UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTER REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number: 0-31014
HEALTHEXTRAS, INC.
(Exact name of registrant as specified in its charter)
| | |
Delaware | | 52-2181356 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
800 King Farm Boulevard, Rockville, Maryland 20850
(Address of principal executive offices, zip code)
(301) 548-2900
(Registrant’s phone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See definition of “large accelerated filer,” “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
| | |
Large accelerated filer x | | Accelerated filer ¨ |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of April 30, 2008 there were 43,029,985 shares outstanding of the Registrant’s $0.01 par value common stock.
HEALTHEXTRAS, INC.
and Subsidiaries
First Quarter 2008 Form 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. | Financial Statements |
HEALTHEXTRAS, INC.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
| | | | | | | | |
| | March 31, 2008 | | | December 31, 2007 | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 145,870 | | | $ | 80,973 | |
Marketable securities | | | — | | | | 43,600 | |
Accounts receivable, net of allowances of $1,075 and $1,043 at March 31, 2008 and December 31, 2007, respectively | | | 229,830 | | | | 222,711 | |
Income taxes receivable | | | — | | | | 2,960 | |
Deferred income taxes | | | 96 | | | | 200 | |
Other current assets | | | 7,824 | | | | 5,382 | |
| | | | | | | | |
Total current assets | | | 383,620 | | | | 355,826 | |
Property and equipment, net of accumulated depreciation of $10,563 and $9,538 at March 31, 2008 and December 31, 2007, respectively | | | 13,311 | | | | 12,979 | |
Intangible assets, net | | | 31,317 | | | | 32,336 | |
Goodwill | | | 149,413 | | | | 149,413 | |
Investments | | | 14,375 | | | | — | |
Other assets | | | 562 | | | | 876 | |
| | | | | | | | |
Total assets | | $ | 592,598 | | | $ | 551,430 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 254,725 | | | $ | 229,715 | |
Accrued expenses and other current liabilities | | | 7,966 | | | | 8,715 | |
Income taxes payable | | | 1,865 | | | | — | |
| | | | | | | | |
Total current liabilities | | | 264,556 | | | | 238,430 | |
Deferred rent expense | | | 1,834 | | | | 1,840 | |
Deferred income taxes | | | 10,880 | | | | 10,880 | |
| | | | | | | | |
Total liabilities | | | 277,270 | | | | 251,150 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
| | |
Stockholders’ equity: | | | | | | | | |
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued | | | — | | | | — | |
Common stock, $0.01 par value, 100,000 shares authorized, 43,000 and 42,639 shares issued at March 31, 2008 and December 31, 2007, respectively | | | 430 | | | | 426 | |
Additional paid-in capital | | | 196,988 | | | | 192,941 | |
Treasury stock, at cost, 111 shares and 88 shares at March 31, 2008 and December 31, 2007, respectively | | | (2,973 | ) | | | (2,366 | ) |
Retained earnings | | | 120,883 | | | | 109,279 | |
| | | | | | | | |
Total stockholders’ equity | | | 315,328 | | | | 300,280 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 592,598 | | | $ | 551,430 | |
| | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
1
HEALTHEXTRAS, INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| | | | | | | | |
| | For the three months ended March 31, | |
| | 2008 | | | 2007 | |
Revenue (excludes member co-payments of $190,612 and $156,069 for the three months ended March 31, 2008 and 2007, respectively) | | $ | 588,644 | | | $ | 406,372 | |
| | | | | | | | |
Direct expenses | | | 557,451 | | | | 378,814 | |
Selling, general and administrative expenses | | | 14,429 | | | | 12,812 | |
| | | | | | | | |
Total operating expenses | | | 571,880 | | | | 391,626 | |
| | | | | | | | |
Operating income | | | 16,764 | | | | 14,746 | |
Interest income | | | 1,897 | | | | 1,331 | |
Interest expense | | | (36 | ) | | | (36 | ) |
Other income | | | 1 | | | | 1 | |
| | | | | | | | |
Income before minority interest and income taxes | | | 18,626 | | | | 16,042 | |
Minority interest | | | — | | | | 31 | |
| | | | | | | | |
Income before income taxes | | | 18,626 | | | | 16,011 | |
Income tax expense | | | 7,022 | | | | 6,302 | |
| | | | | | | | |
Net income | | $ | 11,604 | | | $ | 9,709 | |
| | | | | | | | |
Net income per share, basic | | $ | 0.27 | | | $ | 0.24 | |
Net income per share, diluted | | $ | 0.27 | | | $ | 0.23 | |
Weighted average shares of common stock outstanding, basic | | | 42,219 | | | | 40,952 | |
Weighted average shares of common stock outstanding, diluted | | | 43,384 | | | | 42,765 | |
The accompanying notes are an integral part of these consolidated financial statements.
