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 others 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.
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 Emdeons healthcare plans. Healthcare expense is charged based on the number of our total employees and reflects Emdeons 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 Emdeons 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 Emdeons 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: