Background and Basis of Presentation (Policies) | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Background | Background |
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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. The Company’s Common Stock trades under the symbol “WBMD” on the Nasdaq Global Select Market. |
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The Company provides health information services to consumers, physicians and other healthcare professionals, private and governmental employers and health plans through its public and private online portals, mobile platforms and health-focused publications.The WebMD Health Network includes: www.WebMD.com, the Company’s primary public portal for consumers and related mobile-optimized sites and mobile apps; www.Medscape.com, the Company’s primary public portal for physicians and other healthcare professionals and related mobile services; and other sites and apps through which the Company provides branded health and wellness content, tools and services. The Company’s services for consumers enable them to obtain information on health and wellness topics or on a particular disease or condition, to assess their personal health status, to use online trackers, tools and quizzes, to locate physicians, to receive periodic e-mailed newsletters and alerts on topics of individual interest, and to participate in online communities with peers and experts. The Company’s services 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 does not charge any usage, membership or download fees for access to its public portals or mobile platforms. The Company generates revenue from its public portals and mobile platforms primarily through the sale of various types of advertising and sponsorship programs to its clients, which include: pharmaceutical, biotechnology and medical device companies; hospitals, clinics and other healthcare services companies; health insurance providers; consumer products companies whose products or services relate to health, wellness, diet, fitness, lifestyle, safety and illness prevention; and various other businesses, organizations and governmental entities. Advertisers and sponsors use the Company’s services to reach, educate and inform target audiences of consumers, physicians and other healthcare professionals. The Company also generates revenue from advertising sold in WebMD 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 are a cloud-based population health management platform, hosted by the Company and provided to private and governmental employers and health plans for use by their employees and plan participants. The Company markets these private portals and related services under the WebMD Health Services brand. The WebMD Health Services platform enables employers and health plans to provide their employees and plan participants with access to personalized health and benefit information, including an online personal health record application. The Company’s WebMD Health Services solutions include a comprehensive set of decision support and transparency tools that help their employees and plan participants understand the financial implications of their benefits options and make more informed benefits-related purchase decisions and also provide access to information and services that can help them factor quality and cost into decisions about care and treatment options. The Company also provides telephonic, online and onsite health coaching and targeted condition management programs for use by its private portals clients’ employees and plan participants to help them make healthier lifestyle choices and achieve their wellness goals. The Company generates revenue from subscriptions to its WebMD Health Services platform by employers and health plans, either directly or through its distributors. WebMD offers its health coaching services and its condition management programs on a per-participant basis. |
Basis of Presentation | Basis of Presentation |
The accompanying Consolidated Financial Statements include the consolidated accounts of the Company and its majority-owned subsidiaries and have been prepared in United States dollars, and in accordance with U.S. generally accepted accounting principles (“GAAP”). The results of operations for companies acquired or disposed of are included in the Consolidated Financial Statements from the effective date of acquisition or up to the date of disposal. All material intercompany balances and transactions have been eliminated in consolidation. |
Accounting Estimates | Accounting Estimates |
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The preparation of financial statements in conformity with 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. |
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 generally 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. |
Cash and Cash Equivalents | Cash and Cash Equivalents |
All highly liquid investments with an original maturity from the date of purchase of three months or less are considered to be cash equivalents. These investments are stated at cost, which approximates market. The Company’s cash and cash equivalents are generally invested in various money market accounts. |
Fair Value | Fair Value |
The carrying amount of cash and cash equivalents, accounts receivable, accrued expenses and deferred revenue is deemed to approximate fair value due to the immediate or short-term maturity of these financial instruments. See Note 12 for further information on the fair value of the Company’s investments. |
Allowance for Doubtful Accounts | Allowance for Doubtful Accounts |
The allowance for doubtful accounts receivable reflects the Company’s best estimate of losses inherent in the Company’s receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence. |
Long-Lived Assets | Long-Lived Assets |
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Property and Equipment |
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Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. The useful lives are generally as follows: |
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Computer equipment | | 3 to 5 years | | | | | | | | | | |
Office equipment, furniture and fixtures | | 4 to 7 years | | | | | | | | | | |
Software | | 3 years | | | | | | | | | | |
Building and improvements | | Up to 40 years | | | | | | | | | | |
Website development costs | | 3 years | | | | | | | | | | |
Leasehold improvements | | Shorter of useful life or lease term | | | | | | | | | | |
