laws
are not preempted, we believe that our email practices comply
with these laws.
Regulation of Advertisements Sent by
Fax. Section 227 of the Communications
Act, which codifies the provisions of the Telephone Consumer
Protection Act of 1991 (or TCPA), prohibits the transmission of
an unsolicited advertisement via facsimile to a
third party without the consent of that third party. An
unsolicited advertisement is defined broadly to
include any material advertising the commercial availability or
quality of any property, goods or services. In 2005, the Junk
Fax Prevention Act (or JFPA) was signed into law. The JFPA
codified a previous interpretation of the TCPA by the Federal
Communications Commission (or FCC) that a commercial fax is not
unsolicited if the transmitting entity has an
established business relationship, as defined by the
JFPA and applicable FCC regulations, with the recipient.
In 2006, the FCC issued its final rules under the JFPA, which
became effective on August 1, 2006. In the rules, the FCC
confirmed that transactional faxes are permitted. It defined a
transactional fax as one that facilitates, completes or confirms
the commercial transaction that the recipient has previously
agreed to enter into with the sender. The FCC stated that these
faxes are not advertisements that are prohibited by the TCPA.
The FCC also recognized that, if a transactional fax has a de
minimis amount of advertising information on it, that alone does
not convert a transactional fax into an unsolicited
advertisement.
In addressing the so-called EBR exemption to the
TCPAs prohibition on unsolicited facsimile advertisements,
the FCC adopted the JFPAs definition of an
established business relationship or
EBR, which includes a voluntary two-way
communication between a person and a business. The FCC rules
specify that commercial faxes generally may be sent to those who
have made an inquiry of or application to a sender within a
prescribed period of time. The FCC rules do not prohibit faxed
communications that contain only information, such as news
articles, updates or other similar general information.
States from time to time have enacted, or have attempted to
enact, their own requirements pertaining to the transmission of
commercial faxes. These state requirements often, but not
always, track the terms of the TCPA, the JFPA, and the
FCCs regulations. To the extent state commercial fax
requirements have conflicted directly with federal requirements,
they have to date been successfully challenged. We cannot
predict the outcome of the FCCs future rulemaking
proceedings, the extent to which states may successfully enact
more restrictive commercial fax laws in the future, or the
outcomes of any judicial challenges to those laws.
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We transmit commercial faxes to physician office practices in
connection with our The WebMD Little Blue Book and
physician appointment businesses, and we intend to comply with
all applicable federal and state requirements governing the
transmission of such faxes.
COPPA. The Childrens Online
Privacy Protection Act, or COPPA, applies to operators of
commercial Web sites and online services directed to
U.S. children under the age of 13 that collect personal
information from children, and to operators of general audience
sites with actual knowledge that they are collecting information
from U.S. children under the age of 13. Our sites are not
directed at children and our general audience site, WebMD
Health, states that no one under the applicable age is
entitled to use the site. In addition, we employ a kick-out
procedure whereby users identifying themselves as being under
the age of 13 during the registration process are not allowed to
register for the sites member only services, such as
message boards and live chat events. We believe that we are in
compliance with COPPA.
Regulation of Contests and
Sweepstakes. We conduct contests and
sweepstakes in some of our marketing channels. The federal
Deceptive Mail Prevention and Enforcement Act and some state
prize, gift or sweepstakes statutes may apply to these
promotions. We believe that we are in compliance with any
applicable law or regulation when we run these promotions.
FACTA. In an effort to reduce the risk
of identity theft from the improper disposal of consumer
information, Congress passed the Fair and Accurate Credit
Transactions Act (or FACTA), which requires businesses to take
reasonable measures to prevent unauthorized access to such
information. FACTAs disposal standards are flexible and
allow businesses discretion in determining what measures are
reasonable based upon the sensitivity of the information, the
costs and benefits of different disposal methods and relevant
changes in technology. We believe that we are in compliance with
FACTA.
Medical
Professional Regulation
The practice of most healthcare professions requires licensing
under applicable state law. In addition, the laws in some states
prohibit business entities from practicing medicine, which is
referred to as the prohibition against the corporate practice of
medicine. We do not believe that we engage in the practice of
medicine, and we have attempted to structure our Web sites,
strategic relationships and other operations to avoid violating
these state licensing and professional practice laws. We do not
believe that we provide professional medical advice, diagnosis
or treatment. We employ and contract with physicians who provide
only medical information to consumers, and we have no intention
to provide medical care or advice. A state, however, may
determine that some portion of our business violates these laws
and may seek to have us discontinue those portions or subject us
to penalties or licensure requirements. Any determination that
we are a healthcare provider and acted improperly as a
healthcare provider may result in liability to us.
Anti-Kickback
Laws
There are federal and state laws that govern patient referrals,
physician financial relationships and inducements to healthcare
providers and patients. The federal healthcare programs
anti-kickback law prohibits any person or entity from offering,
paying, soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare,
Medicaid and other federal healthcare programs or the leasing,
purchasing, ordering or arranging for or recommending the lease,
purchase or order of any item, good, facility or service covered
by these programs. Many states also have similar anti-kickback
laws that are not necessarily limited to items or services for
which payment is made by a federal healthcare program. These
laws are applicable to manufacturers and distributors and,
therefore, may restrict how we and some of our customers market
products to healthcare providers, including
e-details.
Also, in 2002, the Office of the Inspector General (or OIG) of
the United States Department of Health and Human Services (or
HHS), the federal government agency responsible for interpreting
the federal anti-kickback law, issued an advisory opinion that
concluded that the sale of advertising and sponsorships to
healthcare providers and vendors by Web-based information
services implicates the federal anti-kickback law. However, the
advisory opinion suggests that enforcement action will not
result if the fees paid represent fair market value for the
advertising/sponsorship arrangements, the fees do not vary based
on the volume or value of business generated by the
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advertising and the advertising/sponsorship relationships are
clearly identified as such to users. We carefully review our
practices with regulatory experts in an effort to ensure that we
comply with all applicable laws. However, the laws in this area
are both broad and vague, and it is often difficult or
impossible to determine precisely how the laws will be applied,
particularly to new services. Penalties for violating the
federal anti-kickback law include imprisonment, fines and
exclusion from participating, directly or indirectly, in
Medicare, Medicaid and other federal healthcare programs. Any
determination by a state or federal regulatory agency that any
of our practices violate any of these laws could subject us to
civil or criminal penalties and require us to change or
terminate some portions of our business and could have an
adverse effect on our business. Even an unsuccessful challenge
by regulatory authorities of our practices could cause us
adverse publicity and be costly for us to respond to.
Federal
False Claims Act
The Federal False Claims Act imposes liability on any person or
entity who, among other things, knowingly presents, or causes to
be presented, a false or fraudulent claim for payment by a
federal healthcare program. The whistleblower (or qui
tam) provisions of the False Claims Act allow a
private individual to bring actions on behalf of the Federal
government alleging that the defendant has submitted a false
claim to the Federal government and to share in any monetary
recovery. After the filing of a qui tam suit, the Federal
government must determine whether it will intervene and control
the case and, if it does not, the private individual may pursue
the claim. In addition, various states have enacted false claim
laws analogous to the Federal False Claims Act, and many of
these state laws apply where a claim is submitted to any
third-party payor and not merely a federal healthcare program.
When an entity is determined to have violated the False Claims
Act, it may be required to pay up to three times the actual
damages sustained by the government, plus civil penalties. It is
not clear whether there is a basis for the application of the
False Claims Act to the types of services that WebMD provides.
We are aware that on February 10, 2009, the United States
District Court for the District of Massachusetts unsealed
portions of a qui tam complaint that names several companies as
defendants including WebMD. United States ex rel. v. Amgen,
et.al. Civil Action
No. 06-10972WGY.
The allegations in the complaint appear to relate principally to
alleged off-label promotion of two prescription drugs by a
pharmaceutical manufacturer. The action does not appear to focus
on WebMD. WebMD has not been served with any legal process with
respect to this action and has been informed that the Federal
government has not yet determined whether it will intervene as
to any of the claims in the complaint or against any defendant.
WebMD believes that it complies with the rules and regulations
applicable to the provision of its services.
Regulation
of Wellness Incentive Programs
Certain provisions of HIPAA (commonly referred to as the HIPAA
nondiscrimination provisions) generally prohibit group health
plans from charging similarly situated individuals different
premiums or contributions or imposing different deductible,
co-payment, or other cost-sharing requirements based on a
health factor. Such differentials are, however,
acceptable under the HIPAA nondiscrimination provisions if the
differentials are applied through wellness programs.
The Department of Labor, in coordination with the Department of
the Treasury and HHS, has issued regulations that define
wellness programs for purposes of the HIPAA
nondiscrimination provisions, establishing specific requirements
for wellness programs that reward participants who satisfy a
standard related to a health factor. These requirements include
(1) limiting the amount of the wellness programs
rewards, (2) the wellness program being designed to promote
good health and prevent disease, (3) giving those eligible
to participate in the wellness program the opportunity to
qualify for the reward at least once a year, (4) providing
a reward thats available to all similarly situated
individuals, and (5) requiring disclosure of reasonable
alternative standards that must be available under the wellness
program.
Although HIPAA and its regulations state that certain excepted
benefits, including supplemental benefits, are not subject to
the wellness program rules, it does not define the term
similar supplemental coverage. On
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December 7, 2007, the Department of Labor, in coordination
with the Department of the Treasury and HHS, released Field
Assistance
Bulletin No. 2007-04
(FAB
2007-04) in
response to the development of questionable health and wellness
programs that were marketed as similar supplemental
coverage. FAB
2007-04
clarifies the rules for supplemental programs and provides that
supplemental benefits under a wellness program cannot
discriminate on the basis of a health factor. With these new
requirements in place, wellness programs that require
individuals to meet certain health factors can no longer be
considered supplemental and thus have to comply with HIPAA
wellness program regulations described in the immediately
preceding paragraph. According to FAB
2007-04,
programs that do not meet these requirements may be subject to
enforcement actions.
We provide certain services related to wellness programs as part
of our private portals business. See Our Online
Services Our Private Portals: WebMD Health
Services above. We believe that we are in compliance with
the laws and regulations applicable to these services.
International
Regulation
The WebMD Health Network is not directed to
non-U.S. users;
and nearly all of the users of our private portals are
U.S. employees or plan members. As a result, we do not
believe that we currently conduct our business in a manner that
subjects us to international data regulation in any material
respect. However, one element of our growth strategy is to seek
to expand our online services to markets outside the United
States. Generally, we expect that we would accomplish this
through partnerships or joint ventures with other companies
having expertise in the specific country or region, as was the
case with our entry into the physician portal marketplace in
Latin America, Spain and Portugal in 2007.
Many countries and governmental bodies have, or are developing,
laws that may apply to online health information services of the
types we provide or to Internet sites generally, including laws
regarding the collection, use, storage and dissemination of
personal information or patient data. To the extent our
operations are located within their jurisdiction or are directed
at individuals within their jurisdiction, these laws may apply
to us. In addition, those governments may attempt to apply such
laws extraterritorially or through treaties or other
arrangements with U.S. governmental entities. To the extent
we fail to accurately anticipate the application or
interpretation of these laws, we could be subject to liability
and adverse publicity, which could negatively affect our
business. In addition, these laws may impose additional
operational requirements or restrictions on our business, and
increase our cost of doing business.
Porex
Regulation
of Medical Devices
Overview. Porexs Surgical
Products Group manufactures and markets medical devices, such as
reconstructive and aesthetic surgical implants used in
craniofacial applications and post-surgical drains. In addition,
Porex manufactures and markets blood serum filters as a medical
device for use in laboratory applications. Porexs
customers include both end-users of its finished medical devices
as well as manufacturers that include Porex components in their
products. All of these products are subject to extensive
regulation by the FDA under the FDC Act. The FDAs
regulations govern, among other things, product development,
testing, manufacturing, labeling, storage, premarket clearance
(referred to as 510(k) clearance), premarket approval (referred
to as PMA approval), advertising and promotion, and sales and
distribution. If the FDA finds that Porex has failed to comply,
the agency can institute a wide variety of enforcement actions,
ranging from issuance of warning letters or untitled letters;
fines and civil penalties; unanticipated expenditures to address
or defend such actions; delays in clearing or approving, or
refusal to clear or approve, products; withdrawal or suspension
of approval of products or those of our third-party suppliers by
the FDA or other regulatory bodies; product recall or seizure;
orders for physician notification or device repair, replacement
or refund; interruption of production; operating restrictions;
injunctions; and criminal prosecution.
Access to U.S. Market. Each
medical device that Porex, or a manufacturer to which Porex
supplies its products, wishes to commercially distribute in the
U.S. will, unless exempt, likely require either 510(k)
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clearance or PMA approval (as more fully described below) from
the FDA prior to commercial distribution. Devices deemed to pose
relatively less risk are placed in either class I or II,
which requires the manufacturer to submit a premarket
notification requesting 510(k) clearance. Some low risk devices
are exempted from this requirement. Devices deemed by the FDA to
pose the greatest risk, such as life-sustaining, life-supporting
or implantable devices, or devices deemed not substantially
equivalent to a previously 510(k) cleared device or to a
preamendment class III device (in commercial
distribution before May 28, 1976) for which PMA
applications have not been called, are placed in class III
requiring PMA approval.
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510(k) Clearance Process. To obtain 510(k)
clearance, Porex must submit a premarket notification
demonstrating that the proposed device is substantially
equivalent in intended use and in safety and effectiveness to a
predicate device either a previously
510(k) cleared class I or class II device or a
preamendment class III device for which the FDA has not
called for PMA applications. The FDAs 510(k) clearance
process usually takes from four to 12 months, but it can
last longer. After a device receives 510(k) clearance, any
modification that could significantly affect its safety or
effectiveness, or that would constitute a major change in its
intended use, requires a new 510(k) clearance or could even
require a PMA approval. The FDA requires that each manufacturer
make this determination in the first instance, but the FDA can
review any such decision. In some cases, Porex has made
modifications to certain of its products that we believe do not
require new 510(k) clearance. If the FDA disagrees with our
decisions, it can retroactively require new 510(k) clearance or
PMA approval. The FDA also can require Porex to cease marketing
and/or
recall the modified device until 510(k) clearance or PMA
approval is obtained. To the extent that FDA disagrees with any
regulatory determinations made by Porexs customers, any
such action by FDA against such customers could also impact
Porexs business.
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PMA Approval Process. If a product is not
eligible for 510(k) clearance, the product is placed in
class III and must follow the PMA approval process, which
requires proof of the safety and effectiveness of the device to
the FDAs satisfaction. A PMA approval application must
generally provide extensive preclinical and clinical trial data
and also information about the device and its components
regarding, among other things, device design, manufacturing and
labeling. As part of the PMA approval application review, the
FDA will typically inspect the manufacturers facilities
for compliance with the Quality System Regulation, which
requires manufacturers to follow elaborate design, testing,
control, documentation and other quality assurance procedures
during the manufacturing process. The PMA approval pathway is
costly, lengthy and uncertain. It generally takes from one to
three years or longer. After approval of a PMA approval
application, a new PMA approval or PMA supplement approval may
be required in the event of a modification to the device, its
labeling or its manufacturing process that affects the safety or
effectiveness of the device.
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Clinical Studies. A clinical study is
generally required to support a PMA approval application and is
sometimes required for a 510(k) premarket notification. For
significant risk devices, such studies generally
require submission of an application for an Investigational
Device Exemption, or IDE. The IDE application must be supported
by appropriate data, such as animal and laboratory testing
results, showing that it is safe to test the device on humans
and that the testing protocol is scientifically sound. The IDE
must be approved in advance by the FDA for a specified number of
patients. Clinical studies may begin once the IDE application is
approved by the FDA and the appropriate institutional review
boards at the study sites. For nonsignificant risk
devices, one or more institutional review boards must review the
study, but submission of an IDE application to the FDA for
advance approval is not required. Both types of studies are
subject to informed consent, record keeping, reporting and other
IDE regulation requirements.
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Post-market Regulation. After the FDA
clears a device to enter commercial distribution, numerous
regulatory requirements apply. These include the Quality System
Regulation (which requires manufacturers, including third-party
manufacturers, to follow stringent design, testing, control,
documentation and other quality assurance procedures during all
aspects of the manufacturing process), labeling regulations, the
FDAs general prohibition against promoting products for
unapproved or off-label uses, and the Medical Device
Reporting regulation, which requires that a manufacturer report
to the FDA if its device may have caused or contributed to a
death or serious injury or malfunctioned in a way that would
likely cause or contribute to a
31
death or serious injury if it were to recur. Manufacturers of
finished medical devices also are subject to inspection and
market surveillance by the FDA to determine compliance with all
regulatory requirements. Compliance with these requirements can
be costly and time-consuming. Furthermore, marketed products
could be subject to voluntary recall if the manufacturer or the
FDA determine, for any reason, that those products pose a risk
of injury or are otherwise defective. Moreover, the FDA can
order a mandatory recall if there is a reasonable probability
that a device would cause serious adverse health consequences or
death. Failure to comply could subject a manufacturer to FDA
enforcement action and sanctions ranging from warning letters or
untitled letters; fines and civil penalties; unanticipated
expenditures to address or defend such actions; delays in
clearing or approving, or refusal to clear or approve, products;
withdrawal or suspension of approval of products or those of our
third-party suppliers by the FDA or other regulatory bodies;
product recall or seizure; orders for physician notification or
device repair, replacement or refund; interruption of
production; operating restrictions; injunctions; and criminal
prosecution. Some of Porexs customers also are subject
FDAs post-market regulations. To the extent that FDA
initiates an enforcement action against one of those customers,
such action could adversely affect Porexs business.
International. Any medical device that
is legally marketed in the U.S. may be exported anywhere in
the world without prior FDA notification or approval. Sales of
medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to
country. Porexs medical device products may be subject to
premarket approval (or similar requirements) as well as other
regulatory requirements in other countries in which they are
sold. In most instances, Porex relies on its distributors to
obtain such premarket approvals and to complete clinical trial
and other requirements in those foreign countries that require
them. Failure by Porex or its distributors to comply with
applicable regulations in any jurisdiction in which Porexs
medical device products are sold could subject Porex to
enforcement action and sanctions.
Advertising
and Promotion of Medical Devices
For background information regarding the laws and regulations
applicable to advertising and promotion of medical devices, see
WebMD Regulation of Drug and
Medical Device Advertising and Promotion above.
Advertising and promotion of medical devices, in addition to
being regulated by the FDA, are also regulated by the FTC and by
state regulatory and enforcement authorities. Porexs
Surgical Products Group advertises and promotes its medical
device products and is directly subject to regulation in this
area. If the FDA determines that Porexs promotional
materials or training constitutes promotion of an unapproved
use, it could request that it modify its training or promotional
materials or subject it to regulatory or enforcement actions,
including the issuance of an untitled letter, a warning letter,
injunction, seizure, civil fine or criminal penalties. It is
also possible that other federal, state or foreign enforcement
authorities might take action if they consider Porexs
promotional or training materials to constitute promotion of an
unapproved use, which could result in significant fines or
penalties under other statutory authorities, such as laws
prohibiting false claims for reimbursement. In that event,
Porexs reputation could be damaged and adoption of its
products could be impaired.
Recently, promotional activities for other companies
medical devices have been the subject of enforcement action
brought under the Federal False Claims Act and state consumer
protection statutes. See WebMD
Federal False Claims Act above for background information
regarding the False Claims Act. In addition, under the federal
Lanham Act and certain state laws, competitors and certain
plaintiffs can initiate litigation relating to advertising
claims.
Anti-Kickback
Laws
There are federal and state laws that govern patient referrals,
physician financial relationships and inducements to healthcare
providers and patients, which are sometimes referred to as
Anti-Kickback Laws. The federal healthcare programs
Anti-Kickback Law prohibits any person or entity from offering,
paying, soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare,
Medicaid and other federal healthcare programs or the leasing,
purchasing, ordering or arranging for or recommending the lease,
purchase or order of any item, good, facility or service covered
by these
32
programs. Penalties for violating the federal Anti-Kickback Law
include imprisonment, fines and exclusion from participating,
directly or indirectly, in Medicare, Medicaid and other federal
healthcare programs. Many states also have similar Anti-Kickback
Laws that are not necessarily limited to items or services for
which payment is made by a federal healthcare program.
These laws are applicable to manufacturers and distributors and,
therefore, may restrict how Porex and some of its customers
market products to healthcare providers. Porex review its
practices with regulatory experts in an effort to comply with
all applicable laws. However, the laws in this area are both
broad and vague and it is often difficult or impossible to
determine precisely how the laws will be applied. Any
determination by a state or federal regulatory agency that any
of Porexs practices violate any of these laws could
subject it to civil or criminal penalties and require Porex to
change or terminate some portions of its business. Even an
unsuccessful challenge by regulatory authorities of their
practices could cause Porex adverse publicity and be costly for
them to respond to.
OTHER
INFORMATION
Employees
As of December 31, 2008, we had approximately
1,900 employees, of which approximately 1,300 are WebMD
employees and approximately 540 are Porex employees.
Intellectual
Property
We use trademarks, trade names and service marks for our
products and services, including those listed below the Table of
Contents of this Annual Report. We also use other registered and
unregistered trademarks and service marks for our products and
services. In addition to our trademark registrations and
applications, we have registered numerous domain names,
including webmd.com and medscape.com and
the other domain names listed in this Annual Report.
WebMD relies upon a combination of patent, trade secret,
copyright and trademark laws, license agreements,
confidentiality procedures, employee and client nondisclosure
agreements and technical measures to protect intellectual
property used in its businesses. WebMD also relies on a variety
of intellectual property rights licensed from third parties,
including Internet server software and healthcare content used
on WebMDs Web sites. These third-party licenses may not
continue to be available to us on commercially reasonable terms.
Our loss of or inability to maintain or obtain upgrades to these
licenses could harm our business. In addition, because we
license content from third parties, we may be exposed to
copyright infringement actions if these third parties are
subject to claims regarding the origin and ownership of that
content.
Porex relies upon a combination of patent and trade secret laws,
license agreements, confidentiality procedures, employee and
client nondisclosure agreements and technical measures in its
efforts to protect its intellectual property and proprietary
rights. For example, Porex seeks to protect its proprietary
manufacturing technology by designing and fabricating its own
manufacturing equipment and molds. In addition, in some cases,
Porex has patented specific products and processes and intends
to do so in some instances in the future. The majority of
Porexs patents relate to porous plastics and medical
devices and medical device components. Porex seeks to take
appropriate steps to protect its intellectual property and
proprietary rights and intends to defend those rights as may be
necessary. However, we cannot provide assurance that the steps
it has taken to protect these rights are adequate. Porex is
currently involved in litigation to enforce and protect some of
those rights. See Legal Proceedings Porex
Corporation v. Kleanthis Dean Haldopoulos, Benjamin T.
