þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended June 30, 2011 | ||
or
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||
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Delaware (State of incorporation) |
20-2783228 (I.R.S. Employer Identification No.) |
|
111 Eighth Avenue New York, New York (Address of principal executive office) |
10011 (Zip code) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
2
| failure to achieve sufficient levels of usage of our public and private portals and mobile platforms; | |
| the inability to successfully deploy new or updated applications or services; | |
| competition in attracting consumers and healthcare professionals to our public portals and mobile platforms; | |
| competition for advertisers and sponsors for our public portals and mobile platforms; | |
| events or conditions that have a negative effect on promotional or educational spending by pharmaceutical and biotechnology companies or on the portion of that spending used for Internet-based services like ours; | |
| the inability to attract and retain qualified personnel; | |
| adverse economic conditions and disruptions in the capital markets; | |
| adverse changes in general business or regulatory conditions affecting the healthcare, information technology and Internet industries; and | |
| the other risks and uncertainties described in Part II, Item 1A of this Quarterly Report on Form 10-Q. |
3
ITEM 1. | Financial Statements |
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 1,145,061 | $ | 400,501 | ||||
Accounts receivable, net of allowance for doubtful accounts of
$1,135 at June 30, 2011 and $1,493 at December 31, 2010
|
115,214 | 134,448 | ||||||
Prepaid expenses and other current assets
|
17,913 | 12,161 | ||||||
Deferred tax assets
|
21,527 | 23,467 | ||||||
Total current assets
|
1,299,715 | 570,577 | ||||||
Property and equipment, net
|
58,290 | 61,516 | ||||||
Goodwill
|
202,104 | 202,104 | ||||||
Intangible assets, net
|
21,313 | 22,626 | ||||||
Deferred tax assets
|
63,827 | 71,125 | ||||||
Other assets
|
33,420 | 14,254 | ||||||
TOTAL ASSETS
|
$ | 1,678,669 | $ | 942,202 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities:
|
||||||||
Accrued expenses
|
$ | 56,701 | $ | 53,181 | ||||
Deferred revenue
|
95,999 | 97,043 | ||||||
Liabilities of discontinued operations
|
4,804 | 17,327 | ||||||
Total current liabilities
|
157,504 | 167,551 | ||||||
2.25% convertible notes due 2016
|
400,000 | | ||||||
2.50% convertible notes due 2018
|
400,000 | | ||||||
Other long-term liabilities
|
22,401 | 21,756 | ||||||
Commitments and contingencies | ||||||||
Stockholders equity: | ||||||||
Preferred stock, 50,000,000 shares authorized; no shares
issued and outstanding
|
| | ||||||
Common stock, $0.01 par value per share,
650,000,000 shares authorized; 62,404,951 shares
issued at June 30, 2011 and 62,401,272 shares issued
at December 31, 2010
|
624 | 624 | ||||||
Additional paid-in capital
|
9,453,815 | 9,462,373 | ||||||
Treasury stock, at cost; 4,061,612 shares at June 30,
2011 and 2,485,391 shares at December 31, 2010
|
(216,302 | ) | (129,589 | ) | ||||
Accumulated deficit
|
(8,539,373 | ) | (8,580,513 | ) | ||||
Stockholders equity
|
698,764 | 752,895 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
$ | 1,678,669 | $ | 942,202 | ||||
4
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue
|
$ | 141,369 | $ | 122,707 | $ | 272,978 | $ | 230,737 | ||||||||
Cost of operations
|
51,152 | 45,368 | 99,601 | 88,362 | ||||||||||||
Sales and marketing
|
32,270 | 29,425 | 64,564 | 57,832 | ||||||||||||
General and administrative
|
22,006 | 20,577 | 44,827 | 39,386 | ||||||||||||
Depreciation and amortization
|
6,724 | 6,318 | 13,148 | 13,333 | ||||||||||||
Interest income
|
51 | 420 | 67 | 3,829 | ||||||||||||
Interest expense
|
5,833 | 3,170 | 8,974 | 8,309 | ||||||||||||
Loss on convertible notes
|
| 11,011 | | 14,738 | ||||||||||||
Gain (loss) on investments
|
1,769 | 6,002 | 15,829 | (22,846 | ) | |||||||||||
Other income (expense), net
|
| 99 | (53 | ) | (199 | ) | ||||||||||
Income (loss) from continuing operations before income tax
provision (benefit)
|
25,204 | 13,359 | 57,707 | (10,439 | ) | |||||||||||
Income tax provision (benefit)
|
11,003 | 5,675 | 23,961 | (14,333 | ) | |||||||||||
Income from continuing operations
|
14,201 | 7,684 | 33,746 | 3,894 | ||||||||||||
Income from discontinued operations, net of a tax provision of
$4,812 for the three and six months ended June 30, 2011
|
7,394 | | 7,394 | | ||||||||||||
Net income
|
$ | 21,595 | $ | 7,684 | $ | 41,140 | $ | 3,894 | ||||||||
Basic income per common share:
|
||||||||||||||||
Income from continuing operations
|
$ | 0.24 | $ | 0.14 | $ | 0.58 | $ | 0.07 | ||||||||
Income from discontinued operations
|
0.13 | | 0.12 | | ||||||||||||
Net income
|
$ | 0.37 | $ | 0.14 | $ | 0.70 | $ | 0.07 | ||||||||
Diluted income per common share:
|
||||||||||||||||
Income from continuing operations
|
$ | 0.23 | $ | 0.13 | $ | 0.55 | $ | 0.07 | ||||||||
Income from discontinued operations
|
0.13 | | 0.13 | | ||||||||||||
Net income
|
$ | 0.36 | $ | 0.13 | $ | 0.68 | $ | 0.07 | ||||||||
Weighted-average shares outstanding used in computing per share
amounts:
|
||||||||||||||||
Basic
|
58,096 | 53,521 | 58,140 | 52,856 | ||||||||||||
Diluted
|
60,236 | 62,504 | 60,473 | 57,272 | ||||||||||||
5
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 41,140 | $ | 3,894 | ||||
Adjustments to reconcile consolidated net income to net cash
provided by operating activities:
|
||||||||
Income from discontinued operations, net of tax
|
(7,394 | ) | | |||||
Depreciation and amortization
|
13,148 | 13,333 | ||||||
Non-cash interest, net
|
1,599 | 3,885 | ||||||
Non-cash stock-based compensation
|
19,161 | 14,801 | ||||||
Deferred income taxes
|
4,423 | (27,729 | ) | |||||
Loss on convertible notes
|
| 14,738 | ||||||
(Gain) loss on investments
|
(15,829 | ) | 22,846 | |||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
19,234 | 13,248 | ||||||
Prepaid expenses and other, net
|
(2,103 | ) | (2,144 | ) | ||||
Accrued expenses and other long-term liabilities
|
4,765 | (4,801 | ) | |||||
Deferred revenue
|
(1,044 | ) | 14,596 | |||||
Net cash provided by continuing operations
|
77,100 | 66,667 | ||||||
Net cash used in discontinued operations
|
(136 | ) | (15,501 | ) | ||||
Net cash provided by operating activities
|
76,964 | 51,166 | ||||||
Cash flows from investing activities:
|
||||||||
Proceeds from sales of
available-for-sale
securities
|
| 361,852 | ||||||
Proceeds received from ARS option
|
16,561 | 354 | ||||||
Purchases of property and equipment
|
(9,557 | ) | (9,719 | ) | ||||
Finalization of sale price of discontinued operations
|
| (1,430 | ) | |||||
Net cash provided by investing activities
|
7,004 | 351,057 | ||||||
Cash flows from financing activities:
|
||||||||
Proceeds from exercise of stock options
|
25,053 | 48,114 | ||||||
Cash used for withholding taxes due on stock-based awards
|
(6,632 | ) | (39,728 | ) | ||||
Net proceeds from issuance of 2.50% Notes and
2.25% Notes
|
774,745 | | ||||||
Repurchases of 1.75% Notes and
31/8% Notes
|
| (81,362 | ) | |||||
Purchases of treasury stock
|
(150,417 | ) | (264,527 | ) | ||||
Excess tax benefit on stock-based awards
|
17,843 | 10,219 | ||||||
Net cash provided by (used in) financing activities
|
660,592 | (327,284 | ) | |||||
Net increase in cash and cash equivalents
|
744,560 | 74,939 | ||||||
Cash and cash equivalents at beginning of period
|
400,501 | 459,766 | ||||||
Cash and cash equivalents at end of period
|
$ | 1,145,061 | $ | 534,705 | ||||
6
1. | Summary of Significant Accounting Policies |
7
8
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator:
|
||||||||||||||||
Income from continuing operations
|
$ | 14,201 | $ | 7,684 | $ | 33,746 | $ | 3,894 | ||||||||
Effect of participating non-vested restricted stock
|
(91 | ) | (88 | ) | (255 | ) | (50 | ) | ||||||||
Income from continuing operations- Basic
|
14,110 | 7,596 | 33,491 | 3,844 | ||||||||||||
Interest expense on 1.75% Notes, net of tax
|
| 592 | | | ||||||||||||
Income from continuing operations- Diluted
|
$ | 14,110 | $ | 8,188 | $ | 33,491 | $ | 3,844 | ||||||||
Income from discontinued operations, net of tax
|
$ | 7,394 | $ | | $ | 7,394 | $ | | ||||||||
Effect of participating non-vested restricted stock
|
(47 | ) | | (56 | ) | | ||||||||||
Income from discontinued operations, net of tax
Basic and Diluted
|
$ | 7,347 | $ | | $ | 7,338 | $ | | ||||||||
Denominator:
|
||||||||||||||||
Weighted-average shares Basic
|
58,096 | 53,521 | 58,140 | 52,856 | ||||||||||||
Employee stock options and restricted stock
|
2,140 | 3,848 | 2,333 | 4,416 | ||||||||||||
1.75% Notes
|
| 5,135 | | | ||||||||||||
Adjusted weighted-average shares after assumed
conversions Diluted
|
60,236 | 62,504 | 60,473 | 57,272 | ||||||||||||
Basic income per common share:
|
||||||||||||||||
Income from continuing operations
|
$ | 0.24 | $ | 0.14 | $ | 0.58 | $ | 0.07 | ||||||||
Income from discontinued operations
|
0.13 | | 0.12 | | ||||||||||||
Net income
|
$ | 0.37 | $ | 0.14 | $ | 0.70 | $ | 0.07 | ||||||||
Diluted income per common share:
|
||||||||||||||||
Income from continuing operations
|
$ | 0.23 | $ | 0.13 | $ | 0.55 | $ | 0.07 | ||||||||
Income from discontinued operations
|
0.13 | | 0.13 | | ||||||||||||
Net income
|
$ | 0.36 | $ | 0.13 | $ | 0.68 | $ | 0.07 | ||||||||
9
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Options and restricted stock
|
2,408 | 2,133 | 2,162 | 2,894 | ||||||||||||
Convertible notes
|
11,477 | 3,700 | 8,970 | 11,346 | ||||||||||||
13,885 | 5,833 | 11,132 | 14,240 | |||||||||||||
10
2. | Discontinued Operations |
11
3. | Convertible Notes |
12
13
4. | Related Party Transaction |
5. | Fair Value of Financial Instruments and Non-Recourse Credit Facilities |
Level 1: | Observable inputs such as quoted market prices in active markets for identical assets or liabilities. |
Level 3: | Unobservable inputs for which there is little or no market data, which require the use of the reporting entitys own assumptions. |
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||
Fair Value |
Amortized |
Gross |
Amortized |
Gross |
||||||||||||||||||||||||
Estimate |
Cost |
Fair |
Unrealized |
Cost |
Fair |
Unrealized |
||||||||||||||||||||||
Using: | Basis | Value | Gains | Basis | Value | Gains | ||||||||||||||||||||||
Cash and cash equivalents
|
Level 1 | $ | 1,145,061 | $ | 1,145,061 | $ | | $ | 400,501 | $ | 400,501 | $ | | |||||||||||||||
ARS Option
|
Level 3 | 3,513 | 3,513 | | 4,245 | 4,245 | |
Six Months Ended June 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
ARS |
ARS |
Auction Rate |
Senior |
|||||||||||||
Option | Option | Securities | Secured Notes | |||||||||||||
Fair value as of the beginning of the period
|
$ | 4,245 | $ | | $ | 279,701 | $ | 63,826 | ||||||||
Redemptions
|
(16,561 | ) | (354 | ) | (290,999 | ) | (65,475 | ) | ||||||||
Gain (loss) included in earnings
|
15,829 | 1,383 | (29,508 | ) | 1,362 | |||||||||||
Interest income accretion included in earnings
|
| | | 287 | ||||||||||||
Changes in unrealized gains/losses included in other
comprehensive income
|
| | 40,806 | | ||||||||||||
Fair value as of the end of the period
|
$ | 3,513 | $ | 1,029 | $ | | $ | | ||||||||
14
15
16
Carrying Amount | Fair Value | |||||||
2.25% Notes
|
$ | 400,000 | $ | 382,656 | ||||
2.50% Notes
|
400,000 | 387,900 |
6. | Comprehensive Income |
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Unrealized holding gains
|
$ | | $ | | $ | | $ | 13,177 | ||||||||
Unrealized (gains) losses recognized in earnings
|
| (5,260 | ) | | 24,248 | |||||||||||
Other comprehensive (loss) income
|
| (5,260 | ) | | 37,425 | |||||||||||
Net income
|
21,595 | 7,684 | 41,140 | 3,894 | ||||||||||||
Comprehensive income
|
$ | 21,595 | $ | 2,424 | $ | 41,140 | $ | 41,319 | ||||||||
7. | Stock Repurchase Program, 2010 Tender Offers and Other Repurchases |
17
8. | Intangible Assets |
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Weighted |
Weighted |
|||||||||||||||||||||||||||||||
Gross |
Average |
Gross |
Average |
|||||||||||||||||||||||||||||
Carrying |
Accumulated |
Remaining |
Carrying |
Accumulated |
Remaining |
|||||||||||||||||||||||||||
Amount | Amortization | Net | Useful Life(a) | Amount | Amortization | Net | Useful Life(a) | |||||||||||||||||||||||||
Content
|
$ | 15,954 | $ | (15,954 | ) | | | $ | 15,954 | $ | (15,954 | ) | | | ||||||||||||||||||
Customer relationships
|
34,057 | (19,806 | ) | 14,251 | 7.0 | 34,057 | (18,760 | ) | 15,297 | 7.5 | ||||||||||||||||||||||
Technology and patents
|
14,700 | (14,700 | ) | | | 14,700 | (14,700 | ) | | | ||||||||||||||||||||||
Trade names-definite lives
|
6,030 | (3,432 | ) | 2,598 | 4.9 | 6,030 | (3,165 | ) | 2,865 | 5.4 | ||||||||||||||||||||||
Trade names-indefinite lives
|
4,464 | | 4,464 | n/a | 4,464 | | 4,464 | n/a | ||||||||||||||||||||||||
Total
|
$ | 75,205 | $ | (53,892 | ) | $ | 21,313 | $ | 75,205 | $ | (52,579 | ) | $ | 22,626 | ||||||||||||||||||
(a) | The calculation of the weighted average remaining useful life is based on the net book value and the remaining amortization period of each respective intangible asset. |
Year Ending December 31:
|
||||
2011
(July 1st
to
December 31st)
|
$ | 1,313 | ||
2012
|
$ | 2,627 | ||
2013
|
$ | 2,627 | ||
2014
|
$ | 2,627 | ||
2015
|
$ | 2,617 | ||
Thereafter
|
$ | 5,038 |
9. | Commitments and Contingencies |
18
19
20
21
10. | Stock-Based Compensation |
22
Weighted |
||||||||||||||||
Weighted |
Average |
|||||||||||||||
Average |
Remaining |
Aggregate |
||||||||||||||
Exercise Price |
Contractual |
Intrinsic |
||||||||||||||
Shares | per Share | Life (In Years) | Value(1) | |||||||||||||
Outstanding at January 1, 2011
|
10,227,755 | $ | 30.79 | |||||||||||||
Granted
|
784,600 | 50.04 | ||||||||||||||
Exercised
|
(1,387,964 | ) | 27.33 | |||||||||||||
Cancelled
|
(308,895 | ) | 32.17 | |||||||||||||
Outstanding at June 30, 2011
|
9,315,496 | $ | 32.88 | 7.3 | $ | 127,528 | ||||||||||
Vested and exercisable at the end of the period
|
3,750,526 | $ | 30.08 | 5.9 | $ | 60,611 | ||||||||||
(1) | The aggregate intrinsic value is based on the market price of the Companys Common Stock on June 30, 2011, which was $45.58, less the applicable exercise price of the underlying option. This aggregate intrinsic value represents the amount that would have been realized if all the option holders had exercised their options on June 30, 2011. |
23
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Expected dividend yield
|
0.0 | % | 0.0 | % | ||||
Expected volatility
|
0.31 | 0.35 | ||||||
Risk-free interest rate
|
1.75 | % | 1.47 | % | ||||
Expected term (years)
|
4.7 | 3.5 | ||||||
Weighted average fair value of options granted during the period
|
$ | 14.76 | $ | 11.56 |
Weighted |
||||||||
Average |
||||||||
Grant Date |
||||||||
Shares | Fair Value | |||||||
Balance at January 1, 2011
|
1,106,751 | $ | 33.13 | |||||
Granted
|
227,000 | 50.68 | ||||||
Vested
|
(200,868 | ) | 32.23 | |||||
Forfeited
|
(30,750 | ) | 30.90 | |||||
Balance at June 30, 2011
|
1,102,133 | $ | 36.98 | |||||
24
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Stock options
|
$ | 6,050 | $ | 4,848 | $ | 12,673 | $ | 10,635 | ||||||||
Restricted stock
|
3,211 | 2,022 | 6,315 | 3,980 | ||||||||||||
Other
|
87 | 94 | 173 | 186 | ||||||||||||
Total stock-based compensation expense
|
$ | 9,348 | $ | 6,964 | $ | 19,161 | $ | 14,801 | ||||||||
Included in:
|
||||||||||||||||
Cost of operations
|
$ | 1,856 | $ | 1,475 | $ | 3,959 | $ | 3,264 | ||||||||
Sales and marketing
|
2,188 | 1,689 | 4,579 | 3,882 | ||||||||||||
General and administrative
|
5,304 | 3,800 | 10,623 | 7,655 | ||||||||||||
Total stock-based compensation expense
|
$ | 9,348 | $ | 6,964 | $ | 19,161 | $ | 14,801 | ||||||||
11. | Other Income (Expense), Net |
Six Months |
||||||||||||||||
Ended |
||||||||||||||||
Three Months Ended June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Reduction of tax
contingencies(a)
|
$ | | $ | 178 | $ | | $ | 356 | ||||||||
Legal
expense(b)
|
| (79 | ) | (53 | ) | (555 | ) | |||||||||
Other income (expense), net
|
$ | | $ | 99 | $ | (53 | ) | $ | (199 | ) | ||||||
(a) | Represents the reduction of certain sales and use tax contingencies resulting from the expiration of various statutes of limitations. | |
(b) | Represents the costs and expenses incurred by the Company related to the investigation by the United States Attorney for the District of South Carolina and the SEC and the related Coverage Litigation. |
25
ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
| Introduction. This section provides: a general description of our company and its business; background information on certain trends, transactions and other developments affecting our company; and a discussion of how seasonal factors may impact the timing of our revenue. | |
| Critical Accounting Estimates and Policies. This section discusses those accounting policies that are considered important to the evaluation and reporting of our financial condition and results of operations, and whose application requires us to exercise subjective and often complex judgments in making estimates and assumptions. In addition, all of our significant accounting policies, including our critical accounting policies, are summarized in Note 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (which we refer to as the SEC). | |
| Results of Operations and Supplemental Financial and Operating Information. These sections provide our analysis and outlook for the significant line items on our statements of operations, as well as other information that we deem meaningful to understand our results of operations on a consolidated basis. | |
| Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments that existed as of June 30, 2011. | |
| 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. |
26
| Use of the Internet by Consumers and Physicians. The Internet has emerged as a major communications medium and has already fundamentally changed many sectors of the economy, including the marketing and sales of financial services, travel, and entertainment, among others. The Internet is also changing the healthcare industry and has transformed how consumers and physicians find and utilize healthcare information. |
| Healthcare consumers increasingly seek to educate themselves online about their healthcare-related issues, motivated in part by the 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 has also become a primary source of information for physicians seeking to improve clinical practice and is growing relative to traditional information sources, such as conferences, meetings and offline journals. |
| Increased Online Marketing and Education Spending for Healthcare Products. Pharmaceutical, biotechnology and medical device companies spend large amounts each year marketing their products and educating consumers and physicians about them; however, only a small portion 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. In addition, in an effort to improve operating efficiencies, some pharmaceutical companies have been reducing their field sales forces in the past several years. We believe that, in their effort to achieve greater overall marketing efficiency, pharmaceutical companies will continue to increase the use of online promotional marketing to physicians and other healthcare professionals, including through the use of our services. However, notwithstanding our general expectation for increased demand, our advertising and sponsorship revenue may vary significantly from quarter to quarter due to a number of factors, including general economic and regulatory conditions and the following: |
| The majority of our advertising and sponsorship contracts are for terms of approximately four to twelve months. We have relatively few longer term advertising and sponsorship contracts. | |