2
HEALTHEXTRAS, INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | |
| | For the three months ended March 31, | |
| | 2008 | | | 2007 | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 11,604 | | | $ | 9,709 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation expense | | | 1,025 | | | | 832 | |
Amortization of intangibles and other assets | | | 1,032 | | | | 988 | |
Allowances on accounts receivable | | | (10 | ) | | | 720 | |
Deferred income taxes | | | 104 | | | | 79 | |
Equity based compensation charges | | | 1,237 | | | | 1,209 | |
Minority interest | | | — | | | | 31 | |
Changes in assets and liabilities, net of effects from acquisitions: | | | | | | | | |
Accounts receivable | | | (7,110 | ) | | | (13,797 | ) |
Income taxes payable | | | 4,825 | | | | 2,969 | |
Other assets | | | (2,139 | ) | | | 783 | |
Accounts payable, accrued expenses, and other liabilities | | | 24,254 | | | | (1,231 | ) |
| | | | | | | | |
Net cash provided by operating activities | | | 34,822 | | | | 2,292 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Purchases of property and equipment | | | (1,358 | ) | | | (1,292 | ) |
Business acquisitions and related payments, net of cash acquired | | | — | | | | (29,065 | ) |
Acquisition of remaining minority interest | | | — | | | | (1,279 | ) |
Purchases of marketable securities | | | (6,825 | ) | | | (31,350 | ) |
Maturities of marketable securities | | | 36,050 | | | | 29,500 | |
| | | | | | | | |
Net cash provided by (used in) investing activities | | | 27,867 | | | | (33,486 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from exercise of stock options | | | 1,217 | | | | 657 | |
Excess tax benefits due to option exercises and restricted stock vesting | | | 1,492 | | | | 839 | |
Proceeds from shares issued under employee stock purchase plan | | | 106 | | | | 119 | |
Purchases of treasury stock | | | (607 | ) | | | (296 | ) |
| | | | | | | | |
Net cash provided by financing activities | | | 2,208 | | | | 1,319 | |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 64,897 | | | | (29,875 | ) |
Cash and cash equivalents at the beginning of period | | | 80,973 | | | | 49,501 | |
| | | | | | | | |
Cash and cash equivalents at the end of period | | $ | 145,870 | | | $ | 19,626 | |
| | | | | | | | |
Supplemental disclosure: | | | | | | | | |
Cash paid for interest | | $ | 23 | | | $ | 23 | |
Cash paid for taxes | | $ | 606 | | | $ | 2,416 | |
The accompanying notes are an integral part of these consolidated financial statements.
3
HEALTHEXTRAS, INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited consolidated financial statements have been prepared by HealthExtras, Inc. (the “Company”, “we” or “us”), a Delaware corporation, in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. These consolidated financial statements are unaudited and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair statement of the consolidated balance sheets, statements of operations and statements of cash flows for the periods presented. Operating results for the three months ended March 31, 2008, are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted in accordance with the rules and regulations of the SEC. The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by accounting principles generally accepted in the United States. Certain reclassifications were made to the prior year balance sheet amounts to conform to current year presentation. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC on February 29, 2008.
2. | RECENT ACCOUNTING PRONOUNCEMENTS |
In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations (“SFAS No. 141 (R)”). SFAS No. 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any controlling interest in the acquiree at the acquisition date fair value. SFAS No. 141(R) will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, pre-acquisition contingencies and transaction costs. In addition, any changes in an acquired entity’s deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. SFAS No. 141(R) also includes a substantial number of new disclosure requirements. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008 with early application prohibited. We will adopt SFAS No. 141(R) beginning in the first quarter of fiscal 2009 and will change our accounting treatment for business combinations on a prospective basis.
3. | FAIR VALUE MEASUREMENTS |
In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements (“SFAS 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB approved a Financial Staff Position that deferred the effective date of SFAS No. 157 by one year for certain nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.
As of January 1, 2008, we adopted SFAS No. 157, with the exception of the application of the statement to nonrecurring nonfinancial assets and nonfinancial liabilities. Nonrecurring nonfinancial assets and liabilities for which we have not applied the provisions of SFAS No. 157 include those measured at fair value in goodwill impairment testing, indefinite lived intangible assets measured at fair value for impairment testing, and those initially measured at fair value in a business combination. Our limited adoption of SFAS No. 157, as amended, did not have a material impact on our financial condition, results of operations or cash flows. Our evaluation of this standard is ongoing, and we have not yet determined the impact of the deferred portion of this standard on our financial condition, results of operations or cash flows.
4
The following table details the fair value measurements within the fair value hierarchy of our financial assets (in thousands):
| | | | | | | | | | | |
| | | | Fair Value Measurements at Reporting Date Using |
| | March 31, 2008 | | Quoted Prices in Active Markets Using Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Money market funds | | $ | 133,072 | | $ | 133,072 | | | — | | — |
Available for sale investments | | | 14,375 | | | — | | $ | 14,375 | | — |
| | | | | | | | | | | |
Total assets measured at fair value | | $ | 147,447 | | $ | 133,072 | | $ | 14,375 | | — |
| | | | | | | | | | | |
We have included our investments related to auction rate securities (ARS), which are classified as non-current, in the Level 2 category, as there are significant other observable inputs associated with these items as discussed below. Our ARS are floating rate securities with longer-term maturities which are marketed by financial institutions with auction reset dates from 7 to 35 day intervals to provide short-term liquidity. Beginning in February 2008, auctions for certain of these securities began to fail, which in some cases has resulted in higher interest rates being earned on some of these securities. We will not be able to access these funds until future auctions for these ARS are successful, or until we sell the securities in a secondary market which currently is not active, although there have been instances of redemptions at par to date by municipalities through refinance of new debt. As such, these investments currently lack short-term liquidity and were therefore reclassified as non-current on our March 31, 2008 balance sheet.
Although we have uncertainty with regard to the short-term liquidity of these securities, we continue to believe that the par value represents the fair value of these investments. Evidence includes the fact that these securities have redemption features which call for redemption at 100% of par value; the underlying securities carry AAA/Aaa credit ratings; the ARS are either federally guaranteed or required to maintain an asset coverage amount of at least 200% in accordance with the Investment Company Act of 1940; and that we have the ability to hold these securities to maturity. Based on our cash and cash equivalent balance of $145.9 million and our expected continued increases in operating cash flows, we do not anticipate a lack of liquidity associated with our ARS to adversely affect our ability to conduct business or have a material impact on our liquidity, financial condition, results of operations or cash flows. Moreover, we believe we have the ability to hold the securities throughout the currently estimated recovery period. All such items represent significant other observable inputs which are consistent with a Level 2 assessment.
On January 1, 2008, we adopted SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”) and have not elected to use fair value measurements on any assets or liabilities under this statement.
Acquisition ofR/xx
On November 3, 2006, the Company purchased all of the outstanding common stock of R/xx Pharmacy Solutions, Inc. (“R/xx”), an Arizona corporation, for $16.0 million in cash and $0.7 million in related transaction costs. As provided for in the acquisition agreement, additional cash consideration of $2.1 million was earned and paid based on successful achievement of certain client retention criteria during the period ended March 31, 2007. R/xx is a provider of pharmacy benefit management services with a strategic focus on clients in the Arizona, Nevada and Hawaii markets. The Company also established a business development marketing relationship with an R/xx affiliate, Pharmacy Benefit Consultants, Inc. (“PBC”), and had agreed to purchase PBC if requested by its shareholder on terms determined by PBC’s success in generating new business through December 31, 2007. There was no new business generated by PBC through December 31, 2007.
Based on management’s best estimate, including the valuation of net assets acquired, the acquisition of R/xx resulted in goodwill of $15.3 million and customer relationship intangibles of $5.8 million. Goodwill related to this transaction is not deductible for tax purposes. The customer relationship intangibles are being amortized on a straight-line basis over a 12-year life.
5
Acquisition of EBRx
On December 16, 2005, the Company acquired the common stock of EBRx, Inc. (“EBRx”). The acquisition was structured as a merger between our wholly-owned subsidiary, HCEM Corp., and the parent company of EBRx, with the former parent as the surviving entity following the merger. Consideration consisted of a cash payment of $27.9 million and $0.9 million in related transaction costs. HCEM was funded by us with a $4.0 million equity investment and the remaining consideration was provided in the form of subsidiary debt. As contemplated by the original structure and terms of the transaction, a separate entity owned by former owners of EBRx and its management team, purchased a 20% ownership interest in the parent of EBRx through a $1.0 million equity investment, on January 3, 2006.
On February 6, 2007, under the terms of the transaction, we acquired the remaining 20% minority ownership interest in the parent of EBRx through the acquisition of a separate entity and transferred the shares in the operating subsidiary to HCEM Corp., our wholly owned subsidiary. The transaction resulted in a cash payment of $30.3 million, of which $29.0 million was recorded as additional goodwill, prior to the repayment of related transaction debt and accrued interest. On May 16, 2007, the related transaction debt of $1.0 million plus accrued interest of $0.1 million was repaid.
The acquisition also provided for an additional contingent consideration payment of up to $3.0 million subject to performance based standards including certain specified client retention and gross profit criteria for the twelve months ended December 31, 2006. The contingent consideration earned and paid was approximately $2.9 million and recorded as additional goodwill.
Based on management’s best estimate, including the valuation of net assets acquired, the acquisition of EBRx resulted in goodwill of $56.1 million and customer relationship intangibles of $8.5 million and non-competition agreements of $0.3 million. Goodwill related to this transaction is not deductible for tax purposes. The customer relationship intangibles are being amortized on a straight-line basis over an 11-year life and the non-competition agreements are being amortized on a straight-line basis over a 3-year life.
Acquisition of MHS
In June 2004, the Company acquired 100% of the common stock of MHS. The purchase price of this acquisition included, among other things, warrants to purchase an aggregate of 300,000 shares of the Company’s common stock at a purchase price of $15.45 per share, subject to the provisions in the warrant, including performance-based standards. Based on achievement of various revenue and performance requirements, the Company issued 100,000 warrants in July 2005 and 100,000 warrants in July 2006. Each of these two warrant issuances were valued at $1.0 million and were recognized as additional goodwill as a component of the acquisition accounting. The remaining 100,000 warrants remained potentially issuable subject to future revenue and gross profit performance based requirements.
In 2006, certain MHS business lines were consolidated into our financial, management and technology platform. Accordingly, the remaining warrant issuance was based on a combination of MHS’ actual results and pro-forma calculations of revenue and gross profit performance. As a result, in July 2007, 55,000 warrants were issued at an exercise price of $15.45 per share. This additional consideration resulted in additional goodwill of approximately $0.5 million based on the value of the warrants at the date of acquisition.
5. | GOODWILL AND INTANGIBLE ASSETS |
Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses. We performed our annual goodwill impairment testing at December 31, 2007 and concluded that no impairment of goodwill existed. There were no changes in the goodwill balance for the three months ended March 31, 2008.
6
The following table sets forth the components of intangible assets (in thousands):
| | | | | | | | | | |
| | March 31, 2008 | | | December 31, 2007 | | | Amortization period |
Customer contracts | | $ | 36,296 | | | $ | 36,296 | | | 11–20 years |
Non-compete agreements | | | 256 | | | | 374 | | | 2–3 years |
Other PBM contracts | | | 5,698 | | | | 7,591 | | | 5 months–20 years |
| | | | | | | | | | |
Total intangible assets | | | 42,250 | | | | 44,261 | | | |
Accumulated amortization | | | (10,933 | ) | | | (11,925 | ) | | |
| | | | | | | | | | |
| | $ | 31,317 | | | $ | 32,336 | | | |
| | | | | | | | | | |
Customer contracts represent the estimated fair value of customer contracts held at the dates of acquisition. This estimated fair value and the weighted average useful-lives are based on income-method valuation calculations. Other PBM contracts allow us to provide PBM services, which are amortized over the future cash flow, based on management’s best estimate. During the first quarter of 2008, we wrote-off approximately $2.0 million of fully amortized intangible assets. There was no income statement impact of this adjustment.
The estimated aggregate amortization expense of existing intangible assets for the years ending December 31, 2008, 2009, 2010, 2011 and 2012, is $4.0 million, $3.4 million, $3.0 million, $2.6 million and $2.6 million, respectively.
In September 2006, we entered into a new $50.0 million revolving credit facility with our primary commercial bank. The facility is for a three-year term expiring September 2009 and bears interest at LIBOR plus a variable margin based on funded debt to earnings before interest, taxes, depreciation and amortization expense (“EBITDA”), payable in arrears on the first day of each month. There was no outstanding balance at March 31, 2008 or at December 31, 2007 on the credit facility. The credit facility is collateralized by all of our assets. The facility contains affirmative and negative covenants including those related to indebtedness and EBITDA.
Stock Options
A summary of our stock option activity for the three months ended March 31, 2008 is as follows (in thousands, except for weighted average exercise price):
| | | | | | |
| | Options | | | Weighted-Average Exercise Price |
Outstanding at December 31, 2007 | | 2,035 | | | $ | 7.34 |
Granted | | — | | | | — |
Exercised | | (203 | ) | | | 5.99 |
Forfeited or expired | | (7 | ) | | | 10.30 |
| | | | | | |
Outstanding at March 31, 2008 | | 1,825 | | | | 7.49 |
| | |
Exercisable at March 31, 2008 | | 1,825 | | | $ | 7.49 |
The aggregate intrinsic value of exercisable stock options at March 31, 2008 was approximately $31.7 million with a weighted average remaining life of 4.5 years. The total intrinsic value of stock options exercised during the three months ended March 31, 2008 was approximately $4.3 million.
7
Restricted Stock Awards
A summary of our restricted share activity for the three months ended March 31, 2008 is as follows (in thousands, except for fair market value):
| | | | | | |
| | Shares | | | Fair Market Value |
Non-vested shares outstanding at December 31, 2007 | | 463 | | | $ | 25.83 |
Granted | | 153 | | | | 27.75 |
Vested | | (63 | ) | | | 28.01 |
Forfeited or expired | | — | | | | — |
| | | | | | |
Non-vested shares outstanding at March 31, 2008 | | 553 | | | | 26.11 |
As of March 31, 2008, the total remaining unrecognized compensation cost related to non-vested restricted shares was approximately $12.3 million with a weighted average period over which it is expected to be recognized of 2.9 years.
Treasury Stock
Recipients of restricted stock grants are provided the opportunity to sell a portion of those shares to the Company at the time the shares vest, in order to pay their withholding tax obligations. We account for these share purchases as treasury stock transactions using the cost method. Approximately 22,300 shares were purchased at a cost of approximately $0.6 million for the three months ended March 31, 2008.
Employee Stock Purchase Plan
Effective January 1, 2007, the employee stock purchase plan (“ESPP”) was modified, allowing eligible employees to purchase shares of the Company’s common stock each quarter at 95% of the market value on the last day of the quarter. The ESPP, as modified, is not considered compensatory under the provisions of SFAS No. 123(R) and therefore no portion of the costs related to ESPP purchases is included in the Company’s stock-based compensation expense.
The effective income tax rate of 37.7% during the three months ended March 31, 2008 and 39.4% during the comparable period in 2007 represent the combined federal and state income tax rates adjusted as necessary based on the particular jurisdictions where we operate. The effective tax rate in 2008 was lower than in the comparable period in 2007 primarily due to a decrease in our overall state income tax rate as well as additional interest income earned on federally tax exempt investments.
Basic net income per common share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution that could occur (using the treasury stock method) if stock options, restricted stock awards and warrants to issue common stock were exercised.
The following represents a reconciliation of the number of shares used in the basic and diluted net income per share computations (amounts in thousands, except per share data):
8
| | | | | | |
| | Three months ended March 31, |
| | 2008 | | 2007 |
Net income available to common stockholders | | $ | 11,604 | | $ | 9,709 |
| | | | | | |
Calculation of shares: | | | | | | |
Weighted average common shares outstanding, basic | | | 42,219 | | | 40,952 |
Dilutive effect of stock options, restricted stock awards and warrants | | | 1,165 | | | 1,813 |
| | | | | | |
Weighted average common shares outstanding, diluted | | | 43,384 | | | 42,765 |
| | | | | | |
Net income per common share, basic | | $ | 0.27 | | $ | 0.24 |
Net income per common share, diluted | | $ | 0.27 | | $ | 0.23 |
During all periods presented, all options were included in the computation of diluted net income per share because the exercise prices were less than the average market price of our common shares.
10. | COMMITMENTS AND CONTINGENCIES |
In the ordinary course of our business, we are sometimes required to provide financial guarantees related to certain customer contracts. These financial guarantees may include performance bonds, standby letters of credit or other performance guarantees. These financial guarantees represent obligations to make payments to customers if we fail to fulfill an obligation under a contractual arrangement with that customer. We have had no history of significant claims, nor are we aware of circumstances that would require us to perform under these arrangements and believe that the resolution of any claim that might arise in the future, either individually or in the aggregate, would not have a material adverse effect on our financial condition, results of operations or cash flows.
SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that public enterprises report information about operating segments in financial statements. We have determined that we operate in only one segment – the pharmacy benefits management, or PBM, segment. Accordingly, no segment disclosures have been included in the notes to the consolidated financial statements.