Hirokawa and Micropore Plastics, Inc. In the future,
additional litigation may be necessary to enforce and protect
those rights. Litigation to enforce and protect intellectual
property and proprietary rights may divert management resources,
may be expensive and may not effectively protect those rights.
33
Seasonality
For a discussion of seasonality affecting our businesses, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Seasonality in Item 7 below.
Other
To the extent required by Item 1 of
Form 10-K,
the information contained in Item 7 of this Annual Report
is hereby incorporated by reference in this Item 1.
34
This section describes circumstances or events that could have a
negative effect on our financial results or operations or that
could change, for the worse, existing trends in some or all of
our businesses. The occurrence of one or more of the
circumstances or events described below could have a material
adverse effect on our financial condition, results of operations
and cash flows or on the trading prices of the Common Stock and
convertible notes that we have issued or securities we may issue
in the future. The risks and uncertainties described in this
Annual Report are not the only ones facing us. Additional risks
and uncertainties that are not currently known to us or that we
currently believe are immaterial may also adversely affect our
business and operations.
Risks
Related to Our WebMD Operations and the Healthcare Content We
Provide
If we
are unable to provide content and services that attract and
retain users to The WebMD Health Network on a consistent basis,
our advertising and sponsorship revenue could be
reduced
Users of The WebMD Health Network have numerous other
online and offline sources of healthcare information services.
Our ability to compete for user traffic on our public portals
depends upon our ability to make available a variety of health
and medical content, decision-support applications and other
services that meet the needs of a variety of types of users,
including consumers, physicians and other healthcare
professionals, with a variety of reasons for seeking
information. Our ability to do so depends, in turn, on:
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our ability to hire and retain qualified authors, journalists
and independent writers;
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our ability to license quality content from third
parties; and
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our ability to monitor and respond to increases and decreases in
user interest in specific topics.
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We cannot assure you that we will be able to continue to develop
or acquire needed content, applications and tools at a
reasonable cost. In addition, since consumer users of our public
portals may be attracted to The WebMD Health Network as a
result of a specific condition or for a specific purpose, it is
difficult for us to predict the rate at which they will return
to the public portals. Because we generate revenue by, among
other things, selling sponsorships of specific pages, sections
or events on The WebMD Health Network, a decline in user
traffic levels or a reduction in the number of pages viewed by
users could cause our revenue to decrease and could have a
material adverse effect on our results of operations.
Developing
and implementing new and updated applications, features and
services for our public and private portals may be more
difficult than expected, may take longer and cost more than
expected and may not result in sufficient increases in revenue
to justify the costs
Attracting and retaining users of our public portals and clients
for our private portals requires us to continue to improve the
technology underlying those portals and to continue to develop
new and updated applications, features and services for those
portals. If we are unable to do so on a timely basis or if we
are unable to implement new applications, features and services
without disruption to our existing ones, we may lose potential
users and clients.
We rely on a combination of internal development, strategic
relationships, licensing and acquisitions to develop our portals
and related applications, features and services. Our development
and/or
implementation of new technologies, applications, features and
services may cost more than expected, may take longer than
originally expected, may require more testing than originally
anticipated and may require the acquisition of additional
personnel and other resources. There can be no assurance that
the revenue opportunities from any new or updated technologies,
applications, features or services will justify the amounts
spent.
35
We
face significant competition for our healthcare information
products and services
The markets for healthcare information products and services are
intensely competitive, continually evolving and, in some cases,
subject to rapid change.
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Our public portals face competition from numerous other
companies, both in attracting users and in generating revenue
from advertisers and sponsors. We compete for users with online
services and Web sites that provide health-related information,
including both commercial sites and not-for-profit sites. We
compete for advertisers and sponsors with: health-related Web
sites; general purpose consumer Web sites that offer specialized
health sub-channels; other high-traffic Web sites that include
both healthcare-related and non-healthcare-related content and
services; search engines that provide specialized health search;
and advertising networks that aggregate traffic from multiple
sites. Our public portals also face competition from offline
publications and information services.
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Our private portals compete with: providers of healthcare
decision-support tools and online health management
applications, including personal health records; wellness and
disease management vendors; and health information services and
health management offerings of healthcare benefits companies and
their affiliates.
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Our Publishing and Other Services segments products and
services compete with numerous other offline publications, some
of which have better access to traditional distribution channels
than we have, and also compete with online information sources.
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Many of our competitors have greater financial, technical,
product development, marketing and other resources than we do.
These organizations may be better known than we are and have
more customers or users than we do. We cannot provide assurance
that we will be able to compete successfully against these
organizations or any alliances they have formed or may form.
Since there are no substantial barriers to entry into the
markets in which our public portals participate, we expect that
competitors will continue to enter these markets.
Failure
to maintain and enhance the WebMD brand could have a
material adverse effect on our business
We believe that the WebMD brand identity that we
have developed has contributed to the success of our business
and has helped us achieve recognition as a trusted source of
health and wellness information. We also believe that
maintaining and enhancing that brand is important to expanding
the user base for our public portals, to our relationships with
sponsors and advertisers and to our ability to gain additional
employer and healthcare payer clients for our private portals.
We have expended considerable resources on establishing and
enhancing the WebMD brand and our other brands, and
we have developed policies and procedures designed to preserve
and enhance our brands, including editorial procedures designed
to provide quality control of the information we publish. We
expect to continue to devote resources and efforts to maintain
and enhance our brands. However, we may not be able to
successfully maintain or enhance awareness of our brands, and
events outside of our control may have a negative effect on our
brands. If we are unable to maintain or enhance awareness of our
brand, and do so in a cost-effective manner, our business could
be adversely affected.
Our
online businesses have a limited operating history
Our online businesses have a limited operating history and
participate in relatively new markets. These markets, and our
online businesses, have undergone significant changes during
their short history and can be expected to continue to change.
Many companies with business plans based on providing healthcare
information and related services through the Internet have
failed to be profitable and some have filed for bankruptcy
and/or
ceased operations. Even if demand from users exists, we cannot
assure you that our businesses will continue to be profitable.
36
Our
failure to attract and retain qualified executives and employees
may have a material adverse effect on our business
Our business depends largely on the skills, experience and
performance of key members of our management team. We also
depend, in part, on our ability to attract and retain qualified
writers and editors, software developers and other technical
personnel and sales and marketing personnel. Competition for
qualified personnel in the healthcare information services and
Internet industries is intense. We cannot assure you that we
will be able to hire or retain a sufficient number of qualified
personnel to meet our requirements, or that we will be able to
do so at salary and benefit costs that are acceptable to us.
Failure to do so may have an adverse effect on our business.
If we
are unable to provide healthcare content for our offline
publications that attracts and retains users, our revenue will
be reduced
Interest in our offline publications, such as The WebMD
Little Blue Book, is based upon our ability to make
available up-to-date health content that meets the needs of our
physician users. Although we have been able to continue to
update and maintain the physician practice information that we
publish in The WebMD Little Blue Book, if we are unable
to continue to do so for any reason, the value of The WebMD
Little Blue Book would diminish and interest in this
publication and advertising in this publication would be
adversely affected.
WebMD the Magazine was launched in April 2005 and, as a
result, has a very short operating history. We cannot assure you
that WebMD the Magazine will be able to attract and
retain the advertisers needed to make this publication
successful in the future.
The
timing of our advertising and sponsorship revenue may vary
significantly from quarter to quarter and is subject to factors
beyond our control, including regulatory changes affecting
advertising and promotion of drugs and medical devices and
general economic conditions
Our advertising and sponsorship revenue, which accounted for
approximately 75% of our total Online Services segment revenue
for the year ended December 31, 2008, may vary
significantly from quarter to quarter due to a number of
factors, many of which are not in our control, and some of which
may be difficult to forecast accurately, including potential
effects on demand for our services as a result of regulatory
changes affecting advertising and promotion of drugs and medical
devices and general economic conditions. The majority of our
advertising and sponsorship programs are for terms of
approximately four to twelve months. We have relatively few
longer term advertising and sponsorship programs. We cannot
assure you that our current advertisers and sponsors will
continue to use our services beyond the terms of their existing
contracts or that they will enter into any additional contracts.
The time between the date of initial contact with a potential
advertiser or sponsor regarding a specific program and the
execution of a contract with the advertiser or sponsor for that
program may be lengthy, especially for larger contracts, and may
be subject to delays over which we have little or no control,
including as a result of budgetary constraints of the advertiser
or sponsor or their need for internal approvals. Other factors
that could affect the timing of contracting for specific
programs with advertisers and sponsors, or receipt of revenue
under such contracts, include:
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the timing of FDA approval for new products or for new approved
uses for existing products;
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the timing of FDA approval of generic products that compete with
existing brand name products;
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the timing of withdrawals of products from the market;
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seasonal factors relating to the prevalence of specific health
conditions and other seasonal factors that may affect the timing
of promotional campaigns for specific products; and
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the scheduling of conferences for physicians and other
healthcare professionals.
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37
We may
be unsuccessful in our efforts to increase advertising and
sponsorship revenue from consumer products
companies
Most of our advertising and sponsorship revenue has, in the
past, come from pharmaceutical, biotechnology and medical device
companies. We have been focusing on increasing sponsorship
revenue from consumer products companies that are interested in
communicating health-related or safety-related information about
their products to our audience. However, while a number of
consumer products companies have indicated an intent to increase
the portion of their promotional spending used on the Internet,
we cannot assure you that these advertisers and sponsors will
find our consumer Web sites to be as effective as other Web
sites or traditional media for promoting their products and
services. If we encounter difficulties in competing with the
other alternatives available to consumer products companies,
this portion of our business may develop more slowly than we
expect or may fail to develop. In addition, revenues from
consumer products companies are more likely to reflect general
economic conditions, and to be reduced to a greater extent
during economic downturns or recessions, than revenues from
pharmaceutical, biotechnology and medical device companies.
Lengthy
sales and implementation cycles for our private online portals
make it difficult to forecast our revenues from these
applications and may have an adverse impact on our
business
The period from our initial contact with a potential client for
a private online portal and the first purchase of our solution
by the client is difficult to predict. In the past, this period
has generally ranged from six to twelve months, but in some
cases has been longer. Potential sales may be subject to delays
or cancellations due to a clients internal procedures for
approving large expenditures and other factors beyond our
control, including the effect of general economic conditions on
the willingness of potential clients to commit to licensing our
private portals. The time it takes to implement a private online
portal is also difficult to predict and has lasted as long as
six months from contract execution to the commencement of live
operation. Implementation may be subject to delays based on the
availability of the internal resources of the client that are
needed and other factors outside of our control. As a result, we
have limited ability to forecast the timing of revenue from new
clients. This, in turn, makes it more difficult to predict our
financial performance from quarter to quarter.
During the sales cycle and the implementation period, we may
expend substantial time, effort and money preparing contract
proposals, negotiating contracts and implementing the private
online portal without receiving any related revenue. In
addition, many of the expenses related to providing private
online portals are relatively fixed in the short term, including
personnel costs and technology and infrastructure costs. Even if
our private portal revenue is lower than expected, we may not be
able to reduce related short-term spending in response. Any
shortfall in such revenue would have a direct impact on our
results of operations.
Our
ability to provide comparative information on hospital cost and
quality depends on our ability to obtain the required data on a
timely basis and, if we are unable to do so, our private portal
services would be less attractive to clients
We provide, in connection with our private portal services,
comparative information about hospital cost and quality. Our
ability to provide this information depends on our ability to
obtain comprehensive, reliable data. We currently obtain this
data from a number of public and private sources, including the
Centers for Medicare and Medicaid Services (CMS), 24 individual
states and the Leapfrog Group. We cannot provide assurance that
we would be able to find alternative sources for this data on
acceptable terms and conditions. Accordingly, our business could
be negatively impacted if CMS or our other data sources cease to
make such information available or impose terms and conditions
for making it available that are not consistent with our planned
usage. In addition, the quality of the comparative information
services we provide depends on the reliability of the
information that we are able to obtain. If the information we
use to provide these services contains errors or is otherwise
unreliable, we could lose clients and our reputation could be
damaged.
38
Our
ability to renew existing licenses with employers and health
plans will depend, in part, on our ability to continue to
increase usage of our private portal services by their employees
and plan members
In a healthcare market where a greater share of the
responsibility for healthcare costs and decision-making has been
increasingly shifting to consumers, use of information
technology (including personal health records) to assist
consumers in making informed decisions about healthcare has also
increased. We believe that through our WebMD Health and Benefits
Manager tools, including our personal health record application,
we are well positioned to play a role in this consumer-directed
healthcare environment, and these services will be a significant
driver for the growth of our private portals during the next
several years. However, our growth strategy depends, in part, on
increasing usage of our private portal services by our employer
and health plan clients employees and members,
respectively. Increasing usage of our services requires us to
continue to deliver and improve the underlying technology and
develop new and updated applications, features and services. In
addition, we face competition in the area of healthcare
decision-support tools and online health management applications
and health information services. Many of our competitors have
greater financial, technical, product development, marketing and
other resources than we do, and may be better known than we are.
We cannot provide assurance that we will be able to meet our
development and implementation goals, nor that we will be able
to compete successfully against other vendors offering
competitive services and, as a result, may experience static or
diminished usage for our private portal services and possible
non-renewals of our license agreements.
We may
be subject to claims brought against us as a result of content
we provide
Consumers access health-related information through our online
services, including information regarding particular medical
conditions and possible adverse reactions or side effects from
medications. If our content, or content we obtain from third
parties, contains inaccuracies, it is possible that consumers,
employees, health plan members or others may sue us for various
causes of action. Although our Web sites contain terms and
conditions, including disclaimers of liability, that are
intended to reduce or eliminate our liability, the law governing
the validity and enforceability of online agreements and other
electronic transactions is evolving. We could be subject to
claims by third parties that our online agreements with
consumers and physicians that provide the terms and conditions
for use of our public or private portals are unenforceable. A
finding by a court that these agreements are invalid and that we
are subject to liability could harm our business and require
costly changes to our business.
We have editorial procedures in place to provide quality control
of the information that we publish or provide. However, we
cannot assure you that our editorial and other quality control
procedures will be sufficient to ensure that there are no errors
or omissions in particular content. Even if potential claims do
not result in liability to us, investigating and defending
against these claims could be expensive and time consuming and
could divert managements attention away from our
operations. In addition, our business is based on establishing
the reputation of our portals as trustworthy and dependable
sources of healthcare information. Allegations of impropriety or
inaccuracy, even if unfounded, could harm our reputation and
business.
Expansion
to markets outside the United States will subject us to
additional risks
One element of our growth strategy is to seek to expand our
online services to markets outside the United States. Generally,
we expect that we would accomplish this through partnerships or
joint ventures with other companies having expertise in the
specific country or region. However, our participation in
international markets will still be subject to certain risks
beyond those applicable to our operations in the United States,
such as:
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difficulties in staffing and managing operations outside of the
United States;
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fluctuations in currency exchange rates;
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burdens of complying with a wide variety of legal, regulatory
and market requirements;
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variability of economic and political conditions, including the
extent of the impact of recent adverse economic conditions in
markets outside the United States;
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tariffs or other trade barriers;
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costs of providing and marketing products and services in
different markets;
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potentially adverse tax consequences, including restrictions on
repatriation of earnings; and
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difficulties in protecting intellectual property.
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Risks
Related to the Internet and Our Technological
Infrastructure
Any
service interruption or failure in the systems that we use to
provide online services could harm our business
Our online services are designed to operate 24 hours a day,
seven days a week, without interruption. However, we have
experienced and expect that we will in the future experience
interruptions and delays in services and availability from time
to time. We rely on internal systems as well as third-party
vendors, including data center providers and bandwidth
providers, to provide our online services. We may not maintain
redundant systems or facilities for some of these services. In
the event of a catastrophic event with respect to one or more of
these systems or facilities, we may experience an extended
period of system unavailability, which could negatively impact
our relationship with users. In addition, system failures may
result in loss of data, including user registration data,
content, and other data critical to the operation of our online
services, which could cause significant harm to our business and
our reputation.
To operate without interruption or loss of data, both we and our
service providers must guard against:
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damage from fire, power loss and other natural disasters;
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communications failures;
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software and hardware errors, failures and crashes;
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security breaches, computer viruses and similar disruptive
problems; and
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other potential service interruptions.
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Any disruption in the network access or co-location services
provided by third-party providers to us or any failure by these
third-party providers or our own systems to handle current or
higher volume of use could significantly harm our business. We
exercise little control over these third-party vendors, which
increases our vulnerability to problems with services they
provide.
Any errors, failures, interruptions or delays experienced in
connection with these third-party technologies and information
services or our own systems could negatively impact our
relationships with users and adversely affect our brand and our
business and could expose us to liabilities to third parties.
Although we maintain insurance for our business, the coverage
under our policies may not be adequate to compensate us for all
losses that may occur. In addition, we cannot provide assurance
that we will continue to be able to obtain adequate insurance
coverage at an acceptable cost.
Implementation
of additions to or changes in hardware and software platforms
used to deliver our online services may result in performance
problems and may not provide the additional functionality that
was expected
From time to time, we implement additions to or changes in the
hardware and software platforms we use for providing our online
services. During and after the implementation of additions or
changes, a platform may not perform as expected, which could
result in interruptions in operations, an increase in response
time or an inability to track performance metrics. In addition,
in connection with integrating acquired businesses, we may move
their operations to our hardware and software platforms or make
other changes, any of which could
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result in interruptions in those operations. Any significant
interruption in our ability to operate any of our online
services could have an adverse effect on our relationships with
users and clients and, as a result, on our financial results. We
rely on a combination of purchasing, licensing, internal
development, and acquisitions to develop our hardware and
software platforms. Our implementation of additions to or
changes in these platforms may cost more than originally
expected, may take longer than originally expected, and may
require more testing than originally anticipated. In addition,
we cannot provide assurance that additions to or changes in
these platforms will provide the additional functionality and
other benefits that were originally expected.
If the
systems we use to provide online portals experience security
breaches or are otherwise perceived to be insecure, our business
could suffer
We retain and transmit confidential information, including
personal health records, in the processing centers and other
facilities we use to provide online services. It is critical
that these facilities and infrastructure remain secure and be
perceived by the marketplace as secure. A security breach could
damage our reputation or result in liability. We may be required
to expend significant capital and other resources to protect
against security breaches and hackers or to alleviate problems
caused by breaches. Despite the implementation of security
measures, this infrastructure or other systems that we interface
with, including the Internet and related systems, may be
vulnerable to physical break-ins, hackers, improper employee or
contractor access, computer viruses, programming errors,
denial-of-service attacks or other attacks by third parties or
similar disruptive problems. Any compromise of our security,
whether as a result of our own systems or the systems that they
interface with, could reduce demand for our services and could
subject us to legal claims from our clients and users, including
for breach of contract or breach of warranty.
Our
online services are dependent on the development and maintenance
of the Internet infrastructure
Our ability to deliver our online services is dependent on the
development and maintenance of the infrastructure of the
Internet by third parties. The Internet has experienced a
variety of outages and other delays as a result of damages to
portions of its infrastructure, and it could face outages and
delays in the future. The Internet has also experienced, and is
likely to continue to experience, significant growth in the
number of users and the amount of traffic. If the Internet
continues to experience increased usage, the Internet
infrastructure may be unable to support the demands placed on
it. In addition, the reliability and performance of the Internet
may be harmed by increased usage or by denial-of-service
attacks. Any resulting interruptions in our services or
increases in response time could, if significant, result in a
loss of potential or existing users of and advertisers and
sponsors on our Web sites and, if sustained or repeated, could
reduce the attractiveness of our services.
Customers who utilize our online services depend on Internet
service providers and other Web site operators for access to our
Web sites. All of these providers have experienced significant
outages in the past and could experience outages, delays and
other difficulties in the future due to system failures
unrelated to our systems. Any such outages or other failures on
their part could reduce traffic to our Web sites.
Third
parties may challenge the enforceability of our online
agreements
The law governing the validity and enforceability of online
agreements and other electronic transactions is evolving. We
could be subject to claims by third parties that the online
terms and conditions for use of our Web sites, including
disclaimers or limitations of liability, are unenforceable. A
finding by a court that these terms and conditions or other
online agreements are invalid could harm our business.
We
could be subject to breach of warranty or other claims by
clients of our online portals if the software and systems we use
to provide them contain errors or experience
failures
Errors in the software and systems we use could cause serious
problems for clients of our online portals. We may fail to meet
contractual performance standards or client expectations.
Clients of our online portals may seek compensation from us or
may seek to terminate their agreements with us, withhold
payments due to us, seek refunds from us of part or all of the
fees charged under those agreements or initiate litigation or
other
41
dispute resolution procedures. In addition, we could face breach
of warranty or other claims by clients or additional development
costs. Our software and systems are inherently complex and,
despite testing and quality control, we cannot be certain that
they will perform as planned.
We attempt to limit, by contract, our liability to our clients
for damages arising from our negligence, errors or mistakes.
However, contractual limitations on liability may not be
enforceable in certain circumstances or may otherwise not
provide sufficient protection to us from liability for damages.
We maintain liability insurance coverage, including coverage for
errors and omissions. However, it is possible that claims could
exceed the amount of our applicable insurance coverage, if any,
or that this coverage may not continue to be available on
acceptable terms or in sufficient amounts. Even if these claims
do not result in liability to us, investigating and defending
against them would be expensive and time consuming and could
divert managements attention away from our operations. In
addition, negative publicity caused by these events may delay or
hinder market acceptance of our services, including unrelated
services.
We may
not be successful in protecting our intellectual property and
proprietary rights
Our intellectual property and proprietary rights are important
to our businesses. The steps that we take to protect our
intellectual property, proprietary information and trade secrets
may prove to be inadequate and, whether or not adequate, may be
expensive. We rely on a combination of trade secret, patent and
other intellectual property laws and confidentiality procedures
and non-disclosure contractual provisions to protect our
intellectual property. We cannot assure you that we will be able
to detect potential or actual misappropriation or infringement
of our intellectual property, proprietary information or trade
secrets. Even if we detect misappropriation or infringement by a
third party, we cannot assure you that we will be able to
enforce our rights at a reasonable cost, or at all. In addition,
our rights to intellectual property, proprietary information and
trade secrets may not prevent independent third-party
development and commercialization of competing products or
services.