| The time between the date of initial contact with a potential advertiser or sponsor regarding a specific program and the execution of a contract with the advertiser or sponsor for that program, as well as the additional time period before our services are delivered, 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, including internal approvals relating to compliance with the laws and regulations applicable to the marketing of healthcare products. Recently, we have been experiencing a lengthening of this internal review process by pharmaceutical companies, which has |
27
resulted in delays in contracting as well as delays in recognizing expected revenue under executed contracts and which may continue to cause such delays. |
| Reaching Health-Conscious Consumers. More than half of the traffic to our consumer portals is in areas of health and wellness that are not related solely to diseases and conditions. The demand for reaching health-conscious consumers is growing significantly. In addition to pharmaceutical, biotechnology and medical device companies, our public portals advertisers and sponsors include consumer products companies whose products relate to health, wellness, diet, fitness, lifestyle, safety and illness prevention. During 2010 and the first half of 2011, we supported a growing number of consumer product company clients and retailers. We plan to continue to focus on increasing sponsorship revenues from consumer products companies, retailers and other companies that are interested in communicating health-related or safety-related information about their products or services to our audience. However, our services for these clients are subject to competition from traditional media, Internet search engines, social media Internet sites, general purpose consumer sites, and numerous other alternatives. 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. Accordingly, this portion of our business may develop more slowly than we expect and may be subject to significant quarter-to-quarter variations. | |
| Use of Health and Benefits Applications. In a healthcare market where a greater share of the responsibility for healthcare costs and decision-making has been shifting to consumers, use of information technology to assist consumers in making informed decisions about healthcare has also increased. We believe that through our WebMD Health and Benefits Manager tools, including our personal health record application, we are well positioned to play a role in this environment. However, our strategy depends, in part, on increasing usage of our private portal services by our employer and health plan clients employees and members and being able to demonstrate a sufficient return on investment and other benefits for our private portals clients from those services. Increasing usage of our private portal services requires us to continue to 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 that have been adversely affected by general economic conditions, we may continue to experience some reductions in initial contracts, contract expansions and contract renewals for our private portal services, as well as reductions in the size of existing contracts. | |
| Developments in Social Media and Other Applications. In the past several years, video and multi-media applications have become an increasingly important part of what users expect from Internet sites. In addition, consumers are increasingly using the Internet to access social media as a means to communicate and exchange information, including regarding health and wellness. Similarly, physicians and other healthcare professionals are increasingly participating in condition or topic specific community groups and other interactive applications. Consumers and healthcare professionals are also increasingly using mobile devices to access the Internet, with physicians increasingly using mobile devices in diagnosis and treatment at the point of care. Mobile, while not yet a meaningful revenue source for us, is expected to be an important area of growth for the future. We are focused on |
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delivering a multi-screen platform that extends the user experience beyond the desktop portal onto the mobile device. We have invested and intend to continue to invest in software and systems that allow us to meet the demands of our users and sponsors, including customized content management and publishing technology to deliver interactive content, multimedia programming and personalized health applications that engage our users. The following are some of our recent and current initiatives to improve the user experience on our Websites, expand our services and increase our user base: |
| Physician Connect, our social networking platform for physicians, allows them to exchange information online on a range of topics, including patient care, drug information, healthcare-related legislation and practice management. Physicians can also create polls to assess the opinions of their colleagues on a range of topics. We also offer third parties the opportunity to sponsor Physician Connect discussions and polls so that they can gain insights into physicians perspectives and areas of interest. As of June 30, 2011, Physician Connect had attracted more than 150,000 physician members. Medscape from WebMD also offers a variety of sponsored and unsponsored blogs where healthcare professionals can share their thoughts and opinions with the Medscape from WebMD community. | |
| In March 2010, we launched The WebMD Community, a social networking initiative that gives consumers the ability to connect with health experts and with other WebMD members to exchange information, experiences and support. The WebMD Community is being integrated throughout each of the core content areas of WebMD.com, giving members the ability to safely and easily connect with others on topics that are most relevant to them. In addition to expert-led communities, members are empowered to create their own communities and to exchange information with other users. The WebMD Community also enables third party sponsors to create branded experiences and to host consumer discussions on specific health and wellness topics most important to them. | |
| Medscape Mobile is a free medical application that includes Medscapes specialty-specific news, comprehensive drug information and clinical reference tools. Medscape Mobile also includes CME activities organized by specialty and designed for use on a mobile device. Medscape Mobile was launched for iPhone® and iPod touch® users in 2009, for Blackberry® users in April 2010 and for iPadtm and Androidtm users in January 2011. As of June 30, 2011, Medscape Mobile had attracted approximately 1.3 million registered users. | |
| WebMD for iPhone and WebMD for iPad are free applications for consumers that provide mobile access to certain WebMD content and tools on an iPhone® or iPadtm, including Symptom Checker, First Aid, and Pill Identifier applications, as well as other health information. As of July 31, 2011, these applications had been downloaded approximately 5.3 million times. We also provide the entire mobile audience with access to our consumer content and tools through our new mobile site at www.m.webmd.com. | |
| We are pursuing opportunities to expand the reach of our brands 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. In October 2009, we launched our first major consumer portal outside the United States in partnership with Boots, the UKs leading pharmacy-led health and beauty retailer. In addition, in certain markets outside of the U.S., we expect to provide some of our online services directly to healthcare professionals and, to a lesser extent, consumers. |
| Healthcare Reform Legislation. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (which we refer to as the Reform Legislation), was signed into law in March 2010. The Reform Legislation makes extensive changes to the system of healthcare insurance and benefits in the U.S. In general, the Reform Legislation seeks to reduce healthcare costs and decrease the number of uninsured legal U.S. residents by, among other things, requiring individuals to carry, and certain employers to offer, health insurance or be subject to penalties. The Reform Legislation also imposes new regulations on health insurers, including guaranteed coverage requirements, prohibitions on certain annual and all lifetime limits on amounts paid on behalf of or to |
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plan members, increased restrictions on rescinding coverage, establishment of minimum medical loss ratio requirements, a requirement to cover certain preventive services on a first dollar basis, the establishment of state insurance exchanges and essential benefit packages, and greater limitations on how health insurers price certain of their products. The Reform Legislation also contains provisions that will affect the revenues and profits of pharmaceutical and medical device companies, including new taxes on certain sales of their products. Many of the provisions of the Reform Legislation that expand insurance coverage will not become effective until 2014, and many provisions require regulations and interpretive guidance to be issued before they will be fully implemented. Some provisions do not apply to health plans that were in place when the Reform Legislation was enacted and have not been substantially changed since. In addition, it is difficult to foresee how individuals and businesses will respond to the choices available to them under the Reform Legislation. Furthermore, the Reform Legislation will result in future state legislative and regulatory changes, which we are unable to predict at this time, in order for states to comply with certain provisions of the Reform Legislation and to participate in grants and other incentive opportunities. In addition, a number of parties have filed lawsuits challenging the constitutionality of certain provisions of the Reform Legislation. As of August 1, 2011, two lower federal courts have ruled that the requirement for individuals to carry insurance is unconstitutional, but three lower federal courts and one federal appeals court have upheld this provision, and the Supreme Court has rejected a request for expedited review of one of the rulings against the provision, suggesting that an extended appellate process is likely. |
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| Revenue Recognition. Revenue from advertising is recognized as advertisements are delivered or as publications are distributed. Revenue from sponsorship arrangements, content syndication and distribution arrangements, information services and licenses of healthcare management tools and private portals as well as related health coaching services are recognized ratably over the term of the applicable agreement. Revenue from the sponsorship of CME is recognized over the period that we substantially complete our contractual deliverables as determined by the applicable agreements. |
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| Long-Lived Assets. Our long-lived assets consist of property and equipment, goodwill and other intangible assets. Goodwill and other intangible assets arise from the acquisitions we have made. The amount assigned to intangible assets is subjective and based on fair value using exit price and market participant view, such as discounted cash flow and replacement cost models. Our long-lived assets, excluding goodwill and indefinite lived intangible assets, are amortized over their estimated useful lives, which we determine based on the consideration of several factors including the period of time the asset is expected to remain in service. We evaluate the carrying value and remaining useful lives of long-lived assets, excluding goodwill and indefinite lived intangible assets, whenever indicators of impairment are present. We evaluate the carrying value of goodwill and indefinite lived intangible assets annually, or whenever indicators of impairment are present. We use a discounted cash flow approach to determine the fair value of goodwill and indefinite lived intangible assets. Long-lived assets held for sale are reported at the lower of cost or fair value less cost to sell. There was no impairment of goodwill or indefinite lived intangible assets noted as a result of our impairment testing in 2010. | |
| Fair Value of Investments in Auction Rate Securities (ARS). Through April 20, 2010, we held investments in ARS which were backed by student loans, 97% guaranteed under the Federal Family Education Loan Program (FFELP), and had credit ratings of AAA or Aaa when purchased. Historically, the fair value of these ARS holdings approximated par value due to the frequent auction periods, generally every 7 to 28 days, which provided liquidity to these investments. However, since February 2008, substantially all auctions involving these securities have failed. The result of a failed auction is |
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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 develop. Additionally, approximately one-half of the auction rate securities we held were, during 2009, either downgraded below AAA or placed on watch status by one or more of the major credit rating agencies. |
| Stock-Based Compensation. Stock-based compensation expense for all share-based payment awards granted is determined based on the grant-date fair value. The grant-date fair value for stock options is estimated using the Black-Scholes Option Pricing Model. We recognize these compensation costs net of an estimated forfeiture rate on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the share-based payment awards. As of June 30, 2011, there was approximately $77.2 million of unrecognized stock-based compensation expense (net of estimated forfeitures) related to unvested stock options and restricted stock awards held by employees, which is expected to be recognized over a weighted-average period of approximately 2.7 years, related to our stock-based compensation plans. |
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| Deferred Taxes. Our deferred tax assets are comprised primarily of net operating loss carryforwards and federal tax credits. These net operating loss carryforwards and federal tax credits may be used to offset taxable income in future periods, reducing the amount of taxes we might otherwise be required to pay. A significant portion of our net deferred tax assets, including the portion related to excess tax benefits of stock-based awards, are reserved for by a valuation allowance as required by relevant accounting literature. The remaining portion of our net deferred tax assets are no longer reserved for by a valuation allowance. Management determines the need for a valuation allowance by assessing the probability of realizing deferred tax assets, taking into consideration factors including historical operating results, expectations of future earnings and taxable income. Management will continue to evaluate the need for a valuation allowance in the future. | |
| 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 (benefit). |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
$ | %(a) | $ | %(a) | $ | %(a) | $ | %(a) | |||||||||||||||||||||||||
Revenue
|
$ | 141,369 | 100.0 | $ | 122,707 | 100.0 | $ | 272,978 | 100.0 | $ | 230,737 | 100.0 | ||||||||||||||||||||
Cost of operations
|
51,152 | 36.2 | 45,368 | 37.0 | 99,601 | 36.5 | 88,362 | 38.3 | ||||||||||||||||||||||||
Sales and marketing
|
32,270 | 22.8 | 29,425 | 24.0 | 64,564 | 23.7 | 57,832 | 25.1 | ||||||||||||||||||||||||
General and administrative
|
22,006 | 15.6 | 20,577 | 16.8 | 44,827 | 16.4 | 39,386 | 17.1 | ||||||||||||||||||||||||
Depreciation and amortization
|
6,724 | 4.8 | 6,318 | 5.1 | 13,148 | 4.8 | 13,333 | 5.8 | ||||||||||||||||||||||||
Interest income
|
51 | | 420 | 0.3 | 67 | | 3,829 | 1.7 | ||||||||||||||||||||||||
Interest expense
|
5,833 | 4.1 | 3,170 | 2.6 | 8,974 | 3.3 | 8,309 | 3.6 | ||||||||||||||||||||||||
Loss on convertible notes
|
| | 11,011 | 9.0 | | | 14,738 | 6.4 | ||||||||||||||||||||||||
Gain (loss) on investments
|
1,769 | 1.3 | 6,002 | 4.9 | 15,829 | 5.8 | (22,846 | ) | (9.9 | ) | ||||||||||||||||||||||
Other income (expense), net
|
| | 99 | 0.1 | (53 | ) | | (199 | ) | (0.1 | ) | |||||||||||||||||||||
Income (loss) from continuing operations before income tax
provision (benefit)
|
25,204 | 17.8 | 13,359 | 10.9 | 57,707 | 21.1 | (10,439 | ) | (4.5 | ) | ||||||||||||||||||||||
Income tax provision (benefit)
|
11,003 | 7.8 | 5,675 | 4.6 | 23,961 | 8.8 | (14,333 | ) | (6.2 | ) | ||||||||||||||||||||||
Income from continuing operations
|
14,201 | 10.0 | 7,684 | 6.3 | 33,746 | 12.4 | 3,894 | 1.7 | ||||||||||||||||||||||||
Income from discontinued operations, net of a tax provision of
$4,812 for the three and six months ended June 30, 2011
|
7,394 | 5.2 | | | 7,394 | 2.7 | | | ||||||||||||||||||||||||
Net income
|
$ | 21,595 | 15.3 | $ | 7,684 | 6.3 | $ | 41,140 | 15.1 | $ | 3,894 | 1.7 | ||||||||||||||||||||
(a) | Amounts may not add due to rounding. |
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Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Stock-based compensation expense included in:
|
||||||||||||||||
Cost of operations
|
$ | 1,856 | $ | 1,475 | $ | 3,959 | $ | 3,264 | ||||||||
Sales and marketing
|
2,188 | 1,689 | 4,579 | 3,882 | ||||||||||||
General and administrative
|
5,304 | 3,800 | 10,623 | 7,655 | ||||||||||||
Total stock-based compensation expense
|
$ | 9,348 | $ | 6,964 | $ | 19,161 | $ | 14,801 | ||||||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue
|
||||||||||||||||
Public portal advertising and sponsorship
|
$ | 121,108 | $ | 100,592 | $ | 231,471 | $ | 186,849 | ||||||||
Private portal services
|
20,261 | 22,115 | 41,507 | 43,888 | ||||||||||||
$ | 141,369 | $ | 122,707 | $ | 272,978 | $ | 230,737 | |||||||||
Earnings before interest, taxes, non-cash and other items
(Adjusted EBITDA)
|
$ | 45,289 | $ | 34,301 | $ | 83,147 | $ | 59,958 | ||||||||
Interest, taxes, non-cash and other items
|
||||||||||||||||
Interest income
|
51 | 420 | 67 | 3,829 | ||||||||||||
Interest expense
|
(5,833 | ) | (3,170 | ) | (8,974 | ) | (8,309 | ) | ||||||||
Income tax (provision) benefit
|
(11,003 | ) | (5,675 | ) | (23,961 | ) | 14,333 | |||||||||
Depreciation and amortization
|
(6,724 | ) | (6,318 | ) | (13,148 | ) | (13,333 | ) | ||||||||
Non-cash stock-based compensation
|
(9,348 | ) | (6,964 | ) | (19,161 | ) | (14,801 | ) | ||||||||
Loss on convertible notes
|
| (11,011 | ) | | (14,738 | ) | ||||||||||
Gain (loss) on investment
|
1,769 | 6,002 | 15,829 | (22,846 | ) | |||||||||||
Other income (expense), net
|
| 99 | (53 | ) | (199 | ) | ||||||||||
Income from continuing operations
|
14,201 | 7,684 | 33,746 | 3,894 | ||||||||||||
Income from discontinued operations, net of tax
|
7,394 | | 7,394 | | ||||||||||||
Net income
|
$ | 21,595 | $ | 7,684 | $ | 41,140 | $ | 3,894 | ||||||||
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ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
ITEM 4. | Controls and Procedures |
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ITEM 1. | Legal Proceedings |
ITEM 1A. | Risk Factors |
| our ability to hire and retain qualified authors, journalists and independent writers; | |
| our ability to license quality content from third parties; and | |
| our ability to monitor and respond to increases and decreases in user interest in specific topics. |
