June 13, 2005
Mail Stop 0409
Douglas W. Wamsley
Executive Vice President
WebMD Health Holdings, Inc.
224 West 30th Street
New York, NY 10001
Re: WebMD Health Holdings, Inc.
Form S-1 filed on May 12, 2005
File No. 333-124832
Dear Mr. Wamsley:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form S-1
General
1. Please update your financial statements pursuant to Rule 3-12
of
Regulation S-X.
2. We note that your parent participated in the Friedman,
Billings,
Ramsey 9th Annual Growth Investor Conference on Wednesday, June 1,
2005. We further note that your parent participated in the Banc
of
America Securities 2005 Health Care Conference on May 17, 2005.
Please provide us with a copy of your presentations, any handouts
and
written transcripts, if available.
3. We note your parent`s press release dated June 1, 2005, where
your
parent announced that its WebMD Health business unit, the unit to
be
transferred to you, "is in the final stages of negotiating a
significant contract" to license your technology to a "major
health
benefits company." Please tell us why this does not constitute
conditioning the market. Assuming it does not, please include
this
information in your prospectus, including the identity of the
provider and any material impact on your 2005 results.
4. We note your parent`s press release dated May 12, 2005,
responding
to "inquiries" regarding this registration statement. Please
describe
these inquiries to us and provide us with any written
correspondence.
5. Please provide us with all diagrams, pictures and graphic
information to be used in the prospectus. We may have additional
comments.
Outside Front Cover Page of Prospectus
6. Please identify your underwriters and, unless firm, describe
the
nature of the underwriting commitment. Refer to Item 501(b)(8) of
Reg. S-K.
Inside Front Cover Page of Prospectus
Market and Industry Data
7. Please relocate this information to a portion of the prospectus
following the risk factors section.
8. Please identify all third party sources of information upon
which
you rely, identify whether the information is publicly available
(and
if so, where) and provide us with copies of all such information.
You should highlight the relevant portion of each document and
clearly direct us to the part of your registration statement to
which
it applies. Please identify any reports that were prepared by or
for
you in anticipation of this offering and attach the appropriate
consent as an exhibit to your registration statement, including
the
report prepared by Manhattan Research. Refer to Rule 436 of Reg.
C.
In responding to this comment, please be sure to provide
supporting
material for the following assertions:
* information provided to consumers through your websites is
"objective and trusted" and of "high quality" (pages 1 and 43);
* authors of your original content are affiliated with "widely
respected academic institutions" (pages 1 and 43);
* you are "a leading" provider of health information services
(pages
1 and 43);
* the WebMD brand is "among the most recognized and trusted in
healthcare (pages 1 and 43);
* the TRUSTe ranking (page 57);
* WebMD is the information source "most frequently recommended by
physicians" to patients and peers (pages 2 and 43);
* WebMD is "the leading" online health destination (pages 2, 43
and
47);
* Medscape from WebMD is "the leading online provider of CME
programs" (pages 2, 44 and 60);
* the Internet has transformed how consumers and physicians find
and
use healthcare information and WebMD has been "a leader" in
enabling
this transition (pages 3 and 45);
* Internet usage and online advertising statistics, including
usage
by consumers and physicians for information and continuing
education
(pages 3 and 44-46);
* healthcare cost statistics and steps taken by employers and
consumers in response (pages 3-4, 46, and 53-54);
* 1999 and 2000 "quality initiatives" (pages 4 and 46);
* Internet users devote more time to the Internet than any other
medium and are more satisfied with it than traditional sources of
information (pages 44 and 48);
* ad spending by consumer packaged goods companies (page 47);
* rising healthcare costs will increase consumer reliance on the
Internet (page 44); and
* Medscape reaches "more physicians than any other professional
Web
site" (page 52).
Summary
9. As necessary, please incorporate your response to comments on
your
summary into the other parts of your prospectus, especially your
business section.
10. Please include a separate section covering conflicts of
interest
between your investors and your parent, as your majority
shareholder
and a counterparty to key agreements with you. This section
should
cover, among other things, the fact that related parties
negotiated
the transaction involving the transfer of assets by your parent in
exchange for Class B shares, valuation of those assets (disclose
whether they were independently appraised), the negotiation of the
services agreement and other agreements between you and your
parent,
and control exercised by your parent over your board composition
and
shareholder votes.
Our Business
Introduction, page 1
11. Where relevant, please explain why your parent seeks to pursue
this transaction at this point in time. Discuss what assets will
be
left with your parent and why your parent believes it is
advantageous
to take its WebMD Health unit public as a separate entity. We
note
from your parent`s March 8, 2005 press release discussing full-
year
results that your parent had "previously" announced its intention
to
engage in a transaction involving you. Please disclose that date.
Also, please consider any relationship between this offering and
the
legal actions discussed on pages 20 and 61. In particular,
consider
whether this offering would insulate assets from potential claims
resulting from legal actions.