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Expenditures for maintenance, repair and renewals of minor items are charged to expense as incurred. Major improvements are capitalized. |
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Goodwill and Intangible Assets |
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Goodwill and intangible assets result from business combinations accounted for under the acquisition method. Goodwill and other intangible assets with indefinite lives are not amortized and are subjected to impairment review by applying fair value based tests. Intangible assets with definite lives are amortized on a straight-line basis over the individually estimated useful lives of the related assets as follows: |
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Content | | 3 to 5 years | | | | | | | | | | |
Customer relationships | | 5 to 12 years | | | | | | | | | | |
Acquired technology and patents | | 3 years | | | | | | | | | | |
Trade names | | Up to 10 years | | | | | | | | | | |
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Recoverability |
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The Company reviews the carrying value of goodwill and indefinite-lived intangible assets annually and whenever indicators of impairment are present. The Company tests goodwill for impairment at the reporting unit level only when, after completing a qualitative analysis, it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying value. Fair value is determined using an income approach valuation. A reporting unit is defined as an operating segment or one level below an operating segment. |
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Long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and the fair value. Long-lived assets held for sale are reported at the lower of cost or fair value less costs to sell. |
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Based on the Company’s analysis, there was no impairment of goodwill or indefinite-lived intangible assets during the years ended December 31, 2014, 2013 and 2012. |
Internal Use Software | Internal Use Software |
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Software development costs that are incurred in the preliminary project stage are expensed as incurred. Once certain criteria have been met, direct costs incurred in developing or obtaining computer software are capitalized. The Company capitalized $5,369 and $9,085 during the years ended December 31, 2014 and 2013, respectively. Capitalized internal use software development costs are included in property and equipment in the accompanying consolidated balance sheets. Training and data conversion costs are expensed as incurred. Capitalized software costs are depreciated over a three-year period. Depreciation expense related to internal use software was $6,449, $5,070 and $6,223 for the years ended December 31, 2014, 2013 and 2012, respectively. The remaining balance of internal use software, net of accumulated depreciation, was $11,597 and $12,677 as of December 31, 2014 and 2013, respectively. |
Website Development Costs | Website Development Costs |
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Costs related to the planning and post implementation phases of WebMD’s Website development efforts, as well as minor enhancements and maintenance, are expensed as incurred. Direct costs incurred in the development phase are capitalized. The Company capitalized $5,539 and $7,428 during the years ended December 31, 2014 and 2013, respectively. These capitalized costs are included in property and equipment in the accompanying consolidated balance sheets and are depreciated over a three-year period. Depreciation expense related to Website development costs was $6,421, $5,696 and $4,998 during the years ended December 31, 2014, 2013 and 2012, respectively. The remaining balance of Website development costs, net of accumulated depreciation, was $11,343 and $12,225 as of December 31, 2014 and 2013, respectively. |
Restricted Cash | Restricted Cash |
The Company’s restricted cash primarily relates to collateral for letters of credit obtained to support the Company’s operations. Total restricted cash was $1,765 and $1,730 as of December 31, 2014 and 2013, respectively, and is included in other assets in the accompanying consolidated balance sheets. |
Deferred Charges | Deferred Charges |
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Other assets includes costs associated with the issuance of the Company’s convertible notes that are amortized to interest expense in the accompanying consolidated statements of operations, using the effective interest method over the period from issuance through the earliest date on which holders can demand redemption. During the year ended December 31, 2011, the Company capitalized issuance costs of $12,655 and $12,595, related to the issuance of its 2.50% Convertible Notes due 2018 (the “2.50% Notes”) and its 2.25% Convertible Notes due 2016 (the “2.25% Notes”), respectively. Additionally, during the year ended December 31, 2013, the Company capitalized $8,177 of issuance costs in connection with the 2013 issuance of its 1.50% Convertible Notes due 2020 (the “1.50% Notes”). The aggregate amortization of these issuance costs, which is included within interest expense in the accompanying consolidated statements of operations, was $4,511, $4,192 and $4,326 for the years ended December 31, 2014, 2013 and 2012, respectively. During the year ended December 31, 2013, the Company wrote off issuance costs of $2,285 in connection with the repurchase of a portion of its 2.25% Notes. As of December 31, 2014 and 2013, there were $14,355 and $18,866, respectively, of unamortized issuance costs included in other assets within the accompanying consolidated balance sheets. |
Deferred Revenue | Deferred Revenue |
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Deferred revenue consists of invoices sent to customers or payments received from customers, in advance of revenue recognition and is recognized as the revenue recognition criteria are met. Deferred revenue is influenced by several factors, including the timing of invoices to our customers and the timing of payments received from our customers in relation to the timing of the revenue recognition for the related customer contract. Deferred revenue at each balance sheet date is expected to be recognized during the succeeding twelve month period and is therefore classified as a current liability within the accompanying consolidated balance sheets. |
Leases | Leases |