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| Our public portals and mobile applications 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 Websites that provide health-related information, including both commercial sites and not-for-profit sites. We compete for advertisers and sponsors with: health-related Websites; general purpose consumer Websites that offer specialized health sub-channels; other high-traffic Websites 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. | |
| 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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| the timing of FDA approval for new products or for new approved uses for existing products; | |
| the timing of FDA approval of generic products that compete with existing brand name products; | |
| the timing of withdrawals of products from the market; | |
| the timing of rollouts of new or enhanced services on our public portals; | |
| seasonal factors relating to the prevalence of specific health conditions and other seasonal factors that may affect the timing of promotional campaigns for specific products; and | |
| the scheduling of conferences for physicians and other healthcare professionals. |
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| challenges caused by language and cultural differences; | |
| difficulties in staffing and managing operations from a distance; | |
| uncertainty regarding liability for services and content; | |
| burdens of complying with a wide variety of legal, regulatory and market requirements; | |
| variability of economic and political conditions, including the extent of the impact of adverse economic conditions in markets outside the United States; | |
| tariffs or other trade barriers; | |
| fluctuations in currency exchange rates; | |
| potentially adverse tax consequences, including restrictions on repatriation of earnings; and | |
| difficulties in protecting intellectual property. |
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| damage from fire, power loss and other natural disasters; | |
| communications failures; | |
| software and hardware errors, failures and crashes; | |
| security breaches, computer viruses and similar disruptive problems; and | |
| other potential service interruptions. |
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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; | |
| consolidation of healthcare industry participants; | |
| reductions in governmental funding for healthcare; and | |
| adverse changes in business or economic conditions affecting healthcare payers or providers, pharmaceutical, biotechnology or medical device companies or other healthcare industry participants. |
| changes in the design of health insurance plans; | |
| a decrease in the number of new drugs or medical devices coming to market; and | |
| 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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| 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 of our products and services or any information on The WebMD Health Network, in our mobile applications, or in WebMD the Magazine violates applicable regulations, they may take regulatory or judicial action against us and/or the advertiser or sponsor of that information. The FDA has also publicly announced that it plans in 2011 to issue regulatory guidance for the industry concerning use of the Internet and social media. State attorneys general may 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. We cannot predict what actions the FDA or industry participants may take in the future. It |
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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. |
| Anti-kickback Laws. There are federal and state laws that govern patient referrals, physician financial relationships and inducements to healthcare providers and patients. The federal healthcare programs anti-kickback law prohibits any person or entity from offering, paying, soliciting or receiving anything of value, directly or indirectly, for the referral of patients covered by Medicare, Medicaid and other federal healthcare programs or the leasing, purchasing, ordering or arranging for or recommending the lease, purchase or order of any item, good, facility or service covered by these programs. Many states also have similar anti-kickback laws that are not necessarily limited to items or services for which payment is made by a federal healthcare program. These laws are applicable to manufacturers and distributors and, therefore, may restrict how we and some of our customers market products to healthcare providers, including e-details. Any determination by a state or federal regulatory agency that any of our practices violate any of these laws could subject us to civil or criminal penalties and require us to change or terminate some portions of our business and could have an adverse effect on our business. Even an unsuccessful challenge by regulatory authorities to our practices could result in adverse publicity and be costly for us to respond to. | |
| False Claims Laws. The Federal False Claims Act imposes liability on any person or entity who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a Federal healthcare program. In addition, various states have enacted false claim laws analogous to the Federal False Claims Act, and many of these state laws apply where a claim is submitted to any third-party payor and not merely a federal healthcare program. When an entity is determined to have violated the Federal False Claims Act, it may be required to pay up to three times the actual damages sustained by the government plus civil penalties. In recent years an increasing number of Federal False Claims Act cases have been brought against drug manufacturers and resulted in significant monetary settlements and imposition of federally supervised corporate integrity agreements in circumstances that include allegations that company sponsored CME was unlawful off label promotion. Any action against us for violation of these laws could cause us to incur significant legal expenses and may adversely affect our ability to operate our business. Similarly, False Claims Act actions and resulting Corporate Integrity Agreements involving our customers may influence their willingness to continue to use our services. | |
| 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. | |
| GINA. The Genetic Information Nondiscrimination Act (GINA) prohibits discrimination based on genetic information in employment and in health insurance coverage. The law applies to our private portal customers, including both employers and group health plans. WebMDs Health Risk Assessment (or HRA), HealthQuotient, is typically offered to employees as a voluntary component of their employer-sponsored wellness program. Title I of GINA can have significant implications for wellness programs offered by group health plans in that it prohibits the collection of genetic information, which includes an individuals family medical history, prior to or in connection with enrollment or for underwriting purposes. Underwriting purposes includes providing incentives or rewards for completion of an HRA that requests genetic information. Title II of GINA prohibits employment discrimination based on genetic information as well as the request or purchase of genetic information of employees or their family members with limited exceptions, including a limited exception for voluntary wellness programs. WebMD may face challenges as a result of varying interpretations of the law by our |
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customers and by the multiple enforcing agencies including the U.S. Departments of Health and Human Services (HHS), Labor and Treasury and the Equal Employment Opportunity Commission. Interpretations of the law have required us to modify the HealthQuotient product and we could experience increases in operational costs or decreases in demand for our products. |
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| may discourage pharmaceutical companies from providing grants for independent educational activities; | |
| may slow their internal approval for such grants; | |
| 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 | |
| may require Medscape, LLC to make changes to how it offers or provides educational programs, including CME. |
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| cash and cash equivalents on hand and marketable securities; | |
| proceeds from the incurrence of indebtedness; and | |
| proceeds from the issuance of common stock, preferred stock, convertible debt or of other securities. |
| 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. |
| our ability to maintain relationships with the customers of the acquired business; | |
| our ability to retain or replace key personnel of the acquired business; | |
| potential conflicts in sponsor or advertising relationships or in relationships with strategic partners; | |
| our ability to coordinate organizations that are geographically diverse and may have different business cultures; and | |
| compliance with regulatory requirements. |
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ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Total Number of Shares |
Approximate Dollar Value of |
|||||||||||||||
Total Number |
Average |
Purchased as Part of |
Shares that May Yet Be |
|||||||||||||
of Shares |
Price Paid |
Publicly Announced |
Purchased Under the Plans |
|||||||||||||
Period | Purchased(1) | per Share | Plans or Programs | or Programs(3) | ||||||||||||
04/01/11 04/30/11
|
| $ | | | $ | 15,085,946 | ||||||||||
05/01/11 05/31/11
|
9,276 | $ | 46.40 | 9,000 | (2) | $ | 14,669,061 | |||||||||
06/01/11 06/30/11
|
25,321 | $ | 45.19 | | $ | 14,669,061 | ||||||||||
Total
|
34,597 | $ | 45.52 | 9,000 | ||||||||||||
(1) | Includes the following number of shares withheld from WebMD Restricted Common Stock that vested during the respective periods in order to satisfy withholding tax requirements related to the vesting of the awards: 276 in May and 25,231 in June. The value of these shares was determined based on the closing price of WebMD Common Stock on the date of vesting. | |
(2) | These repurchases were made pursuant to the repurchase program that WebMD announced in December 2008, at which time WebMD was authorized to use up to $30 million to purchase shares of its common stock from time to time. For additional information, see Note 7 to the Consolidated Financial Statements included in this Quarterly Report. | |
(3) | After the end of the second quarter of 2011, the repurchase program authorization was increased by $15,330,939 to $30,000,000, of which $29,918,484 was used in July and August 2011 to repurchase 863,468 shares of WebMD Common Stock at an average price per share of $34.65. |
ITEM 6. | Exhibits |
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By: |
/s/ Anthony
Vuolo
|
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Exhibit No. | Description | |||
3 | .1 | Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrants Registration Statement on Form S-8 filed on October 23, 2009 (Reg. No. 333-162651)) | ||
3 | .2 | Amended and Restated By-laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrants Registration Statement on Form S-8 filed on October 23, 2009 (Reg. No. 333-162651)) | ||
31 | .1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Registrant | ||
31 | .2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Registrant | ||
32 | .1 | Section 1350 Certification of Chief Executive Officer of Registrant | ||
32 | .2 | Section 1350 Certification of Chief Financial Officer of Registrant | ||
99 | .1 | Explanation of Non-GAAP Financial Measures | ||
100 | .INS | XBRL Instance Document | ||
100 | .SCH | XBRL Taxonomy Extension Schema Document | ||
100 | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
100 | .LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
100 | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||
100 | .DEF | XBRL Taxonomy Extension Definition Linkbase Document |
E-1
Date: August 9, 2011 | /s/ Wayne T. Gattinella | |||
Wayne T. Gattinella | ||||
Chief Executive Officer (Principal executive officer) |
Date: August 9, 2011 | /s/ Anthony Vuolo | |||
Anthony Vuolo | ||||
Chief Operating Officer and Chief Financial Officer (Principal financial and accounting officer) |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of WebMD. |
Dated: August 9, 2011 | /s/ Wayne T. Gattinella | |||
Wayne T. Gattinella | ||||
Chief Executive Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of WebMD. |
Dated: August 9, 2011 | /s/ Anthony Vuolo | |||
Anthony Vuolo | ||||
Chief Operating Officer and Chief Financial Officer |
| Depreciation and Amortization. Depreciation and amortization expense is a non-cash expense relating to capital expenditures and intangible assets arising from acquisitions that are expensed on a straight-line basis over the estimated useful life of the related assets. We exclude depreciation and amortization expense from Adjusted EBITDA because we believe that (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Accordingly, we believe that this exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors |
should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods. | |||
| Stock-Based Compensation Expense. Stock-based compensation expense is a non-cash expense arising from the grant of stock-based awards to employees. We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in its operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future. | ||
| Interest Income and Expense. Interest income is associated with the level of marketable debt securities and other interest bearing accounts in which we invest, as well as with interest expense arising from our companys capital structure (including non-cash interest expense relating to our convertible notes). Interest income and expense varies over time due to a variety of financing transactions and due to acquisitions and divestitures that we have entered into or may enter into in the future. We have, in the past, issued convertible debentures, repurchased shares in cash tender offers and repurchased shares and convertible debentures through other repurchase transactions, and completed the divestiture of certain businesses. We exclude interest income and interest expense from Adjusted EBITDA (i) because these items are not directly attributable to the performance of our business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different capital structures. Investors should note that interest income and expense will recur in future periods. | ||
| Income Tax Provision (Benefit). We maintain a valuation allowance on a portion of our net deferred tax assets (including our net operating loss carryforwards), the amount of which may change from quarter to quarter based on factors that are not directly related to our results for the quarter. The valuation allowance is either reversed through the statement of operations or additional paid-in capital. The timing of such reversals has not been consistent and as a result, our income tax expense can fluctuate significantly from period to period in a manner not directly related to our operating performance. We exclude the income tax provision (benefit) from Adjusted EBITDA (i) because we believe that the income tax provision (benefit) is not directly attributable to the underlying performance of our business operations and, accordingly, its exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different tax attributes. Investors should note that income tax provision (benefit) will recur in future periods. | ||
| Other Items. We engage in other activities and transactions that can impact our income from continuing operations and net income. In recent periods, these other items have included, but were not limited to, (i) legal expenses relating to the Department of Justice investigation, (ii) gain or loss on repurchases and conversions of our convertible notes, (iii) a reduction of certain sales and use tax contingencies resulting from the expiration of certain applicable statutes of limitations, and (iv) gain or loss on investments. We exclude these other items from Adjusted EBITDA because we believe these activities or transactions are not directly attributable to the performance of our business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors should note that some of these other items may recur in future periods. |
2
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data |
Jun. 30, 2011
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Dec. 31, 2010
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Current assets: | ||
Accounts receivable, net of allowance for doubtful accounts | $ 1,135 | $ 1,493 |
Stockholders' equity: | ||
Preferred stock, shares authorized | 50,000,000 | 50,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 650,000,000 | 650,000,000 |
Common stock, shares issued | 62,404,951 | 62,401,272 |
Treasury stock, shares | 4,061,612 | 2,485,391 |
Intangible Assets (Tables)
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Intangible Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets subject to amortization |
Intangible assets subject to amortization consist of the
following:
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Aggregate amortization expense for intangible assets |
Aggregate
amortization expense for intangible assets is estimated to be:
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Document and Entity Information (USD $)
In Thousands, except Share data |
6 Months Ended | ||
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Jun. 30, 2011
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Aug. 04, 2011
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Jun. 30, 2010
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Document and Entity Information [Abstract] | |||
Entity Registrant Name | WebMD Health Corp. | ||
Entity Central Index Key | 0001326583 | ||
Document Type | 10-Q | ||
Document Period End Date | Jun. 30, 2011 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q2 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $ 2,531,640 | ||
Entity Common Stock, Shares Outstanding | 58,671,776 |
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Fair Value of Financial Instruments and Non-Recourse Credit Facilities
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Fair Value of Financial Instruments and Non-Recourse Credit Facilities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments and Non-Recourse Credit Facilities |
The Company accounts for certain assets and liabilities at fair
value, which is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Additionally, the Company uses valuation techniques that
maximize the use of observable inputs and minimize the use of
unobservable inputs. These inputs are prioritized below:
Level 2: Observable market-based inputs
or unobservable inputs that are corroborated by market data.
The Company did not have any Level 2 assets as of
June 30, 2011 and December 31, 2010.
The
following table sets forth the Company’s Level 1 and
Level 3 financial assets that were measured and recorded at
fair value on a recurring basis as of June 30, 2011 and
December 31, 2010:
The following table reconciles the beginning and ending balances
of the Company’s Level 3 assets:
Through April 20, 2010, the Company held investments in
auction rate securities (“ARS”) which had been
classified as Level 3 assets as described above. The types
of ARS holdings the Company owned were backed by student loans,
97% guaranteed under the Federal Family Education Loan Program
(FFELP), and had credit ratings of AAA or Aaa when purchased.
Historically, the fair value of the Company’s ARS holdings
approximated par value due to the frequent auction periods,
generally every 7 to 28 days, which provided liquidity to
these investments. However, since February 2008, substantially
all auctions involving these securities have been unsuccessful.