On April 7, 2008, HealthExtras, Inc. entered into a definitive agreement to acquire HospiScript Services, LLC ("HospiScript") and Concept Pharmaceuticals, LLC (“Concept”), a related party to Hospiscript through common ownership. HospiScript is the largest independently-owned provider of pharmacy medication therapy management services to the hospice industry with a nationwide presence of clients in 46 states. This acquisition should provide HealthExtras a market-leading position in the growing hospice sector. We anticipate that the transaction will close in the second quarter of 2008, at which time the results of HospiScript and Concept operations will be included in our consolidated financial statements.
Under the terms of the agreement, we will pay a purchase price of approximately $100.0 million in cash at closing. Additionally, the acquisition provides for possible contingent consideration payments through 2010 of up to $6.1 million subject to specified operating performance standards. Contingent consideration earned, if any, would be accounted for as additional goodwill. Goodwill related to this acquisition is expected to be non-deductible for tax purposes. Additional information about this agreement was disclosed on the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 9, 2008.
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Quarterly Report on Form 10-Q may contain certain forward-looking statements, including without limitation, statements concerning HealthExtras, Inc.’s operations, economic performance and financial condition. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words "believe," "expect," "anticipate," "will," "could," "would," "should," "may," "plan," "estimate," "intend," "predict," "potential," "continue," and the negatives of these words and other similar expressions generally identify forward-looking statements. These forward-looking statements may include statements addressing our operations and our financial performance. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based largely on HealthExtras, Inc.'s current expectations and are subject to a number of risks and uncertainties. Factors we have identified that may materially affect our results are discussed in our Annual Report on Form 10-K, including the documents incorporated by reference, for the year ended December 31, 2007, particularly under Item 1A, "Risk Factors", and in our other filings with the Securities and Exchange Commission. In addition, other important factors to consider in evaluating such forward-looking statements include changes in external market factors, changes in HealthExtras, Inc.’s business or growth strategy or an inability to execute its strategy, including due to changes in its industry or the economy generally. In light of these risks and uncertainties, there can be no assurances that the results referred to in the forward-looking statements will, in fact, occur. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report. Readers are urged to carefully review and consider the various disclosures made in this report, in our Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.
OVERVIEW
The Company
HealthExtras is a full-service pharmacy benefit management, or PBM, company. We operate primarily under the brand name Catalyst Rx. Our clients include self-insured employers, including state and local governments, managed care organizations, third-party administrators, referred to as TPAs, unions, and individuals who contract with us to administer the prescription drug component of their overall health benefit programs
We provide our clients access to a contracted, non-exclusive national network of approximately 60,000 pharmacies. We provide our clients’ members with timely and accurate benefit adjudication, while controlling pharmacy spending trends through customized plan designs, clinical programs, physician orientation programs, and member education. We use an electronic point-of-sale system of eligibility verification and plan design information, and offer access to rebate arrangements for certain branded pharmaceuticals. When a member of one of our clients presents a prescription or health plan identification card to a retail pharmacist in our network, the system provides the pharmacist with access to online information regarding eligibility, patient history, health plan formulary listings, and contractual reimbursement rates. The member generally pays a co-payment to the retail pharmacy and the pharmacist fills the prescription. We electronically aggregate pharmacy benefit claims, which include prescription costs plus our claims processing fees for consolidated billing and payment. We receive payments from clients, make payments of amounts owed to the retail pharmacies pursuant to our negotiated rates, and retain the difference, (except where we have entered into pass-through pricing arrangements with clients), including claims processing fees.
Pharmacy benefit claim payments from our clients are recorded as revenue, and prescription costs to be paid to pharmacies are recorded as direct expenses. Under our network contracts, we generally have an independent obligation to pay pharmacies for the drugs dispensed and, accordingly, have assumed that risk independent of our clients. When we administer pharmacy reimbursement contracts and do not assume a credit risk, we record only our administrative or processing fees as revenue. Rebates earned under arrangements with manufacturers are recorded as a reduction of direct expenses. The portion of manufacturer rebates due to clients is recorded as a reduction of revenue.
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Beginning with the first quarter of 2008, we no longer present supplemental benefits as a separate reportable operating segment because it no longer constitutes a reportable segment under SFAS No. 131,Segment Reporting. Consequently, the PBM segment is our only reportable operating segment.
For the three months ended March 31, 2008, our revenue increased by 45% to $588.6 million from $406.4 million for the same period in 2007. Total claims processed increased to 12.8 million for the three months ended March 31, 2008, from 9.7 million during the same period in 2007. Our increase in revenue was primarily due to our initiation of services with several new PBM clients. In particular, we commenced providing PBM services to the states of Maryland and Ohio effective July 1, 2007, and we began providing PBM services to Puerto Rico’s MCS Commercial business and MCS Medicare Part D business on December 1, 2007 and January 1, 2008, respectively. Together these new contracts were responsible for over 2.3 million claims during the three months ended March 31, 2008.
Member co-payments to pharmacies are not recorded as revenue or direct expenses. We incur no obligations for co-payments to pharmacies and have never made such payments. Under our pharmacy agreements, the pharmacy is solely obligated to collect the co-payments from the members. If we had included co-payments in reported revenue and direct expenses, it would have resulted in an increase in our reported revenue and direct expenses of $190.6 million and $156.1 million for the three months ended March 31, 2008 and 2007, respectively. Our operating and net income, consolidated balance sheets and statements of cash flows would not have been affected.