The Company recognizes rent expense on a straight-line basis, including predetermined fixed escalations, over the initial lease term including reasonably assured renewal periods, net of lease incentives, from the time that the Company controls the leased property. Leasehold improvements made at the inception of the lease are amortized over the shorter of the useful life of the asset or the lease term. Lease incentives are recorded as a deferred credit and recognized as a reduction to rent expense on a straight-line basis over the lease term as described above. |
Presentation of Segment Information | Presentation of Segment Information |
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The Company generates revenue in four groups, as set forth in the table below. The first group is “Advertising and Sponsorship – Biopharma and Medical Device” and consists of advertising and sponsorship revenue from pharmaceutical, biotechnology and medical device clients relating to ethical pharmaceutical products or other regulated devices or products or for sponsoring educational programs. The second category is “Advertising and Sponsorship – OTC, CPG and Other” and consists of advertising and sponsorship revenue relating to non-Rx or over-the-counter medications and other healthcare products, food and beverages, beauty products and other consumer products, as well as revenue from clients such as retailers, pharmacies, hospitals, health insurance companies and government agencies. The combined revenue of the first two groups is sometimes referred to as “Advertising and Sponsorship” revenue. The third group is “Private Portal Services” and consists of revenue from employers and health plans for subscriptions to the Company’s private portals solution and related services, including health coaching and condition management services. The fourth group is “Information Services” and consists of revenue from the sale of stand-alone information and data products. Discrete financial information related to a measure of profit or loss for these four revenue groups is not available as they leverage many common expenses, and the Company does not separately allocate these common expenses in assessing the performance of its business. Accordingly, the Company views its business as one reportable operating segment. |
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The following table presents the revenues recognized from the four revenue groups described above: |
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| | Years Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | |
Advertising and sponsorship | | | | | | | | | | | | |
Biopharma and medical device | | $ | 329,329 | | | $ | 304,018 | | | $ | 280,261 | |
OTC, CPG and other | | | 124,636 | | | | 113,009 | | | | 98,492 | |
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| | | 453,965 | | | | 417,027 | | | | 378,753 | |
Private portal services | | | 103,182 | | | | 82,111 | | | | 78,527 | |
Information services | | | 23,302 | | | | 16,155 | | | | 12,586 | |
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| | $ | 580,449 | | | $ | 515,293 | | | $ | 469,866 | |
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The Company’s revenue is principally generated in the United States. An adverse change in economic conditions in the United States could negatively affect the Company’s revenue and results of operations. The Company recorded revenue from foreign customers of $46,095, $31,340 and $24,206 during the years ended December 31, 2014, 2013 and 2012, respectively. |
Sales, Use and Value Added Tax | Sales, Use and Value Added Tax |
The Company excludes sales, use and value added tax from revenue in the accompanying consolidated statements of operations. |
Advertising Costs | Advertising Costs |
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Advertising costs are generally expensed as incurred and totaled $4,196, $5,174 and $2,798 in 2014, 2013 and 2012, respectively. |
Foreign Currency | Foreign Currency |
The functional currency of the Company’s foreign operations is the U.S. dollar. Fluctuations in foreign dollar monetary assets and liabilities result in gains or losses which are credited or charged to income. Foreign currency transactional gains or losses are also credited or charged to income. |
Concentration of Credit Risk | Concentration of Credit Risk |
None of the Company’s customers individually accounted for more than 10% of the Company’s revenue in 2014, 2013 or 2012 or more than 10% of the Company’s accounts receivable as of December 31, 2014 or 2013. |
Loss Contingencies | Loss Contingencies |
The Company accounts for loss contingencies in accordance with Financial Accounting Standards Board (“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. |
Income Taxes | Income Taxes |
Deferred income taxes are recognized for the future tax consequence of differences between the tax and financial reporting basis of assets and liabilities at each reporting period. A valuation allowance is established to reduce deferred tax assets to the amount expected to be realized. |
Tax contingencies are recorded to address potential exposure involving tax positions the Company has taken that could be challenged by tax authorities. These potential exposures result from applications of various statutes, rules, regulations and interpretations. The Company’s estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions. The Company reflects interest and penalties related to uncertain tax positions as part of the income tax provision (benefit) in the accompanying consolidated statements of operations. |
Accounting for Stock-Based Compensation | Accounting for 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. The Company recognizes 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 award. |
Revenue Recognition | Revenue Recognition |
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Revenue from advertising is recognized as advertisements are delivered or as publications are distributed. Revenue from sponsorship arrangements, content syndication and distribution arrangements and subscriptions to healthcare management tools and private portals as well as related health coaching services is recognized ratably over the term of the applicable agreement. Revenue from information services is recognized as the underlying data is delivered. Revenue from the sponsorship of CME is recognized over the period the Company substantially completes its contractual deliverables as determined by the applicable agreements. |