The result of an unsuccessful 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 develop. Additionally, during
2009, approximately one-half of the auction rate securities the
Company held were either downgraded below AAA or placed on
“watch” status by one or more of the major credit
rating agencies. As of March 31, 2008, the Company
concluded that the estimated fair value of its ARS no longer
approximated the face value. The Company concluded the fair
value of its ARS holdings was $302,842 compared to a face value
of $362,950. The impairment in value, of $60,108, was considered
to be
other-than-temporary
and, accordingly, was recorded as an impairment charge within
the statement of operations during the three months ended
March 31, 2008.
Effective April 1, 2009, the Company was required to adopt
new authoritative guidance which amended the recognition
guidance for
other-than-temporary
impairments of debt securities and changed the presentation of
other-than-temporary
impairments in the financial statements. In accordance with this
new guidance, if an entity intends to sell or if it is more
likely than not that it will be required to sell an impaired
security prior to recovery of its cost basis, the security is to
be considered
other-than-temporarily
impaired and the full amount of impairment must be charged to
earnings. Otherwise, losses on securities which are
other-than-temporarily
impaired are separated into two categories, the portion of loss
which is considered credit loss and the portion of loss which is
due to other factors. The credit loss portion is charged to
earnings while the loss due to other factors is charged to other
comprehensive income. This new guidance requires a cumulative
effect adjustment to be reported as of the beginning of the
period of adoption to reclassify the non-credit component of
previously recognized
other-than-temporary
impairments on debt securities held at that date, from retained
earnings to accumulated other comprehensive income, if the
entity does not intend to sell the debt security and it is not
more likely than not that the entity will be required to sell
the debt security before recovery of its amortized cost basis.
Since the Company had no current intent to sell the auction rate
securities that it held as of April 1, 2009, and it was not
more likely than not that the Company would be required to sell
the securities prior to recovery of the amortized cost basis,
the Company estimated the present value of the cash flows
expected to be collected related to the auction rate securities
it held. The difference between the present value of the
estimated cash flows expected to be collected and the amortized
cost basis as of April 1, 2009, the date this new guidance
was adopted, was $26,848, or $24,697 net of the effect of
noncontrolling interest. This represented the cumulative effect
of initially adopting this new guidance and has been reflected
as an increase to the cost basis of its investment and an
increase to accumulated other comprehensive loss and an increase
to retained earnings in the Company’s balance sheet
effective as of April 1, 2009.
Historically, the Company estimated the fair value of its ARS
holdings using an income approach valuation technique. Using
this approach, expected future cash flows are calculated over
the expected life of each security and are discounted to a
single present value using a market required rate of return.
Some of the more significant assumptions made in the present
value calculations were (i) the estimated weighted average
lives for the loan portfolios underlying each individual ARS,
which ranged from 4 to 14 years as of March 31, 2008
and (ii) the required rates of return used to discount the
estimated future cash flows over the estimated life of each
security, which consider both the credit quality for each
individual ARS and the market liquidity for these investments.
Additionally, as discussed above, during 2009, certain of the
auction rate securities the Company holds were downgraded below
AAA by one or more of the major credit rating agencies. These
revised credit ratings were a significant consideration in
determining the cash flows expected to be collected. Substantial
judgment and estimation factors are necessary in connection with
making fair value estimates of Level 3 securities,
including estimates related to expected credit losses as these
factors are not currently observable in the market due to the
lack of trading in the securities.
Effective April 20, 2010, the Company entered into an
agreement pursuant to which the Company sold all of its holdings
of ARS for an aggregate of $286,399. Under the terms of the
agreement, the Company retained an option (the “ARS
Option”), for a period of two years from the date of the
agreement: (a) to repurchase from the purchaser the same
principal amount of any or all of the various series of ARS
sold, at the agreed upon purchase prices received on
April 20, 2010; and (b) to receive additional proceeds
from the purchaser upon certain redemptions of the various
series of ARS sold.
As described above, while the Company originally recorded a loss
of $60,108 relating to its holdings of ARS in the March 2008
quarter, the Company was required to reclassify $26,848 of that
charge as an unrealized loss through stockholders’ equity
when WebMD was required to adopt new authoritative guidance
related to
other-than-temporary
impairments effective April 1, 2009, which had the effect
of increasing the cost basis of the ARS by that amount. As a
result, during 2010, the Company recorded an additional charge
of $29,508, representing the difference between the cost basis
of its ARS holdings and the proceeds received on April 20,
2010. In connection with the sale of the ARS, the Company
recorded a deferred income tax benefit of approximately $22,000
primarily related to the reversal of income tax valuation
allowance attributable to its ARS. Additionally the Company
recognized gains of $14,712 and $15,829 related to the ARS
Option described above during the period from April 20,
2010 through December 31, 2010 and during the six months
ended June 30, 2011, respectively. Through the ARS Option,
the Company received cash proceeds of $10,467 and $16,561 during
the period from April 20, 2010 through December 31,
2010 and during the six months ended June 30, 2011,
respectively. The value of the ARS Option as of June 30,
2011 is estimated to be $3,513 and is reflected in prepaid
expenses and other current assets within the accompanying
balance sheet. The ARS Option has been classified as a
Level 3 asset as its valuation requires substantial
judgment. The historical redemption activity of the specific ARS
underlying the ARS Option was the most significant assumption
used to determine an estimated value of the ARS Option. The
Company is required to reassess the value of the ARS Option at
each reporting period, and any changes in value will be recorded
within the statement of operations in future periods.
The Company’s other Level 3 asset during 2010 was
$67,500 principal amount of Senior Secured Notes that the
Company received in connection with its sale of Porex on
October 19, 2009. The Senior Secured Notes were secured by
certain assets of the acquirer of Porex and accrued interest at
a rate of 8.75% per annum, payable quarterly. The Senior Secured
Notes were issued in four series: the Senior Secured Notes of
the first, second and third series had an aggregate principal
amount of $10,000 each and were scheduled to mature on the
first, second and third anniversaries of the closing,
respectively; and the Senior Secured Notes of the fourth series
had an aggregate principal amount of $37,500 and were scheduled
to mature on the fourth anniversary of the closing. The Company
estimated that the fair value of the Senior Secured Notes was
$63,826 as of December 31, 2009. On April 1, 2010, the
Company sold the Senior Secured Notes for $65,475 plus accrued
interest and recorded a gain of $1,362 representing the excess
of this amount over the adjusted cost basis of the Senior
Secured Notes, which is reflected in gain (loss) on investments
in the accompanying consolidated statement of operations during
the three and six months ended June 30, 2010.
The Company also holds an investment in a privately held company
which is carried at cost, and not subject to fair value
measurements. However, if events or circumstances indicate that
its carrying amount may not be recoverable, it would be reviewed
for impairment. The total amount of this investment is $6,471
and it is included in other assets on the accompanying
consolidated balance sheets.
For disclosure purposes, the Company is required to measure the
outstanding value of its debt on a recurring basis.
The
following table presents the carrying value and estimated fair
value of the Company’s convertible notes that were carried
at historical cost as of June 30, 2011:
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Other Income (Expense), Net (Tables)
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Jun. 30, 2011
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Other Income (Expense), Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income (Expense), Net |
Other income (expense), net consists of the following items:
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Stock-Based Compensation
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Jun. 30, 2011
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Stock-Based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation |
Prior to the Merger on October 23, 2009, HLTH had various
stock-based compensation plans (collectively, the “HLTH
Plans”) under which directors, officers and other eligible
employees received awards of options to purchase HLTH Common
Stock and restricted shares of HLTH Common Stock. WebMD also had
similar stock-based compensation plans (the “WebMD
Plans”) that provide for the grant of stock options,
restricted stock awards, and other awards based on WebMD Common
Stock. In connection with the Merger, all
outstanding stock options and restricted stock awards under the
HLTH Plans were converted into outstanding stock options and
restricted stock awards of WebMD based on the Merger exchange
ratio of 0.4444. The following sections of this note present the
historical activity of the HLTH Plans (on a converted basis
after giving effect to the Merger exchange ratio of 0.4444)
combined with the historical activity of the WebMD Plans, which
are collectively referred to as the “Plans”.
The 2005 Long-Term Incentive Plan, (as amended, the “2005
Plan”) is the only plan under which future grants can be
made. The maximum number of shares of the Company’s Common
Stock that may be subject to awards under the 2005 Plan was
18,200,000 as of June 30, 2011, subject to adjustment in
accordance with the terms of the 2005 Plan. The Company had an
aggregate of 3,112,309 shares of Common Stock available for
future grants under the 2005 Plan at June 30, 2011.
Stock
Options
Generally, options under the Plans vest and become exercisable
ratably over periods ranging from four to five years based on
their individual grant dates, subject to continued employment on
the applicable vesting dates, and generally expire within ten
years from the date of grant. Options are granted at prices not
less than the fair market value of the Company’s Common
Stock on the date of grant.
The
following table summarizes stock option activity for the Plans:
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option pricing model
considering the weighted average assumptions noted in the
following table. Expected volatility is based on implied
volatility from traded options of the Company’s Common
Stock combined with historical volatility of the Company’s
Common Stock. The expected term represents the period of time
that options are expected to be outstanding following their
grant date, and was determined using historical exercise data
combined with assumptions for future exercise activity. The
risk-free rate is based on the U.S. Treasury yield curve
for periods equal to the expected term of the options on the
grant date.
Restricted
Stock Awards
The Company’s Restricted Stock consists of shares of the
Company’s Common Stock which have been awarded to employees
with restrictions that cause them to be subject to substantial
risk of forfeiture and restrict their sale or other transfer by
the employee until they vest. Generally, the Company’s
Restricted Stock awards vest ratably over periods ranging from
three to five years from their individual award dates subject to
continued employment on the applicable vesting dates.
The
following table summarizes the activity of the Company’s
Restricted Stock:
Proceeds received from the exercise of options to purchase
shares of the Company’s Common Stock were $14,833 and
$25,053 during the three and six months ended June 30,
2011, respectively, and $19,890 and $48,114 during the three and
six months ended June 30, 2010, respectively. Additionally,
in connection with the exercise of certain stock options and the
vesting of restricted stock, the Company made payments of $3,460
and $6,632 during the three and six months ended June 30,
2011, respectively, and $17,279 and $39,728 during the three and
six months ended June 30, 2010, respectively, related to
employee statutory withholding taxes that were satisfied by
withholding shares of Common Stock of equal value from the
respective employees. The proceeds and payments described above
are reflected within cash flows from financing activities within
the accompanying consolidated statements of cash flows.
The intrinsic value related to stock options that were
exercised, combined with the fair value of shares of restricted
stock that vested, aggregated $15,935 and $46,238 for the three
and six months ended June 30, 2011, respectively, and
$40,450 and $132,701 for the three and six months ended
June 30, 2010, respectively.
Other
Each year, the Company issues shares of its Common Stock to each
WebMD non-employee director with a value equal to their annual
board and committee retainers. The Company recorded $87 and $173
of stock-based compensation expense for the three and six months
ended June 30, 2011, respectively, and $94 and $186 for the
three and six months ended June 30, 2010, respectively, in
connection with these issuances.
Summary
of Stock-Based Compensation Expense
The following table summarizes the components and classification
of stock-based compensation expense:
As of June 30, 2011, approximately $77,200 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 2.7 years, related
to the Plans.
Tax benefits attributable to stock-based compensation
represented 39% of stock-based compensation expense for all
periods presented.
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Summary of Significant Accounting Policies
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Jun. 30, 2011
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Summary of Significant Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies |
Background
WebMD Health Corp. (the “Company” or
“WebMD”) is a Delaware corporation that was
incorporated on May 3, 2005. The Company completed an
initial public offering on September 28, 2005. From the
completion of the initial public offering through the completion
of the Company’s merger with HLTH Corporation
(“HLTH”) on October 23, 2009 (the
“Merger”), the Company was more than 80% owned by
HLTH. On October 23, 2009, the Merger was completed, with
HLTH merging into WebMD and WebMD continuing as the
surviving corporation. In the Merger, each share of HLTH Common
Stock was converted into 0.4444 shares of WebMD Common
Stock. In these Consolidated Financial Statements, the defined
term “Company” refers not only to WebMD but also,
where the context requires, to HLTH. The specific names of HLTH
and WebMD are used only where there is a need to distinguish
between the legal entities. In addition, all references in these
Consolidated Financial Statements to amounts of shares of HLTH
Common Stock and to market prices or purchase prices for HLTH
Common Stock have been adjusted to reflect the 0.4444 exchange
ratio in the Merger (the “Exchange Ratio”), and
expressed as the number of shares of WebMD Common Stock into
which the HLTH Common Stock would be converted in the Merger and
the equivalent price per share of WebMD Common Stock. Similarly,
the exercise price of options and warrants to purchase HLTH
Common Stock and the number of shares subject to those options
and warrants have been adjusted to reflect the Exchange Ratio.
The Company provides health information services to consumers,
physicians and other healthcare professionals, employers and
health plans through its public and private online portals,
mobile platforms and health-focused publications. The
Company’s public portals for consumers enable them to
obtain health and wellness information (including information on
specific diseases or conditions), check symptoms, locate
physicians, store individual healthcare information, receive
periodic
e-newsletters
on topics of individual interest and participate in online
communities with peers and experts. The Company’s public
portals for physicians and healthcare professionals make it
easier for them to access clinical reference sources, stay
abreast of the latest clinical information, learn about new
treatment options, earn continuing medical education
(“CME”) credit and communicate with peers. The Company
also provides mobile health information applications for use by
consumers and physicians. The Company’s public portals
generate revenue primarily through the sale of advertising and
sponsorship products, including CME services. The public
portals’ sponsors and advertisers include pharmaceutical,
biotechnology, medical device and consumer products companies.
The Company also generates revenue from the sale of
e-detailing
promotion and physician recruitment services and from
advertising sold in WebMD the Magazine, a consumer
magazine distributed to physician office waiting rooms. In
addition, the Company generates revenue from the sale of certain
information products. The Company’s private portals enable
employers and health plans to provide their employees and
members with access to personalized health and benefit
information and decision-support technology that helps them to
make more informed benefit, treatment and provider decisions. In
addition, the Company offers clients of its private portals
telephonic health coaching services on a per participant basis
across an employee or plan population. The Company generates
revenue from its private portals through the licensing of these
portals and related services to employers and health plans
either directly or through distributors.
Interim
Financial Statements
The unaudited consolidated financial statements of the Company
have been prepared by management and reflect all adjustments
(consisting of only normal recurring adjustments) that, in the
opinion of management, are necessary for a fair presentation of
the interim periods presented. The results of operations for the
three and six months ended June 30, 2011 are not
necessarily indicative of the operating results to be expected
for any subsequent period or for the entire year ending
December 31, 2011. Certain information and note disclosures
normally included in financial statements prepared in accordance
with U.S. generally accepted
accounting principles (“GAAP”) have been condensed or
omitted under the Securities and Exchange Commission’s
rules and regulations.
The unaudited consolidated financial statements and notes
included herein should be read in conjunction with the
Company’s audited consolidated financial statements and
notes for the year ended December 31, 2010, which are
included in the Company’s Annual Report on
Form 10-K
filed with the Securities and Exchange Commission.
Seasonality
The timing of the Company’s revenue is affected by seasonal
factors. The Company’s public portal advertising and
sponsorship revenue is seasonal, primarily due to the annual
spending patterns of the advertising and sponsorship clients of
the Company’s public portals. This portion of the
Company’s revenue is usually the lowest in the first
quarter of each calendar year, and increases during each
consecutive quarter throughout the year. The timing of revenue
in relation to the Company’s expenses, many 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.
Accounting
Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the Consolidated
Financial Statements and accompanying notes. The Company bases
its estimates on historical experience, current business
factors, and various other assumptions that the Company believes
are necessary to consider to form a basis for making judgments
about the carrying values of assets and liabilities, the
recorded amounts of revenue and expenses, and the disclosure of
contingent assets and liabilities. The Company is subject to
uncertainties such as the impact of future events, economic and
political factors, and changes in the Company’s business
environment; therefore, actual results could differ from these
estimates. Accordingly, the accounting estimates used in the
preparation of the Company’s financial statements will
change as new events occur, as more experience is acquired, as
additional information is obtained and as the Company’s
operating environment changes. Changes in estimates are made
when circumstances warrant. Such changes in estimates and
refinements in estimation methodologies are reflected in
reported results of operations; if material, the effects of
changes in estimates are disclosed in the notes to the
Consolidated Financial Statements. Significant estimates and
assumptions by management affect: the allowance for doubtful
accounts, the carrying value of long-lived assets (including
goodwill and intangible assets), the amortization period of
long-lived assets (excluding goodwill and indefinite lived
intangible assets), the carrying value, capitalization and
amortization of software and Website development costs, the
carrying value of investments, the provision for income taxes
and related deferred tax accounts, certain accrued liabilities,
revenue recognition, contingencies, litigation and related legal
accruals and the value attributed to employee stock options and
other stock-based awards.
