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This excerpt taken from the WBMD 10-Q filed May 10, 2007. Transactions
with Emdeon
Agreements
with Emdeon
In connection with our IPO in September 2005, we entered into a
number of agreements with Emdeon governing the future
relationship of the companies, including a Services Agreement, a
Tax Sharing Agreement and an Indemnity Agreement. These
agreements cover a variety of matters, including responsibility
for certain liabilities, including tax liabilities, as well as
matters related to Emdeon providing us with administrative
services, such as payroll, accounting, tax, employee benefit
plan, employee insurance, intellectual property, legal and
information processing services.
On January 31, 2006, we entered into additional agreements
with Emdeon in which both parties agreed to support each
other’s product development and marketing efforts of
specific product lines for agreed upon fees as defined in the
agreements. The new agreements cover a term of five years.
On February 15, 2006, the Tax Sharing Agreement was amended
to provide that Emdeon will compensate us for any use of our net
operating losses that may result from certain extraordinary
transactions, as defined in the Tax Sharing Agreement, including
the sales by Emdeon of its Business Services and Practice
Services operating segments.
On September 14, 2006, Emdeon completed the sale of Emdeon
Practice Services (“EPS”) segment for approximately
$565,000 in cash. On November 16, 2006, Emdeon completed
the sale of a 52% interest in its Emdeon Business Services
(“EBS”) segment for approximately $1,200,000 in cash.
Emdeon recognized a taxable gain on the sale of its EPS and EBS
segments and expects to utilize a portion of its federal net
operating loss (“NOL”) carryforwards to offset the
gain on these transactions. Under the tax sharing agreement
between Emdeon and us, we were reimbursed for any of our NOL
carryforwards utilized by Emdeon in these transactions at the
current federal statutory rate of 35%. During February 2007,
Emdeon reimbursed us $140,000 as an estimate of the payment
required pursuant to the tax sharing agreement with respect to
the EPS Sale and the EBS Sale, which amount is subject to
adjustment in connection with the filing of the applicable tax
returns. This reimbursement was recorded as a capital
contribution which increased additional
paid-in-capital
at December 31, 2006.
Table of Contents
Charges
from the Company to Emdeon:
Revenue: We sell certain of our products and
services to Emdeon businesses. These amounts are included in
revenue during the three months ended March 31, 2007. We
charge Emdeon rates comparable to those charged to third parties
for similar products and services.
Charges
from Emdeon to the Company:
Corporate Services: We are charged a services
fee (the “Services Fee”) for costs related to
corporate services provided to us by Emdeon. The services that
Emdeon provides include certain administrative services,
including payroll, accounting, tax planning and compliance,
employee benefit plans, legal matters and information
processing. In addition, we reimburse Emdeon for an allocated
portion of certain expenses that Emdeon incurs for outside
services and similar items, including insurance fees, outside
personnel, facilities costs, professional fees, software
maintenance fees and telecommunications costs. Emdeon has agreed
to make the services available to us for up to 5 years
following the IPO. These expense allocations were determined on
a basis that we and Emdeon consider to be a reasonable
assessment of the cost of providing these services, exclusive of
any profit margin. The basis we and Emdeon used to determine
these expense allocations required management to make certain
judgments and assumptions. These cost allocations are reflected
in the table below under the caption “Corporate
services — shared services allocation”. The
Services Fee is reflected in general and administrative expense
within our consolidated statements of operations.
Healthcare Expense: We are charged for our
employees’ participation in Emdeon’s healthcare plans.
Healthcare expense is charged based on the number of our total
employees and reflects Emdeon’s average cost of these
benefits per employee. Healthcare expense is reflected in the
accompanying consolidated statements of operations in the same
expense captions as the related salary costs of those employees.
Stock-Based Compensation Expense: Stock-based
compensation expense is related to stock option issuances and
restricted stock awards of Emdeon’s Common Stock that have
been granted to certain of our employees. Stock-based
compensation expense is allocated on a specific employee
identification basis. The expense is reflected in our
consolidated statements of operations in the same expense
captions as the related salary costs of those employees. The
allocation of stock-based compensation expense related to
Emdeon’s Common Stock is recorded as a capital contribution
in additional paid-in capital.
The following table summarizes the allocations reflected in our
consolidated financial statements:
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