Third
parties may claim that we are infringing their intellectual
property, and we could suffer significant litigation or
licensing expenses or be prevented from providing certain
services, which may harm our business
We could be subject to claims that we are misappropriating or
infringing intellectual property or other proprietary rights of
others. These claims, even if not meritorious, could be
expensive to defend and divert managements attention from
our operations. If we become liable to third parties for
infringing these rights, we could be required to pay a
substantial damage award and to develop non-infringing
technology, obtain a license or cease selling the products or
services that use or contain the infringing intellectual
property. We may be unable to develop non-infringing products or
services or obtain a license on commercially reasonable terms,
or at all. We may also be required to indemnify our customers if
they become subject to third-party claims relating to
intellectual property that we license or otherwise provide to
them, which could be costly.
Risks
Related to the Healthcare Industry, Healthcare Regulation and
Internet Regulation
Developments
in the healthcare industry could adversely affect our
business
Most of our revenue is derived from the healthcare industry and
could be affected by changes affecting healthcare spending. We
are particularly dependent on pharmaceutical, biotechnology and
medical device companies for our advertising and sponsorship
revenue. General reductions in expenditures by healthcare
industry participants could result from, among other things:
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government regulation or private initiatives that affect the
manner in which healthcare providers interact with patients,
payers or other healthcare industry participants, including
changes in pricing or means of delivery of healthcare products
and services;
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consolidation of healthcare industry participants;
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reductions in governmental funding for healthcare; and
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adverse changes in business or economic conditions affecting
healthcare payers or providers, pharmaceutical, biotechnology or
medical device companies or other healthcare industry
participants.
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Even if general expenditures by industry participants remain the
same or increase, developments in the healthcare industry may
result in reduced spending in some or all of the specific market
segments that we serve or are planning to serve. For example,
use of our products and services could be affected by:
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changes in the design of health insurance plans;
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a decrease in the number of new drugs or medical devices coming
to market; and
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decreases in marketing expenditures by pharmaceutical or medical
device companies, including as a result of governmental
regulation or private initiatives that discourage or prohibit
advertising or sponsorship activities by pharmaceutical or
medical device companies.
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In addition, our customers expectations regarding pending
or potential industry developments may also affect their
budgeting processes and spending plans with respect to products
and services of the types we provide.
The healthcare industry has changed significantly in recent
years and we expect that significant changes will continue to
occur. However, the timing and impact of developments in the
healthcare industry are difficult to predict. We cannot assure
you that the markets for our products and services will continue
to exist at current levels or that we will have adequate
technical, financial and marketing resources to react to changes
in those markets.
Government
regulation of healthcare creates risks and challenges with
respect to our compliance efforts and our business
strategies
The healthcare industry is highly regulated and is subject to
changing political, legislative, regulatory and other
influences. Existing and new laws and regulations affecting the
healthcare industry could create unexpected liabilities for us,
could cause us to incur additional costs and could restrict our
operations. Many healthcare laws are complex, and their
application to specific products and services may not be clear.
In particular, many existing healthcare laws and regulations,
when enacted, did not anticipate the healthcare information
services that we provide. However, these laws and regulations
may nonetheless be applied to our products and services. Our
failure to accurately anticipate the application of these laws
and regulations, or other failure to comply, could create
liability for us, result in adverse publicity and negatively
affect our businesses. Some of the risks we face from healthcare
regulation are as follows:
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Regulation of Drug and Medical Device Advertising and
Promotion. The WebMD Health Network provides
services involving advertising and promotion of prescription and
over-the-counter drugs and medical devices. If the Food and Drug
Administration (FDA) or the Federal Trade Commission (FTC) finds
that any information on The WebMD Health Network or in
WebMD the Magazine violates FDA or FTC regulations, they
may take regulatory or judicial action against us
and/or the
advertiser or sponsor of that information. State attorneys
general may also take similar action based on their states
consumer protection statutes. Any increase or change in
regulation of drug or medical device advertising and promotion
could make it more difficult for us to contract for sponsorships
and advertising. Members of Congress, physician groups and
others have criticized the FDAs current policies, and have
called for restrictions on advertising of prescription drugs to
consumers and increased FDA enforcement. We cannot predict what
actions the FDA or industry participants may take in response to
these criticisms. It is also possible that new laws would be
enacted that impose restrictions on such advertising. In
addition, recent private industry initiatives have resulted in
voluntary restrictions, which advertisers and sponsors have
agreed to follow. Our advertising and sponsorship revenue could
be materially reduced by additional restrictions on the
advertising of prescription drugs and medical devices to
consumers, whether imposed by law or regulation or required
under policies adopted by industry members.
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Anti-kickback Laws. There are federal and
state laws that govern patient referrals, physician financial
relationships and inducements to healthcare providers and
patients. The federal healthcare programs
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anti-kickback law prohibits any person or entity from offering,
paying, soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare,
Medicaid and other federal healthcare programs or the leasing,
purchasing, ordering or arranging for or recommending the lease,
purchase or order of any item, good, facility or service covered
by these programs. Many states also have similar anti-kickback
laws that are not necessarily limited to items or services for
which payment is made by a federal healthcare program. These
laws are applicable to manufacturers and distributors and,
therefore, may restrict how we and some of our customers market
products to healthcare providers, including
e-details.
Any determination by a state or federal regulatory agency that
any of our practices violate any of these laws could subject us
to civil or criminal penalties and require us to change or
terminate some portions of our business and could have an
adverse effect on our business. Even an unsuccessful challenge
by regulatory authorities of our practices could result in
adverse publicity and be costly for us to respond to.
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Medical Professional Regulation. The practice
of most healthcare professions requires licensing under
applicable state law. In addition, the laws in some states
prohibit business entities from practicing medicine. If a state
determines that some portion of our business violates these
laws, it may seek to have us discontinue those portions or
subject us to penalties or licensure requirements. Any
determination that we are a healthcare provider and have acted
improperly as a healthcare provider may result in liability to
us.
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Government
regulation of the Internet could adversely affect our
business
The Internet and its associated technologies are subject to
government regulation. However, whether and how existing laws
and regulations in various jurisdictions, including privacy and
consumer protection laws, apply to the Internet is still
uncertain. Our failure, or the failure of our business partners
or third-party service providers, to accurately anticipate the
application of these laws and regulations to our products and
services and the manner in which we deliver them, or any other
failure to comply with such laws and regulations, could create
liability for us, result in adverse publicity and negatively
affect our business. In addition, new laws and regulations, or
new interpretations of existing laws and regulations, may be
adopted with respect to the Internet and online services,
including in areas such as: user privacy, confidentiality,
consumer protection, pricing, content, copyrights and patents,
and characteristics and quality of products and services. We
cannot predict how these laws or regulations will affect our
business.
Internet user privacy and the use of consumer information to
track online activities are major issues both in the United
States and abroad. For example, in February 2009, the FTC
published Self Regulatory Principles to govern the tracking of
consumers activities online in order to deliver
advertising targeted to the interests of individual consumers
(sometimes referred to as behavioral advertising). These
principles serve as guidelines to industry. In addition, there
is the possibility of proposed legislation and enforcement
activities relating to behavioral advertising. We have privacy
policies posted on our Web sites that we believe comply with
applicable laws requiring notice to users about our information
collection, use and disclosure practices. We also notify users
about our information collection, use and disclosure practices
relating to data we receive through offline means such as paper
health risk assessments. We cannot assure you that the privacy
policies and other statements we provide to users of our
products and services, or our practices will be found sufficient
to protect us from liability or adverse publicity in this area.
A determination by a state or federal agency or court that any
of our practices do not meet applicable standards, or the
implementation of new standards or requirements, could adversely
affect our business.
We
face potential liability related to the privacy and security of
personal health information we collect from or on behalf of
users of our services
Privacy and security of personal health information,
particularly personal health information stored or transmitted
electronically, is a major issue in the United States. The
Privacy Standards and Security Standards under the Health
Insurance Portability and Accountability Act of 1996 (or HIPAA)
establish a set of national privacy and security standards for
the protection of individually identifiable health information
by health plans, healthcare clearinghouses and healthcare
providers (referred to as covered entities) and their business
44
associates. Currently, only covered entities are directly
subject to potential civil and criminal liability under these
Standards. However, the American Recovery and Reinvestment Act
of 2009 (ARRA) amends the HIPAA Privacy and Security
Standards and makes certain provisions applicable to those
portions of our business, such as those managing employee or
plan member health information for employers or health plans,
that are business associates of covered entities. Currently, we
are bound by certain contracts and agreements to use and
disclose protected health information in a manner consistent
with the Privacy Standards and Security Standards. Beginning on
February 17, 2010, some provisions of the HIPAA Privacy and
Security rules will apply directly to us. Currently, depending
on the facts and circumstances, we could potentially be subject
to criminal liability for aiding and abetting or conspiring with
a covered entity to violate the Privacy Standards or Security
Standards. As of February 17, 2010 we will be directly
subject to HIPAAs criminal and civil penalties. We cannot
assure you that we will adequately address the risks created by
these Standards.
We are unable to predict what changes to these Standards might
be made in the future or how those changes, or other changes in
applicable laws and regulations, could affect our business. Any
new legislation or regulation in the area of privacy of personal
information, including personal health information, could affect
the way we operate our business and could harm our business.
Failure
to maintain CME accreditation could adversely affect Medscape,
LLCs ability to provide online CME offerings
Medscape, LLCs continuing medical education (or CME)
activities are planned and implemented in accordance with the
current Essential Areas and Policies of the Accreditation
Council for Continuing Medical Education, or ACCME, which
oversees providers of CME credit, and other applicable
accreditation standards. ACCMEs standards for commercial
support of CME are intended to ensure, among other things, that
CME activities of ACCME-accredited providers, such as Medscape,
LLC, are independent of commercial interests, which
are defined as entities that produce, market, re-sell or
distribute healthcare goods and services, excluding certain
organizations. Commercial interests, and entities
owned or controlled by commercial interests, are
ineligible for accreditation by the ACCME. The standards also
provide that accredited CME providers may not place their CME
content on Web sites owned or controlled by a commercial
interest. In addition, accredited CME providers may not
ask commercial interests for speaker or topic
suggestions, and are also prohibited from asking
commercial interests to review CME content prior to
delivery.
From time to time, ACCME revises its standards for commercial
support of CME. As a result of certain past ACCME revisions, we
adjusted our corporate structure and made changes to our
management and operations intended to allow Medscape, LLC to
provide CME activities that are developed independently from
programs developed by its sister companies, which may not be
independent of commercial interests. We believe that
these changes allow Medscape, LLC to satisfy the applicable
standards.
In June 2008, the ACCME published for comment several proposals,
including the following:
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Potential New Paradigm for Commercial
Support: The ACCME stated that due consideration
should be given to eliminating commercial support of CME. To
frame the debate, the ACCME proposed several possible scenarios:
(a) maintaining the current system of commercial support;
(b) completely eliminating commercial support; (c) a
new paradigm that provides for commercial support if the
following conditions are met: (1) educational needs are
identified and verified by organizations that do not receive
commercial support and are free of financial relationships with
industry; (2) the CME addresses a professional practice gap
of a particular group of learners that is corroborated by bona
fide performance measurements of the learners own
practice; (3) the CME content is from a continuing
education curriculum specified by a bona fide organization or
entity; and (4) the CME is verified as free of commercial
bias; and (d) an alternative new paradigm in which the four
conditions described above would provide a basis for a mechanism
to distribute commercial support derived from industry-donated,
pooled funds.
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Defining Appropriate Interactions between ACCME Accredited
Providers and Commercial Supporters. The ACCME has proposed
that: (a) accredipted providers must not receive
communications from commercial interests announcing or
prescribing any specific content that would be a preferred, or
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sought-after, topic for commercially supported CME (e.g.,
therapeutic area, product-line, patho-physiology); and
(b) receiving communications from commercial interests
regarding a commercial interests internal criteria for
providing commercial support would also not be permissible.
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The comment period for these proposals ended on
September 12, 2008. The comments submitted to the ACCME
indicated significant backing from the medical profession for
commercially-supported CME and, accordingly, we believe that it
is unlikely that a proposal for complete elimination of such
support would be adopted. However, we cannot predict the
ultimate outcome of the process, including what other
alternatives may be considered by ACCME as a result of comments
it has received. The elimination of, or restrictions on,
commercial support for CME could adversely affect the volume of
sponsored online CME programs implemented through our Web sites.
Medscape, LLCs current ACCME accreditation expires at the
end of July 2010. In order for Medscape, LLC to renew its
accreditation, it will be required to demonstrate to the ACCME
that it continues to meet ACCME requirements. If Medscape, LLC
fails to maintain its status as an accredited ACCME provider
(whether at the time of such renewal or at an earlier time as a
result of a failure to comply with existing or additional ACCME
standards), it would not be permitted to accredit CME activities
for physicians and other healthcare professionals. Instead,
Medscape, LLC would be required to use third parties to provide
such CME-related services. That, in turn, could discourage
potential supporters from engaging Medscape, LLC to develop CME
or education-related activities, which could have a material
adverse effect on our business.
Government
regulation and industry initiatives could adversely affect the
volume of sponsored online CME programs implemented through our
Web sites or require changes to how Medscape, LLC offers
CME
CME activities may be subject to government oversight or
regulation by Congress, the FDA, the Department of Health and
Human Services, the federal agency responsible for interpreting
certain federal laws relating to healthcare, and by state
regulatory agencies. Medscape, LLC
and/or the
sponsors of the CME activities that Medscape, LLC accredits may
be subject to enforcement actions if any of these CME activities
are deemed improperly promotional, potentially leading to the
termination of sponsorships.
During the past several years, educational activities, including
CME, directed at physicians have been subject to increased
governmental scrutiny to ensure that sponsors do not influence
or control the content of the activities. For example, the
U.S. Senate Finance Committee conducted an investigation of
the sponsorship of CME activities, including an examination of
the ACCMEs role in ensuring that CME activities are
independent from the influence of their supporters. In response,
pharmaceutical companies and medical device companies have
developed and implemented internal controls and procedures that
promote adherence to applicable regulations and requirements. In
implementing these controls and procedures, supporters of CME
may interpret the regulations and requirements differently and
may implement varying procedures or requirements. These controls
and procedures:
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may discourage pharmaceutical companies from providing grants
for independent educational activities;
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may slow their internal approval for such grants;
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may reduce the volume of sponsored educational programs that
Medscape, LLC produces to levels that are lower than in the
past, thereby reducing revenue; and
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may require Medscape, LLC to make changes to how it offers or
provides educational programs, including CME.
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In addition, future changes to laws, regulations or
accreditation standards, or to the internal compliance programs
of supporters or potential supporters, may further discourage,
significantly limit, or prohibit supporters or potential
supporters from engaging in educational activities with
Medscape, LLC, or may require Medscape, LLC to make further
changes in the way it offers or provides educational activities.
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Risks
Related to Porex
Porexs
success depends upon demand for its products, which in some
cases ultimately depends upon end-user demand for the products
of Porexs customers
Demand for Porexs products may change materially as a
result of economic or market conditions and other trends that
affect the industries in which Porex participates. In addition,
because a significant portion of Porexs products are
components that are eventually integrated into or used with
products manufactured by customers for resale to end-users, the
demand for these product components is dependent on product
development cycles and marketing efforts of these other
manufacturers, as well as variations in their inventory levels,
which are factors that we are unable to control. Accordingly,
the amount of Porexs sales to manufacturer customers can
be difficult to predict and subject to wide quarter-to-quarter
variances. Porexs sales to manufacturer customers that
sell products used by consumers have been adversely affected by
economic conditions during recent months. We cannot predict how
long that adverse effect will continue and it could, depending
on future economic conditions, become worse in future periods.
Porex
faces significant competition for its products
Porex operates in highly competitive markets. The competitors
for Porexs porous plastic products include other producers
of porous plastic materials as well as companies that
manufacture and sell products made from materials other than
porous plastics that can be used for the same purposes as
Porexs products. For example, Porexs porous plastic
pen nibs compete with felt and fiber tips manufactured by a
variety of suppliers worldwide. Other Porex porous plastic
products compete, depending on the application, with membrane
material, porous metals, metal screens, fiberglass tubes,
pleated paper, resin-impregnated felt, ceramics and other
substances and devices. Porex also competes with in-house design
and manufacturing capabilities of its OEM customers. Some of
Porexs competitors may have greater financial, technical,
product development, marketing and other resources than Porex
does. We cannot provide assurance that Porex will be able to
compete successfully against these companies or against
particular products they provide or may provide in the future.
Porexs
product offerings must meet changing customer
requirements
Porexs products are, in general, used in applications that
are affected by technological change. To satisfy its customers,
Porex must develop and introduce, in a timely manner, products
that meet changing customer requirements at competitive prices.
To do this, Porex must:
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develop new uses of existing porous plastics technologies and
applications;
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innovate and develop new porous plastics technologies and
applications;
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commercialize those technologies and applications;
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manufacture at a cost that allows it to price its products
competitively;
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manufacture and deliver its products in sufficient volumes and
on time;
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accurately anticipate customer needs; and
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differentiate its offerings from those of its competitors.
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We cannot assure you that Porex will be able to develop new or
enhanced products or that, if it does, those products will
achieve market acceptance. If Porex does not introduce new
products in a timely manner and make enhancements to existing
products to meet the changing needs of its customers, some of
its products could become obsolete over time, in which case
Porexs customer relationships, revenue and operating
results would be negatively impacted.
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Potential
new or enhanced Porex products may not achieve sufficient sales
to be profitable or justify the cost of their
development
We cannot be certain, when we engage in Porex research and
development activities, whether potential new products or
product enhancements will be accepted by the customers for whom
they are intended. Achieving market acceptance for new or
enhanced products may require substantial marketing efforts and
expenditure of significant funds to create awareness and demand
by potential customers. In addition, sales and marketing efforts
with respect to these products may require the use of additional
resources for training our existing Porex sales forces and for
hiring and training additional salespersons. There can be no
assurance that the revenue opportunities from new or enhanced
products will justify amounts spent for their development and
marketing. In addition, there can be no assurance that any
pricing strategy that we implement for any new or enhanced Porex
products will be economically viable or acceptable to the target
markets.
Porex
may not be able to source the raw materials it needs or may have
to pay more for those raw materials
Some of Porexs products require high-grade plastic resins
with specific properties as raw materials. While Porex has not
experienced any material difficulty in obtaining adequate
supplies of high-grade plastic resins that meet its
requirements, it relies on a limited number of sources for some
of these plastic resins. If Porex experiences a reduction or
interruption in supply from these sources, it may not be able to
access alternative sources of supply within a reasonable period
of time or at commercially reasonable rates, which could have a
material adverse effect on its business and financial results.
In addition, the prices of some of the raw materials that Porex
uses depend, to a great extent, on the price of petroleum. As a
result, increases in the price of petroleum could have an
adverse effect on Porexs margins and on the ability of
Porexs porous plastics products to compete with products
made from other raw materials.
Disruptions
in Porexs manufacturing operations could have a material
adverse effect on its business and financial
results
Any significant disruption in Porexs manufacturing
operations, including as a result of fire, power interruptions,
equipment malfunctions, labor disputes, material shortages,
earthquakes, floods, computer viruses, sabotage, terrorist acts
or other force majeure, could have a material adverse effect on
Porexs ability to deliver products to customers and,
accordingly, its financial results.
Porex
may not be able to keep third parties from using technology it
has developed
Porex uses proprietary technology for manufacturing its porous
plastics products and its success is dependent, to a significant
extent, on its ability to protect the proprietary and
confidential aspects of its technology. Although Porex owns
certain patents, it relies primarily on non-patented proprietary
manufacturing processes. To protect its proprietary processes,
Porex relies on a combination of trade secret laws, license
agreements, nondisclosure and other contractual provisions and
technical measures, including designing and manufacturing its
porous molding equipment and most of its molds in-house. Trade
secret laws do not afford the statutory exclusivity possible for
patented processes. There can be no assurance that the legal
protections afforded to Porex or the steps taken by Porex will
be adequate to prevent misappropriation of its technology. In
addition, these protections do not prevent independent
third-party development of competitive products or services.
The
nature of Porexs products exposes it to product liability
claims that may not be adequately covered by indemnity
agreements or insurance
The products sold by Porex, whether sold directly to end-users
or sold to other manufacturers for inclusion in the products
that they sell, expose it to potential risk of product liability
claims, particularly with respect to Porexs life sciences,
clinical, surgical and medical products. In addition, Porex is
subject to the risk that a government authority or third party
may require it to recall one or more of its products. Some of
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Porexs products are designed to be permanently implanted
in the human body. Design defects and manufacturing defects with
respect to such products sold by Porex or failures that occur
with the products of Porexs manufacturer customers that
contain components made by Porex could result in product
liability claims
and/or a
recall of one or more of Porexs products. Porex believes
that it carries adequate insurance coverage against product
liability claims and other risks. We cannot assure you, however,
that claims in excess of Porexs insurance coverage will
not arise. In addition, Porexs insurance policies must be
renewed annually. Although Porex has been able to obtain
adequate insurance coverage at an acceptable cost in the past,
we cannot assure you that Porex will continue to be able to
obtain adequate insurance coverage at an acceptable cost.
In most instances, Porex has indemnity arrangements with its
manufacturing customers. These indemnity arrangements generally
provide that these customers would indemnify Porex from
liabilities that may arise from the sale of their products that
incorporate Porex components to, or the use of such products by,
end-users. While Porex generally seeks contractual
indemnification from its customers, any such indemnification is
limited, as a practical matter, to the creditworthiness of the
indemnifying party. If Porex does not have adequate contractual
indemnification available, product liability claims, to the
extent not covered by insurance, could have a material adverse
effect on its business and its financial results.
Porexs
manufacturing and marketing of medical devices is subject to
extensive regulation by the FDA and its failure to meet
regulatory requirements could require it to pay fines, incur
other costs or close facilities
Porexs Surgical Products Group manufactures and markets
medical devices, such as reconstructive and aesthetic surgical
implants used in craniofacial applications and post-surgical
drains. In addition, Porex manufactures and markets blood serum
filters as a medical device for use in laboratory applications.
These products are subject to extensive regulation by the FDA
under the FDC Act. The FDAs regulations govern, among
other things, product development, testing, manufacturing,
labeling, storage, premarket clearance (referred to as 510(k)
clearance), premarket approval (referred to as PMA approval),
advertising and promotion, and sales and distribution. In
addition, the Porex facilities and manufacturing techniques used
for manufacturing medical devices generally must conform to
standards that are established by the FDA and other government
agencies, including those of European and other foreign
governments. These regulatory agencies may conduct periodic
audits or inspections of such facilities or processes to monitor
Porexs compliance with applicable regulatory standards. If
the FDA finds that Porex has failed to comply with applicable
regulations, the agency can institute a wide variety of
enforcement actions, including: warning letters or untitled
letters; fines and civil penalties; unanticipated expenditures
to address or defend such actions; delays in clearing or
approving, or refusal to clear or approve, products; withdrawal
or suspension of approval of products; product recall or
seizure; orders for physician notification or device repair,
replacement or refund; interruption of production; operating
restrictions; injunctions; and criminal prosecution. Any adverse
action by an applicable regulatory agency could impair
Porexs ability to produce its medical device products in a
cost-effective and timely manner in order to meet customer
demands. Porex may also be required to bear other costs or take
other actions that may have a negative impact on its future
sales of such products and its ability to generate profits.