Loss
Contingencies
The Company accounts for loss contingencies in
accordance with FASB ASC No. 450,
“Contingencies.” Under ASC No. 450, accruals for loss
contingencies are recorded when both (i) the
information available indicates that it is probable that a
liability has been incurred and (ii) the amount of the loss
can be reasonably estimated.
The Company records adjustments to these accruals to reflect the status of
negotiations, settlements, advice of counsel and other information
and events related to an individual matter.
Net
Income Per Common Share
Basic income per common share has been computed using the
weighted-average number of shares of Common Stock outstanding
during the period, adjusted to give effect to participating
non-vested restricted stock during the periods it was
outstanding. Diluted income per common share has been computed
using the weighted-average number of shares of Common Stock
outstanding during the period, increased to give effect to
potentially dilutive securities and assumes that any dilutive
convertible notes were converted, only in the periods in which
such effect is dilutive (shares in thousands):
The Company has excluded convertible subordinated notes and
convertible notes, as well as certain outstanding stock options
and restricted stock, from the calculation of diluted income per
common share during the periods in which such securities were
anti-dilutive.
The
following table presents the total weighted
average number of potentially dilutive common shares that were
excluded from the computation of diluted income per common share
during the periods presented (shares in thousands):
Recent
Accounting Pronouncements
Accounting
Pronouncement Adopted During 2011
Revenue from advertising is recognized as advertisements are
delivered or as publications are distributed. Revenue from
sponsorship arrangements, content syndication and distribution
arrangements, information services and licenses of healthcare
management tools and private portals as well as related health
coaching services are recognized ratably over the term of the
applicable agreement. Revenue from the sponsorship of CME is
recognized over the period the Company substantially completes
its contractual deliverables as determined by the applicable
agreements.
For contracts that contain multiple deliverables that were
entered into prior to January 1, 2011, revenue is allocated
to each deliverable based on its relative fair value determined
using vendor-specific objective evidence (“VSOE”). In
certain instances where fair value did 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 to the extent VSOE exists for the
undelivered elements. In instances where fair value did not
exist for the undelivered elements, the entire consideration is
recognized over the period that the last element is delivered.
Contracts that contain multiple deliverables that were entered
into subsequent to January 1, 2011 are subject to
Accounting Standards Update
No. 2009-13
Multiple-Deliverable Revenue Arrangements (“ASU
2009-13”).
ASU 2009-13
requires the allocation of revenue to each deliverable of
multiple-deliverable revenue arrangements, based on the relative
selling price of each deliverable. It also changes the level of
evidence of selling price required to separate deliverables by
allowing a company to make its best estimate of the standalone
selling price of deliverables when more objective evidence of
selling price is not available.
The Company adopted ASU
2009-13 on a
prospective basis for arrangements entered into or materially
modified on or subsequent to January 1, 2011. Beginning
January 1, 2011, pursuant to the guidance of ASU
2009-13,
when a sales arrangement contains multiple deliverables, the
Company allocates revenue to each deliverable based on relative
selling price. The selling price for a deliverable is based on
VSOE if available, third-party evidence (“TPE”) if
VSOE is not available, or best estimate of selling price if
neither VSOE nor TPE is available. The Company then recognizes
revenue on each deliverable in accordance with its revenue
recognition policies over the period that delivery occurs. VSOE
of selling price is based on the price charged when the
deliverable is sold separately. In determining VSOE, the Company
requires that a substantial majority of the selling prices fall
within a reasonable range based on historical pricing trends for
specific products and services. TPE is based on competitor
prices of similar deliverables when sold separately. The Company
is not able to determine TPE of selling price as it is unable to
reliably determine what competitors’ selling prices are for
comparable services, combined with the fact that its services
often contain unique features and customizations such that
comparable services do not exist. The determination of best
estimate of selling price is a judgemental process that
considers multiple factors including, but not limited, to recent
selling prices and related discounting practices for each
service, market conditions, customer classes, sales channels and
other factors.
As a result of the adoption of ASU
2009-13,
revenue for the three and six months ended June 30, 2011
was higher by $1,900 and $3,700, respectively, than the revenue
that would have been recorded under the previous accounting
standards. The impact on diluted income per share was $0.03 and
$0.06 during the three and six months ended June 30, 2011,
respectively. This resulted from services that were provided or
partially provided during the three and six months ended
June 30, 2011, for certain deliverables of the
Company’s multiple deliverable arrangements for which the
Company would have previously deferred the related revenue under
the previous accounting standards. During the three and six
months ended June 30, 2011, the Company assigned value to
these deliverables using its best estimate of selling price, and
recognized revenue as they were delivered. The multiple
deliverable arrangements that were impacted by ASU
2009-13
related to the Company’s public portal revenues and the
services underlying such arrangements are generally delivered
over periods of twelve months or less. The Company is not able
to reasonably estimate the effect of adopting ASU
2009-13 on
future periods as the impact will vary based on many factors
including, but not limited to, the quantity and size of new or
materially modified multiple-deliverable arrangements entered
into, as well as the nature of the various services contained
within those arrangements and the time periods over which those
services are delivered.
Accounting
Pronouncements to be Adopted in the Future
In June 2011, the Financial Accounting Standards Board (the
“FASB”) issued an amendment to the existing guidance
on the presentation of comprehensive income. Under the amended
guidance, entities have the option to present the components of
net income and other comprehensive income in either a single
continuous statement of comprehensive income or in two separate
but consecutive statements. Entities no longer have the option
of presenting the components of other comprehensive income
within the statement of changes in stockholders’ equity.
For public entities, the amendment is effective on a
retrospective basis for fiscal years, and interim periods within
those years, beginning after December 15, 2011, which for
the Company is the first quarter in 2012. The adoption of this
amendment will result in a change only to the Company’s
current presentation of comprehensive income.
In May 2011, the FASB issued amendments to the existing guidance
on fair value measurement. The amendments are intended to create
consistency between U.S. generally accepted accounting
standards and International Financial Reporting Standards on
measuring fair value and disclosing information about fair value
measurements. The amendments clarify the application of existing
fair value measurement requirements including (i) the
application of the highest and best use valuation premise
concepts, (ii) measuring the fair value of an instrument
classified in a reporting entity’s shareholders’
equity, and (iii) quantitative information required for
fair value measurements categorized within Level 3. In
addition, the amendments require additional disclosure for
Level 3 measurements regarding the sensitivity of fair
value to changes in unobservable inputs and any
interrelationships between those inputs. For public entities,
the amendments are effective for interim and annual periods
beginning after December 15, 2011. These changes are
required to be applied prospectively. The Company is currently
evaluating the impact that this amendment may have on its
financial condition and results of operations.
Reclassifications
Certain reclassifications have been made to the prior period
financial statements to conform with the current period
presentation.
|
Fair Value of Financial Instruments and Non-Recourse Credit Facilities (Details Textuals) (USD $)
In Thousands, unless otherwise specified |
1 Months Ended | 3 Months Ended | 6 Months Ended | 1 Months Ended | 3 Months Ended | 6 Months Ended | 9 Months Ended | 1 Months Ended | 6 Months Ended | 9 Months Ended | 1 Months Ended | 1 Months Ended | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Apr. 30, 2010
|
Apr. 30, 2009
AccountingTreatmentCategories
|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
Oct. 19, 2009
Level 3 [Member]
|
Dec. 31, 2009
Financial Assets, Senior Secured Notes of the First Series [Member]
|
Dec. 31, 2009
Financial Assets, Senior Secured Notes of the Second Series [Member]
|
Dec. 31, 2009
Financial Assets, Senior Secured Notes of the Third Series [Member]
|
Dec. 31, 2009
Financial Assets, Senior Secured Notes of the Fourth Series [Member]
|
Apr. 30, 2010
Auction Rate Securities [Member]
|
Apr. 30, 2009
Auction Rate Securities [Member]
|
Mar. 31, 2008
Auction Rate Securities [Member]
|
Jun. 30, 2011
Auction Rate Securities [Member]
|
Dec. 31, 2010
Auction Rate Securities [Member]
|
Jun. 30, 2010
Auction Rate Securities [Member]
|
Dec. 31, 2009
Auction Rate Securities [Member]
|
Apr. 30, 2010
ARS Option [Member]
|
Jun. 30, 2011
ARS Option [Member]
|
Dec. 31, 2010
ARS Option [Member]
|
Jun. 30, 2010
ARS Option [Member]
|
Dec. 31, 2009
ARS Option [Member]
|
Mar. 31, 2008
ARS Option [Member]
Maximum [Member]
|
Mar. 31, 2008
ARS Option [Member]
Minimum [Member]
|
Apr. 30, 2010
Senior Secured Notes [Member]
|
Dec. 31, 2009
Senior Secured Notes [Member]
Tranches
|
Oct. 19, 2009
Senior Secured Notes [Member]
|
Jun. 30, 2011
Privately Held Company [Member]
|
Apr. 30, 2010
Maximum [Member]
|
Apr. 30, 2010
Minimum [Member]
|
|
Fair Value of Financial Instruments and Non Recourse Credit Facilities (Textuals) [Abstract] | |||||||||||||||||||||||||||||||
Student Loan Percentage Guaranteed Under Ffelp | 97.00% | ||||||||||||||||||||||||||||||
Investment securities, face (par or principal) amount | $ 67,500 | $ 10,000 | $ 10,000 | $ 10,000 | $ 37,500 | $ 362,950 | |||||||||||||||||||||||||
ARS Option, Fair Value | 302,842 | 63,826 | |||||||||||||||||||||||||||||
Company frequent auction period | 28 days | 7 days | |||||||||||||||||||||||||||||
Gain (loss) on investments | 1,769 | 6,002 | 15,829 | (22,846) | 29,508 | 60,108 | 15,829 | 14,712 | 1,362 | ||||||||||||||||||||||
Cumulative effect of initial adoption of SFAS 159, before net effect of noncontrolling interest | 26,848 | ||||||||||||||||||||||||||||||
Cumulative effect of initial adoption of SFAS 159 | 24,697 | ||||||||||||||||||||||||||||||
Proceeds from investments | 286,399 | 16,561 | 10,467 | 65,475 | |||||||||||||||||||||||||||
Value of the ARS Option reflected in prepaid expenses and other current assets | 3,513 | 0 | 3,513 | 0 | 0 | 279,701 | 3,513 | 4,245 | 1,029 | 0 | 63,826 | ||||||||||||||||||||
Approximate deferred income tax benefit primarily related to the reversal of income tax valuation allowance attributable to its ARS | 4,423 | (27,729) | 22,000 | ||||||||||||||||||||||||||||
Senior Secured Notes issued Series | 4 | ||||||||||||||||||||||||||||||
Accrued interest rate on senior secured notes | 8.75% | ||||||||||||||||||||||||||||||
Carrying Amount | $ 6,471 | ||||||||||||||||||||||||||||||
Credit rating below AAA of Auction rate Securities held by the company | one-half | ||||||||||||||||||||||||||||||
Number of categories of losses on securities | 2 | ||||||||||||||||||||||||||||||
Weighted average lives for loan portfolios | 14 years | 4 years | |||||||||||||||||||||||||||||
Repurchase Agreement Option Period | 2 years |
Stock Repurchase Program, 2010 Tender Offers and Other Repurchases
|
6 Months Ended | ||||
---|---|---|---|---|---|
Jun. 30, 2011
|
|||||
Stock Repurchase Program, 2010 Tender Offers and Other Repurchases [Abstract] | |||||
Stock Repurchase Program, 2010 Tender Offers and Other Repurchases |
In 2008, the Board of Directors established a stock repurchase
program (the “Program”), at which time the Company was
authorized to use up to $30,000 to purchase shares of WebMD
common stock, from time to time, in the open market, through
block trades or in private transactions, depending on market
conditions and other factors. This amount was subsequently
increased by $15,331 in July 2011. During the three and six
months ended June 30, 2010, the Company repurchased 186,134
and 352,572 shares, respectively, at an aggregate cost of
$8,387 and $14,914, respectively, under the Program. During the
three and six months ended June 30, 2011, the Company
repurchased 9,000 shares at an aggregate cost of $417 under
the Program. Additionally, during July 2011 and August 2011, the
Company repurchased 863,468 shares at a cost of $29,918. As a
result of these purchases, the Company has effectively used all
amounts authorized under the Program. Repurchased shares are
recorded under the cost method and are reflected as treasury
stock in the accompanying consolidated balance sheets.
On April 8, 2010, the Company completed a tender offer
through which it repurchased 5,172,204 shares of WebMD
common stock at a price of $46.80 per share for total
consideration of $242,795 which includes $736 of costs directly
attributable to the purchase. On September 8, 2010, the
Company completed a tender offer through which it repurchased
3,000,000 shares of its Common Stock at a price of $52.00
per share for total consideration of $156,421 which includes
$421 of costs directly attributable to the purchase.
On January 5, 2011, the Company used $100,000 of the
proceeds of the 2.50% Notes to repurchase
1,920,490 shares of the Company’s Common Stock at a
price of $52.07 per share. Additionally, on March 8, 2011,
the Company used $50,000 of the proceeds of the 2.25% Notes
to repurchase 868,507 shares of the Company’s Common
Stock at a price of $57.57 per share. See Note 3 for
further discussion of the Company’s 2.50% Notes and
2.25% Notes. Neither of these share repurchases were made
under the Program.
|
Summary of Significant Accounting Policies (Policies)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Summary of Significant Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Background |
Background
WebMD Health Corp. (the “Company” or
“WebMD”) is a Delaware corporation that was
incorporated on May 3, 2005. The Company completed an
initial public offering on September 28, 2005. From the
completion of the initial public offering through the completion
of the Company’s merger with HLTH Corporation
(“HLTH”) on October 23, 2009 (the
“Merger”), the Company was more than 80% owned by
HLTH. On October 23, 2009, the Merger was completed, with
HLTH merging into WebMD and WebMD continuing as the
surviving corporation. In the Merger, each share of HLTH Common
Stock was converted into 0.4444 shares of WebMD Common
Stock. In these Consolidated Financial Statements, the defined
term “Company” refers not only to WebMD but also,
where the context requires, to HLTH. The specific names of HLTH
and WebMD are used only where there is a need to distinguish
between the legal entities. In addition, all references in these
Consolidated Financial Statements to amounts of shares of HLTH
Common Stock and to market prices or purchase prices for HLTH
Common Stock have been adjusted to reflect the 0.4444 exchange
ratio in the Merger (the “Exchange Ratio”), and
expressed as the number of shares of WebMD Common Stock into
which the HLTH Common Stock would be converted in the Merger and
the equivalent price per share of WebMD Common Stock. Similarly,
the exercise price of options and warrants to purchase HLTH
Common Stock and the number of shares subject to those options
and warrants have been adjusted to reflect the Exchange Ratio.
The Company provides health information services to consumers,
physicians and other healthcare professionals, employers and
health plans through its public and private online portals,
mobile platforms and health-focused publications. The
Company’s public portals for consumers enable them to
obtain health and wellness information (including information on
specific diseases or conditions), check symptoms, locate
physicians, store individual healthcare information, receive
periodic
e-newsletters
on topics of individual interest and participate in online
communities with peers and experts. The Company’s public
portals for physicians and healthcare professionals make it
easier for them to access clinical reference sources, stay
abreast of the latest clinical information, learn about new
treatment options, earn continuing medical education
(“CME”) credit and communicate with peers. The Company
also provides mobile health information applications for use by
consumers and physicians. The Company’s public portals
generate revenue primarily through the sale of advertising and
sponsorship products, including CME services. The public
portals’ sponsors and advertisers include pharmaceutical,
biotechnology, medical device and consumer products companies.
The Company also generates revenue from the sale of
e-detailing
promotion and physician recruitment services and from
advertising sold in WebMD the Magazine, a consumer
magazine distributed to physician office waiting rooms. In
addition, the Company generates revenue from the sale of certain
information products. The Company’s private portals enable
employers and health plans to provide their employees and
members with access to personalized health and benefit
information and decision-support technology that helps them to
make more informed benefit, treatment and provider decisions. In
addition, the Company offers clients of its private portals
telephonic health coaching services on a per participant basis
across an employee or plan population. The Company generates
revenue from its private portals through the licensing of these
portals and related services to employers and health plans
either directly or through distributors.
|
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Interim Financial Statements |
Interim
Financial Statements
The unaudited consolidated financial statements of the Company
have been prepared by management and reflect all adjustments
(consisting of only normal recurring adjustments) that, in the
opinion of management, are necessary for a fair presentation of
the interim periods presented. The results of operations for the
three and six months ended June 30, 2011 are not
necessarily indicative of the operating results to be expected
for any subsequent period or for the entire year ending
December 31, 2011. Certain information and note disclosures
normally included in financial statements prepared in accordance
with U.S. generally accepted
accounting principles (“GAAP”) have been condensed or
omitted under the Securities and Exchange Commission’s
rules and regulations.