12. With respect to your reliance on reports by Manhattan
Research,
please:
* provide us with support for your assertion that Manhattan
Research
is a "leading Internet market research firm;"
* disclose when the research was done, how large the sample group
was
and any margin for error; and
* clarify the criteria by which you are measuring yourselves and
explain how these criteria support your factual assertions. For
instance, if the research shows only that you are the "most
frequently recommended" source of information by physicians,
please
explain how this necessarily makes you one of the most recognized
and
trusted healthcare brands.
In your business section, please be sure to discuss the Manhattan
Research studies in more detail, focusing on any limitations on
the
scope or reliability of its conclusions.
13. We note your use of user and page view statistics at the
bottom
of page 1. In your business section, please explain in detail how
you define a "user," whether you distinguish between active and
inactive users, what you mean by "aggregate" page views, and how
you
measure your unique monthly user base and page views. If recent
figures are not representative of historical trends in your user
base
or page views, please omit them from your summary. We also note,
from
page 56, that you cannot advertise to members of private portals.
Does your membership number include these members, as well? If
so,
please make this clear in your summary, quantify private portal
membership and consider whether there are any restrictions on your
ability to advertise to your professional portals, as well.
14. On page 2, please confirm that the list of licensees is
representative of your entire client base and your revenue streams
in
general. You should avoid choosing clients based solely on brand
recognition. In responding to this comment, please provide us
with a
list of your 10 largest licensees, including the portion of your
revenues attributable to each.
15. On page 2 please omit summary discussion of your financials in
favor of the more detailed and balanced analysis in your MD&A.
Our Strengths, page 2
16. Please shorten or eliminate this duplicative disclosure (as
well
as disclosure regarding industry background and your strategy, on
pages 3-5). To the extent you choose to retain it, please include
balancing disclosure of your key weaknesses and risks to investors
in
an adjacent section. Also, please clarify what you mean by "good
working relationships" with your advertisers and provide us with
support for your assertion that you provide advertisers with a
"more
efficient use" of their marketing dollars compared to traditional
media.
Our Corporate Structure, page 6
17. We note from page 6 that your parent intends to transfer
assets
and liabilities to you prior to completion of the offering. We
have
the following comments:
* If true, please disclose that you will be issuing all of your
Class
B common stock in exchange for this transfer, disclose the terms
of
conversion into Class A common stock, briefly describe the assets
and
liabilities to be transferred to you, and disclose any values that
have been placed on them.
* Please provide us with an analysis of how the issuance of Class
B
shares, including underlying Class A shares, is exempt from
registration under the Securities Act of 1933. Your analysis
should
be factually detailed and include references to relevant
Commission
authority and case law.
* We note that your Class B shares appear to be immediately
convertible into Class A shares. Please disclose whether your
parent
may convert its Class B shares during the 180-day lockup period
and,
if so, whether the lockup would continue to apply.
* Finally, please tell us why the issuance of Class B shares, and
underlying Class A shares, should not be integrated with the
public
offering.
18. Please eliminate the cross reference from the bottom of page
6.
All material information should be included in your summary. We
have
the same comment with regard to the cross reference on page 24 of
your risk factors.
19. We note that you will enter into a services agreement with
your
parent. Please describe the terms in more detail, including the
fee
and termination provisions. Also, please describe the other
agreements you intend to enter into with your parent, including
any
agreement related to transfer of rights related to the WebMD
brand.
Risk Factors
20. Where relevant, and only to the extent material, please
describe
risk associated with any of the following:
* cost-per-action pricing of advertisements (we note from your
June
1, 2005 presentation to investors that your advertising campaigns
are
generally designed to drive "an action" with a recognized return
on
investment for the client);
* reliance on any one or a few licensees or advertisers for a
material part of your revenue;
* loss of members through discontinuation of network site
relationships (for example, MSN);
* member acquisition cost and member churn;
* that offering proceeds may not be sufficient to meet current
commitments and planned uses over the next two years;
* that your financial statements have been derived from your
parent
and may not necessarily provide a basis for assessing future
performance (see page 33);
* protecting your proprietary technologies or business practices
or
your reliance on third party intellectual property rights;
* board classification and removal of directors without cause,
especially as related to change of control (see pages 72 and 92);
* the legal proceeding involving McKesson HBOC (see page 61); and
* credit concentration (see page F-11).
Risks Related to Our Operations and Financial Performance
21. Where relevant, please discuss risk related to your lack of
profitable operations in recent periods, including the risk that
recent profits may not be maintained. Also, please disclose your
accumulated losses and, to the extent material, any risk related
to
your financial position. Refer to Item 503(c) of Reg. S-K.
Our online businesses are difficult to evaluate..., page 9
22. Where relevant, please discuss risk related to your offline
businesses, which also appear to have limited operating histories.
Also, please describe briefly the "significant changes" that your
online business has undergone and when this business began.