Some
of the companies to which Porex supplies its products are
subject to extensive regulation by the FDA and their failure to
meet regulatory requirements could adversely affect Porexs
business
Some of Porexs customers are medical device manufacturers
that use Porex products to make finished medical devices of
their own. Those customers are subject to extensive regulation
by the FDA
and/or
equivalent foreign regulatory authorities. Those regulatory
agencies may conduct periodic audits or inspections of their
facilities to monitor their compliance with applicable
regulatory standards. If the FDA finds that a Porex
customers facility has failed to comply with applicable
regulations, the agency can institute, against such customer,
any of the enforcement actions identified in the risk factor
directly above regarding regulation of Porex. Any adverse action
by an applicable regulatory agency could impair the
customers ability to
49
produce products and thus could decrease demand for Porexs
products or require Porex to bear additional costs.
In addition, modifications to Porexs customers
products may require new regulatory approvals or clearances,
including 510(k) clearances or premarket approvals, or require
them to recall or cease marketing the modified devices until
these clearances or approvals are obtained. The FDA may not
approve or clear these product modifications for the indications
that are necessary or desirable for successful
commercialization. Indeed, the FDA may refuse Porexs
customers requests for 510(k) clearance or premarket
approval of new products, new intended uses or modifications to
existing products. Failure of such customers to receive
clearance or approval for new or modified products could reduce
or delay their purchases of Porexs products.
Economic,
political and other risks associated with Porexs
international sales and geographically diverse operations could
adversely affect Porexs operations and financial
results
Since Porex sells its products worldwide, its business is
subject to risks associated with doing business internationally.
In addition, Porex has manufacturing facilities in the United
Kingdom, Germany and Malaysia. Accordingly, Porexs
operations and financial results could be harmed by a variety of
factors, including:
|
|
|
|
|
changes in foreign currency exchange rates;
|
|
|
|
changes in a specific countrys or regions political
or economic conditions, particularly in emerging markets;
|
|
|
|
trade protection measures and import or export licensing
requirements;
|
|
|
|
changes in tax laws;
|
|
|
|
differing protection of intellectual property rights in
different countries; and
|
|
|
|
changes in regulatory requirements.
|
Environmental
regulation could adversely affect Porexs
business
Porex is subject to foreign and domestic environmental laws and
regulations and is subject to scheduled and random checks by
environmental authorities. Porexs business involves the
handling, storage and disposal of materials that are classified
as hazardous. Although Porexs safety procedures for
handling, storage and disposal of these materials are designed
to comply with the standards prescribed by applicable laws and
regulations, Porex may be held liable for any environmental
damages that result from Porexs operations. Porex may be
required to pay fines, remediation costs and damages, which
could have a material adverse effect on its results of
operations.
Risks
Applicable to Our Entire Company and to Ownership of Our
Securities
Negative
conditions in the market for certain auction rate securities may
result in us incurring a loss on such investments
As of December 31, 2008, HLTH had a total of approximately
$355.0 million (face value) of investments in certain
auction rate securities (ARS) of which approximately
$164.8 million (face value) is attributable to WHC. Those
ARS had a fair value of $286.6 million (of which
$133.6 million is attributable to WHC). 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 (FFELP), and all had credit ratings of AAA or Aaa when
purchased. HLTH and its subsidiaries do not own any other type
of ARS investments.
Since February 2008, negative conditions in the regularly held
auctions for these securities have prevented holders from being
able to liquidate their holdings through that type of sale. In
the event HLTH needs to or wants to sell its ARS investments, it
may not be able to do so until a future auction on these types
of investments is successful or until a buyer is found outside
the auction process. If potential buyers are
50
unwilling to purchase the investments at their carrying amount,
HLTH would incur a loss on any such sales. In addition, the
credit ratings on some of the ARS investments in our portfolio
have been downgraded, and there may be additional such rating
downgrades in the future. If uncertainties in the credit and
capital markets continue, these markets deteriorate further or
ARS investments in our portfolio experience additional credit
rating downgrades, there could be further fair value adjustments
or other-than-temporary impairments in the carrying value of our
ARS investments.
The
ongoing investigations by the United States Attorney for the
District of South Carolina and the SEC could negatively impact
our company and divert management attention from our business
operations
The United States Attorney for the District of South Carolina is
conducting an investigation of our company. Based on the
information available to HLTH as of the date of this Annual
Report, we believe that the investigation relates principally to
issues of financial accounting improprieties for Medical Manager
Corporation, a predecessor of HLTH (by its merger into HLTH in
September 2000), and Medical Manager Health Systems, a former
subsidiary of HLTH; however, we cannot be sure of the
investigations exact scope or how long it may continue. In
addition, HLTH understands that the SEC is conducting a formal
investigation into this matter. Adverse developments in
connection with the investigations, if any, including as a
result of matters that the authorities or HLTH may discover,
could have a negative impact on our company and on how it is
perceived by investors and potential investors and customers and
potential customers. In addition, the management effort and
attention required to respond to the investigations and any such
developments could have a negative impact on our business
operations.
HLTH intends to continue to fully cooperate with the authorities
in this matter. We believe that the amount of the expenses that
we will incur in connection with the investigations will
continue to be significant and we are not able to determine, at
this time, what portion of those amounts may ultimately be
covered by insurance or may ultimately be repaid to us by
individuals to whom we are advancing amounts for their defense
costs. In connection with the sale of Emdeon Practice Services
to Sage Software, we have agreed to indemnify Sage Software with
respect to this matter.
If
certain transactions occur with respect to our capital stock,
limitations may be imposed on our ability to utilize our net
operating loss carryforwards and tax credits to reduce our
income taxes
As of December 31, 2008, we had net operating loss
carryforwards of approximately $800 million for federal
income tax purposes and federal tax credits of approximately
$42 million, which excludes the impact of any unrecognized
tax benefits. If certain transactions occur with respect to our
capital stock, including issuances, redemptions,
recapitalizations, exercises of options, conversions of
convertible debt, purchases or sales by 5%-or-greater
shareholders and similar transactions, that result in a
cumulative change of more than 50% of the ownership of our
capital stock, over a three-year period, as determined under
rules prescribed by the U.S. Internal Revenue Code and
applicable Treasury regulations, an annual limitation would be
imposed with respect to our ability to utilize our net operating
loss carryforwards and federal tax credits. The tender offer
made by HLTH for its common stock that began on October 27,
2008 resulted in a cumulative change of more than 50% of the
ownership of our capital, as determined under rules prescribed
by the U.S. Internal Revenue Code and applicable Treasury
regulations. As a result of the ownership change, there will be
an annual limitation imposed on our ability to utilize our net
operating loss carryforwards and federal tax credits. Because
substantially all of our net operating loss carryforwards are
reserved for by a valuation allowance, we would not expect the
annual limitation on the utilization of our net operating loss
carryforwards to significantly reduce our net deferred tax
assets, although the timing of our cash flows may be impacted to
the extent any such annual limitation deferred the utilization
of our net operating loss carryforwards to future tax years.
We may
not be successful in protecting our intellectual property and
proprietary rights
Intellectual property and proprietary rights are important to
our businesses. The steps that we take to protect our
intellectual property, proprietary information and trade secrets
may prove to be inadequate and, whether or not adequate, may be
expensive. We rely on a combination of trade secret, patent and
other intellectual property laws and confidentiality procedures
and non-disclosure contractual provisions to protect
51
our intellectual property. We cannot assure you that we will be
able to detect potential or actual misappropriation or
infringement of our intellectual property, proprietary
information or trade secrets. Even if we detect misappropriation
or infringement by a third party, we cannot assure you that we
will be able to enforce our rights at a reasonable cost, or at
all. In addition, our rights to intellectual property,
proprietary information and trade secrets may not prevent
independent third-party development and commercialization of
competing products or services.
Third
parties may claim that we are infringing their intellectual
property, and we could suffer significant litigation or
licensing expenses or be prevented from selling products or
services
We could be subject to claims that we are misappropriating or
infringing intellectual property or other proprietary rights of
others. These claims, even if not meritorious, could be
expensive to defend and divert managements attention from
our operations. If we become liable to third parties for
infringing these rights, we could be required to pay a
substantial damage award and to develop non-infringing
technology, obtain a license or cease selling the products or
services that use or contain the infringing intellectual
property. We may be unable to develop non-infringing products or
services or obtain a license on commercially reasonable terms,
or at all. We may also be required to indemnify our customers if
they become subject to third-party claims relating to
intellectual property that we license or otherwise provide to
them, which could be costly.
Acquisitions,
business combinations and other transactions may be difficult to
complete and, if completed, may have negative consequences for
our business and our securityholders
We may seek to acquire or to engage in business combinations
with companies engaged in complementary businesses. In addition,
we may enter into joint ventures, strategic alliances or similar
arrangements with third parties. These transactions may result
in changes in the nature and scope of our operations and changes
in our financial condition. Our success in completing these
types of transactions will depend on, among other things, our
ability to locate suitable candidates and negotiate mutually
acceptable terms with them, as well as the availability of
financing. Significant competition for these opportunities
exists, which may increase the cost of and decrease the
opportunities for these types of transactions.
Financing for these transactions may come from several sources,
including:
|
|
|
|
|
cash and cash equivalents on hand and marketable securities;
|
|
|
|
proceeds from the incurrence of indebtedness by HLTH or its
subsidiaries; and
|
|
|
|
proceeds from the issuance of additional common stock, preferred
stock, convertible debt or other securities of HLTH or its
subsidiaries.
|
Our issuance of additional securities could:
|
|
|
|
|
cause substantial dilution of the percentage ownership of our
stockholders at the time of the issuance;
|
|
|
|
cause substantial dilution of our earnings per share;
|
|
|
|
subject us to the risks associated with increased leverage,
including a reduction in our ability to obtain financing or an
increase in the cost of any financing we obtain;
|
|
|
|
subject us to restrictive covenants that could limit our
flexibility in conducting future business activities; and
|
|
|
|
adversely affect the prevailing market price for our outstanding
securities.
|
We do not intend to seek securityholder approval for any such
acquisition or security issuance unless required by applicable
law or regulation or the terms of existing securities.
52
Our
business will suffer if we fail to successfully integrate
acquired businesses and technologies or to assess the risks in
particular transactions
We have in the past acquired, and may in the future acquire,
businesses, technologies, services, product lines and other
assets. The successful integration of the acquired businesses
and assets into our operations, on a cost-effective basis, can
be critical to our future performance. The amount and timing of
the expected benefits of any acquisition, including potential
synergies between HLTH and the acquired business, are subject to
significant risks and uncertainties. These risks and
uncertainties include, but are not limited to, those relating to:
|
|
|
|
|
our ability to maintain relationships with the customers of the
acquired business;
|
|
|
|
our ability to cross-sell products and services to customers
with which we have established relationships and those with
which the acquired businesses have established relationships;
|
|
|
|
our ability to retain or replace key personnel;
|
|
|
|
potential conflicts in payer, provider, strategic partner,
sponsor or advertising relationships;
|
|
|
|
our ability to coordinate organizations that are geographically
diverse and may have different business cultures; and
|
|
|
|
compliance with regulatory requirements.
|
We cannot guarantee that any acquired businesses will be
successfully integrated with our operations in a timely or
cost-effective manner, or at all. Failure to successfully
integrate acquired businesses or to achieve anticipated
operating synergies, revenue enhancements or cost savings could
have a material adverse effect on our business, financial
condition and results of operations.
Although our management attempts to evaluate the risks inherent
in each transaction and to value acquisition candidates
appropriately, we cannot assure you that we will properly
ascertain all such risks or that acquired businesses and assets
will perform as we expect or enhance the value of our company as
a whole. In addition, acquired companies or businesses may have
larger than expected liabilities that are not covered by the
indemnification, if any, that we are able to obtain from the
sellers.
We
will incur significant additional non-cash interest expense upon
the adoption of FASB Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments that May be
Settled in Cash upon Conversion (Including Partial Cash
Settlement)
On May 9, 2008, the Financial Accounting Standard Board (or
FASB) issued FASB Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments that May be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), which will significantly impact the
accounting for convertible debt when it is adopted during the
first quarter of 2009. The FSP will require cash settled
convertible debt to be separated into debt and equity components
at issuance and a value to be assigned to each. The value
assigned to the debt component will be the estimated fair value,
as of the issuance date, of a similar bond without the
conversion feature. The difference between the bonds cash
proceeds and this estimated fair value will be recorded as a
debt discount and amortized to interest expense over the life of
the bond. Although FSP APB
14-1 will
have no impact on our actual past or future cash flows, it will
require us to record a significant amount of non-cash interest
expense as the debt discount is amortized. In addition, if the
convertible debt is redeemed or converted prior to maturity, any
unamortized debt discount will result in a loss on
extinguishment. FSP APB
14-1 will
become effective as of January 1, 2009, and will require
retrospective application. We currently expect that the adoption
of FSP APB
14-1 will
result in the recognition of incremental non-cash interest
expense of approximately $8 million and $7 million for
the years ended December 31, 2008 and 2007, respectively.
We may
not be able to raise additional funds when needed for our
business or to exploit opportunities
Our future liquidity and capital requirements will depend upon
numerous factors, including the success of our service
offerings, market developments, and repurchases of our common
stock. We may need to raise additional funds to support
expansion, develop new or enhanced applications and services,
respond to
53
competitive pressures, acquire complementary businesses or
technologies or take advantage of unanticipated opportunities.
In addition, holders of the 1.75% Convertible Subordinated
Notes due 2023 issued by HLTH may, at their option, require HLTH
to repurchase their Notes on certain specified dates (the
earliest of which is June 15, 2010) and holders of the
31/8% Convertible
Notes due 2025 issued by HLTH may, at their option, require HLTH
to repurchase their Notes on certain specified dates (the
earliest of which is September 1, 2012), in each case at a
price equal to 100% of the principal amount being repurchased.
If required, we may raise such additional funds through public
or private debt or equity financing, strategic relationships or
other arrangements. There can be no assurance that such
financing will be available on acceptable terms, if at all, or
that such financing will not be dilutive to our stockholders.
As widely reported, financial markets have been experiencing
extreme disruption recently, including volatility in the prices
of securities and severely diminished liquidity and availability
of credit. Until this disruption in the financial markets is
resolved, financing will be even more difficult to get on
acceptable terms and we could be forced to cancel or delay
investments or transactions that we would otherwise have made.
Our
decision to sell Porex may have a negative impact on that
business
As a result of our plan to divest Porex, the financial results
and operations of that business may be adversely affected by the
diversion of management resources to the sale process and by
uncertainty regarding the outcome of the process. For example,
the uncertainty of who will own Porex in the future could lead
Porex to lose or fail to attract employees, customers or
business partners. Although we have taken steps to address these
risks, there can be no assurance that any such losses or
distractions will not adversely affect the operations or
financial results of Porex and, as a result, the sale price that
we may receive for Porex.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
Not applicable.
We believe that our companys offices and other facilities
are, in general, in good operating condition and adequate for
our current operations and that additional leased space in
appropriate locations can be obtained on acceptable terms if
needed.
We lease our corporate headquarters offices in Elmwood Park, New
Jersey, which consists of approximately 17,500 square feet
of space, under a lease that expires in March 2011.
WebMD leases approximately 100,000 square feet of office
space in New York, New York for its corporate headquarters and
its editorial and marketing operations under a lease that
expires in November 2015. WebMD also leases additional office
space in New York City and leases office space and operational
facilities in: Avon, Connecticut; Atlanta, Georgia; Acton,
Massachusetts; Indianapolis, Indiana; Montreal, Canada;
Campbell, California; Chicago, Illinois; Herndon, Virginia;
Omaha, Nebraska; Portland, Oregon; and San Clemente,
California.
Porex uses approximately 460,000 square feet for its
headquarters and for office and manufacturing operations related
to its porous plastics, surgical and other porous media product
lines, including: facilities that Porex owns in Fairburn,
Georgia (which is Porexs headquarters and largest
facility), in College Park, Georgia, in Aachen, Germany and in
Singweitz, Germany; a facility that HLTH owns in Newnan, Georgia
and leases to Porex; and facilities that Porex leases in
Selangor, Malaysia, in Alness, Scotland, in Munich, Germany and
in Shanghai, China.
|
|
Item 3.
|
Legal
Proceedings
|
The information relating to legal proceedings contained in
Note 14 to the Consolidated Financial Statements included
in this Annual Report is incorporated herein by this reference.
54
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
At our Annual Meeting of Stockholders held on December 10,
2008, our stockholders voted with respect to the following
matters:
|
|
|
|
|
Proposal 1 To elect as Class I directors
to serve three year terms ending in 2011
|
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|
|
|
|
|
|
Neil F. Dimick
|
|
votes FOR
|
|
|
73,475,897
|
|
|
|
votes withheld
|
|
|
4,646,101
|
|
Joseph E. Smith
|
|
votes FOR
|
|
|
74,001,937
|
|
|
|
votes withheld
|
|
|
4,120,071
|
|
|
|
|
|
|
Proposal 2 To ratify the appointment of
Ernst & Young LLP as the independent registered public
accounting firm to serve as our independent auditor for the
fiscal year ending December 31, 2008:
|
|
|
|
|
|
Votes FOR:
|
|
|
74,497,357
|
|
Votes AGAINST:
|
|
|
1,863,386
|
|
Abstentions:
|
|
|
1,761,250
|
|
Broker non-votes:
|
|
|
0
|
|
As a result, Messrs. Dimick and Smith were each elected to
serve a three year term ending in 2011 and Proposal 2 was
approved.
The votes reported above reflect a deduction of
83,699,922 shares from the number of shares that instructed
the management proxies for the 2008 Annual Meeting to vote
FOR each nominee in Proposal 1 and
FOR Proposal 2. This deduction was made, based
on advice of legal counsel to HLTH, because HLTH purchased
83,699,922 shares of HLTH Common Stock in a tender offer
between the record date for the Annual Meeting and the meeting
date. See Introduction Background Information
on Certain Trends and Developments 2008 Tender
Offer in Item 6 below. The 83,699,922 shares
purchased in that tender offer were held in treasury at the time
of the 2008 Annual Meeting and, therefore, were no longer
entitled to vote, even though they were outstanding on the
record date and received proxy materials seeking their proxies.
Because it was impracticable to trace how each of the
83,699,922 shares purchased had instructed the proxies for
the 2008 Annual Meeting to vote, all 83,699,922 shares
purchased were assumed to have instructed the proxies to vote
FOR the nominees and FOR Proposal 2
in order to avoid any potential for overstating support for the
nominees and Proposal 2.
In addition to the directors elected at the Annual Meeting, our
Board of Directors consists of: Paul Brooke, James V. Manning
and Martin J. Wygod, whose terms expire in 2009; and Mark J.
Adler, M.D., Kevin M. Cameron and Herman Sarkowsky, whose
terms expire in 2010.
55
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information
We completed the initial public offering of our 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
|
|
|
Low
|
|
|
2007
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
16.23
|
|
|
$
|
12.28
|
|
Second quarter
|
|
|
16.56
|
|
|
|
13.72
|
|
Third quarter
|
|
|
15.25
|
|
|
|
12.56
|
|
Fourth quarter
|
|
|
16.39
|
|
|
|
12.93
|
|
2008
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
13.56
|
|
|
$
|
9.52
|
|
Second quarter
|
|
|
12.62
|
|
|
|
9.52
|
|
Third quarter
|
|
|
12.70
|
|
|
|
10.73
|
|
Fourth quarter
|
|
|
11.36
|
|
|
|
6.80
|
|
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:
|
|
|
|
|
quarter-to-quarter variations in operating results;
|
|
|
|
operating results being different from analysts estimates
or opinions;
|
|
|
|
changes in analysts earnings estimates;
|
|
|
|
changes in financial guidance or other forward-looking
information;
|
|
|
|
announcements of new products, services or pricing policies by
us or our competitors;
|
|
|
|
announcements of acquisitions or strategic partnerships by us or
our competitors;
|
|
|
|
developments in existing customer or strategic relationships;
|
|
|
|
actual or perceived changes in our business strategy;
|
|
|
|
developments in new or pending litigation and claims;
|
|
|
|
sales of large amounts of our Common Stock;
|
|
|
|
changes in general business or regulatory conditions affecting
the healthcare, information technology, Internet or plastic
industries;
|
|
|
|
changes in general economic conditions; and
|
|
|
|
fluctuations in the securities markets in general.
|
In addition, the market prices of our Common Stock and of the
stock of other Internet-related companies have experienced large
fluctuations, sometimes quite rapidly. These fluctuations often
may be unrelated to or disproportionate to operating performance.
56
Holders
On February 20, 2009, there were approximately 3,150
holders of record of our Common Stock. Because many of these
shares are held by brokers and other institutions on behalf of
stockholders, we are unable to determine the total number of
stockholders represented by these record holders, but we believe
there are more than 30,000 holders of our Common Stock.
Dividends
We have never declared or paid any cash dividends on our Common
Stock, and we do not anticipate paying cash dividends in the
foreseeable future.