The unaudited consolidated financial statements and notes
included herein should be read in conjunction with the
Company’s audited consolidated financial statements and
notes for the year ended December 31, 2010, which are
included in the Company’s Annual Report on
Form 10-K
filed with the Securities and Exchange Commission.
|
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Seasonality |
Seasonality
The timing of the Company’s revenue is affected by seasonal
factors. The Company’s public portal advertising and
sponsorship revenue is seasonal, primarily due to the annual
spending patterns of the advertising and sponsorship clients of
the Company’s public portals. This portion of the
Company’s revenue is usually the lowest in the first
quarter of each calendar year, and increases during each
consecutive quarter throughout the year. The timing of revenue
in relation to the Company’s expenses, many 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.
|
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Accounting Estimates |
Accounting
Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the Consolidated
Financial Statements and accompanying notes. The Company bases
its estimates on historical experience, current business
factors, and various other assumptions that the Company believes
are necessary to consider to form a basis for making judgments
about the carrying values of assets and liabilities, the
recorded amounts of revenue and expenses, and the disclosure of
contingent assets and liabilities. The Company is subject to
uncertainties such as the impact of future events, economic and
political factors, and changes in the Company’s business
environment; therefore, actual results could differ from these
estimates. Accordingly, the accounting estimates used in the
preparation of the Company’s financial statements will
change as new events occur, as more experience is acquired, as
additional information is obtained and as the Company’s
operating environment changes. Changes in estimates are made
when circumstances warrant. Such changes in estimates and
refinements in estimation methodologies are reflected in
reported results of operations; if material, the effects of
changes in estimates are disclosed in the notes to the
Consolidated Financial Statements. Significant estimates and
assumptions by management affect: the allowance for doubtful
accounts, the carrying value of long-lived assets (including
goodwill and intangible assets), the amortization period of
long-lived assets (excluding goodwill and indefinite lived
intangible assets), the carrying value, capitalization and
amortization of software and Website development costs, the
carrying value of investments, the provision for income taxes
and related deferred tax accounts, certain accrued liabilities,
revenue recognition, contingencies, litigation and related legal
accruals and the value attributed to employee stock options and
other stock-based awards.
|
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Loss Contingencies |
Loss
Contingencies
The Company accounts for loss contingencies in
accordance with FASB ASC No. 450,
“Contingencies.” Under ASC No. 450, accruals for loss
contingencies are recorded when both (i) the
information available indicates that it is probable that a
liability has been incurred and (ii) the amount of the loss
can be reasonably estimated.
The Company records adjustments to these accruals to reflect the status of
negotiations, settlements, advice of counsel and other information
and events related to an individual matter.
|
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Net Income Per Common Share |
Net
Income Per Common Share
Basic income per common share has been computed using the
weighted-average number of shares of Common Stock outstanding
during the period, adjusted to give effect to participating
non-vested restricted stock during the periods it was
outstanding. Diluted income per common share has been computed
using the weighted-average number of shares of Common Stock
outstanding during the period, increased to give effect to
potentially dilutive securities and assumes that any dilutive
convertible notes were converted, only in the periods in which
such effect is dilutive (shares in thousands):
The Company has excluded convertible subordinated notes and
convertible notes, as well as certain outstanding stock options
and restricted stock, from the calculation of diluted income per
common share during the periods in which such securities were
anti-dilutive.
The
following table presents the total weighted
average number of potentially dilutive common shares that were
excluded from the computation of diluted income per common share
during the periods presented (shares in thousands):
|
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Recent Accounting Pronouncements |
Recent
Accounting Pronouncements
Accounting
Pronouncement Adopted During 2011
Revenue from advertising is recognized as advertisements are
delivered or as publications are distributed. Revenue from
sponsorship arrangements, content syndication and distribution
arrangements, information services and licenses of healthcare
management tools and private portals as well as related health
coaching services are recognized ratably over the term of the
applicable agreement. Revenue from the sponsorship of CME is
recognized over the period the Company substantially completes
its contractual deliverables as determined by the applicable
agreements.
For contracts that contain multiple deliverables that were
entered into prior to January 1, 2011, revenue is allocated
to each deliverable based on its relative fair value determined
using vendor-specific objective evidence (“VSOE”). In
certain instances where fair value did 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 to the extent VSOE exists for the
undelivered elements. In instances where fair value did not
exist for the undelivered elements, the entire consideration is
recognized over the period that the last element is delivered.
Contracts that contain multiple deliverables that were entered
into subsequent to January 1, 2011 are subject to
Accounting Standards Update
No. 2009-13
Multiple-Deliverable Revenue Arrangements (“ASU
2009-13”).
ASU 2009-13
requires the allocation of revenue to each deliverable of
multiple-deliverable revenue arrangements, based on the relative
selling price of each deliverable. It also changes the level of
evidence of selling price required to separate deliverables by
allowing a company to make its best estimate of the standalone
selling price of deliverables when more objective evidence of
selling price is not available.
The Company adopted ASU
2009-13 on a
prospective basis for arrangements entered into or materially
modified on or subsequent to January 1, 2011. Beginning
January 1, 2011, pursuant to the guidance of ASU
2009-13,
when a sales arrangement contains multiple deliverables, the
Company allocates revenue to each deliverable based on relative
selling price. The selling price for a deliverable is based on
VSOE if available, third-party evidence (“TPE”) if
VSOE is not available, or best estimate of selling price if
neither VSOE nor TPE is available. The Company then recognizes
revenue on each deliverable in accordance with its revenue
recognition policies over the period that delivery occurs. VSOE
of selling price is based on the price charged when the
deliverable is sold separately. In determining VSOE, the Company
requires that a substantial majority of the selling prices fall
within a reasonable range based on historical pricing trends for
specific products and services. TPE is based on competitor
prices of similar deliverables when sold separately. The Company
is not able to determine TPE of selling price as it is unable to
reliably determine what competitors’ selling prices are for
comparable services, combined with the fact that its services
often contain unique features and customizations such that
comparable services do not exist. The determination of best
estimate of selling price is a judgemental process that
considers multiple factors including, but not limited, to recent
selling prices and related discounting practices for each
service, market conditions, customer classes, sales channels and
other factors.
As a result of the adoption of ASU
2009-13,
revenue for the three and six months ended June 30, 2011
was higher by $1,900 and $3,700, respectively, than the revenue
that would have been recorded under the previous accounting
standards. The impact on diluted income per share was $0.03 and
$0.06 during the three and six months ended June 30, 2011,
respectively. This resulted from services that were provided or
partially provided during the three and six months ended
June 30, 2011, for certain deliverables of the
Company’s multiple deliverable arrangements for which the
Company would have previously deferred the related revenue under
the previous accounting standards. During the three and six
months ended June 30, 2011, the Company assigned value to
these deliverables using its best estimate of selling price, and
recognized revenue as they were delivered. The multiple
deliverable arrangements that were impacted by ASU
2009-13
related to the Company’s public portal revenues and the
services underlying such arrangements are generally delivered
over periods of twelve months or less. The Company is not able
to reasonably estimate the effect of adopting ASU
2009-13 on
future periods as the impact will vary based on many factors
including, but not limited to, the quantity and size of new or
materially modified multiple-deliverable arrangements entered
into, as well as the nature of the various services contained
within those arrangements and the time periods over which those
services are delivered.
Accounting
Pronouncements to be Adopted in the Future
In June 2011, the Financial Accounting Standards Board (the
“FASB”) issued an amendment to the existing guidance
on the presentation of comprehensive income. Under the amended
guidance, entities have the option to present the components of
net income and other comprehensive income in either a single
continuous statement of comprehensive income or in two separate
but consecutive statements. Entities no longer have the option
of presenting the components of other comprehensive income
within the statement of changes in stockholders’ equity.
For public entities, the amendment is effective on a
retrospective basis for fiscal years, and interim periods within
those years, beginning after December 15, 2011, which for
the Company is the first quarter in 2012. The adoption of this
amendment will result in a change only to the Company’s
current presentation of comprehensive income.
In May 2011, the FASB issued amendments to the existing guidance
on fair value measurement. The amendments are intended to create
consistency between U.S. generally accepted accounting
standards and International Financial Reporting Standards on
measuring fair value and disclosing information about fair value
measurements. The amendments clarify the application of existing
fair value measurement requirements including (i) the
application of the highest and best use valuation premise
concepts, (ii) measuring the fair value of an instrument
classified in a reporting entity’s shareholders’
equity, and (iii) quantitative information required for
fair value measurements categorized within Level 3. In
addition, the amendments require additional disclosure for
Level 3 measurements regarding the sensitivity of fair
value to changes in unobservable inputs and any
interrelationships between those inputs. For public entities,
the amendments are effective for interim and annual periods
beginning after December 15, 2011. These changes are
required to be applied prospectively. The Company is currently
evaluating the impact that this amendment may have on its
financial condition and results of operations.
|
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Revenue Recognition |
Revenue from advertising is recognized as advertisements are
delivered or as publications are distributed. Revenue from
sponsorship arrangements, content syndication and distribution
arrangements, information services and licenses of healthcare
management tools and private portals as well as related health
coaching services are recognized ratably over the term of the
applicable agreement. Revenue from the sponsorship of CME is
recognized over the period the Company substantially completes
its contractual deliverables as determined by the applicable
agreements.
For contracts that contain multiple deliverables that were
entered into prior to January 1, 2011, revenue is allocated
to each deliverable based on its relative fair value determined
using vendor-specific objective evidence (“VSOE”). In
certain instances where fair value did 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 to the extent VSOE exists for the
undelivered elements. In instances where fair value did not
exist for the undelivered elements, the entire consideration is
recognized over the period that the last element is delivered.
Contracts that contain multiple deliverables that were entered
into subsequent to January 1, 2011 are subject to
Accounting Standards Update
No. 2009-13
Multiple-Deliverable Revenue Arrangements (“ASU
2009-13”).
ASU 2009-13
requires the allocation of revenue to each deliverable of
multiple-deliverable revenue arrangements, based on the relative
selling price of each deliverable. It also changes the level of
evidence of selling price required to separate deliverables by
allowing a company to make its best estimate of the standalone
selling price of deliverables when more objective evidence of
selling price is not available.
The Company adopted ASU
2009-13 on a
prospective basis for arrangements entered into or materially
modified on or subsequent to January 1, 2011. Beginning
January 1, 2011, pursuant to the guidance of ASU
2009-13,
when a sales arrangement contains multiple deliverables, the
Company allocates revenue to each deliverable based on relative
selling price. The selling price for a deliverable is based on
VSOE if available, third-party evidence (“TPE”) if
VSOE is not available, or best estimate of selling price if
neither VSOE nor TPE is available. The Company then recognizes
revenue on each deliverable in accordance with its revenue
recognition policies over the period that delivery occurs. VSOE
of selling price is based on the price charged when the
deliverable is sold separately. In determining VSOE, the Company
requires that a substantial majority of the selling prices fall
within a reasonable range based on historical pricing trends for
specific products and services. TPE is based on competitor
prices of similar deliverables when sold separately. The Company
is not able to determine TPE of selling price as it is unable to
reliably determine what competitors’ selling prices are for
comparable services, combined with the fact that its services
often contain unique features and customizations such that
comparable services do not exist. The determination of best
estimate of selling price is a judgemental process that
considers multiple factors including, but not limited, to recent
selling prices and related discounting practices for each
service, market conditions, customer classes, sales channels and
other factors.
As a result of the adoption of ASU
2009-13,
revenue for the three and six months ended June 30, 2011
was higher by $1,900 and $3,700, respectively, than the revenue
that would have been recorded under the previous accounting
standards. The impact on diluted income per share was $0.03 and
$0.06 during the three and six months ended June 30, 2011,
respectively. This resulted from services that were provided or
partially provided during the three and six months ended
June 30, 2011, for certain deliverables of the
Company’s multiple deliverable arrangements for which the
Company would have previously deferred the related revenue under
the previous accounting standards. During the three and six
months ended June 30, 2011, the Company assigned value to
these deliverables using its best estimate of selling price, and
recognized revenue as they were delivered. The multiple
deliverable arrangements that were impacted by ASU
2009-13
related to the Company’s public portal revenues and the
services underlying such arrangements are generally delivered
over periods of twelve months or less. The Company is not able
to reasonably estimate the effect of adopting ASU
2009-13 on
future periods as the impact will vary based on many factors
including, but not limited to, the quantity and size of new or
materially modified multiple-deliverable arrangements entered
into, as well as the nature of the various services contained
within those arrangements and the time periods over which those
services are delivered.
|
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Reclassifications |
Reclassifications
Certain reclassifications have been made to the prior period
financial statements to conform with the current period
presentation.
|
Intangible Assets
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Intangible Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets |
Intangible assets subject to amortization consist of the
following:
Amortization expense was $657 and $1,313 during the three and
six months ended June 30, 2011, respectively, and $777 and
$1,854 during the three and six months ended June 30, 2010,
respectively.
Aggregate
amortization expense for intangible assets is estimated to be:
|
Fair Value of Financial Instruments and Non Recourse Credit Facilities (Details) (USD $)
In Thousands |
6 Months Ended | 12 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
Dec. 31, 2010
|
Jun. 30, 2010
|
Dec. 31, 2009
|
Jun. 30, 2011
Fair Value, Measurements, Recurring [Member]
Level 1 [Member]
|
Dec. 31, 2010
Fair Value, Measurements, Recurring [Member]
Level 1 [Member]
|
Jun. 30, 2011
Fair Value, Measurements, Recurring [Member]
Level 3 [Member]
|
Dec. 31, 2010
Fair Value, Measurements, Recurring [Member]
Level 3 [Member]
|
|
Company's Level 1 and Level 3 financial assets that were measured and recorded at fair value on a recurring basis | ||||||||
Cash and cash equivalents, Amortized Cost Basis | $ 1,145,061 | $ 400,501 | $ 534,705 | $ 459,766 | $ 1,145,061 | $ 400,501 | ||
Cash and cash equivalents, Fair Value | 1,145,061 | 400,501 | ||||||
Cash and cash equivalents, Gross Unrealized Gains | 0 | 0 | ||||||
ARS Option, Amortized Cost Basis | 3,513 | 4,245 | ||||||
ARS Option, Fair Value | 3,513 | 4,245 | ||||||
ARS Option, Gross Unrealized Gains | $ 0 | $ 0 |
Comprehensive Income
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Comprehensive Income [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income |
Comprehensive income is comprised of net income and other
comprehensive (loss) income. Other comprehensive (loss) income
includes certain changes in equity that are excluded from net
income, such as changes in unrealized losses on securities.
The
following table presents the components of comprehensive income:
|
Discontinued Operations
|
6 Months Ended | ||||
---|---|---|---|---|---|
Jun. 30, 2011
|
|||||
Discontinued Operations [Abstract] | |||||
Discontinued Operations |
EPS
On September 14, 2006, the Company completed the sale of
Emdeon Practice Services, Inc. (together with its subsidiaries,
“EPS”) to Sage Software, Inc. an indirect wholly owned
subsidiary of The Sage Group
plc (the “EPS Sale”). The Company had certain
indemnity obligations to advance amounts for reasonable defense
costs for initially ten, and later four, former officers and
directors of EPS (the “EPS Indemnification
Obligations”) who were indicted in connection with the
previously disclosed investigation by the United States Attorney
for the District of South Carolina (the
“Investigation”), which is more fully described in
Note 9. In connection with the EPS Sale, the Company agreed
to retain the responsibility for the EPS Indemnification
Obligations. During the years ended December 31, 2007, 2008
and 2009, the Company recorded aggregate pre-tax charges of
$116,792, which represented the Company’s estimate of its
costs related to the EPS Indemnification Obligations. As
described in more detail in Note 9, two of the former
officers and directors of EPS were found guilty; however, the
Court set the verdict aside on May 27, 2010 and entered a
judgment of acquittal. The government entered a notice of appeal
with respect to the Court’s order. At that time, two other
former officers of EPS were awaiting trial in Tampa, Florida,
which was scheduled to begin on October 4, 2010; however,
on July 9, 2010 the Court in Tampa placed the case against
those defendants on hold pending resolution of the appeal of the
South Carolina ruling. On June 8, 2011, upon the motion of
the government, the United States Court of Appeals for the
Fourth Circuit dismissed the government’s appeal of the
District Court’s rulings, thereby ending the
government’s case against Messrs. Kang and Sessions,
the two defendants in South Carolina. On July 8, 2011, upon
the motion of the government, the United States District Court
for the Middle District of Florida granted a motion to dismiss
the government’s case against the remaining two defendants
in Florida. As a result of these two decisions, it is the
Company’s understanding that the Investigation has
concluded. As of December 31, 2010, the remaining accrual
with respect to the EPS Indemnification Obligations was $7,527,
and was included within liabilities of discontinued operations
on the accompanying consolidated balance sheet. During the three
and six months ended June 30, 2011, the Company reversed
the remainder of this accrual as it determined it no longer has
any remaining liability with respect to the EPS Indemnification
Obligations as a result of the June 8, 2011 and
July 8, 2011 decisions described above. The reversal of the
remaining accrual of $7,206 is included in income from
discontinued operations, net of tax, within the accompanying
consolidated statements of operations during the three and six
months ended June 30, 2011.