The following tables illustrate the effects on our reported revenue and direct expenses if we had included the actual member co-payments as indicated by our claims processing system (in millions):
| | | | | | |
| | Three months ended March 31, |
| | 2008 | | 2007 |
Reported revenue | | $ | 588.6 | | $ | 406.4 |
Member co-payments | | | 190.6 | | | 156.1 |
| | | | | | |
Total | | $ | 779.2 | | $ | 562.5 |
| | | | | | |
Reported direct expenses | | $ | 557.5 | | $ | 378.8 |
Member co-payments | | | 190.6 | | | 156.1 |
| | | | | | |
Total | | $ | 748.1 | | $ | 534.9 |
| | | | | | |
RECENT DEVELOPMENTS
On April 7, 2008, we entered into a definitive agreement to acquire HospiScript Services, LLC ("HospiScript") and Concept Pharmaceuticals, LLC (“Concept”), a related party to Hospiscript through common ownership. HospiScript is the largest independently-owned provider of pharmacy medication therapy management services to the hospice industry with a nationwide presence of clients in 46 states. This acquisition should provide us a market-leading position in the growing hospice sector. We anticipate that the transaction will close in the second quarter of 2008, at which time the results of HospiScript and Concept operations will be included in our consolidated financial statements.
Under the terms of the agreement, we will pay a purchase price of approximately $100.0 million in cash at closing. Additionally, the acquisition provides for possible contingent consideration payments through 2010 of up to $6.1 million subject to specified operating performance standards. Contingent consideration earned, if any, would be accounted for as additional goodwill. Goodwill related to this acquisition is expected to be non-deductible for tax purposes. Additional information about this agreement was disclosed on the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 9, 2008.
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ACQUISITIONS
We have supported the growth of our business through acquisitions.
Acquisition ofR/xx
On November 3, 2006, the Company purchased all of the outstanding common stock of R/xx Pharmacy Solutions, Inc. (“R/xx”), an Arizona corporation, for $16.0 million in cash and $0.7 million in related transaction costs. As provided for in the acquisition agreement, additional cash consideration of $2.1 million was earned and paid based on successful achievement of certain client retention criteria during the period ended March 31, 2007. R/xx is a provider of pharmacy benefit management services with a strategic focus on clients in the Arizona, Nevada and Hawaii markets. The Company also established a business development marketing relationship with an R/xx affiliate, Pharmacy Benefit Consultants, Inc. (“PBC”), and had agreed to purchase PBC if requested by its shareholder on terms determined by PBC’s success in generating new business through December 31, 2007. There was no new business generated by PBC through December 31, 2007.
Based on management’s best estimate, including the valuation of net assets acquired, the acquisition of R/xx resulted in goodwill of $15.3 million and customer relationship intangibles of $5.8 million. Goodwill related to this transaction is not deductible for tax purposes. The customer relationship intangibles are being amortized on a straight-line basis over a 12-year life.
Acquisition of EBRx
On December 16, 2005, the Company acquired the common stock of EBRx, Inc. (“EBRx”). The acquisition was structured as a merger between our wholly-owned subsidiary, HCEM Corp., and the parent company of EBRx, with the former parent as the surviving entity following the merger. Consideration consisted of a cash payment of $27.9 million and $0.9 million in related transaction costs. HCEM was funded by us with a $4.0 million equity investment and the remaining consideration was provided in the form of subsidiary debt. As contemplated by the original structure and terms of the transaction, a separate entity owned by former owners of EBRx and its management team, purchased a 20% ownership interest in the parent of EBRx through a $1.0 million equity investment, on January 3, 2006.
On February 6, 2007, under the terms of the transaction, we acquired the remaining 20% minority ownership interest in the parent of EBRx through the acquisition of a separate entity and transferred the shares in the operating subsidiary to HCEM Corp., our wholly owned subsidiary. The transaction resulted in a cash payment of $30.3 million, of which $29.0 million was recorded as additional goodwill, prior to the repayment of related transaction debt and accrued interest. On May 16, 2007, the related transaction debt of $1.0 million plus accrued interest of $0.1 million was repaid.
The acquisition also provided for an additional contingent consideration payment of up to $3.0 million subject to performance based standards including certain specified client retention and gross profit criteria for the twelve months ended December 31, 2006. The contingent consideration earned and paid was approximately $2.9 million and recorded as additional goodwill.
Based on management’s best estimate, including the valuation of net assets acquired, the acquisition of EBRx resulted in goodwill of $56.1 million and customer relationship intangibles of $8.5 million and non-competition agreements of $0.3 million. Goodwill related to this transaction is not deductible for tax purposes. The customer relationship intangibles are being amortized on a straight-line basis over an 11-year life and the non-competition agreements are being amortized on a straight-line basis over a 3-year life.
Acquisition of MHS
In June 2004, the Company acquired 100% of the common stock of MHS. The purchase price of this acquisition included, among other things, warrants to purchase an aggregate of 300,000 shares of the Company’s common stock at a purchase price of $15.45 per share, subject to the provisions in the warrant, including performance-based standards. Based on achievement of various revenue and performance requirements, the
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Company issued 100,000 warrants in July 2005 and 100,000 warrants in July 2006. Each of these two warrant issuances were valued at $1.0 million and were recognized as additional goodwill as a component of the acquisition accounting. The remaining 100,000 warrants remained potentially issuable subject to future revenue and gross profit performance based requirements.