Repurchases
of Equity Securities During the Fourth Quarter of 2008
The following table provides information about purchases by HLTH
during the three months ended December 31, 2008 of equity
securities that are registered by us pursuant to Section 12
of the Exchange Act:
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
|
|
|
(or Approximate
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Dollar Value) of
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Shares that May Yet
|
|
|
|
Total Number of
|
|
|
|
|
|
Part of Publicly
|
|
|
Be Purchased Under
|
|
|
|
Shares
|
|
|
Average Price
|
|
|
Announced Plans or
|
|
|
the Plans or
|
|
Period
|
|
Purchased(1)(2)
|
|
|
Paid per Share
|
|
|
Programs(2)
|
|
|
Programs(2)(3)
|
|
|
10/01/08 - 10/31/08
|
|
|
24,881
|
|
|
$
|
11.08
|
|
|
|
|
|
|
$
|
745,553,120
|
|
11/01/08 - 11/30/08
|
|
|
46,376
|
|
|
$
|
8.32
|
|
|
|
|
|
|
$
|
778,112,434
|
|
12/01/08 - 12/31/08
|
|
|
83,699,922
|
|
|
$
|
8.80
|
|
|
|
83,699,922
|
|
|
$
|
41,553,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
83,771,179
|
|
|
$
|
8.80
|
|
|
|
83,699,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Except for shares purchased pursuant to the tender offer
described in footnote 2 to this table, the amounts in this
column represent shares withheld from HLTH Restricted Stock that
vested during the respective periods in order to satisfy
withholding tax requirements related to the vesting of the
awards. The value of these shares was determined based on the
closing price of HLTH Common Stock on the date of vesting. |
|
(2) |
|
HLTH purchased 83,699,922 shares of HLTH Common Stock at
$8.80 per share pursuant to a tender offer announced in October
2008 and completed in December 2008. For additional information,
see Note 17 to the Consolidated Financial Statements
included in this Annual Report. |
|
(3) |
|
$41,553,120 relates to the repurchase program that we announced
in December 2006, at which time HLTH was authorized to use up to
$100 million to purchase shares of its common stock from
time to time. For additional information, see Note 17 to
the Consolidated Financial Statements included in this Annual
Report. The remainder relates to authorization to purchase, at
$8.80 per share, 80,000,000 shares of HLTH Common Stock at
$8.80 per share pursuant to the tender offer referred to above
in footnote 2 to this table, for a total purchase price of
$704,000,000. That amount was later increased to
83,699,922 shares of HLTH Common Stock, for a total
purchase price of $736,559,314. |
57
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 and the Research Data Group
(RDG) Internet Composite Index over the period of time from
December 31, 2003 through December 31, 2008. The graph
assumes that $100 was invested in our Common Stock and each
index on December 31, 2003. The stock price performance on
the graph is not necessarily indicative of future stock price
performance.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
HLTH Corporation, The NASDAQ Composite Index
And The RDG Internet Composite Index
*$100 invested on
12/31/03 in
stock & index-including reinvestment of dividends.
Fiscal year ending December 31.
58
|
|
Item 6.
|
Selected
Financial Data
|
The following selected consolidated financial data should be
read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and with the consolidated financial statements and notes
thereto, which are included elsewhere in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008(1)(2)
|
|
|
2007
|
|
|
2006(3)(4)(5)
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
382,697
|
|
|
$
|
331,693
|
|
|
$
|
908,927
|
|
|
$
|
852,010
|
|
|
$
|
811,267
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
138,363
|
|
|
|
117,281
|
|
|
|
545,706
|
|
|
|
528,004
|
|
|
|
512,679
|
|
Sales and marketing
|
|
|
108,316
|
|
|
|
93,645
|
|
|
|
119,103
|
|
|
|
104,669
|
|
|
|
114,216
|
|
General and administrative
|
|
|
89,503
|
|
|
|
104,321
|
|
|
|
132,334
|
|
|
|
118,202
|
|
|
|
106,703
|
|
Depreciation and amortization
|
|
|
28,780
|
|
|
|
28,256
|
|
|
|
44,558
|
|
|
|
43,548
|
|
|
|
39,134
|
|
Interest income
|
|
|
35,300
|
|
|
|
42,035
|
|
|
|
32,339
|
|
|
|
21,527
|
|
|
|
18,708
|
|
Interest expense
|
|
|
18,513
|
|
|
|
18,593
|
|
|
|
18,794
|
|
|
|
16,321
|
|
|
|
19,249
|
|
Gain on sale of EBS Master LLC
|
|
|
538,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of auction rate securities
|
|
|
60,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
7,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on 2006 EBS Sale
|
|
|
|
|
|
|
399
|
|
|
|
352,297
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
|
|
(5,949
|
)
|
|
|
3,406
|
|
|
|
(4,252
|
)
|
|
|
(27,965
|
)
|
|
|
(13,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax provision
(benefit)
|
|
|
499,073
|
|
|
|
15,437
|
|
|
|
428,816
|
|
|
|
34,828
|
|
|
|
24,686
|
|
Income tax provision (benefit)
|
|
|
30,251
|
|
|
|
(8,741
|
)
|
|
|
50,389
|
|
|
|
(2,170
|
)
|
|
|
4,272
|
|
Minority interest in WHC income
|
|
|
1,032
|
|
|
|
10,667
|
|
|
|
405
|
|
|
|
775
|
|
|
|
|
|
Equity in earnings of EBS Master LLC
|
|
|
4,007
|
|
|
|
28,566
|
|
|
|
763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
471,797
|
|
|
|
42,077
|
|
|
|
378,785
|
|
|
|
36,223
|
|
|
|
20,414
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
93,492
|
|
|
|
(22,198
|
)
|
|
|
393,132
|
|
|
|
32,588
|
|
|
|
16,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
565,289
|
|
|
$
|
19,879
|
|
|
$
|
771,917
|
|
|
$
|
68,811
|
|
|
$
|
36,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.70
|
|
|
$
|
0.24
|
|
|
$
|
1.36
|
|
|
$
|
0.11
|
|
|
$
|
0.06
|
|
Income (loss) from discontinued operations
|
|
|
0.53
|
|
|
|
(0.13
|
)
|
|
|
1.41
|
|
|
|
0.09
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3.23
|
|
|
$
|
0.11
|
|
|
$
|
2.77
|
|
|
$
|
0.20
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.19
|
|
|
$
|
0.21
|
|
|
$
|
1.20
|
|
|
$
|
0.10
|
|
|
$
|
0.06
|
|
Income (loss) from discontinued operations
|
|
|
0.43
|
|
|
|
(0.12
|
)
|
|
|
1.18
|
|
|
|
0.10
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2.62
|
|
|
$
|
0.09
|
|
|
$
|
2.38
|
|
|
$
|
0.20
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding used in computing net income
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
174,928
|
|
|
|
179,330
|
|
|
|
279,234
|
|
|
|
341,747
|
|
|
|
320,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
220,127
|
|
|
|
188,763
|
|
|
|
331,642
|
|
|
|
352,852
|
|
|
|
333,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008(2)
|
|
|
2007(1)
|
|
|
2006(3)(4)
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, and investments
|
|
$
|
918,268
|
|
|
$
|
830,120
|
|
|
$
|
651,464
|
|
|
$
|
427,433
|
|
|
$
|
617,493
|
|
Working capital (excluding assets and liabilities of
discontinued operations)
|
|
|
629,973
|
|
|
|
860,133
|
|
|
|
618,126
|
|
|
|
398,751
|
|
|
|
44,607
|
|
Total assets
|
|
|
1,499,028
|
|
|
|
1,651,397
|
|
|
|
1,470,366
|
|
|
|
2,214,879
|
|
|
|
2,309,012
|
|
Convertible notes
|
|
|
650,000
|
|
|
|
650,000
|
|
|
|
650,000
|
|
|
|
650,000
|
|
|
|
649,999
|
|
Minority interest in WHC
|
|
|
134,223
|
|
|
|
131,353
|
|
|
|
101,860
|
|
|
|
43,096
|
|
|
|
|
|
Convertible redeemable exchangeable preferred stock
|
|
|
|
|
|
|
|
|
|
|
98,768
|
|
|
|
98,533
|
|
|
|
98,299
|
|
Stockholders equity
|
|
|
458,732
|
|
|
|
599,777
|
|
|
|
372,527
|
|
|
|
1,061,233
|
|
|
|
1,214,876
|
|
|
|
|
(1)
|
|
On July 22, 2008, we completed
the sale of our ViPS segment. Accordingly, the selected
consolidated financial data has been reclassified to reflect the
historical results of this segment as discontinued operations
for this and all prior periods presented.
|
|
(2)
|
|
On February 21, 2008, we
announced our intention to divest our Porex segment.
Accordingly, the selected consolidated financial data has been
reclassified to reflect the historical results of this segment
as discontinued operations for this and all prior periods
presented.
|
|
(3)
|
|
For the year ended
December 31, 2006, the consolidated financial position and
results of operations reflect the sale of a 52% interest in our
Emdeon Business Services segment (which we refer to as EBS), as
of November 16, 2006. Accordingly, the consolidated balance
sheet as of December 31, 2006 excludes the assets and
liabilities of EBS and includes an investment in EBS Master LLC
accounted for under the equity method of accounting related to
our 48% ownership, and the consolidated statement of operations
for the year ended December 31, 2006 includes the
operations of EBS for the period January 1, 2006 through
November 16, 2006 and our 48% equity in earnings of EBS
Master LLC from November 17, 2006 through December 31,
2006.
|
|
(4)
|
|
On September 14, 2006, we
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.
|
|
(5)
|
|
On January 1, 2006, we adopted
Statement of Financial Accounting Standards No. 123
(Revised 2004): Share Based Payment that resulted in
additional non-cash stock-based compensation expense beginning
in 2006 and subsequent periods. See Results of Operations
included in the Managements Discussion and Analysis of
Financial Condition and Results of Operations which is included
elsewhere in this Annual Report.
|
60
|
|
Item 7.
|
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 that involve risks and uncertainties.
Please see Forward-Looking Statements for a
discussion of the uncertainties, risks and assumptions
associated with these statements. The results of operations for
the periods reflected herein are not necessarily indicative of
results that may be expected for future periods, and our actual
results may differ materially from those discussed in our
forward-looking statements as a result of various factors,
including but not limited to those listed under Risk
Factors in Item 1A of this Annual Report and those
included elsewhere in this Annual Report. In this MD&A,
dollar amounts are stated in thousands, unless otherwise noted.
Overview
MD&A is provided as a supplement to the Consolidated
Financial Statements and notes thereto included in this Annual
Report beginning on
page F-l,
in order to enhance your understanding of our results of
operations and financial condition. Our MD&A is organized
as follows:
|
|
|
|
|
Introduction. This section provides a general
description of our company and operating segments, background
information on certain trends and developments affecting our
company, a summary of our acquisition and disposition
transactions during the period from 2006 through 2008 and a
discussion of how seasonal factors may impact the timing of our
revenue.
|
|
|
|
Critical Accounting Estimates and
Policies. This section discusses those accounting
policies that are considered important to the evaluation and
reporting of our financial condition and results of operations,
and whose application requires us to exercise subjective 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 2
to the Consolidated Financial Statements included in this Annual
Report.
|
|
|
|
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 consolidated
basis and an operating 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, 2008.
|
|
|
|
Recent Accounting Pronouncements. This section
provides a summary of the most recent authoritative accounting
standards and guidance that have either been recently adopted by
our company or may be adopted in the future.
|
Introduction
Our
Company
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, 2008, we owned 83.6% of the outstanding
shares of capital stock of WebMD Health Corp. (which we refer to
as WHC) through our ownership of WHCs Class B Common
Stock. The remaining 16.4% of WHCs outstanding common
stock are shares of WHCs Class A Common Stock, which
trades on the Nasdaq Global Select Market under the symbol
WBMD. Accordingly, as of December 31, 2008, our
61
consolidated financial statements reflect the minority
shareholders 16.4% share of equity and net income of WHC.
As more fully described under Acquisitions and
Dispositions Dispositions below, during the
period from 2006 through 2008, we sold the following:
|
|
|
|
|
Emdeon Practice Services. 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) on September 14, 2006. In this MD&A, we
refer to this transaction as the EPS Sale. Through EPS, we
provided practice management and electronic health records
software solutions used by medical practices and related
services. The historical results of EPS, including the gain
related to the sale have been reclassified as discontinued
operations in our financial statements and our discussions in
this MD&A reflect EPS as discontinued operations.
Discontinued operations for periods after the sale includes
post-sale activities related to EPS, including litigation costs
that were indemnified as part of the EPS Sale, as more fully
described under Background Information on
Certain Trends and Developments Indemnification
Obligations to Former Officers and Directors of EPS.
|
|
|
|
52% Interest in Emdeon Business Services. On
November 16, 2006, we completed the sale of a 52% interest
in the business that constituted our Emdeon Business Services
segment, excluding its ViPS business unit (which we refer to as
EBS) to an affiliate of General Atlantic LLC (which we refer to
as GA). In this MD&A, we refer to this transaction as the
2006 EBS Sale. From the closing of the 2006 EBS Sale to the
closing of the 2008 EBSCo Sale (described below) on
February 8, 2008, we owned 48% of EBS Master LLC (which we
refer to as EBSCo), the entity that acquired EBS in the 2006 EBS
Sale and we accounted for that 48% ownership interest as an
equity investment in our consolidated financial statements. 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 2006 EBS Sale, to the
reporting segment of our company. A description of EBS is
included under Segments Emdeon
Business Services below.
|
|
|
|
Remaining 48% Interest in EBS. On
February 8, 2008, we completed the sale of our 48% minority
ownership interest in EBSCo (which we refer to as the 2008 EBSCo
Sale) to an affiliate of GA and affiliates of
Hellman & Friedman, LLC.
|
|
|
|
ViPS. On February 21, 2008, we announced
our intention to divest our ViPS segment. On July 22, 2008,
we completed the sale of our ViPS segment to an affiliate of
General Dynamics Corporation. In this MD&A, we refer to
this transaction as the ViPS Sale. The historical results of
ViPS, including the gain related to the sale, have been
reclassified as discontinued operations in our financial
statements and our discussions in this MD&A reflect ViPS as
discontinued operations. Through ViPS, we provided healthcare
data management, analytics, decision-support and process
automation solutions and related information technology services
to governmental, Blue Cross Blue Shield and commercial
healthcare payers.
|
A portion of the proceeds of the sales transactions made in 2006
was used to conduct the 2006 Tender Offer described below under
Background Information on Certain Trends and
Developments 2006 Tender Offer, pursuant to
which we repurchased 129,234,164 shares of our Common Stock
at a price of $12.00 per share; and a portion of the proceeds of
the sales made in 2008 was used to conduct the 2008 Tender Offer
described below under Background Information
on Certain Trends and Developments 2008 Tender
Offer, pursuant to which we repurchased
83,699,922 shares of our Common Stock at a price of $8.80
per share. As a result of the 2006 Tender Offer, the 2008 Tender
Offer and additional repurchases of our Common Stock under
repurchase programs, the number of shares of our Common Stock
outstanding declined from 278,327,825 on December 31, 2005
to 101,374,536 on December 31, 2008 (in each case,
excluding unvested shares of restricted Common Stock granted
under our equity plans).
On February 21, 2008, we announced our intention to divest
our Porex segment. Porex develops, manufactures and distributes
proprietary porous plastic products and components used in
healthcare, industrial and consumer applications. Porex also
provides porous plastic surgical implants used in reconstruction
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cosmetic surgery of the head, face and neck. As a result of our
intention to divest this segment we reflected this segment as a
discontinued operation within the consolidated financial
statements contained in this Annual Report.
Segments
As a result of the sales of EPS, EBS and ViPS and the planned
sale of Porex, 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 the WebMD Segments, our corporate segment and the
EBS segment (which ceased being a separate segment in connection
with the 2006 EBS Sale):
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WebMD Online Services. This segment owns and
operates both public and private online portals. The 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. The public portals generate revenue
primarily through the sale of advertising and sponsorship
products, including continuing medical education (which we refer
to as CME) services. Our sponsors and advertisers include
pharmaceutical, biotechnology, medical device and consumer
products companies. Through the private portals for employers
and health plans, we provide information and services that
enable employees and members, respectively, to make more
informed benefit, treatment and provider decisions. We also
provide related services for use by such employees and members,
including lifestyle education and personalized telephonic health
coaching. We generate revenue from our private portals through
the licensing of these portals to employers and health plans
either directly or through distributors, as well as through the
fees charged for our coaching services. We also distribute
online content and services to other entities and generate
revenue from these arrangements through the sale of advertising
and sponsorship products and content syndication fees. We also
provide
e-detailing
promotion and physician recruitment services for use by
pharmaceutical, medical device and healthcare companies.
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WebMD Publishing and Other Services. This
segment provides offline products and services, including:
WebMD the Magazine, a consumer-targeted publication that
WebMD distributes free of charge to physician office waiting
rooms; and The Little Blue Book, a physician directory.
We generate revenue from sales of advertisements in WebMD the
Magazine, sales of The Little Blue Book directories
and advertisements in those directories. We also conducted
in-person medical education from December 2005 until
December 31, 2006, the date at which we no longer provided
this service. The WebMD Publishing and Other Services segment
complements the WebMD Online Services segment and extends the
reach of the WebMD brand and its influence among health-involved
consumers and clinically-active physicians.
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Corporate. Corporate includes personnel costs
and other expenses related to functions that are not directly
managed by one of our segments, or by the Porex business which
is reflected within discontinued operations in our financial
statements. 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 $3,410, $3,340 and
$3,190 in 2008, 2007 and 2006, respectively, which are costs
allocated to WebMD for services provided by the Corporate
segment. In connection with the 2006 EBS Sale, the EPS Sale and
the ViPS Sale, we entered into transition services agreements
whereby we provided EBSCo, Sage Software and ViPS certain
administrative services, including payroll, accounting,
purchasing and procurement, tax, and human resource services, as
well as information technology support. Additionally, EBSCo
provided 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 were, in turn, used to
fulfill HLTHs obligations to provide transition services
to Sage Software. These services were provided through the
Corporate segment, and the related transition services fees
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we charged to EBSCo, Sage Software and ViPS, net of the fee we
paid to EBSCo, are also included in the Corporate segment, which
were intended to approximate the cost of providing these
services. The transition services agreement with Sage Software
was terminated on December 31, 2007 and, therefore, net
transition services fees are for services related to EBSCo and
ViPS in 2008.
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Emdeon Business Services. Through EBS, we
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. In addition, through EBS, we
provided clinical communications services that improve the
delivery of healthcare by enabling physicians to manage
laboratory orders and results, hospital reports and electronic
prescriptions. From November 17, 2006, the date of the 2006
EBS Sale, to February 8, 2008, the date of the 2008 EBSCo
Sale, the results of EBS were reflected as an equity investment
in our operating results.
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Background
Information on Certain Trends and Developments
Trends Influencing the Use of Our
Services. Several key trends in the
healthcare and Internet industries are influencing the use of
healthcare information services of the types we provide or are
developing. Those trends are described briefly below:
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Use of the Internet by Consumer 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.
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Healthcare consumers increasingly seek to educate themselves
online about their healthcare related issues, motivated in part
by the continued availability of new treatment options and in
part by the larger share of healthcare costs they are being
asked to bear due to changes in the benefit designs being
offered by health plans and employers. The Internet has
fundamentally changed the way consumers obtain health and
wellness information, enabling them to have immediate access to
searchable information and dynamic interactive content to check
symptoms, assess risks, understand diseases, find providers and
evaluate treatment options. The Internet is consumers
fastest growing health information resource, according to a
national study released in August 2008 by the Center for
Studying Health System Change. Researchers found that
32 percent of American consumers (approximately
70 million adults) conducted online health searches in
2007, compared with 16 percent in 2001. More than half of
those surveyed said the information changed their overall
approach to maintaining their health. Four in five said the
information helped them better understand how to treat an
illness or condition.
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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.
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Increased Online Marketing and Education Spending for
Healthcare Products. Pharmaceutical,
biotechnology and medical device companies spend large amounts
each year marketing their products and educating consumers and
physicians about them; however, only a small portion of this
amount is currently spent on online services. We believe that
these companies, which comprise the majority of the advertisers
and sponsors of our public portals, are becoming increasingly
aware of the effectiveness of the Internet relative to
traditional media in providing health, clinical and
product-related information to consumers and physicians, and
this increasing awareness will result in increasing demand for
our services. However, notwithstanding our general expectation
for increased demand, our advertising and sponsorship revenue
may vary significantly from quarter to quarter due to a number
of factors, many of
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which are not in our control, and some of which may be difficult
to forecast accurately, including general economic conditions
and the following:
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The majority of our advertising and sponsorship contracts are
for terms of approximately four to twelve months. We have
relatively few longer term advertising and sponsorship contracts.
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The time between the date of initial contact with a potential
advertiser or sponsor regarding a specific program and the
execution of a contract with the advertiser or sponsor for that
program may be subject to delays over which we have little or no
control, including as a result of budgetary constraints of the
advertiser or sponsor or their need for internal approvals.
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Other factors that may affect the timing of contracting for
specific programs with advertisers and sponsors, or receipt of
revenue under such contracts, include: the timing of FDA
approval for new products or for new approved uses for existing
products; the timing of FDA approval of generic products that
compete with existing brand name products; the timing of
withdrawals of products from the market; seasonal factors
relating to the prevalence of specific health conditions and
other seasonal factors that may affect the timing of promotional
campaigns for specific products; and the scheduling of
conferences for physicians and other healthcare professionals.
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Changes in Health Plan Design; Health Management
Initiatives. In a healthcare market where the
responsibility for healthcare costs and decision-making has been
increasingly shifting to consumers, use of information
technology (including personal health records) to assist
consumers in making informed decisions about healthcare has also
increased. We believe that through our WebMD Health and Benefits
Manager tools, including our personal health record application,
we are well positioned to play a role in this environment, and
these services will be a significant driver for the growth of
our private portals during the next several years. However, our
growth strategy depends, in part, on increasing usage of our
private portal services by our employer and health plan
clients employees and members, respectively. Increasing
usage of our services requires us to continue to deliver and
improve the underlying technology and develop new and updated
applications, features and services. In addition, we face
competition in the area of healthcare decision-support tools and
online health management applications and health information
services. Many of our competitors have greater financial,
technical, product development, marketing and other resources
than we do, and may be better known than we are. We also expect
that, for clients and potential clients in the industries most
seriously affected by recent adverse changes in general economic
conditions (including those in the financial services industry),
we may experience some reductions in initial contracts, contract
expansions and contract renewals for our private portal
services, as well as reductions in the size of existing
contracts.
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The healthcare industry in the United States and relationships
among healthcare payers, providers and consumers are very
complicated. In addition, the Internet and the market for online
services are relatively new and still evolving. Accordingly,
there can be no assurance that the trends identified above will
continue or that the expected benefits to our businesses from
our responses to those trends will be achieved. In addition, the
market for healthcare information services is highly competitive
and not only are our existing competitors seeking to benefit
from these same trends, but the trends may also attract
additional competitors.
Termination of Proposed Merger with
WHC. In February 2008, HLTH and WHC entered
into an Agreement and Plan of Merger (which we refer to as the
Merger Agreement), pursuant to which HLTH would merge into WHC
(which we refer to as the WHC Merger), with WHC continuing as
the surviving corporation. The Merger Agreement resulted from
negotiations between HLTH and a Special Committee of the Board
of Directors of WHC during late 2007 and early 2008. HLTHs
Board of Directors had 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. 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 were not, however,
dependent on the merger occurring). The decisions relating to
the divestitures of ViPS, Porex and HLTHs
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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.
Pursuant to the terms of a Termination Agreement entered into on
October 19, 2008 (which we refer to as the Termination
Agreement), HLTH and WHC mutually agreed, in light of the
turmoil in financial markets, to terminate the Merger Agreement.