Also included within liabilities of discontinued operations
related to this matter was $5,000 as of December 31, 2010,
which represented certain reimbursements received from the
Company’s insurance carriers between July 31, 2008 and
December 31, 2010. The Company deferred recognizing these
insurance reimbursements within the consolidated statement of
operations because of the possibility they might have to be
repaid to the insurance carriers under the terms of the
applicable policies. However, as a result of the June 8,
2011 and July 8, 2011 dismissals described above, the
Company believes that the insurance carriers do not have the
ability to recover this amount and accordingly, the Company
reversed this accrual. The reversal of $5,000 is included in
income from discontinued operations, net of tax, within the
accompanying consolidated statements of operations during the
three and six months ended June 30, 2011.
|
Related Party Transaction (Details Textual) (FESCO [Member], USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
Dec. 31, 2010
|
|
FESCO [Member]
|
|||||
Related Party Transaction (Textuals) [Abstract] | |||||
Revenue, related party | $ 1,406 | $ 1,439 | $ 2,839 | $ 2,896 | |
Accounts receivable, related party | $ 744 | $ 744 | $ 1,587 | ||
Percentage beneficial ownership | 14.70% | 14.70% |
Convertible notes
|
6 Months Ended | ||||
---|---|---|---|---|---|
Jun. 30, 2011
|
|||||
Convertible notes [Abstract] | |||||
Convertible notes |
Repurchase
and Conversions of 1.75% and
31/8% Notes
During the three and six months ended June 30, 2010, the
Company repurchased $32,446 principal amount of its
1.75% Notes for $42,107 in cash and the holders of the
1.75% Notes converted $232,137 principal amount into
6,703,129 shares of WebMD common stock. Also during the
three and six months ended June 30, 2010, the Company
repurchased $12,869 and $32,176 principal amount of its
31/8% Notes
for $16,690 and $39,255 in cash, respectively, and holders of
the
31/8% Notes
converted $12,700 and $96,627 principal amount into 362,586 and
2,758,715 shares of WebMD common stock, respectively. The
Company recognized an aggregate pre-tax loss of $11,011 and
$14,738 related to the repurchase of the 1.75% Notes and
the repurchase and conversions of the
31/8% Notes,
which is reflected within loss on convertible notes in the
accompanying consolidated statement of operations during the
three and six months ended June 30, 2010,
respectively. The loss includes the expensing of remaining
deferred issuance costs outstanding related to the repurchased
and converted notes. No 1.75% Notes or
31/8% Notes
were outstanding at December 31, 2010.
2.50% Convertible
Notes due 2018
On January 11, 2011, the Company issued $400,000 aggregate
principal amount of 2.50% Convertible Notes due 2018 (the
“2.50% Notes”) in a private offering. Unless
previously converted, the 2.50% Notes will mature on
January 31, 2018. Net proceeds from the sale of the
2.50% Notes were approximately $387,345, after deducting
the related offering expenses, of which approximately $100,000
was used to repurchase 1,920,490 shares of the
Company’s Common Stock at a price of $52.07 per share, the
last reported sale price of the Company’s Common Stock on
January 5, 2011, which repurchase settled on
January 11, 2011. Interest on the 2.50% Notes is
payable semi-annually on January 31 and July 31 of each year,
commencing July 31, 2011. Under the terms of the
2.50% Notes, holders may surrender their 2.50% Notes
for conversion into the Company’s Common Stock at an
initial conversion rate of 15.1220 shares of Common Stock
per thousand dollars principal amount of the 2.50% Notes.
This is equivalent to an initial conversion price of
approximately $66.13 per share of Common Stock. In the
aggregate, the 2.50% Notes are convertible into
6,048,800 shares of the Company’s Common Stock. The
conversion rate may be adjusted under certain circumstances.
Under the terms of the 2.50% Notes, if the Company
undergoes certain change of control transactions prior to the
maturity date of the 2.50% Notes, holders of the
2.50% Notes will have the right, at their option, to
require the Company to repurchase some or all of their
2.50% Notes at a repurchase price equal to 100% of the
principal amount of the 2.50% Notes being repurchased, plus
accrued and unpaid interest to, but excluding, the repurchase
date. At the Company’s option, and to the extent permitted
by the applicable rules of the Nasdaq Global Select Market (or
the applicable rules of such other exchange on which the
Company’s Common Stock may be listed), instead of paying
the repurchase price in cash, the Company may pay the repurchase
price in shares of its Common Stock or a combination of cash and
shares of its Common Stock.
2.25% Convertible
Notes due 2016
On March 14, 2011, the Company issued $400,000 aggregate
principal amount of 2.25% Convertible Notes due 2016 (the
“2.25% Notes”) in a private offering. Unless
previously converted, the 2.25% Notes will mature on
March 31, 2016. Net proceeds from the sale of the
2.25% Notes were approximately $387,400, after deducting
the related offering expenses, of which approximately $50,000
was used to repurchase 868,507 shares of the Company’s
Common Stock at a price of $57.57 per share, the last reported
sale price of the Company’s Common Stock on March 8,
2011, which repurchase settled on March 14, 2011. Interest
on the 2.25% Notes is payable semi-annually on March 31 and
September 30 of each year, commencing September 30, 2011.
Under the terms of the 2.25% Notes, holders may surrender
their 2.25% Notes for conversion into the Company’s
Common Stock at an initial conversion rate of
13.5704 shares of Common Stock per thousand dollars
principal amount of the 2.25% Notes. This is equivalent to
an initial conversion price of approximately $73.69 per share of
Common Stock. In the aggregate, the 2.25% Notes are
convertible into 5,428,160 shares of the Company’s
Common Stock. The conversion rate may be adjusted under certain
circumstances. Under the terms of the 2.25% Notes, if the
Company undergoes certain change of control transactions prior
to the maturity date of the 2.25% Notes, holders of the
2.25% Notes will have the right, at their option, to
require the Company to repurchase some or all of their
2.25% Notes at a repurchase price equal to 100% of the
principal amount of the 2.25% Notes being repurchased, plus
accrued and unpaid interest to, but excluding, the repurchase
date. At the Company’s option, and to the extent permitted
by the applicable rules of the Nasdaq Global Select Market (or
the applicable rules of such other exchange on which the
Company’s Common Stock may be listed), instead of paying
the repurchase price in cash, the Company may pay the repurchase
price in shares of its Common Stock or a combination of cash and
shares of its Common Stock.
|
Stock-Based Compensation (Details 2) (Restricted Stock [Member], USD $)
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Restricted Stock [Member]
|
|
Restricted Stock Awards | |
Restricted Stock Awards, Shares, Beginning Balance | 1,106,751 |
Weighted Average Grant Date Fair Value, Beginning Balance | $ 33.13 |
Restricted Stock Awards, Shares, Granted | 227,000 |
Weighted Average Grant Date Fair Value, Granted | $ 50.68 |
Restricted Stock Awards, Shares, Vested | (200,868) |
Weighted Average Grant Date Fair Value, Vested | $ 32.23 |
Restricted Stock Awards, Shares, Forfeited | (30,750) |
Weighted Average Grant Date Fair Value, Forfeited | $ 30.90 |
Restricted Stock Awards, Shares, Ending Balance | 1,102,133 |
Weighted Average Grant Date Fair Value, Ending Balance | $ 36.98 |
Summary of Significant Accounting Policies (Details Textual) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|---|
Oct. 31, 2009
|
Jun. 30, 2011
|
Jun. 30, 2011
|
Oct. 23, 2009
|
Jun. 30, 2011
1.75% Notes [Member]
|
Dec. 31, 2010
1.75% Notes [Member]
|
Jun. 30, 2010
1.75% Notes [Member]
|
|
Debt Instrument [Line Items] | |||||||
Notes | 1.75% | 1.75% | 1.75% | ||||
Sale of stock, percentage of ownership before transaction | 80.00% | ||||||
Increase in revenue due to adoption of policy | $ 1,900 | $ 3,700 | |||||
Impact on diluted income per share | $ 0.03 | $ 0.06 | |||||
Exchange ratio | 0.4444 |
Stock-Based Compensation (Details 1) (USD $)
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
Years
Claims
|
Jun. 30, 2010
Years
|
|
Fair value of options granted | ||
Expected dividend yield | 0.00% | 0.00% |
Expected volatility | 31.00% | 35.00% |
Risk-free interest rate | 1.75% | 1.47% |
Expected term (years) | 4.7 | 3.5 |
Weighted average fair value of options granted during the period | $ 14.76 | $ 11.56 |
Convertible Notes (Details Textual) (USD $)
In Thousands, except Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 1 Months Ended | 1 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2010
Convertible Notes [Member]
|
Jun. 30, 2010
Convertible Notes [Member]
|
Jun. 30, 2010
1.75% Notes [Member]
|
Jun. 30, 2010
1.75% Notes [Member]
|
Jun. 30, 2011
1.75% Notes [Member]
|
Dec. 31, 2010
1.75% Notes [Member]
|
Jun. 30, 2010
Repurchases of 3 1/8% Notes [Member]
|
Jun. 30, 2010
Repurchases of 3 1/8% Notes [Member]
|
Jun. 30, 2011
Repurchases of 3 1/8% Notes [Member]
|
Dec. 31, 2010
Repurchases of 3 1/8% Notes [Member]
|
Jan. 31, 2011
2.50% convertible notes due 2018 [Member]
ConversionRatio
EquityInstruments
|
Jun. 30, 2011
2.50% convertible notes due 2018 [Member]
|
Jan. 11, 2011
2.50% convertible notes due 2018 [Member]
|
Jan. 05, 2011
2.50% convertible notes due 2018 [Member]
|
Mar. 31, 2011
2.25% Convertible notes due 2016 [Member]
EquityInstruments
ConversionRatio
|
Jun. 30, 2011
2.25% Convertible notes due 2016 [Member]
|
Mar. 14, 2011
2.25% Convertible notes due 2016 [Member]
|
Mar. 08, 2011
2.25% Convertible notes due 2016 [Member]
|
Jan. 11, 2011
2.25% Convertible notes due 2016 [Member]
|
|
Convertible Notes (Textuals) [Abstract] | ||||||||||||||||||||||
Principal amount of debt repurchased | $ 32,446 | $ 32,446 | $ 12,869 | $ 32,176 | ||||||||||||||||||
Repurchase of convertible subordinated notes | 42,107 | 42,107 | 16,690 | 39,255 | ||||||||||||||||||
Notes | 1.75% | 1.75% | 1.75% | 1.75% | 3.125% | 3.125% | 3.125% | 3.125% | 2.50% | 2.50% | 2.50% | 2.25% | 2.25% | 2.25% | ||||||||
Debt conversion, original debt amount | 232,137 | |||||||||||||||||||||
Convertible subordinated notes converted, number of shares | 362,586 | 2,758,715 | 6,703,129 | |||||||||||||||||||
Pre-tax gain (loss) on repurchase of notes | (11,011) | (14,738) | 11,011 | 14,738 | ||||||||||||||||||
Convertible notes due | 400,000 | 400,000 | ||||||||||||||||||||
Proceed From sale of Notes | 774,745 | 387,345 | 387,400 | |||||||||||||||||||
Cash used to purchase of shares | 150,417 | 264,527 | 100,000 | 50,000 | ||||||||||||||||||
Treasury stock purchased, shares | 1,920,490 | 868,507 | ||||||||||||||||||||
Average purchase price per share of treasury stock | $ 52.07 | $ 57.57 | ||||||||||||||||||||
Initial conversion rate of Notes per Thousand Dollar of Principal amount | 15.1220 | 13.5704 | ||||||||||||||||||||
Conversion Price Per Share Of Common Stock | $ 66.13 | $ 73.69 | ||||||||||||||||||||
Convertible shares | 6,048,800 | 5,428,160 | ||||||||||||||||||||
Debt converted during period | $ 12,700 | $ 96,627 | ||||||||||||||||||||
Debt instrument repurchase price description | Equal to 100% of the principal amount of the 2.50% Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date | Equal to 100% of the principal amount of the 2.25% Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date | ||||||||||||||||||||
Percentage of principal amount equal to repurchase price | 100.00% | 100.00% |
Other Income (Expense), Net
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Other Income (Expense), Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income (Expense), Net |
Other income (expense), net consists of the following items:
|
Related Party Transaction
|
6 Months Ended | ||||
---|---|---|---|---|---|
Jun. 30, 2011
|
|||||
Related Party Transaction [Abstract] | |||||
Related Party Transaction |
Fidelity
Employer Services Company LLC
Fidelity Employer Services Company LLC (“FESCO”) is a
distributor of the Company’s private portals, integrating
the private portals product into the human resources
administration and benefit administration services that FESCO
provides to its employer clients. The Company recorded revenue
of $1,406 and $2,839 during the three and six months ended
June 30, 2011, respectively, and $1,439 and $2,896 during
the three and six months ended June 30, 2010, respectively.
Included in accounts receivable as of June 30, 2011 and
December 31, 2010 was $744 and $1,587, respectively,
related to the FESCO agreement. FESCO is an affiliate of FMR
LLC, which reported beneficial ownership of shares that
represent approximately 14.7% of the Company’s Common Stock
as of June 30, 2011. Affiliates of FMR LLC also provide
administrative and recordkeeping services to the Company in
connection with the Company’s 401(k) plan, stock-based
compensation plans and the health savings accounts of Company
employees.
|
Fair Value of Financial Instruments and Non-Recourse Credit Facilities (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Fair Value of Financial Instruments and Non-Recourse Credit Facilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company's Level 1 and Level 3 financial assets that were measured and recorded at fair value on a recurring basis |
The
following table sets forth the Company’s Level 1 and
Level 3 financial assets that were measured and recorded at
fair value on a recurring basis as of June 30, 2011 and
December 31, 2010:
|
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Reconciles of beginning and ending balances of the Company's Level 3 assets |
The following table reconciles the beginning and ending balances
of the Company’s Level 3 assets:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying value and estimated fair value of the Company's convertible notes that are carried at historical cost |
The
following table presents the carrying value and estimated fair
value of the Company’s convertible notes that were carried
at historical cost as of June 30, 2011:
|
Consolidated Statements of Operations (Unaudited) (Parenthetical) (USD $)
In Thousands |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2011
|
Jun. 30, 2011
|
|
Consolidated Statements of Operations [Abstract] | ||
Income from discontinued operations, net of a tax | $ 4,812 | $ 4,812 |
Comprehensive Income (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Comprehensive Income [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income |
The
following table presents the components of comprehensive income:
|
Stock-Based Compensation (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Stock-Based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Options |
The
following table summarizes stock option activity for the Plans:
|
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Fair value of options granted |
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option pricing model
considering the weighted average assumptions noted in the
following table. Expected volatility is based on implied
volatility from traded options of the Company’s Common
Stock combined with historical volatility of the Company’s
Common Stock. The expected term represents the period of time
that options are expected to be outstanding following their
grant date, and was determined using historical exercise data
combined with assumptions for future exercise activity. The
risk-free rate is based on the U.S. Treasury yield curve
for periods equal to the expected term of the options on the
grant date.
|
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Restricted Stock Awards |
The
following table summarizes the activity of the Company’s
Restricted Stock:
|
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Summary of Stock-Based Compensation Expense |
Summary
of Stock-Based Compensation Expense
The following table summarizes the components and classification
of stock-based compensation expense:
|
Consolidated Statements of Cash Flows (Unaudited) (Parenthetical)
|
Jun. 30, 2011
2.50% convertible notes due 2018 [Member]
|
Jan. 11, 2011
2.50% convertible notes due 2018 [Member]
|
Jan. 05, 2011
2.50% convertible notes due 2018 [Member]
|
Jun. 30, 2011
2.25% Convertible notes due 2016 [Member]
|
Mar. 14, 2011
2.25% Convertible notes due 2016 [Member]
|
Mar. 08, 2011
2.25% Convertible notes due 2016 [Member]
|
Jun. 30, 2011
1.75% Notes [Member]
|
Dec. 31, 2010
1.75% Notes [Member]
|
Jun. 30, 2010
1.75% Notes [Member]
|
Jun. 30, 2011
Repurchases of 3 1/8% Notes [Member]
|
Dec. 31, 2010
Repurchases of 3 1/8% Notes [Member]
|
Jun. 30, 2010
Repurchases of 3 1/8% Notes [Member]
|
---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from financing activities: | ||||||||||||
Notes | 2.50% | 2.50% | 2.50% | 2.25% | 2.25% | 2.25% | 1.75% | 1.75% | 1.75% | 3.125% | 3.125% | 3.125% |
Commitments and Contingencies
|
6 Months Ended | ||||
---|---|---|---|---|---|
Jun. 30, 2011
|
|||||
Commitments and Contingencies [Abstract] | |||||
Commitments and Contingencies |
Legal
Proceedings
Investigations
by United States Attorney for the District of South Carolina and
the SEC
As previously disclosed, the United States Attorney for the
District of South Carolina conducted an investigation of HLTH,
which HLTH first learned about on September 3, 2003. The
investigation related principally to issues of financial
accounting improprieties relating to Medical Manager
Corporation, a predecessor of HLTH (by its merger into HLTH in
September 2000), and, more specifically, HLTH’s former
Medical Manager Health Systems, Inc. subsidiary. Medical Manager
Health Systems was a predecessor to Emdeon Practice Services,
Inc. (“EPS”), a subsidiary that HLTH sold to Sage
Software in September 2006 (the “EPS Sale”). HLTH and
the Company have fully cooperated with the
U.S. Attorney’s Office. As previously reported, the
Board of Directors of HLTH formed a special committee consisting
solely of independent directors to oversee this matter with the
sole authority to direct HLTH’s response to the allegations
that have been raised and that special committee was continued
as a committee of the Board of Directors of the Company from the
Merger until May 2011. As previously disclosed, the Company
understands that the SEC also conducted a formal investigation
into this matter. In connection with the EPS Sale, HLTH retained
responsibility for liabilities relating to this matter and the
Company assumed that obligation in the Merger.
