UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 4, 2007
(Exact name of registrant as specified in its charter)
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| Delaware
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0-24975
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94-3236644 |
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(State or other jurisdiction of
incorporation)
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(Commission File Number)
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(I.R.S. Employer Identification
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669 River Drive, Center 2
Elmwood Park, New Jersey 07407-1361
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
(Former name or address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c)) |
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report
or Completed Interim Review
(a) On May 3, 2007, the Registrant issued a press release announcing its preliminary results
for the quarter ended March 31, 2007. In that press release (which was furnished as Exhibit 99.1
to the Current Report on Form 8-K filed by the Registrant on May 3, 2007), the Registrant also
indicated that it had recently identified an error in its accounting for non-cash income tax
expense and related deferred taxes. The error was identified after management of the
Registrant was advised of this potential issue on May 1, 2007 by Ernst & Young LLP, the Registrant’s independent registered
public accounting firm.
The
error relates to the tax impact of goodwill and intangible assets
arising from certain business combinations, primarily tax-deductible goodwill which is amortized
as an expense for tax purposes over 15 years but is not amortized to expense for financial
reporting purposes since the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets” as of
January 1, 2002. The Registrant recorded a deferred income tax expense
and a deferred tax liability related to the tax-deductible goodwill.
However, in preparing its financial statements, the Registrant
incorrectly netted the deferred tax liability resulting from the amortization of tax deductible
goodwill against deferred tax assets (primarily relating to the Registrant’s net operating loss
carryforwards) and provided a valuation allowance on the net asset
balance. Because the
deferred tax liability has an indefinite life, it should not have been netted against deferred
tax assets with a definite life when determining the required valuation allowance. As a result, the
Registrant did not record the appropriate valuation allowance and related deferred income tax
expense. The deferred tax
liability described above remains on the balance sheet of the Registrant indefinitely unless there is an
impairment of goodwill for financial reporting purposes or the related business entity is disposed
of through a sale or otherwise.
The error resulted in an understatement of deferred income tax expense and related deferred
tax liability and an overstatement of net income in an aggregate amount estimated by the
Registrant to be approximately $3.1 million in its audited financial statements for the three years
ended December 31, 2006, 2005 and 2004 included with its most recently filed Annual Report on Form
10-K. The error also resulted in an understatement of deferred income tax expense and related
deferred tax liability and overstatement of net income in an aggregate amount of approximately
$1.4 million in its financial statements for years prior to 2004.
Additionally, as a portion of the adjustment to deferred income tax expense related to the
Registrant’s majority owned subsidiary, WebMD Health Corp. (“WHC”), the Registrant has also
adjusted the minority interest in WHC for the period of time during the years ended December 31,
2006 and 2005 that WHC was not a 100% owned subsidiary of the Registrant. This resulted in a
decrease to minority interest in WHC and an understatement of net income in an aggregate amount of
approximately $0.4 million. The impact to the Registrant’s net income, after taking into account
all of the above adjustments, is approximately $2.7 million in the aggregate during the years ended
December 31, 2006, 2005 and 2004. The correction will have no effect on the Registrant’s revenues,
total assets, cash flows or liquidity for any period and no effect on the
Registrant’s pre-tax operating results, other than the effect on
minority interest. The Registrant believes that there will be no
effect on its debt agreements or other contractual obligations as a
result of this error.
On May 4, 2007, authorized officers of the Registrant concluded that, solely due to
the error described above and its impact on non-cash deferred income tax expense, minority interest
in WHC and net income, the financial statements for prior periods should be corrected. As a result
of this determination, the following will be amended to reflect the correction and,
therefore, should no longer be relied upon:
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the Registrant’s consolidated financial statements and the related report of the
Registrant’s independent registered public accounting firm for the years ended December
31, 2006, 2005 and 2004 included in the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2006 (the “2006 Annual Report”); and |
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management’s and the Registrant’s independent registered public accounting firm’s
reports on internal control over financial reporting of the Registrant as of December
31, 2006 included in the 2006 Annual Report. |
The Registrant intends to file restated financial statements in one or more future filings with the
Securities and Exchange Commission within the next five business days. Management of the
Registrant discussed the matters described above with the Audit Committee of the Board of Directors
of the Registrant on May 7, 2007, and the Audit Committee concurred in management’s determinations
relating to the restatements. The Audit Committee and management have also discussed the matters
described above with Ernst & Young who concur with management’s determinations.
Item 8.01. Other Events
WHC filed a Current Report on Form 8-K today disclosing that it will also be restating certain
of its financial statements as a result of the same error affecting Emdeon’s financial statements.
The information contained in Item 4.02(a) of that Current Report is incorporated by reference in
this Item 8.01 pursuant to General Instruction B.3 of Form 8-K.
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