The termination of the Merger Agreement 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 WHC. The Boards determined that both
HLTH, as controlling stockholder of WHC, and the public
stockholders of WHC would benefit from WHC continuing as a
publicly-traded subsidiary with no long-term debt and
approximately $340,000 in cash and investments. The Boards
concluded that, by terminating the merger, HLTH and WHC would
retain financial flexibility and be in a position to pursue
potential acquisition opportunities expected to be available to
companies with significant cash resources in a period of
financial market uncertainty. The Termination Agreement
maintained HLTHs obligation, under the terms of the Merger
Agreement, to pay the expenses of WHC incurred in connection
with the merger. In connection with the termination of the WHC
Merger, HLTH and WHC amended the Tax Sharing Agreement between
them and HLTH assigned to WHC the Amended and Restated Data
License Agreement, dated as of February 8, 2008, among
HLTH, EBSCo and certain affiliated companies.
2008 Tender Offer. Following the
termination of the WHC Merger, our Board of Directors determined
that repurchasing our Common Stock through a tender offer would
be an efficient means to provide value to our stockholders. In
deciding to make the offer, our Board of Directors considered
that, following the termination of the WHC Merger, some holders
of HLTH Common Stock might wish to have the opportunity to sell
some or all of their holdings for cash. On October 27,
2008, we commenced a tender offer to purchase up to
80,000,000 shares of our common stock at a price of $8.80
per share. In this MD&A, we refer to this tender offer as
the 2008 Tender Offer. The 2008 Tender Offer represented an
opportunity for HLTH to return capital to stockholders who
elected to tender their shares of HLTH Common Stock, while
stockholders who chose not to participate in the 2008 Tender
Offer automatically increased their relative percentage interest
in our company at no additional cost to them. Prior to the
closing of the 2008 Tender Offer, we exercised our right to
purchase an additional 2% of our outstanding shares without
extending the tender offer. On November 25, 2008, the 2008
Tender Offer was completed and, as a result, we repurchased
83,699,922 shares of our Common Stock at a price of $8.80
per share. The total cost of the 2008 Tender Offer was $737,324,
which includes $765 of costs directly attributable to the
purchase.
2006 Tender Offer. Following the
announcement of the definitive agreement for the 2006 EBS Sale,
our Board determined that investing in repurchasing our Common
Stock would be an attractive use of the proceeds of the 2006 EBS
Sale and an efficient means to provide value to our
stockholders. October 20, 2006, we commenced a tender offer
to purchase shares of our Common Stock, which tender offer was
completed on December 4, 2006. In this MD&A, we refer
to this tender offer as the 2006 Tender Offer. The 2006 Tender
Offer represented an opportunity for HLTH to return capital to
our stockholders who elected to tender their shares of HLTH
Common Stock, while stockholders who chose not to participate in
the 2006 Tender Offer automatically increased their relative
percentage interest in our company at no additional cost to
them. In the 2006 Tender Offer, 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
$1,552,120, which includes $1,309 of costs directly attributable
to the purchase.
Impairment of Auction Rate Securities; Non-Recourse Credit
Facilities. We hold investments in auction
rate securities (which we refer to as ARS) backed by student
loans, which are 97% guaranteed under the Federal Family
Education Loan Program (FFELP), and all had credit ratings of
AAA or Aaa when purchased. Historically, the fair value of our
ARS holdings approximated face value due to the frequent auction
periods, generally every 7 to 28 days, which provided
liquidity to these investments. However, since February 2008,
all auctions involving these securities have failed. As a
secondary market has yet to develop, these investments have been
reclassified to long-term investments as of December 31,
2008. The result of a failed auction is that these ARS holdings
will continue to pay interest in accordance with their terms at
each respective auction date; however, liquidity of the
securities will be limited until there is a successful auction,
the issuer redeems the securities, the securities mature or
until such time as other markets for these ARS
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holdings develop. During the three months ended March 31,
2008, we concluded that the estimated fair value of the ARS
holdings no longer approximated the face value due to the lack
of liquidity.
As of March 31, 2008, we concluded the fair value of our
ARS holdings was $302,842, of which $141,044 related to WHC,
compared to a face value of $362,950, of which $168,450 related
to WHC. The impairment in value, or $60,108, of which $27,406
related to WHC, was considered to be other-than-temporary and,
accordingly, was recorded as an impairment charge within our
operating results during the three months ended March 31,
2008. During 2008, we received $8,700, of which $4,400 relates
to WHC, associated with the partial redemption of certain of our
ARS holdings which represented 100% of their face value. As a
result, as of December 31, 2008, the total face value of
our ARS holdings was $355,000, of which $164,800 related to WHC,
compared to a fair value of $286,552, of which $133,563 related
to WHC. Subsequent to March 31, 2008, through
December 31, 2008, we further reduced the carrying value of
our ARS holdings by $9,407, of which $4,277 relates to WHC.
Since this reduction in value resulted from fluctuations in
interest rate assumptions, we assessed this reduction to be
temporary in nature, and accordingly, this amount has been
recorded as a unrealized loss in our consolidated financial
statements. We continue to monitor the market for ARS as well as
the individual ARS holdings it owns. We may be required to
record additional losses in future periods if the fair value of
our ARS holdings deteriorates further.
HLTH and WHC have each entered into a non-recourse credit
facility (which we refer to as the Credit Facilities) with
Citigroup that is secured by their respective ARS holdings
(including, in some circumstances, interest payable on the ARS
holdings), that will allow HLTH and WHC to borrow up to 75% of
the face amount of the ARS holdings pledged as collateral under
the respective Credit Facilities. The Credit Facilities are each
governed by a loan agreement, dated as of May 6, 2008,
containing customary representations and warranties of the
borrower and certain affirmative covenants and negative
covenants relating to the pledged collateral. Under each of the
loan agreements, the borrower and the lender may, in certain
circumstances, cause the pledged collateral to be sold, with the
proceeds of any such sale required to be applied in full
immediately to repayment of amounts borrowed.
The interest rate applicable to such borrowings is one-month
LIBOR plus 250 basis points. Any borrowings outstanding
under the respective Credit Facilities after March 2009 become
demand loans, subject to 60 days notice, with recourse only
to the pledged collateral. No borrowings have been made under
either of the Credit Facilities to date. HLTH and WHC can each
make borrowings under their respective Credit Facilities until
May 2009.
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 eight, 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 14,
Commitments and Contingencies located in the Notes
to the Consolidated Financial Statements elsewhere in this
Annual Report. We subsequently have settled with two of the
insurance companies during January 2008, through which we
received an aggregate amount of $14,625.
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.
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Prior to the filing of the Second Amended Complaint which is
discussed below, the Policies at issue in the Coverage
Litigation consisted of two separate groups of insurance
policies. Each group of policies consists of several layers of
coverage, with different insurers having agreed to provide
specified amounts of coverage at various levels. The first group
of policies was issued to EPS in the amount of $20,000 (which we
refer to as the EPS Policies) and the second group of policies
was issued to Synetic, Inc. (the former parent of EPS, which
merged into HLTH) in the amount of $100,000, of which
approximately $3,600 was paid by the primary carrier with
respect to another unrelated matter (which we refer to as the
Synetic Policies). As of December 31, 2008, $61,351 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. Of this amount, $30,312 has been reimbursed by
the insurance companies subsequent to the Courts order on
July 31, 2008 (described in more detail below). As a result
of these payments, we have exhausted our coverage under the EPS
Policies and have remaining coverage under the Synetic Policies
of approximately $50,000.
The carrier with the third level of coverage in the Synetic
Policies filed a motion for summary judgment in the Coverage
Litigation, which most of the carriers who have issued the
Synetic policies joined, which sought summary judgment that any
liability to pay defense costs should be allocated among the
three sets of policies available to our company (including the
policies with respect to which the Coverage Litigation relates
and a third set of policies the issuers of which had not yet
been named by 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 filed our opposition
to the motion 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. On July 31, 2008 the
Superior Court for the State of Delaware denied the motion filed
by the carriers seeking allocation and granted HLTHs
motion for partial summary judgment to enforce the duty of such
carriers to advance and reimburse these costs. Pursuant to the
Courts order the issuers of the Synetic Policies have been
reimbursing us for our costs. Unless the carriers ultimately
prevail in the Coverage Litigation or obtain an interim ruling
from the court to the contrary, we expect to collect from the
remaining carriers under the Synetic Policies who are subject to
the Courts order the costs that it is obligated to pay
subject to the limits of each carriers policy. Our
insurance policies provide that under certain circumstances,
amounts advanced by the insurance companies in connection with
the defense costs of the indicted individuals, may have to be
repaid by us, although the $14,625 that we have received in
settlement from certain carriers is not subject to being repaid.
We have obtained an undertaking from each indicted individual
pursuant to which, under certain circumstances, such individual
has agreed to repay defense costs advanced on such
individuals behalf.
On November 17, 2008, we filed a Second Amended Complaint
which added four new insurance companies as defendants in the
Coverage Action. These carriers are the issuers of a third set
of policies (which we refer to as Emdeon Policies) that provide
coverage with respect to our indemnification obligations to the
former officers and directors of our former EPS subsidiary who
were indicted in connection with the Investigation described in
Note 14, Commitments and Contingencies located
in the Notes to the Consolidated Financial Statements elsewhere
in this Annual Report. Additionally, the Second Amended
Complaint would add back as a defendant in the Coverage Action
the issuer of one of the EPS Policies with whom we settled who
is also the issuer of the eighth level of coverage under the
Synetic Policies. At the time of that settlement we dismissed
the eighth level carrier without prejudice with respect to that
Synetic Policy and based upon the current estimate of the
anticipated costs of its indemnification obligations we have
determined that it is necessary to add back the carrier with
respect to the Synetic Policy. Although we believe that such
eighth level carrier and the ninth level carrier are situated
similarly to the other Synetic Policies, the eighth and ninth
level carriers indicated on September 9, 2008 and
February 4, 2009, respectively, the position that they were
not bound by the Courts July 31, 2008 order regarding
the duty of the Synetic carriers to advance and reimburse
defense costs. This resulted in us including the eighth and
ninth level carriers in the Motion for Leave to File a Second
Amended Complaint and making a motion to the Court to require
such eighth and ninth level carriers to advance and reimburse
defense costs, described above.
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Notwithstanding the fact that we have prevailed in the summary
judgment motions described above, there can be no assurance that
we will ultimately 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 to Former Officers and
Directors of EPS. We have certain indemnity
obligations to advance amounts for reasonable defense costs for
initially ten, and now eight, 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 2007,
based on information available at that time, we determined a
reasonable estimate of the range of probable costs with respect
to its indemnification obligation and accordingly, recorded an
aggregate pre-tax charge of $73,347, which represented our
estimate of the low end of the probable range of costs related
to this matter. We have 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 June 30, 2008 and again
during the quarter ended December 31, 2008, we updated the
estimated range of our indemnification obligation based on new
information received during those periods, and as a result,
recorded additional pre-tax charges of $16,980 and $12,098,
respectively, each of which reflected the increases in the low
end of the probable range of costs related to this matter. The
probable range of future costs with respect to this matter is
estimated to be approximately $47,500 to $67,500, as of
December 31, 2008 which includes costs that have been
incurred prior to, but were not yet paid, as of
December 31, 2008. The ultimate outcome of this matter is
still uncertain, and the estimate of future costs includes
assumptions as to the duration of the trial and the defense
costs to be incurred during the remainder of the pre-trial
period and during the trial period. Accordingly, the amount of
cost we may ultimately incur could be substantially more than
the reserve we have currently provided. If the recorded reserves
are insufficient to cover the ultimate cost of this matter, we
will need to record additional charges to our results of
operations in future periods. The accrual related to this
obligation was $47,550 and $55,563 as of December 31, 2008
and 2007, respectively.
Acquisitions
and Dispositions
Investment. On November 19, 2008,
WHC acquired Series D preferred stock in a privately held
company. The total investment was approximately $6,471, which
includes approximately $470 of acquisition costs.
Acquisitions. During 2006, WHC acquired
four companies: eMedicine.com, Inc. (which we refer to as
eMedicine), Summex Corporation (which we refer to as Summex),
Medsite, Inc. (which we refer to as Medsite) and Subimo LLC
(which we refer to as Subimo). These acquisitions, which we
refer to collectively as the 2006 WHC Acquisitions, are
described as follows:
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On December 15, 2006, WHC acquired, a privately held
provider of healthcare decision-support applications to large
employers, health plans and financial institutions, from
Subimos security holders (referred to below as the Subimo
Sellers). The initial purchase consideration for Subimo was
valued at approximately $59,320, comprised of $32,820 in cash,
net of cash acquired, $26,000 of WHC Class A Common Stock
and $500 of acquisition costs. Pursuant to the terms of the
purchase agreement for Subimo, as amended (referred to below as
the Subimo Purchase Agreement), we deferred the issuance of
640,930 shares of WHC Class A Common Stock included in
the purchase consideration (which we refer to as the Deferred
Shares) to December 3, 2008. The Deferred Shares were
repurchased from the Subimo Sellers immediately following their
issuance at a purchase price of $20.00 per share, the closing
market price of WHC Class A Common Stock on The Nasdaq
Global Select Market on December 3, 2008. Since the
Deferred Shares had a market value that was less than $24.34 per
share when issued, WHC was required, under the Subimo Purchase
Agreement, to pay additional cash consideration to the Subimo
Sellers at the time of the issuance of the Deferred Shares in an
amount equal to the aggregate shortfall, which was $2,782. 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, WHC 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 June 13, 2006, WHC 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 $30,043, comprised of $29,543 in cash,
net of cash acquired, and $500 of acquisition costs. 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, WHC 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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In addition, on July 18, 2006, through our EBS segment, 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
were achieved. The IPN business is part of the EBS businesses
that we 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.
Dispositions. During the years 2006
through 2008, we engaged in the following disposition
transactions:
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EPS Sale. On September 14, 2006, we
completed the sale of EPS to Sage Software. We received cash
proceeds of $556,324 (including amounts released from escrow in
2008 and 2007), net of professional fees and other expenses
associated with the EPS Sale. In connection with the EPS Sale,
we recognized a gain of $353,158, net of tax of $33,037, which
is included in income from discontinued operations in our
operating results during 2006. In connection with the EPS Sale,
we entered into a transition services agreement with EPS whereby
we 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
fees charged to EPS during 2007 and the period from
September 15, 2006 to December 31, 2006 was $3,894 and
$2,099, respectively.
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2006 EBS Sale. On November 16, 2006, we
completed the sale of a 52% interest in EBS to an affiliate of
GA. The 2006 EBS Sale was structured so that HLTH and GA each
own interests in EBSCo, a limited liability company owning the
entities comprising EBS. We received gross cash proceeds of
approximately $1,209,000 at closing, and received $11,099
subsequent to December 31, 2006 in connection with a
working capital adjustment. In connection with the 2006 EBS
Sale, we recognized a gain of $352,297, which considers
approximately $16,103 of professional fees and other expenses
associated with the 2006 EBS Sale. During 2007, we recognized a
gain of $399 which relates to the finalization of the working
capital adjustment. In connection with the 2006 EBS Sale, we
entered into a transition services agreement whereby we 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 us, 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
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EPS. The fees charged to EBSCo were $162, $3,009 and $610 during
2008, 2007 and 2006 is net of the amount charged to our company
of $109, $1,070 and $185, respectively.
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Sale of ACP Medicine and ACS Surgery. As of
December 31, 2007, through WHC, we entered into an Asset
Sale Agreement and completed the sale of certain assets and
certain liabilities of WebMDs medical reference
publications business, including the publications ACP
Medicine and ACS Surgery: Principles and Practice.
The assets and liabilities sold are referred to below as the
ACS/ACP Business. ACP Medicine and ACS Surgery are
official publications of the American College of Physicians and
the American College of Surgeons, respectively. We will receive
net cash proceeds of $2,575, consisting of $1,925 received
during 2008 and the remaining $650 to be received during 2009.
We incurred approximately $750 of professional fees and other
expenses associated with the sale of the ACS/ACP Business. In
connection with the sale, we recognized a pre-tax loss of $234
and a pre-tax gain of $3,394 in 2008 and 2007. The decision to
divest the ACS/ACP Business was made because management
determined that it was not a good fit with WebMDs core
business.
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2008 EBSCo Sale. On February 8, 2008, we
entered into a Securities Purchase Agreement and simultaneously
completed the sale of our 48% minority ownership interest in
EBSCo for $574,617 in cash, net of professional fees and other
expenses, to an affiliate of GA and affiliates of
Hellman & Friedman, LLC. In connection with the 2008
EBSCo Sale, we recognized a pre-tax gain of $538,024.
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ViPS Sale. On July 22, 2008, we completed
the sale of our ViPS segment to an affiliate of General Dynamics
Corporation. We received cash proceeds of $223,175, net of the
working capital adjustment, professional fees and other expenses
associated with the ViPS Sale. During 2008, we incurred
approximately $1,472 of professional and other expenses and
recognized a pre-tax gain of $96,969. In connection with the
ViPS Sale, we entered into a transition services agreement with
ViPS whereby we will provide ViPS with certain administrative
services. The fee charged to ViPS for the year ended
December 31, 2008 was $282.
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Seasonality
The timing of our revenue is affected by seasonal factors. The
advertising and sponsorship revenue within the WebMD Online
Services segment is seasonal, primarily due to the annual budget
approval process of the advertising and sponsorship clients of
our public portals. This portion of our revenue is usually the
lowest in the first quarter of each calendar year, and increases
during each consecutive quarter throughout the year. Our private
portal licensing revenue is historically higher 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. Finally, the annual distribution
cycle within the WebMD Publishing and Other Services segment
results in a significant portion of the revenue in this segment
being recognized in the second and third quarter of each
calendar year. The timing of revenue in relation to the expenses
of the WebMD Segments, much of which do not vary directly with
revenue, has an impact on cost of operations, sales and
marketing and general and administrative expenses as a
percentage of revenue in each calendar quarter.
Critical
Accounting Estimates and Policies
Critical
Accounting Estimates
Our 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 the Consolidated 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
71
used in preparation of our financial statements will change as
new events occur, as more experience is acquired, as additional
information is obtained and as our operating environment
changes. Changes in estimates are made when circumstances
warrant. Such changes in estimates and refinements in estimation
methodologies are reflected in reported results of operations;
if material, the effects of changes in estimates are disclosed
in the notes to our Consolidated Financial Statements.
We evaluate our estimates on an ongoing basis, including those
related to revenue recognition, investments in auction rate
securities, 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 varied 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 assets using accepted valuation
techniques, such as discounted cash flow and replacement cost
models. Our long-lived assets, excluding goodwill and indefinite
lived intangible assets, are amortized over their estimated
useful lives, which we determine based on the consideration of
several factors including the period of time the asset is
expected to remain in service. We evaluate the carrying value
and remaining useful lives of long-lived assets, excluding
goodwill and indefinite lived intangible assets, whenever
indicators of impairment are present. We evaluate the carrying
value of goodwill and indefinite lived intangible assets
annually, or whenever indicators of impairment are present. We
use a discounted cash flow approach to determine the fair value
of goodwill and indefinite lived intangible assets. Long-lived
assets held for sale are reported at the lower of cost or fair
value less cost to sell.
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There was no impairment of goodwill or indefinite lived
intangible assets noted as a result of our impairment testing in
2008.
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Fair Value of Investments. We hold investments
in ARS which are backed by student loans, which are 97%
guaranteed under the Federal Family Education Loan Program
(FFELP), and which had credit ratings of AAA or Aaa when
purchased. Historically, the fair value of our ARS investments
approximated face value due to the frequent auction periods,
generally every 7 to 28 days, which provided liquidity to
these investments. However, since February 2008, all auctions
involving these securities have failed. As a secondary market
has yet to develop, these investments have been reclassified to
long-term investments as of December 31, 2008. The result
of a failed auction is that these ARS will continue to pay
interest in accordance with their terms at each respective
auction date; however, liquidity of the securities will be
limited until there is a successful auction, the issuer redeems
the securities, the securities mature or until such time as
other markets for these ARS develop. We cannot be certain
regarding the amount of time it will take for an auction market
or other markets to develop. Accordingly, during the three
months ended March 31, 2008, we concluded that the
estimated fair value of the ARS no longer approximated the face
value due to the lack of liquidity and accordingly, we recorded
an other-than-temporary impairment as of March 31, 2008.
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As of and subsequent to March 31, 2008, we estimated the
fair value of our ARS holdings using an income approach
valuation technique. Using this approach, expected future cash
flows are calculated over the expected life of each security and
are discounted to a single present value using a market required
rate of return. Some of the more significant assumptions made in
the present value calculations include (i) the estimated
weighted average lives for the loan portfolios underlying each
individual ARS, which range from 4 to 13 years and
(ii) the required rates of return used to discount the
estimated future cash flows over the estimated life of each
security, which considered both the credit quality for each
individual ARS and the market liquidity for these investments.
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Our ARS have been classified as Level 3 assets in
accordance with Statement of Financial Accounting Standards
(which we refer to as SFAS) No. 157, Fair Value
Measurements, as their valuation requires substantial
judgment and estimation of factors that are not currently
observable in the market due to the lack of trading in the
securities. If different assumptions were used for the various
inputs to the valuation approach including, but not limited to,
assumptions involving the estimated lives of the ARS
investments, the estimated cash flows over those estimated
lives, and the estimated discount rates applied to those cash
flows, the estimated fair value of these investments could be
significantly higher or lower than the fair value we determined.
We continue to monitor the market for ARS as well as the
individual ARS investments we own. We may be required to record
additional losses in future periods if the fair value of our ARS
deteriorate further.
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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 2008 and 2007, WHC issued Class A Common
Stock for the following transactions, which resulted in our
ownership in WHC decreased to 83.6% as of December 31, 2008
from 84.1% as of December 31, 2007:
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Compensation Related. During 2008, 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 gains of
$4,057, $14,492 and $5,152 in 2008, 2007 and 2006.
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Acquisition of Subimo. During 2006, we
recorded a SAB 51 gain of $11,627, in connection with the
committed future issuance of 394,422 shares of WHC
Class A Common Stock in connection with the acquisition of
Subimo. In December 2008, WHC issued an additional
246,508 shares of
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WHC Class A Common Stock to the Subimo shareholders. We did
not recognize a SAB 51 gain related to the issuance of
these shares, as they were subsequently repurchased in a related
transaction.
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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 Accounting Principles Board
(which we refer to as 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. 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. 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, 2008, approximately $20,923 and $77,543 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
2.3 years and 3.5 years, related to the HLTH and WHC
stock-based compensation plans, respectively.