The United States Attorney for the District of South Carolina
announced on January 10, 2005 that three former employees
of Medical Manager Health Systems each had agreed to plead
guilty to one count of mail fraud and that one such employee had
agreed to plead guilty to one count of tax evasion for acts
committed while they were employed by Medical Manager Health
Systems. According to the Informations, Plea Agreements and
Factual Summaries filed by the United States Attorney in, and
available from, the District Court of the United States for the
District of South Carolina — Beaufort Division, on
January 7, 2005, the three former employees and other then
unnamed co-schemers were engaged in schemes between 1997 and
2002 that included causing companies acquired by Medical Manager
Health Systems to pay the former vice president in charge of
acquisitions and co-schemers kickbacks which were funded through
increases in the purchase price paid by Medical Manager Health
Systems to the acquired companies and that included fraudulent
accounting practices to artificially inflate the quarterly
revenues and earnings of Medical Manager Health Systems when it
was an independent public company called Medical Manager
Corporation from 1997 through 1999, when and after it was
acquired by Synetic, Inc. in July 1999, and when and after it
became a subsidiary of HLTH in September 2000. A fourth former
officer of Medical Manager Health Systems pled guilty to similar
activities later in 2005.
On December 15, 2005, the United States Attorney announced
indictments of ten former officers and employees of Medical
Manager Health Systems including Michael A. Singer, a former
Chief Executive Officer of Medical Manager Health Systems and a
former director of HLTH, who was last employed by HLTH as its
Executive Vice President, Physician Software Strategies until
February 2005, John H. Kang, a former President of Medical
Manager Health Systems, who was employed until May 2001, and
John P. Sessions, a former President and Chief Operating Officer
of Medical Manager Health Systems, who was employed until
September 2003. The indictment initially charged the defendants
with conspiracy to commit mail, wire and securities fraud, a
violation of Title 18, United States Code, Section 371
and conspiracy to commit money laundering, a violation of
Title 18, United States Code, Section 1956(h) but the
second count was dismissed in 2009. The allegations set forth in
the indictment describe activities that are substantially
similar to those described above with respect to the January
2005 plea agreements. One of the defendants passed away in 2008
and was dismissed from the indictment. Four of the defendants
were dismissed from the case and two defendants were severed
from the case and their cases were transferred to Tampa,
Florida. In addition, Mr. Singer has entered into a
Deferred Prosecution Agreement with the United States pursuant
to which all charges were dismissed against Mr. Singer on
July 26, 2010. The trial of John Kang and John Sessions,
former officers of Medical Manager Health Systems, began on
January 19, 2010 and on March 1, 2010 both men were
found guilty by the jury; however, the Court set the verdict
aside on May 27, 2010 and entered a judgment of acquittal.
The government entered a notice of appeal with respect to the
Court’s order. On January 19, 2011, the Court granted
the motion of Messrs. Kang and Sessions for a new trial in
the event that the government’s appeal of the Court’s
ruling to set aside the verdict is successful. The trial of the
remaining two defendants was scheduled to begin on
October 4, 2010; however, on July 9, 2010, the Court
in Tampa placed the case against those defendants on hold
pending resolution of the appeal of the South Carolina ruling.
On June 8, 2011, upon the motion of the government, the
United States Court of Appeals for the Fourth Circuit dismissed
the government’s appeal of the District Court’s
rulings, thereby ending the government’s case against
Messrs. Kang and Sessions. On July 8, 2011, upon the
motion of the government, the United States District Court for
the Middle District of Florida granted a motion to dismiss the
government’s case against the remaining two defendants in
Florida. As a result of these two dismissals, it is the
Company’s understanding that the government’s
investigation into this matter has concluded.
The Company has not uncovered information that it believes would
require a restatement for any of the years covered by
HLTH’s financial statements. In addition, the Company
believes that the amounts of the kickback payments referred to
in the court documents have already been reflected in the
financial statements of HLTH to the extent required.
HLTH had (and the Company has assumed in the Merger) certain
indemnity obligations to advance amounts for reasonable defense
costs for the former officers and directors of EPS. See
Note 2 for a more detailed discussion regarding these
indemnification obligations.
Directors &
Officers Liability Insurance Coverage Litigation
On July 23, 2007, HLTH commenced litigation (the
“Coverage Litigation”) in the Court of Chancery of the
State of Delaware in and for New Castle County against ten
insurance companies in which HLTH was seeking to compel the
defendant companies (collectively, the “Defendants”)
to honor their obligations under certain directors and officers
liability insurance policies (the “Policies”). WebMD
succeeded to HLTH as plaintiff in this action as a result of the
Merger. HLTH was seeking an order requiring the Defendants to
advance
and/or
reimburse expenses that HLTH had incurred and expected to
continue to incur for the EPS Indemnification Obligations, which
are described in Note 2.
Pursuant to a stipulation among the parties, the Coverage
Litigation was transferred on September 13, 2007 to the
Superior Court of the State of Delaware in and for New Castle
County. The Policies were issued to HLTH and to EPS, which is a
co-plaintiff with the Company in the Coverage Litigation
(collectively, the “Plaintiffs”). When EPS was sold in
September 2006 to Sage Software, HLTH retained responsibility
for the EPS Indemnification Obligations and the Company assumed
the EPS Indemnification Obligations as a result of the Merger.
HLTH retained (and the Company succeeded to as a result of the
Merger) the right to assert claims and recover proceeds under
the Policies.
Prior to the filing of the Second Amended Complaint which is
discussed below, the Policies at issue in the Coverage
Litigation consisted of two separate groups of insurance
policies. Each group of policies consists of several layers of
coverage, with different insurers having agreed to provide
specified amounts of coverage at various levels. The first group
of policies was issued to EPS in the amount of $20,000 (the
“EPS Policies”) and the second group of policies was
issued to Synetic, Inc. (the former parent of EPS, which merged
into HLTH) in the amount of $100,000, of which approximately
$3,600 was paid by the primary carrier with respect to another
unrelated matter (the “Synetic Policies”).
The carrier with the third level of coverage in the Synetic
Policies filed a motion for summary judgment in the Coverage
Litigation, which most of the carriers who have issued the
Synetic Policies joined, which sought summary judgment that any
liability to pay defense costs should be allocated among the
three sets of policies available to the Company (including the
policies with respect to which the Coverage Litigation relates
and a third set of policies the issuers of which had not yet
been named by the Company) such that the Synetic Policies would
only be liable to pay about $23,000 of the $96,400 total
coverage available under such policies. HLTH filed its
opposition to the motion together with its motion for summary
judgment against such carrier and several other carriers who
have issued the Synetic Policies seeking to require such
carriers to advance payment of the defense costs that the
Company is obligated to pay while the Coverage Litigation is
pending. On July 31, 2008, the Superior Court for the State
of Delaware denied the motion filed by the carriers seeking
allocation and granted HLTH’s motion for partial summary
judgment to enforce the duty of such carriers to advance and
reimburse these costs. Pursuant to the Court’s order, the
issuers of the Synetic Policies began reimbursing the Company
for its costs as described below.
On September 9, 2008 and February 4, 2009,
respectively, the eighth and ninth level carriers of the Synetic
Policies notified HLTH that they believed that they were not
bound by the Court’s July 31, 2008 order regarding the
duty of the Synetic carriers to advance and reimburse defense
costs. This resulted in HLTH making a motion to the Court on
February 23, 2009 to require such eighth and ninth level
carriers to advance and reimburse defense costs. HLTH later
settled with the eighth level carrier. Under the terms of the
settlement such carrier has paid, in full and final settlement,
an
agreed-upon
percentage of the policy amount against each payment of defense
costs made by the Company as such policy was implicated. On
April 15, 2009, the ninth level carrier made a cross-motion
for summary judgment claiming that, in light of a policy
endorsement
applicable only to the ninth level carrier, because of the time
period during which the conspiracy charged in the Second
Superseding Indictment is alleged to have taken place, the
Synetic Policy issued by such carrier does not cover the EPS
Indemnification Obligations. HLTH believed that such
carrier’s motion was without merit and responded to the
motion. On July 15, 2009, the Court granted summary
judgment in favor of the ninth level carrier. Accordingly, the
ninth level carrier was not liable to pay any portion of the
$10,000 total coverage of its policy with respect to the EPS
Indemnification Obligations. As of June 30, 2011, $84,200
has been paid by insurance companies representing the EPS
Policies and the Synetic Policies through a combination of
payment under the terms of the Policies, payment under
reservation of rights or through settlement. Of this amount,
$62,800 represents the portion received through settlement.
On November 17, 2008, HLTH filed a Second Amended Complaint
which added four new insurance companies as defendants in the
Coverage Action. These carriers are the issuers of a third set
of policies (the “Emdeon Policies”) that provide
coverage with respect to the EPS Indemnification Obligations.
All but one of the carriers who issued the Emdeon Policies moved
for summary judgment asserting that exclusions in the Emdeon
Policies preclude coverage for the EPS Indemnification
Obligations and HLTH filed motions seeking to compel such
carriers to advance the costs incurred by HLTH with respect to
the EPS Indemnification Obligations. On August 31, 2009,
the Court issued two opinions. In the first opinion, the Court
granted summary judgment in favor of HLTH with respect to one of
the exclusions asserted by the carriers who issued the Emdeon
Policies. In the second opinion, the Court granted summary
judgment in favor of the carriers with respect to the other
exclusion asserted by such carriers. The Company and the
carriers who issued the Emdeon Policies (with the exception of
the second level carrier with whom the Company has settled) each
appealed the trial Court’s August 31, 2009 rulings to
the Supreme Court of Delaware and, on April 22, 2010, the
Supreme Court decided both appeals in favor of the carriers who
issued the Emdeon Policies. The implication of this decision was
that the Company had effectively exhausted its insurance
coverage with respect to the EPS Indemnification Obligations.
The insurance carriers had also asserted that the Company’s
insurance policies provided that, under certain circumstances,
amounts advanced by the insurance companies in connection with
the EPS Indemnification Obligations would have to have been
repaid to the insurance carriers by the Company, although the
amounts that the Company received in settlement from certain
carriers were not subject to being repaid. As discussed more
fully in Note 2 above, as a result of the manner in which
the Investigation ended, the Company believes that the insurance
carriers do not have the ability to recover any amounts they
have previously advanced.
In addition to the Coverage Litigation, on December 22,
2009, TIG Specialty Insurance Company (“TIG”), the
second level issuer of the EPS Policies, commenced an action
against the Company to recover the $5,000 that TIG advanced to
the Company in 2006. The Company and TIG settled the matter in
2010.
Roger
H. Kaye and Roger H. Kaye, MD PC v. WebMD, LLC, et
al.
In December 2009, a lawsuit was filed by Dr. Roger H. Kaye
(and Roger H. Kaye MD PC) individually, and as an alleged class
action, under the Telephone Consumer Protection Act (the
“TCPA”) and under a similar Connecticut statute, in
the U.S. District Court for the District of Connecticut
against subsidiaries of the Company. The lawsuit claims that
faxes allegedly sent during the period from August 1, 2006
to April 21, 2010 by subsidiaries of the Company and by The
Little Blue Book business that the Company sold in September
2009 were sent in violation of the TCPA and the Connecticut
statute. With respect to the TCPA claims, the lawsuit seeks
statutory damages in excess of $5,000 for each of two classes of
plaintiffs, and a trebling of those damages. With respect to the
claims under the Connecticut statute, under which trebling is
unavailable, the lawsuit additionally seeks an undetermined
amount of damages. In April 2010, Plaintiffs filed an amended
complaint making substantially the same claims as were asserted
in the original complaint. The
Company’s subsidiaries have filed their answer as well as a
motion to dismiss the action with prejudice on the grounds that
the Court lacks subject matter jurisdiction and also filed a
motion to stay discovery, which was granted pending resolution
of the motion to dismiss. On July 8, 2010, the Court denied
the motion to dismiss and ordered that
class-related
discovery should proceed, while continuing a stay of full merits
discovery. On December 9, 2010, the parties entered into an
agreement to settle the matter (the “Settlement”)
subject to Court approval and, on May 1, 2011, the Court
entered a final order approving the Settlement and dismissing
the lawsuit. On December 7, 2010, the Company entered into
an agreement with its insurance carriers pursuant to which the
Company’s insurance carriers agreed to pay all amounts
payable under the Settlement, subject to the
Company’s payment of $332 which was the amount remaining
under the Company’s insurance deductible. The Company paid
the $332 in December 2010 and such amount was included in the
consolidated statements of operations during the year ended
December 31, 2010.
Daniel
Rodimer, et.al., on behalf of themselves and all others
similarly situated v. Apple, Inc., et. al.
On February 17, 2011, the Company was served with a
complaint in this lawsuit, which is pending in the United States
District Court for the Northern District of California. The
Plaintiffs are seeking to have the case certified as a class
action. The complaint alleges that Apple, Inc.
(“Apple”) and several other defendants, including one
or more subsidiaries of the Company, have violated several
Federal and California statutes and are also liable under
various common law claims in connection with the distribution of
software applications for mobile devices through Apple’s
iTunes store. The Federal Statutes that are alleged to have been
violated are the Computer Fraud and Abuse Act, 18 U.S.C.
§ 1030; and the Electronic Communications Privacy Act,
18 U.S.C. § 2510. The complaint seeks injunctive
relief as well as damages in unspecified amounts. On
April 20, 2011, Plaintiffs and the Company signed an
agreement tolling the statutes of limitations applicable to
Plaintiffs’ alleged claims against the Company. On
April 21, 2011, Plaintiffs filed a first consolidated class
action complaint that did not name the Company as a party.
Pursuant to the terms of the tolling agreement, Plaintiffs
dismissed the Company from the case without prejudice, with each
party bearing its own costs, and with the reservation of the
right to name the Company as party at a subsequent time, subject
to any substantive defenses available to the Company. The
tolling agreement may be terminated by either party upon
30 days’ written notice.
Myron
and Sandy Canson v. WebMD Health Corp., et
al.
On August 2, 2011, a class action lawsuit was filed in the
United States District Court for the Southern District of New
York on behalf of purchasers of the Company’s common stock
between February 23, 2011 and July 15, 2011. The
complaint alleges that the Company and certain of its officers
made false and misleading statements in violation of the
Securities Exchange Act of 1934. The complaint seeks unspecified
damages and attorneys’ fees. The Company believes the
lawsuit is without merit and intends to vigorously defend
against it. The Company is unable to predict the outcome of this
matter or to reasonably estimate the possible loss or range of
loss, if any, arising from the claim.
Other
Legal Proceedings
In the normal course of business, the Company and its
subsidiaries are involved in various claims and legal
proceedings. While the ultimate resolution of certain of these
matters, including certain of those discussed in Note 9 to
the Consolidated Financial Statements included in the
Company’s 2010 Annual Report on
Form 10-K,
has yet to be determined, the Company does not believe that
their outcomes will have a material adverse effect on the
Company’s consolidated financial position, results of
operations or liquidity.
|
Fair Value of Financial Instruments and Non-Recourse Credit Facilities (Details 2) (USD $)
In Thousands |
Jun. 30, 2011
|
---|---|
2.25% Notes [Member]
|
|
Financial Assets: | |
Carrying Amount | $ 400,000 |
Fair Value | 382,656 |
2.50% Notes [Member]
|
|
Financial Assets: | |
Carrying Amount | 400,000 |
Fair Value | $ 387,900 |
Summary of Significant Accounting Policies (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Summary of Significant Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Per Common Share |
Basic income per common share has been computed using the
weighted-average number of shares of Common Stock outstanding
during the period, adjusted to give effect to participating
non-vested restricted stock during the periods it was
outstanding. Diluted income per common share has been computed
using the weighted-average number of shares of Common Stock
outstanding during the period, increased to give effect to
potentially dilutive securities and assumes that any dilutive
convertible notes were converted, only in the periods in which
such effect is dilutive (shares in thousands):
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Weighted-average number of potentially dilutive common shares that were excluded from the computation of diluted income (loss) per common share |
The
following table presents the total weighted
average number of potentially dilutive common shares that were
excluded from the computation of diluted income per common share
during the periods presented (shares in thousands):
|
Comprehensive Income (Details) (USD $)
In Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Comprehensive Income | ||||
Unrealized holding gains | $ 13,177 | |||
Unrealized (gains) losses recognized in earnings | (5,260) | 24,248 | ||
Other comprehensive (loss) income | (5,260) | 37,425 | ||
Income from continuing operations | 14,201 | 7,684 | 33,746 | 3,894 |
Comprehensive income | $ 14,201 | $ 2,424 | $ 33,746 | $ 41,319 |