In 2006, certain MHS business lines were consolidated into our financial, management and technology platform. Accordingly, the remaining warrant issuance was based on a combination of MHS’ actual results and pro-forma calculations of revenue and gross profit performance. As a result, in July 2007, 55,000 warrants were issued at an exercise price of $15.45 per share. This additional consideration resulted in additional goodwill of approximately $546,000 based on the value of the warrants at the date of acquisition.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
Revenue. Revenue from operations for the three months ended March 31, 2008 and 2007 were $588.6 million and 406.4 million, respectively. Revenue increased over the comparable period in 2007 by $182.2 million, with $200.7 million from increased prescription volume, which includes significant new clients since the prior year quarter; $18.8 million from a decrease in unit prices from existing clients; and $0.3 million from the proportionate amount of prescription costs paid by the plan sponsor. Total claims processed increased to approximately 12.8 million for the three months ended March 31, 2008 from approximately 9.7 million for the same period in 2007. Contributors to the increase in revenue and prescription volume were primarily due to our contracts with the State of Maryland and Ohio, which commenced on July 1, 2007, and Puerto Rico’s MCS Commercial business and MCS Medicare Part D business, which commenced on December 1, 2007 and January 1, 2008, respectively.
Direct Expenses. Direct expenses for the three months ended March 31, 2008 and 2007 were $557.5 million and $378.8 million, respectively. Direct expenses increased by $178.7 million over the comparable period in 2007 primarily related to the $182.2 million increase in overall revenue. Direct expenses for the three months ended March 31, 2008 and 2007 represented 97.5% and 96.7% of total operating expenses for the respective periods.
Gross margins, calculated as revenue less direct expense, are generally predictable based on client contract terms and vendor/supplier contracts. Other factors that can result in changes in gross margins include generic substitution rates, changes in the utilization of preferred drugs with higher discounts and changes in the volume of prescription dispensing at lower cost network pharmacies. None of the foregoing factors have materially changed in 2008 in a manner that would meaningfully affect current results. Gross margins increased to $31.2 million in 2008 from $27.6 million in 2007.
Gross margin as a percentage of revenue was 5.3% and 6.8% for the three months ended March 31, 2008 and 2007, respectively. In 2008, composite gross margin percentages were reduced by the addition of several large contracts, including the states of Maryland and Ohio and the Puerto Rico based health plans, which are more competitively priced due to their size. These decreases were partially offset by gross margin improvements resulting from an increased level of generic substitution and higher network discount rates.
Selling, General and Administrative.For the three months ended March 31, 2008, selling, general and administrative expenses increased by approximately $1.6 million over the same period in the prior year to $14.4 million or 2.5% of operating expenses. This increase was primarily associated with our growth and the associated personnel and vendor costs to serve and implement new clients.
Selling, general and administrative expenses of $14.4 million for the three months ended March 31, 2008, consisted of $7.4 million in compensation and benefits, which includes $1.2 million in non-cash compensation, $1.2 million in professional fees and technology services, $1.7 million in facility costs, $0.8 million in travel expenses, $0.6 million in insurance and other corporate expenses, $1.0 million in other, which includes $0.4 million in recruitment and temporary help, and $1.7 million in depreciation and amortization.
Selling, general and administrative expenses of $12.8 million for the three months ended March 31, 2007, consisted of $6.6 million in compensation and benefits, which includes $1.1 million in non-cash compensation, $1.3 million in professional fees and technology service costs, $1.3 million in facility costs, $0.7 million in travel
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expenses, $0.6 million in insurance and other corporate expenses and $0.8 million in other expenses, which includes $0.3 million in recruitment and temporary help, and $1.5 million in depreciation and amortization.
Interest Income. Interest income increased to $1.9 million for the three months ended March 31, 2008 from $1.3 million for the three months ended March 31, 2007. The increase was primarily due to an increase in average funds available for investment during the period.
Interest Expense.Interest expense of approximately $36 thousand for the three months ended March 31, 2008 remained unchanged over the comparable period in 2007.
Minority Interest.Prior to February 6, 2007, EBRx was majority owned by us and 20% owned by investors affiliated with EBRx’s former parent. On February 6, 2007, we acquired the minority ownership interest. The minority interest for the three months ended March 31, 2007 represents 20% of the earnings of EBRx during the period in which there was an outstanding minority interest.
Income Tax Expense. The effective income tax rate of 37.7% during the three months ended March 31, 2008 and 39.4% during the comparable period in 2007 represent the combined federal and state income tax rates adjusted as necessary based on the particular jurisdictions where we operate. The effective tax rate in 2008 was lower than in the comparable period in 2007 primarily due to a decrease in our overall state income tax rate as well as additional interest income earned on federally tax exempt investments.
Net Income.Net income for three months ended March 31, 2008 increased by approximately $1.9 million over the same period in 2007 to $11.6 million. The increase in net income was primarily a result of increased gross margin dollars and an increase in interest income, reduced by an increase in selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Our sources of funds are usually cash flows from operating activities. We have in the past raised funds by borrowing on bank debt and selling equity in the capital markets to fund acquisitions. During the last several years, we have generated positive cash flow from operations and anticipate similar results in 2008 and the foreseeable near-term future. At March 31, 2008, we had available a $50.0 million revolving credit facility with no outstanding borrowings and our cash and cash equivalents were $145.9 million.
At March 31, 2008, we had $14.4 million in investments consisting of Auction Rate Securities (“ARS”). Our ARS are floating rate securities with longer-term maturities which are marketed by financial institutions with auction reset dates from 7 to 35 day intervals to provide short-term liquidity. Beginning in February 2008, auctions for certain of these securities began to fail, which in some cases has resulted in higher interest rates being earned on some of these securities. We will not be able to access these funds until future auctions for these ARS are successful, or until we sell the securities in a secondary market which currently is not active, although there have been instances of redemptions at par to date by municipalities through refinance of new debt. As such, these investments currently lack short-term liquidity and were therefore reclassified as non-current on our March 31, 2008 balance sheet.