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Deferred Taxes. Our deferred tax assets are
comprised primarily of net operating loss carryforwards. These
net operating loss carryforwards may be used to offset taxable
income in future periods, reducing the amount of taxes we might
otherwise be required to pay. A significant portion of our
deferred tax assets are reserved for by a valuation allowance.
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, some or all of the remaining valuation allowance will be
reversed, and our effective tax rate may be reduced by such
reversal.
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Tax Contingencies. Our tax contingencies are
recorded to address potential exposures involving tax positions
we have taken that could be challenged by tax authorities. These
potential exposures result from applications of various
statutes, rules, regulations and interpretations. Our estimates
of tax contingencies reflect assumptions and judgments about
potential actions by taxing jurisdictions. We 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.
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74
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):
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Years Ended December 31,
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2008
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2007
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2006
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$
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%
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|
$
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%
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|
$
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%
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Revenue
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$
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382,697
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|
100.0
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$
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331,693
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100.0
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|
$
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908,927
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|
|
100.0
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Costs and expenses:
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|
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|
|
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|
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Cost of operations
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138,363
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36.2
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|
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117,281
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35.3
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545,706
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|
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60.0
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Sales and marketing
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108,316
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28.3
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93,645
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28.2
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119,103
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13.1
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General and administrative
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89,503
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23.4
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104,321
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31.5
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132,334
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14.6
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Depreciation and amortization
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28,780
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7.5
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28,256
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|
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|
8.5
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|
44,558
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|
|
4.9
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|
Interest income
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35,300
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|
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|
9.2
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|
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|
42,035
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|
12.7
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|
32,339
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|
|
3.6
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Interest expense
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18,513
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|
|
|
4.8
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|
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|
18,593
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5.6
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18,794
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2.1
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Gain on sale of EBS Master LLC
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538,024
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140.6
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Impairment of auction rate securities
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60,108
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15.7
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Restructuring
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7,416
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|
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1.9
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Gain on 2006 EBS Sale
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399
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0.1
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352,297
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38.8
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Other (expense) income, net
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(5,949
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)
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(1.6
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)
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3,406
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|
1.0
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|
(4,252
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)
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|
(0.5
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Income from continuing operations before income tax provision
(benefit)
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499,073
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130.4
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15,437
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4.7
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428,816
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47.2
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|
Income tax provision (benefit)
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30,251
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7.8
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(8,741
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)
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|
(2.6
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)
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50,389
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5.6
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|
Minority interest in WHC
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1,032
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|
|
|
0.3
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|
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|
10,667
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3.2
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|
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|
405
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0.0
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Equity in earnings of EBS Master LLC
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4,007
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|
|
|
1.0
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|
|
|
28,566
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|
|
|
8.6
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|
|
|
763
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
471,797
|
|
|
|
123.3
|
|
|
|
42,077
|
|
|
|
12.7
|
|
|
|
378,785
|
|
|
|
41.7
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
93,492
|
|
|
|
24.4
|
|
|
|
(22,198
|
)
|
|
|
(6.7
|
)
|
|
|
393,132
|
|
|
|
43.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
565,289
|
|
|
|
147.7
|
|
|
$
|
19,879
|
|
|
|
6.0
|
|
|
$
|
771,917
|
|
|
|
84.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue is currently derived from the WebMD Segments and was
derived from 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 advertisements in WebMD the
Magazine, and sales of, and advertising in, its physician
directories. As a result of the acquisition of the assets of
Conceptis, WebMD Publishing and Other Services also generated
revenue from in-person CME programs from December 2005 through
December 31, 2006. As of December 31, 2006, WebMD
Publishing and Other Services no longer offer these services.
Included in our WebMD Online Services revenue is revenue
related to WHC agreement with AOL. WHC and AOL shared revenue
from advertising, commerce and programming on the health
channels of certain AOL online sites and on a cobranded service
WHC created for AOL. Under the terms of the agreement which
expired on May 1, 2007, WHC revenue share was subject to a
minimum annual guarantee. Included in our results of operations,
in 2007 and 2006 is revenue of $2,658 and $8,312, respectively,
which represents sales to third parties of advertising and
sponsorship on the AOL health channels, primarily sold through
WHC sales team. Also included in revenue in 2007 and 2006 is
$1,515 and $5,125, respectively, related to the guarantee
discussed above. The WebMD Segments customers include
pharmaceutical, biotechnology, medical device and consumer
products companies, as well as employers and health plans. The
WebMD Segments customers also include physicians and other
healthcare providers who buy our physician directories. 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
75
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, costs associated with out lifestyle education
and personalized telephonic coaching services, 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. 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 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. The following is a summary of our principal
non-cash expenses:
|
|
|
|
|
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 sales and
marketing expense as WebMD uses the asset for promotion of
WebMDs brand.
|
|
|
|
Non-cash stock-based compensation
expense. Expense related to the awards of all
share-based payments to employees and non-employee directors,
including grants of employee stock options. Non-cash stock-based
compensation expense is reflected in the same expense captions
as the related salary cost of the respective employee.
|
The following table is a summary of our non-cash expenses
included in the respective statements of operations captions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Advertising expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
5,097
|
|
|
$
|
5,264
|
|
|
$
|
7,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
$
|
3,843
|
|
|
$
|
5,063
|
|
|
$
|
11,541
|
|
Sales and marketing
|
|
|
3,631
|
|
|
|
5,056
|
|
|
|
7,461
|
|
General and administrative
|
|
|
17,316
|
|
|
|
22,533
|
|
|
|
23,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,790
|
|
|
$
|
32,652
|
|
|
$
|
42,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
Modification
to the Classification of Results
The following discussion of our operating results, for all
periods presented, reflect the reclassification of our Porex and
ViPS segments as discontinued operations, as a result of our
intention to sell our Porex segment and due to the ViPS Sale
that was completed on July 22, 2008. In addition, our
operating results reflect the reclassification of the ACS/ACP
Business as a discontinued operation for 2007 and 2006, and our
EPS operations as a discontinued operation for 2006, as a result
of the sale of the ACS/ACP Business and EPS segment which were
completed on December 31, 2007 and September 14, 2006,
respectively.
In contrast to the discontinued operations presentation for EPS,
the ACS/ACP Business, 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. Subsequent to the 2006 EBS Sale from
November 17, 2006 through the date of the 2008 EBSCo Sale
on February 8, 2008, 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 2006, including the EBS segment
results, are presented on a basis that makes them not directly
comparable to the results for the full year 2008 and 2007. 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. 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.
2008
and 2007
The following discussion is a comparison of our results of
operations for the year ended December 31, 2008, to the
year ended December 31, 2007.
Revenue
Our total revenue increased 15.4% to $382,697 in 2008 from
$331,693 in 2007. This increase was primarily due to higher
advertising and sponsorship revenue from WebMDs public
portals. WebMD Online Services revenue increase of $53,168 in
2008, compared to 2007, was partially offset by a decrease of
$2,345 within WebMD Publishing and Other Services. These
fluctuations are more fully described below under
Results of Operations by Operating
Segment.
Costs and
Expenses
Cost of Operations. Cost of operations was
$138,363 in 2008, compared to $117,281 in 2007. Our cost of
operations represented 36.2% of revenue in 2008, compared to
35.3% of revenue in 2007. Included in cost of operations are
non-cash expenses related to stock-based compensation of $3,843
in 2008, compared to $5,063 in 2007. The decrease in non-cash
stock-based compensation expense for 2008, compared to 2007,
resulted primarily from the graded vesting methodology used in
determining stock-based compensation expense relating to the
stock options and restricted stock awards granted to WebMD
employees prior to the adoption of SFAS 123R on
January 1, 2006, which includes the options and restricted
stock granted at the time of its initial public offering.
Cost of operations, excluding the non-cash stock-based
compensation expense discussed above, was $134,520 or 35.2% of
revenue, in 2008, compared to $112,218, or 33.8% of revenue in
2007. The increase in absolute dollars in 2008 as compared to
2007 was primarily attributable to an increase of approximately
$13,400 in compensation-related costs due to higher staffing
levels relating to WebMDs Web site operations and
development, as well as higher staffing levels associated with
WebMDs personalized telephonic coaching services.
Additionally, the increase is also related to $6,100 of higher
costs associated with creating and licensing content for
WebMDs sponsorship arrangements and WebMDs Web
sites. The increase as a percentage of revenue was due to the
higher staffing levels, as well as the impact of the lower
publishing and
77
other services revenue, specifically lower advertising in The
Little Blue Book, which did not have a commensurate
reduction in the cost to produce and distribute this publication.
Sales and Marketing. Sales and marketing
expense was $108,316 in 2008, compared to $93,645 in 2007. Our
sales and marketing expense represented 28.3.% of revenue in
2008, compared to 28.2% in 2007. Included in sales and marketing
expense were non-cash expenses related to advertising of $5,097
in 2008, compared to $5,264 in 2007. Also included in sales and
marketing expense was non-cash expenses related to stock-based
compensation of $3,631 in 2008, compared to $5,056 in 2007. The
decrease in non-cash stock-based compensation expense for 2008,
compared to 2007, resulted primarily from the graded vesting
methodology used in determining stock-based compensation expense
relating to stock options and restricted stock awards granted to
WebMD employees prior to the adoption of SFAS 123R on
January 1, 2006, which includes the options and restricted
stock granted at the time of its initial public offering.
Sales and marketing expense, excluding the non-cash expenses
discussed above, was $99,588 or 26.0% of revenue, in 2008,
compared to $83,325, or 25.1% of revenue in 2007. The increase
in absolute dollars, as well the increase as a percentage of
revenue, in 2008 compared to 2007 were primarily attributable to
an increase of approximately $13,100 in compensation and other
personnel-related costs (including sales commissions related to
higher revenue) due to increased staffing and sales commissions
related to higher revenue.
General and Administrative. General and
administrative expense was $89,503 in 2008, compared to $104,321
in 2007. Our general and administrative expenses represented
23.4% in 2008, compared to 31.5% in 2007. Included in general
and administrative expense was non-cash stock-based compensation
expense of $17,316 in 2008, compared to $22,533 in 2007.
Non-cash stock-based compensation expense was lower in 2008,
when compared to 2007, in our WebMD Segments by approximately
$3,300, resulting primarily from the graded vesting methodology
used in determining stock-based compensation expense relating to
stock options and restricted stock awards granted to WebMD
employees prior to the adoption of SFAS 123R on
January 1, 2006, which includes the options and restricted
stock granted at the time of its initial public offering, as
well as lower non-cash stock-based compensation expense of
approximately $1,900 in our Corporate segment.
General and administrative expense, excluding the non-cash
stock-based compensation expense discussed above, was $72,187,
or 18.9% of revenue in 2008, compared to $81,788, or 24.7% of
revenue in 2007. Approximately $10,000 of the decrease in
absolute dollars was attributable to lower corporate expenses in
2008, compared to 2007, such as compensation expense for
internal personnel, professional fees and facilities related
expenses. These lower corporate expenses were achievable due to
the reduction in our corporate infrastructure following the
sales of EPS and EBS during the latter part of 2006 and the
related wind down of our remaining responsibilities under the
transition services agreements with those entities. The decrease
above was offset by approximately $400 in our WebMD Segments in
2008, as compared to 2007.
Depreciation and Amortization. Depreciation
and amortization expense was $28,780, or 7.5% of revenue in
2008, compared to $28,256, or 8.5% of revenue, in 2007. The
increase in 2008, as compared to 2007, was primarily due to
approximately $4,400 in depreciation expense resulting from
WHCs capital expenditures in 2008 and 2007, which was
partially offset by a decrease in amortization expense of
approximately $3,300 resulting from certain WHC intangible
assets becoming fully amortized, and lower depreciation expense
of approximately $500 in our Corporate segment.
Interest Income. Interest income was $35,300
in 2008, compared to $42,035 in 2007. This decrease in 2008,
primarily relate to a decrease in the average rates of return
for the period, partially offset by higher average investment
balances.
Interest Expense. Interest expense of $18,513
in 2008 was consistent with interest expense of $18,593 in 2007.
Interest expense in 2008 and 2007 primarily included the
interest expense and the amortization of debt issuance costs for
our 1.75% Convertible Subordinated Notes due 2023 (which we
refer to as 1.75% Notes) and our
31/8% Convertible
Notes due 2025 (which we refer to as
31/8%
Notes).
Gain on Sale of EBS Master LLC. The gain on
sale of EBS Master LLC of $538,024 represented a pre-tax gain
recognized in connection with the 2008 EBSCo Sale on
February 8, 2008. See
Introduction Acquisitions and
Dispositions Dispositions 2008 EBSCo
Sale with respect to this matter.
78
Impairment of Auction Rate
Securities. Impairment of auction rate securities
represents a charge of $60,108 related to an
other-than-temporary impairment of the fair value of our ARS
investments in 2008. For additional information, see
Introduction Background Information on Certain
Trends and Developments Impairment of Auction Rate
Securities; Non-Recourse Credit Facilities above.
Restructuring. As a result of our completion
of the integration of previously acquired businesses and
efficiencies that we continue to realize from our infrastructure
investments of the WebMD Segments combined with the continued
reduction in shared services performed within our Corporate
segment following the divestures of EPS, EBS and ViPS, we took
this opportunity to best align the skill sets of our employees
with the needs of our business. We recorded a restructuring
charge during 2008 of $7,416. This amount includes
(i) $3,575 related to the purchase of insurance for
extended coverage during periods when we owned the divested
businesses, (ii) $3,391 for severance expenses related to
the reduction of our work force and (iii) $450 of costs to
consolidate facilities and other exit costs.
Other (Expense) Income, Net. Other expense,
net was $5,949 in 2008, compared to other income, net of $3,406
in 2007. Other (expense) income, net includes (i) $6,941
and $2,527 in 2008 and 2007 of advisory expenses for
professional fees, primarily consisting of legal, accounting and
financial advisory services related to the terminated merger
transaction with WHC, see
Introduction Background
Information on Certain Trends and Developments
Termination of Proposed Merger with WHC for more
information, (ii) $1,092 and $1,397 in 2008 and 2007 of
external legal costs and expenses we incurred related to the
investigation by the United States Attorney for the District of
South Carolina and the SEC, (iii) $1,749 and $1,497 in 2008
and 2007 related to the reversal of certain sales and use tax
contingencies resulting from the expiration of various statutes
and (iv) transition services income of $335 and $5,833 in
2008 and 2007 which represents amounts earned from the service
fee charged to EBSCo, Sage Software and ViPS, net of services
EBSCo provides to us, for services rendered under each of their
respective transition services agreements. We provided a
significantly higher level of transition services in 2007,
compared to 2008, as reflected by the lower fees charged in 2008.
Income Tax Provision (Benefit). The income tax
provision of $30,251 in 2008 and benefit of $8,741 in 2007
includes expense related to federal, state and other
jurisdictions. While the majority of the gain on the 2008 EBSCo
Sale was offset by net operating loss carryforwards, certain
alternative minimum taxes and other state taxes were not offset,
resulting in a provision of approximately $20,500. The income
tax provision in 2008 excludes a benefit for the impairment of
ARS, as it is currently not deductible for tax purposes.
Additionally, the income tax benefit in 2007 includes a benefit
of $16,327 related to the reversal of a portion of the valuation
allowance we maintain on a significant portion of our deferred
income taxes.
Minority Interest in WHC. Minority interest of
$1,032 in 2008, compared to $10,667 in 2007 represents the
minority stockholders proportionate share of net income
for WHC. Minority interest 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.
Income (Loss) from Discontinued Operations, Net of
Tax. Income from discontinued operations, net of
tax, was $93,492 in 2008, compared to a loss of $22,198 in 2007.
Included in income (loss) from discontinued operations, net of
tax, is a pre-tax gain of $96,969 from the ViPS Sale. In
addition, income from discontinued operations includes the
aggregate pre-tax operating results of our ViPS and Porex
segments of $27,415 in 2008 and the aggregate pre-tax operating
results of our ViPS segment, Porex segment and ACS/ACP Business
of $27,262 in 2007. Also included in loss from discontinued
operations are pre-tax charges of approximately $29,078 in 2008
and $73,347 in 2007 related to our indemnity obligations to
advance amounts for reasonable defense costs for initially ten
and now eight former officers and directors of EPS, who were
indicted in connection with the investigation by the United
States Attorney for the District of South Carolina and the SEC,
which was partially offset in 2007, by $14,625 related to a
settlement with two of our insurance companies related to the
reimbursement of these defense costs.
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.
79
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 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
80
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 1.75% Notes and our
31/8% Notes.
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 (Expense) Income, 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. 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 Background
Information on Certain Trends and Developments 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.
Income Tax Provision (Benefit). The income tax
benefit of $8,741 in 2007 and provision of $50,389 in 2006
includes expense related to federal, state and other
jurisdictions. The income tax provision in 2006 was considerably
higher than in 2007 as a result of the gain we recorded in
connection with the 2006 EBS Sale. Additionally, the income tax
benefit in 2007 includes a benefit of $16,237 related to the
reversal of a portion of the valuation allowance we maintain on
a significant portion of our deferred income taxes.
Minority Interest in WHC. Minority interest of
$10,667 in 2007, compared to $405 in 2006, represents the
minority stockholders proportionate share of income for
WHC. Minority interest fluctuates based on the
81
net income or loss reported by WHC, combined with changes in the
percentage ownership of WHC held by the minority interest
shareholders.
Income (Loss) 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
Background Information on Certain Trends and
Developments Directors & Officers
Liability Insurance Coverage Litigation 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.
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; and professional fees, primarily consisting of
legal, accounting and financial advisory services, related to
the terminated WHC Merger, in 2008 and 2007, and the 2006 EBS
Sale. Inter-segment revenue primarily represents printing
services provided by EBS during 2006 and certain services
provided by our WebMD Segments during 2008, 2007 and 2006.
82
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006(a)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
WebMD Online Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and sponsorship
|
|
$
|
275,790
|
|
|
$
|
229,333
|
|
|
$
|
170,626
|
|
Licensing
|
|
|
89,126
|
|
|
|
81,471
|
|
|
|
55,621
|
|
Content syndication and other
|
|
|
1,434
|
|
|
|
2,378
|
|
|
|
3,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total WebMD Online Services
|
|
|
366,350
|
|
|
|
313,182
|
|
|
|
229,765
|
|
WebMD Publishing and Other Services
|
|
|
16,427
|
|
|
|
18,772
|
|
|
|
19,011
|
|
Emdeon Business Services
|
|
|
|
|
|
|
|
|
|
|
661,090
|
|
Inter-segment eliminations
|
|
|
(80
|
)
|
|
|
(261
|
)
|
|
|
(939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
382,697
|
|
|
$
|
331,693
|
|
|
$
|
908,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes, non-cash
and other items
|
|
|
|
|
|
|
|
|
|
|
|
|
WebMD Online Services
|
|
$
|
95,435
|
|
|
$
|
80,594
|
|
|
$
|
52,324
|
|
WebMD Publishing and Other Services
|
|
|
1,147
|
|
|
|
4,103
|
|
|
|
362
|
|
Emdeon Business Services
|
|
|
|
|
|
|
|
|
|
|
152,911
|
|
Corporate
|
|
|
(19,845
|
)
|
|
|
(24,502
|
)
|
|
|
(41,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,737
|
|
|
|
60,195
|
|
|
|
163,867
|
|
Interest, taxes, non-cash and other items
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
35,300
|
|
|
|
42,035
|
|
|
|
32,339
|
|
Interest expense
|
|
|
(18,513
|
)
|
|
|
(18,593
|
)
|
|
|
(18,794
|
)
|
Income tax (provision) benefit
|
|
|
(30,251
|
)
|
|
|
8,741
|
|
|
|
(50,389
|
)
|
Depreciation and amortization
|
|
|
(28,780
|
)
|
|
|
(28,256
|
)
|
|
|
(44,558
|
)
|
Non-cash stock-based compensation
|
|
|
(24,790
|
)
|
|
|
(32,652
|
)
|
|
|
(42,145
|
)
|
Non-cash advertising
|
|
|
(5,097
|
)
|
|
|
(5,264
|
)
|
|
|
(7,414
|
)
|
Minority interest in WHC
|
|
|
(1,032
|
)
|
|
|
(10,667
|
)
|
|
|
(405
|
)
|
Equity in earnings of EBS Master LLC
|
|
|
4,007
|
|
|
|
28,566
|
|
|
|
763
|
|
Gain on sale of EBS Master LLC
|
|
|
538,024
|
|
|
|
|
|
|
|
|
|
Gain on 2006 EBS Sale
|
|
|
|
|
|
|
399
|
|
|
|
352,297
|
|
Impairment of auction rate securities
|
|
|
(60,108
|
)
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
(7,416
|
)
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(6,284
|
)
|
|
|
(2,427
|
)
|
|
|
(6,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
471,797
|
|
|
|
42,077
|
|
|
|
378,785
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
93,492
|
|
|
|
(22,198
|
)
|
|
|
393,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
565,289
|
|
|
$
|
19,879
|
|
|
$
|
771,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
2008
and 2007
WebMD Online Services. Revenue was $366,350,
an increase of $53,168 or 17.0% from 2007. Advertising and
sponsorship revenue increased $46,457 or 20.3% in 2008, compared
to 2007. The increase in advertising and sponsorship revenue was
primarily attributable to an increase in the number of unique
sponsored programs on WebMDs sites, including both brand
sponsorship and educational programs. The number of such
programs grew to approximately 1,400 in 2008 compared to
approximately 1,000 in 2007. In general, pricing remained
relatively stable for WebMDs advertising and sponsorship
programs and was not a significant source of the revenue
increase. Licensing revenue increased $7,655 or 9.4% in 2008,
compared to 2007. This increase was due to an increase in the
number of companies using WebMDs private portal platform
to 134 from 117 in the prior year. In general, pricing
remained relatively stable for WebMDs private portal
licenses and was not a significant source of the revenue
increase. WebMD also had approximately
83
140 additional customers who purchased stand-alone
decision-support services from them. Content syndication and
other revenue decreased to $1,434 in 2008 from $2,378 in 2007,
primarily as a result of the completion of certain contracts and
WebMDs decision not to seek new content syndication
business.
WebMD Online Services earnings before interest, taxes, non-cash
and other items was $95,435 in 2008, compared to $80,594 in
2007. As a percentage of revenue, earnings before interest,
taxes, non-cash and other items was 26.1% in 2008, compared to
25.7% in 2007. This increase as a percentage of revenue was due
to higher revenue from the increase in the number of brands and
sponsored programs in WebMDs public portals as well as the
increase in companies using WebMDs private online portal
without incurring a proportionate increase in overall expenses.