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Contracts that contain multiple deliverables are subject to Accounting Standards Update (“ASU”) 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 defines the level of evidence of selling price required to separate deliverables and allows a company to make its best estimate of the selling price of deliverables when more objective evidence of selling price is not available. |
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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 vendor-specific objective evidence (“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, GAAP 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 judgmental 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. |
Net Income (Loss) Per Common Share | Net Income (Loss) Per Common Share |
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Basic income (loss) per common share has been computed using the weighted-average number of shares of Common Stock outstanding during the periods presented. Diluted income (loss) per common share has been computed using the weighted-average number of shares of Common Stock outstanding during the periods, 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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| | Years Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | |
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Income (loss) from continuing operations — Basic | | $ | 40,941 | | | $ | 15,116 | | | $ | (23,087 | ) |
Interest expense on 1.50% Notes, net of tax | | | 3,456 | | | | — | | | | — | |
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Income (loss) from continuing operations — Diluted | | $ | 44,397 | | | $ | 15,116 | | | $ | (23,087 | ) |
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Income from discontinued operations, net of tax — Basic and Diluted | | $ | 1,122 | | | $ | — | | | $ | 2,743 | |
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Weighted-average shares — Basic | | | 37,869 | | | | 46,830 | | | | 50,862 | |
Stock options and restricted stock | | | 2,060 | | | | 1,568 | | | | — | |
1.50% Notes | | | 5,685 | | | | — | | | | — | |
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Adjusted weighted-average shares after assumed conversions — Diluted | | | 45,614 | | | | 48,398 | | | | 50,862 | |
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Basic income (loss) per common share: | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | 1.08 | | | $ | 0.32 | | | $ | (0.45 | ) |
Income from discontinued operations | | | 0.03 | | | | — | | | | 0.05 | |
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Net income (loss) | | $ | 1.11 | | | $ | 0.32 | | | $ | (0.40 | ) |
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Diluted income (loss) per common share: | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | 0.97 | | | $ | 0.31 | | | $ | (0.45 | ) |
Income from discontinued operations | | | 0.03 | | | | — | | | | 0.05 | |
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Net income (loss) | | $ | 1 | | | $ | 0.31 | | | $ | (0.40 | ) |
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The Company has excluded certain of its convertible notes, as well as certain outstanding stock options and restricted stock, from the calculation of diluted income (loss) 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 (loss) per common share during the periods presented (shares in thousands): |
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| | Years Ended December 31, | |
| | 2014 | | | 2013 | | | 2012 | |
Options and restricted stock | | | 2,594 | | | | 5,744 | | | | 12,291 | |
1.50% Notes | | | — | | | | 556 | | | | — | |
2.50% Notes | | | 6,195 | | | | 6,148 | | | | 6,108 | |
2.25% Notes | | | 3,506 | | | | 5,020 | | | | 5,482 | |
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| | | 12,295 | | | | 17,468 | | | | 23,881 | |
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Discontinued Operations | Discontinued Operations |
The operating results of a business unit are reported as discontinued if its operations and cash flows can be clearly distinguished from the rest of the business, the operations have been sold or will be sold within a year, there will be no continuing involvement in the operation after the disposal date and certain other criteria are met. Significant judgments are involved in determining whether a business component meets the criteria for discontinued operation reporting and the period in which these criteria are met. |
Reclassifications | Reclassifications |
Certain reclassifications have been made to the prior period financial statements to conform with the current period presentation. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements |
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Accounting Pronouncement Adopted During 2014 |
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In July 2013, the FASB issued an update to existing guidance on the financial presentation of unrecognized tax benefits. The update provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, which for the Company was the first quarter of 2014. The adoption of this update did not have an impact on the Company’s financial condition, results of operations or cash flows. |
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Accounting Pronouncements to be Adopted in the Future |
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In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies the related disclosure requirements. Under the revised guidance, a discontinued operation is defined as a disposal of a component or group of components that represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2015; early adoption is permitted. The Company has not yet determined the impact the revised guidance will have on its consolidated financial statements. |
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In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the revised guidance requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2017; early adoption is prohibited. The revised guidance is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company has not yet determined the impact the revised guidance will have on its consolidated financial statements. |
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In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2016; early adoption is permitted. The Company has not yet determined the impact the revised guidance will have on its consolidated financial statements. |