Although we have uncertainty with regard to the short-term liquidity of these securities, we continue to believe that the par value represents the fair value of these investments. Evidence includes the fact that these securities have redemption features which call for redemption at 100% of par value; the underlying securities carry AAA/Aaa credit ratings; the ARS are either federally guaranteed or required to maintain an asset coverage amount of at least 200% in accordance with the Investment Company Act of 1940; and that we have the ability to hold these securities to maturity. Based on our cash and cash equivalent balance of $145.9 million and our expected continued increases in operating cash flows, we do not anticipate a lack of liquidity associated with our ARS to adversely affect our ability to conduct business or have a material impact on our liquidity, financial condition, results of operations or cash flows. Moreover, we believe we have the ability to hold the securities throughout the currently estimated recovery period.
Net Cash Provided by Operating Activities.Our operating activities generated $34.8 million of cash from operations in the three-month period ended March 31, 2008, a $32.5 million increase from the $2.3 million generated in the comparable prior year period. This $34.8 million in cash provided by operating activities in 2008
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reflects $11.6 million in net income, plus $3.4 million in non-cash charges and $19.8 million net decrease in working capital and other assets and liabilities. This $19.8 million change in working capital was primarily due to a $24.2 million increase in accounts payable and accrued liabilities and a $4.8 million increase in taxes payable partially offset by a $7.1 million increase in accounts receivable and a $2.1 million increase in other assets. The $24.2 million increase in accounts payable and accrued liabilities is reflective of a temporary net benefit in the timing of payments for our payables. The cash provided by operating activities in the three-month period ended March 31, 2007 of $2.3 million reflects net income of $9.7 million, plus $3.9 million in non-cash charges, offset by a $11.3 million net increase in working capital and other assets and liabilities.
Net Cash Provided by (Used in) Investing Activities.Net cash provided by investing activities for the three months ended March 31, 2008 was $27.9 million compared to cash used of $33.5 million in the prior year period. The cash provided in the current period reflects $1.4 million in capital expenditures offset by the net maturities of $29.3 million in marketable securities. The $33.5 million use of cash for the three months ended March 31, 2007 consisted of $1.9 million for the net purchase of marketable securities and $1.3 million in capital expenditures. Also, the acquisition of our remaining 20% minority ownership interest resulted in a cash payment of $30.3 million, of which $1.3 million was attributable to the minority interest and approximately $29.0 million was recorded as additional purchase price.
Net Cash Provided by Financing Activities.Net cash provided by financing activities for the three months ended March 31, 2008 was $2.2 million compared to $1.3 million in the prior year period. In the current period we purchased $0.6 million of treasury stock, received proceeds of $1.2 million from the exercise of options and $0.1 million in proceeds from issuance of common stock pursuant to the employee stock purchase plan. In addition, the company received an income tax payable benefit of $1.5 million from the exercise of stock options and restricted stock vesting. In the prior year period, we purchased $0.3 million of treasury stock, received proceeds of $0.7 million from the exercise of options and $0.1 million in proceeds from the issuance of common stock pursuant to the employee stock purchase plan. In addition, we received $0.8 million in income tax benefit proceeds from the exercise of stock options and restricted stock vesting,
We anticipate continuing to generate positive operating cash flow which, combined with available cash resources, should be sufficient to meet our planned working capital, capital expenditures and operating expenses. However, there can be no assurance that we will not require additional capital. Even if such funds are not required, we may seek additional equity or debt financing. We cannot be assured that such financing will be available on acceptable terms, if at all, or that such financing will not be dilutive to our stockholders.
PURCHASES AND SALES OF COMPANY SECURITIES BY EXECUTIVE OFFICERS
In 2004, the Company established a stock trading program under which its executives and directors could implement plans for sales or purchases of Company common stock in accordance with the guidelines specified in Rule 10b5-1 of the Securities Exchange Act of 1934. 10b5-1 plans are designed to enable executives and directors of the Company to avoid any real or perceived conflict of interest in connection with the trading of the Company’s securities. The Company is continuing its program. The executives and directors currently participating in the program, including our chief executive officer, have established 10b5-1 plans which could involve the sale of up to approximately 1,330,000 shares over a one-year period ending November, 2008.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There have been no significant changes in our market risk from that disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief
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Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting for our quarter ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
In the ordinary course of business, we may become subject to legal proceedings and claims. We are not aware of any legal proceedings or claims, which, in the opinion of management, will have a material effect on our financial condition, results of operations or cash flows.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
ITEM 3. | Defaults Upon Senior Securities |
None.
ITEM 4. | Submission of Matters to a Vote of Security Holders |
None.
None.
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Exhibit No. | | Description |
3(i) | | Amended and Restated Certificate of Incorporation of HealthExtras, Inc. (1) |
| |
3(ii) | | Bylaws of HealthExtras, Inc.(2) |
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31.1 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer* |
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31.2 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer* |
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32.0 | | Certifications pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes Oxley Act of 2002* |
(1) | Incorporated by reference to Exhibit 3.1(b) to the Registrant’s Form S-1/A Pre-Effective Amendment No. 1 to Form S-1 Registration Statement (Registration No. 333-83761) filed on September 21, 1999. |
(2) | Incorporated by reference to Exhibit 3(ii) to the Registrant’s Form 8-K filed on April 11, 2007. |
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SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | HEALTHEXTRAS, INC. |
| | |
May 8, 2008 | | By: | | /s/ David T. Blair |
| | | | David T. Blair |
| | | | Chief Executive Officer and Director |
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May 8, 2008 | | By: | | /s/ Michael P. Donovan |
| | | | Michael P. Donovan |
| | | | Chief Financial Officer |
| | | | (Principal Financial Officer and Principal Accounting Officer) |
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