WebMD Publishing and Other Services. Revenue
was $16,427 in 2008, a decrease of $2,345 from 2007. The
decrease was attributable to $2,929 of lower advertising revenue
in The Little Blue Book, offset by $584 of higher
advertising in WebMD the Magazine. In general, pricing
remained relatively stable for advertising in both WebMD the
Magazine and The Little Blue Book and was not a
significant source for changes in revenue.
WebMD Publishing and Other Services earnings before interest,
taxes, non-cash and other items was $1,147 in 2008, compared to
$4,103 in 2007. This decrease was primarily attributable to
lower advertising, as noted above, which did not have a
commensurate reduction in the cost to provide and distribute.
Corporate. Corporate includes costs and
expenses for functions not directly managed by one of our
segments, including the Porex and ViPS businesses which are
reflected within discontinued operations. Corporate expenses
decreased to $19,845 or 5.2% of revenue in 2008, compared to
$24,502 or 7.4% of revenue in 2007. The decrease in our
Corporate segment was due to lower personnel and other costs and
expenses associated with our overall management of HLTH and our
subsidiaries, including certain insurance, professional and
information technology costs. These lower costs and expenses
were achievable due the reduction in our corporate
infrastructure following the sales of EPS and EBS and the
related wind down of our responsibilities under our transition
services agreements with those entities. Offsetting the
reduction in expenses is a net reduction of transition service
income of $5,498 in 2008, as compared to 2007. The transition
services income is lower in 2008, as compared to 2007, as a
result of the completion of the transition services agreement
with Sage Software during the fourth quarter of 2007 as well as
fewer services performed under the EBSCo agreement in 2008 as
compared to 2007.
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 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.
84
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 provided 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. 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.
Liquidity
and Capital Resources
Cash
Flows
Cash provided by operating activities from our continuing
operations was $65,963 in 2008, compared to $47,896 in 2007. The
$18,067 increase in cash provided by operating activities from
our continuing operations when compared to a year ago primarily
relates to the period-over-period increase of the continuing
operating activities of our WebMD Segments in the amount of
$15,012. In addition, the increase in cash provided by operating
activities from our continuing operations when compared to a
year ago relates to the timing of tax payments for the sale of
our EBS segment in the latter part of 2006 that were paid during
2007.
Cash provided by investing activities from our continuing
operations was $718,264 in 2008, compared to cash used in
investing activities from our continuing operations of $242,408
in 2007. Cash provided by investing activities from our
continuing operations in 2008 included $574,617 of net proceeds
received from the 2008 EBSCo Sale, $223,175 of net proceeds
received from the ViPS Sale and $23,333 we received, which was
released from escrow, from the sale of our EPS segment, which
was sold in the latter part of 2006. Cash provided by investing
activities from our continuing operations in 2007 included the
receipt of $18,792 in repayment of advances to EBSCo and the
receipt of 11,667, which was released from escrow, related to
the EPS Sale. Also included in cash provided by investing
activities from our continuing operations included net
disbursements of $58,811 in 2008 from net purchases of available
for sale securities, compared to disbursements $256,712 from net
purchases of available for sale securities in 2007.
85
Cash used in financing activities from our continuing operations
was $715,593 in 2008, compared to cash provided by financing
activities from our continuing operations of $92,512 in 2007.
Cash used in financing activities in 2008 principally related to
the repurchases of a total of 83.7 million shares of HLTH
Common Stock for $737,324, offset by the proceeds from the
issuance of HLTH Common Stock and WHC Class A Common Stock
(primarily resulting from exercises of employee stock options)
of $21,683. 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.
Included in our consolidated statements of cash flows are cash
flows from discontinued operations of the ViPS and Porex
segments and the ACS/ACP Business. Our cash flows provided by
operating activities from discontinued operations in 2008
included an aggregate of $23,305 related to our ViPS and Porex
segments while cash flows provided by operating activities from
discontinued operations in 2007 primarily included an aggregate
of $45,281 related to our ViPS segment, Porex segment and the
ACS/ACP Business. Also included in cash flows from discontinued
operations provided by operating activities in 2008 and 2007 is
the receipt of $44,937 during 2008 of reimbursements from our
Director & Officer insurance carriers, offset by
$37,091 and $17,784 in payments made in 2008 and 2007,
respectively, in connection with the defense costs of the
initially ten and now eight former officers and directors of our
former EPS subsidiary in connection with the investigation by
the United States Attorney for the District of South Carolina
and the SEC. For additional information, see
Introduction Background Information on Certain
Trends and Developments Directors &
Officers Liability Insurance Coverage Litigation.
Contractual
Obligations and Commitments
The following table summarizes our principal commitments as of
December 31, 2008 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 and other
obligations included in our consolidated balance sheets.
Managements estimates of the timing of future cash flows
are largely based on historical experience, and accordingly,
actual timing of cash flows may vary from these estimates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Long-term debt(a)
|
|
$
|
696,688
|
|
|
$
|
15,500
|
|
|
$
|
371,813
|
|
|
$
|
309,375
|
|
|
$
|
|
|
Operating leases(b)
|
|
|
47,086
|
|
|
|
9,030
|
|
|
|
16,329
|
|
|
|
10,287
|
|
|
|
11,440
|
|
Purchase obligations(c)
|
|
|
2,927
|
|
|
|
2,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other obligation
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
746,801
|
|
|
$
|
27,557
|
|
|
$
|
388,142
|
|
|
$
|
319,662
|
|
|
$
|
11,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Long-term debt includes our
31/8% Notes,
and our 1.75% Notes, 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.
|
|
(b)
|
|
The lease amounts are net of
sublease income.
|
|
(c)
|
|
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.
|
The above table excludes $11,478 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 18, Income
Taxes located in the Notes to Consolidated Financial
Statements included in this Annual Report.
86
Outlook
on Future Liquidity
As of December 31, 2008, we had approximately $629,848 in
consolidated cash and cash equivalents, and we owned investments
in ARS with a face value of $355,000 and a fair value of
$286,552. Our working capital, including discontinued
operations, as of December 31, 2008 was $650,536. The ARS
investments are discussed in more detail earlier in this
MD&A under Introduction Background
Information on Certain Trends and Developments
Impairment of Auction Rates Securities; Non-Recourse Credit
Facility. Based on our plans and expectations as of the
date of this Annual Report and taking into consideration issues
relating to the liquidity of our ARS investments, we believe
that our available cash resources and future cash flow from
operations will provide sufficient cash resources to meet the
cash commitments of our 1.75% Notes, our
31/8% Notes
and to fund our currently anticipated working capital and
capital expenditure requirements, for 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, implementation of new or updated
application and service offerings, competing technological and
market developments, and potential future acquisitions. In
addition, our ability to generate cash flow is subject to
numerous factors beyond our control, including general economic,
regulatory and other matters affecting us and our customers. We
plan to continue to enhance our online services and to continue
to invest in acquisitions, strategic relationships, facilities
and technological infrastructure and product development. We
intend to grow each of our existing businesses and enter into
complementary ones through both internal investments and
acquisitions. We may need to raise additional funds to support
expansion, develop new or enhanced applications and services,
respond to competitive pressures, acquire complementary
businesses or technologies or take advantage of unanticipated
opportunities. If required, we may raise such additional funds
through public or private debt or equity financing, strategic
relationships or other arrangements. We cannot assure that such
financing will be available on acceptable terms, if at all, or
that such financing will not be dilutive to our stockholders.
Future indebtedness may impose various restrictions and
covenants on us that could limit our ability to respond to
market conditions, to provide for unanticipated capital
investments or to take advantage of business opportunities.
Off-Balance
Sheet Arrangements
We have no material off-balance sheet arrangements.
Recent
Accounting Pronouncements
On May 9, 2008, the Financial Accounting Standards Board
(which we refer to as FASB) issued FASB Staff Position (which we
refer to as FSP) Accounting Principles Board (which we refer to
as APB) Opinion
No. 14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement) (which we refer to as FSP APB
14-1). The
FSP will require cash settled convertible debt to be separated
into debt and equity components at issuance and a value to be
assigned to each. The value assigned to the debt component will
be the estimated fair value, as of the issuance date, of a
similar bond without the conversion feature. The difference
between the bonds cash proceeds and this estimated fair
value will be recorded as a debt discount and amortized to
interest expense over the life of the bond. Although FSP APB
14-1 will
have no impact on our past or future cash flows, it will require
us to record a significant amount of non-cash interest expense
as the debt discount is amortized. In addition, if the
convertible debt is redeemed or converted prior to maturity, any
unamortized debt discount will result in a loss on
extinguishment. FSP APB
14-1 will
become effective January 1, 2009, and will require
retrospective application. We currently expect that the adoption
of FSP APB
14-1 will
result in the recognition of incremental non-cash interest
expense of approximately $8,000 and $7,000 for the years ended
December 31, 2008 and 2007.
On April 25, 2008, the FASB issued FSP
FAS 142-3,
Determination of the Useful Life of Intangible
Assets. This FSP amends the factors that should be
considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset
under SFAS No. 142, Goodwill and Other
Intangible Assets (which we refer to as SFAS 142).
The intent of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under SFAS 142
and the period of
87
expected cash flows used to measure the fair value of the asset
under SFAS No. 141 (Revised 2007), Business
Combinations, and other U.S. GAAP. This FSP is
effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. Early adoption is prohibited. The
adoption of this FSP may impact the useful lives we assign to
intangible assets that are acquired through future business
combinations.
In December 2007, the FASB issued SFAS No. 141
(Revised 2007), Business Combinations (which we
refer to as SFAS 141R), a replacement of
SFAS 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 SFAS 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 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 and for tax matters relating
to prior acquisitions settled subsequent to December 31,
2008.
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 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. SFAS 160 will
have an impact on the presentation and classification of our
noncontrolling interest in our financial statements included in
future filings, as well as the accounting for certain
transactions of our consolidated subsidiary that occur
subsequent to December 31, 2008.
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|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Interest
Rate Sensitivity
The primary objective of our investment activities is to
preserve principal and maintain adequate liquidity, while at the
same time maximizing the yield we receive from our investment
portfolio.
Changes in prevailing interest rates will cause the fair value
of certain of our investments to fluctuate, such as our
investments in auction rate securities that generally bear
interest at rates indexed to LIBOR. As of December 31,
2008, the fair market value of our auction rate securities was
$286.6 million. However, the fair values of our cash and
money market investments, which approximate $629.8 million
at December 31, 2008, are not subject to changes in
interest rates.
HLTH, and its majority owned subsidiary WHC have each entered
into a non-recourse credit facility (which we refer to as the
Credit Facilities) with Citigroup that is secured by their
respective ARS holdings (including, in some circumstances,
interest payable on the ARS holdings), that will allow HLTH and
WHC to
88
borrow up to 75% of the face amount of the ARS holdings pledged
as collateral under the respective Credit Facilities. The
interest rate applicable to such borrowings is one-month LIBOR
plus 250 basis points. No borrowings have been made under
either of the Credit Facilities to date.
The
31/8% Notes
and the 1.75% Notes that we have issued have fixed interest
rates; changes in interest rates will not impact our financial
condition or results of operations.
Exchange
Rate Sensitivity
Currently, substantially all of our sales and expenses are
denominated in United States dollars; however, Porex, which is
included in discontinued operations, 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
(losses) gains relating to our Porex operations were
($4.2) million, $3.3 million and $3.6 million in
2008, 2007 and 2006, 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.
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|
Item 8.
|
Financial
Statements and Supplementary Data
|
Financial
Statements
Our financial statements required by this item are contained on
pages F-1 through F-60 of this Annual Report on
Form 10-K.
See Item 15(a)(1) for a listing of financial statements
provided. As required by
Rule 3-09
of
Regulation S-X,
the financial statements for the year ended December 31,
2007 and period from November 16, 2006 to December 31,
2006 of EBS Master LLC, our formerly owned 48% equity
investment, are incorporated by reference to Exhibit 99.1
to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2007.
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Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
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|
Item 9A.
|
Controls
and Procedures
|
As required by Exchange Act
Rule 13a-15(b),
HLTH management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness
of HLTHs disclosure controls and procedures, as defined in
Exchange Act
Rule 13a-15(e),
as of December 31, 2008. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded
that HLTHs disclosure controls and procedures were
effective as of December 31, 2008.
In connection with the evaluation required by Exchange Act
Rule 13a-15(d),
HLTH management, including the Chief Executive Officer and Chief
Financial Officer, concluded that there were no changes in
HLTHs internal control over financial reporting, as
defined in Exchange Act
Rule 13a-15(f),
during the fourth quarter of 2008 that have materially affected,
or are reasonably likely to materially affect, HLTHs
internal control over financial reporting.
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Item 9B.
|
Other
Information
|
None.
89
PART III
Information required by Items 10, 11, 12, 13 and 14 of
Part III is omitted from this Annual Report and will be
filed in a definitive proxy statement or by an amendment to this
Annual Report not later than 120 days after the end of the
fiscal year covered by this Annual Report.
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|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
We will provide information that is responsive to this
Item 10 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report,
in either case under the caption Directors and Executive
Officers, and possibly elsewhere therein. That information
is incorporated in this Item 10 by reference.
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|
Item 11.
|
Executive
Compensation
|
We will provide information that is responsive to this
Item 11 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report,
in either case under the caption Executive
Compensation, and possibly elsewhere therein. That
information is incorporated in this Item 11 by reference.
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Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
We will provide information that is responsive to this
Item 12 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report,
in either case under the caption Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters, and possibly elsewhere therein. That information
is incorporated in this Item 12 by reference.
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|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
We will provide information that is responsive to this
Item 13 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report,
in either case under the caption Certain Relationships and
Related Transactions, and possibly elsewhere therein. That
information is incorporated in this Item 13 by reference.
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|
Item 14.
|
Principal
Accountant Fees and Services
|
We will provide information that is responsive to this
Item 14 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report,
in either case under the caption Services and Fees of
Ernst & Young, and possibly elsewhere therein.
That information is incorporated in this Item 14 by
reference.
90
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)(1)-(2) Financial Statements and Schedules
The financial statements and schedules listed in the
accompanying Index to Consolidated Financial Statements and
Supplemental Data on
page F-1
are filed as part of this Report.
(a)(3) Exhibits
See Index to Exhibits beginning on
page E-1,
which is incorporated by reference herein. The Index to Exhibits
lists all exhibits filed with this Report and identifies which
of those exhibits are management contracts and compensation
plans.
91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 27th day of
February, 2009
HLTH CORPORATION
Mark D. Funston
Executive Vice President and Chief Financial Officer
POWER OF
ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints jointly and
severally, Mark D. Funston, Lewis H. Leicher and Charles A.
Mele, and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to
sign any and all amendments to this Annual Report on
Form 10-K
and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said
attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
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|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Martin
J. Wygod
Martin
J. Wygod
|
|
Director; Acting Chief Executive Officer (principal executive
officer)
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Mark
D. Funston
Mark
D. Funston
|
|
Executive Vice President and Chief Financial Officer (principal
financial and accounting officer)
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Mark
J. Adler, M.D.
Mark
J. Adler, M.D.
|
|
Director
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Paul
A. Brooke
Paul
A. Brooke
|
|
Director
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Kevin
M. Cameron
Kevin
M. Cameron
|
|
Director
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Neil
F. Dimick
Neil
F. Dimick
|
|
Director
|
|
February 27, 2009
|
92
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ James
V. Manning
James
V. Manning
|
|
Director
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Herman
Sarkowsky
Herman
Sarkowsky
|
|
Director
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Joseph
E. Smith
Joseph
E. Smith
|
|
Director
|
|
February 27, 2009
|
93
The following financial statements of the Company and its
subsidiaries required to be included in Item 15(a)(1) of
Form 10-K
are listed below:
|
|
|
|
|
|
|
Page
|
|
Historical Financial Statements:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-10
|
|
Supplemental Financial Data:
|
|
|
|
|
The following supplementary financial data of the Registrant and
its subsidiaries required to be included in Item 15(a)(2)
of
Form 10-K
are listed below:
|
|
|
|
|
|
|
|
S-1
|
|
All other schedules not listed above have been omitted as not
applicable or because the required information is included in
the Consolidated Financial Statements or in the notes thereto.
Columns omitted from the schedule filed have been omitted
because the information is not applicable.
F-1
REPORT OF
MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management of 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:
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|
|
|
|
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, 2008. 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, 2008.
Ernst & Young LLP, the independent registered public
accounting firm that audited and reported on the Companys
financial statements as of December 31, 2008 and 2007 and
for each of the three years in the period ended
December 31, 2008, has audited the Companys internal
control over financial reporting as of December 31, 2008,
as stated in their report which appears on
page F-3.
February 26, 2009
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of HLTH Corporation.
We have audited HLTH Corporations internal control over
financial reporting as of December 31, 2008, 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, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of HLTH Corporation as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the three years in the period ended
December 31, 2008 of HLTH Corporation and our report dated
February 26, 2009 expressed an unqualified opinion thereon.
Ernst & Young LLP
New York, New York
February 26, 2009
F-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 as of December 31, 2008 and 2007, and the
related consolidated statements of operations,
stockholders equity and cash flows for each of the three
years in the period ended December 31, 2008. Our audits
also included the financial statement schedule listed in the
Index at Item 15(a). 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 at December 31, 2008
and 2007, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in Note 2 to the consolidated financial
statements, effective January 1, 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, 2008, 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 26, 2009 expressed an unqualified
opinion thereon.
Ernst & Young LLP
New York, New York
February 26, 2009
F-4
HLTH
CORPORATION
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
629,848
|
|
|
$
|
536,879
|
|
Short-term investments
|
|
|
371
|
|
|
|
290,858
|
|
Accounts receivable, net of allowance for doubtful accounts of
$1,301 at December 31, 2008 and $1,165 at December 31, 2007
|
|
|
94,140
|
|
|
|
86,081
|
|
Due from EBS Master LLC
|
|
|
|
|
|
|
1,224
|
|
Prepaid expenses and other current assets
|
|
|
40,811
|
|
|
|
71,090
|
|
Assets of discontinued operations
|
|
|
118,775
|
|
|
|
262,964
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
883,945
|
|
|
|
1,249,096
|
|
Investments
|
|
|
288,049
|
|
|
|
2,383
|
|
Property and equipment, net
|
|
|
56,731
|
|
|
|
49,554
|
|
Goodwill
|
|
|
213,148
|
|
|
|
217,323
|
|
Intangible assets, net
|
|
|
32,690
|
|
|
|
36,314
|
|
Investment in EBS Master LLC
|
|
|
|
|
|
|
25,261
|
|
Other assets
|
|
|
24,465
|
|
|
|
71,466
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,499,028
|
|
|
$
|
1,651,397
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
54,708
|
|
|
$
|
49,598
|
|
Deferred revenue
|
|
|
80,489
|
|
|
|
76,401
|
|
Liabilities of discontinued operations
|
|
|
98,212
|
|
|
|
123,131
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
233,409
|
|
|
|
249,130
|
|
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
|
|
|
22,664
|
|
|
|
21,137
|
|
Minority interest in WHC
|
|
|
134,223
|
|
|
|
131,353
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 5,000,000 shares
authorized; no shares outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 900,000,000 shares
authorized; 458,284,729 shares issued at December 31,
2008; 457,803,361 shares issued at December 31, 2007
|
|
|
46
|
|
|
|
46
|
|
Additional paid-in capital
|
|
|
12,507,729
|
|
|
|
12,479,574
|
|
Treasury stock, at cost; 356,910,193 shares at
December 31, 2008; 275,786,634 shares at
December 31, 2007
|
|
|
(3,292,997
|
)
|
|
|
(2,564,948
|
)
|
Accumulated deficit
|
|
|
(8,755,459
|
)
|
|
|
(9,320,748
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
(587
|
)
|
|
|
5,853
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
458,732
|
|
|
|
599,777
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
1,499,028
|
|
|
$
|
1,651,397
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
HLTH
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenue
|
|
$
|
382,697
|
|
|
$
|
331,693
|
|
|
$
|
908,927
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
138,363
|
|
|
|
117,281
|
|
|
|
545,706
|
|
Sales and marketing
|
|
|
108,316
|
|
|
|
93,645
|
|
|
|
119,103
|
|
General and administrative
|
|
|
89,503
|
|
|
|
104,321
|
|
|
|
132,334
|
|
Depreciation and amortization
|
|
|
28,780
|
|
|
|
28,256
|
|
|
|
44,558
|
|
Interest income
|
|
|
35,300
|
|
|
|
42,035
|
|
|
|
32,339
|
|
Interest expense
|
|
|
18,513
|
|
|
|
18,593
|
|
|
|
18,794
|
|
Gain on sale of EBS Master LLC
|
|
|
538,024
|
|
|
|
|
|
|
|
|
|
Impairment of auction rate securities
|
|
|
60,108
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
7,416
|
|
|
|
|
|
|
|
|
|
Gain on 2006 EBS Sale
|
|
|
|
|
|
|
399
|
|
|
|
352,297
|
|
Other (expense) income, net
|
|
|
(5,949
|
)
|
|
|
3,406
|
|
|
|
(4,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax provision
(benefit)
|
|
|
499,073
|
|
|
|
15,437
|
|
|
|
428,816
|
|
Income tax provision (benefit)
|
|
|
30,251
|
|
|
|
(8,741
|
)
|
|
|
50,389
|
|
Minority interest in WHC
|
|
|
1,032
|
|
|
|
10,667
|
|
|
|
405
|
|
Equity in earnings of EBS Master LLC
|
|
|
4,007
|
|
|
|
28,566
|
|
|
|
763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
471,797
|
|
|
|
42,077
|
|
|
|
378,785
|
|
Income (loss) from discontinued operations, (net of tax of
$2,370, $(5,206) and $36,531 in 2008, 2007 and 2006)
|
|
|
93,492
|
|
|
|
(22,198
|
)
|
|
|
393,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
565,289
|
|
|
$
|
19,879
|
|
|
$
|
771,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.70
|
|
|
$
|
0.24
|
|
|
$
|
1.36
|
|
Income (loss) from discontinued operations
|
|
|
0.53
|
|
|
|
(0.13
|
)
|
|
|
1.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3.23
|
|
|
$
|
0.11
|
|
|
$
|
2.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.19
|
|
|
$
|
0.21
|
|
|
$
|
1.20
|
|
Income (loss) from discontinued operations
|
|
|
0.43
|
|
|
|
(0.12
|
)
|
|
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2.62
|
|
|
$
|
0.09
|
|
|
$
|
2.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding used in computing income
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
174,928
|
|
|
|
179,330
|
|
|
|
279,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
220,127
|
|
|
|
188,763
|
|
|
|
331,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-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
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Balances at January 1, 2006
|
|
|
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 change in unrealized (losses) 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 change in unrealized (losses) 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
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
565,289
|
|
|
|
|
|
|
|
565,289
|
|