The timing of our advertising and sponsorship..., page 9
23. Please disclose what portion of your revenue is attributable
to
advertising.
Usage of our public portals depends on our ability..., page 10
24. Please recast the title to better reflect attendant risk.
We face competition for our products..., page 10
25. Please discuss competition with any of your licensees or
advertisers or your reliance on or competition with any one or a
few
outlets for your consumer marketing (including high-traffic Web
sites).
Investors could lose confidence in our financial reports..., page
12
26. Please disclose any known deficiencies in your and your
parent`s
internal controls.
Our success depends in part on our attracting..., page 14
27. Please recast the title to better reflect attendant risk and
remove, from the title and body, any suggestion that your business
is
currently a "success." Consider using a more neutral term, such
as
performance.
28. We note that Mr. Holstein recently resigned. Please tell us
the
reason for his resignation and provide us with any related
correspondence between your parent and Mr. Holstein.
Risks Related to Our Relationship with Clients
Our ability to maintain or increase advertising..., page 15
29. Please recast the title to better describe attendant risk.
Also,
please discuss activity rates among your members and discuss in
more
detail your reliance on third party sources of membership
(including
any risk related to their marketing methods, such as the use of
unsolicited commercial email to drive traffic).
Risk Related to the Legal and Regulatory Environment in Which We
Operate
Government regulation of healthcare..., page 17
30. Please revise to discuss the specific risks suggested by your
disclosure beginning on page 64, including draft guidance related
to
direct-to-consumer advertising, being subjected to state licensing
requirements, and anti-kickback laws (especially if you engage in
any
kind of variable or cost-per-action pricing).
Changes in industry guidelines..., page 17
31. Please describe the consequences of not complying with new
accreditation standards.
The ongoing Department of Justice investigation..., page 20
32. With respect to any of your parent`s managers who have pleaded
guilty to crimes in this investigation, please describe their
role,
if any, in managing any of the businesses or assets to be
transferred
to you. Also, since your parent is unaware of the investigation`s
"exact scope," it is not appropriate for you to posit the legal
conclusion that it does not involve your business. In fact, the
risk
is that the investigation might involve your business.
Accordingly,
please remove all mitigating language (the entire second paragraph
save for the final sentence) from this risk factor and discuss in
detail the attendant risk to you should the investigation
implicate
your business lines or managers, such as the risk of a restatement
of
financial results or the cost of litigation.
Risks Related to Our Relationship With Our Parent
Some of our directors and officers..., page 21
33. Please identify all such officers and directors here and
describe
the kind of interests they hold in you and your parent.
Following this offering, we will..., page 22
34. Please disclose any risk relating to your ability to terminate
this relationship. For instance, consider whether you would have
to
pay a penalty fee.
Selected Financial Information, page 30
35. As it relates to your selected financial information, we have
read your correspondence to us dated June 1, 2005. In that
regard,
please revise or expand your disclosure as follows:
* Present all text above the table, rather than in a footnote
below
the table.
* If true, state that you are unable to provide selected financial
information as of and for the year ended December 31, 2000 without
unreasonable effort and expense.
* If true, state that the omission of 2000 selected financial
information would not have a material impact on a reader`s
understanding of your financial results and condition and related
trends.
* Considering that there is no auditor association with the
selected
financial information, remove the "unaudited" label from the 2001
and
2002 columns so as to not create the impression that the 2003 and
2004 information was subject to a SAS 42 examination.
MD&A, page 31
36. Please discuss relevant metrics by which you gauge the
strength
or weakness of your business or business prospects. See Release
33-
8350. Discuss how these metrics have changed over the years for
which you are discussing results, and discuss in detail any
evident
trends. Based on your recent investor presentations and current
disclosure, it appears that such metrics should, at a minimum,
include:
* aggregate unique users and page views. Please explain how page
views related to private or professional portals is relevant to
your
revenue streams and, if they are not, or if there are significant
limitations on your ability to market to these portals, please
provide user base and page view information for your public portal
separately and break out further those users and page views
associated with sites that you do not own, such as your "network"
sites, like AOL Health. Also, please discuss member activity
levels
among public portal visitors;
* continuing education hours and percentage of the online and
overall continuing education market that your Medscape property
account for;
* distribution, number advertisers and number of brands for
offline
publications;
* number of online advertisers and brands of products placed,
breakdown between pharmaceutical and consumer packaged goods
companies, client attrition and spend rates (including effective
cost
per thousand or cost per action pricing) and click-through or
other
response rates (depending on pricing models used); and
* number of private portal licensees and number of consumers under
management.
Introduction, page 31
Key Trends Affecting Our Business, page 32
37. This section is highly repetitive of information contained in
both your summary and business sections. Please omit or shorten
significantly and be sure to tie these trends into the discussion
of
your financial results.
38. We note that you "intend" to make the "necessary" investments
to
provide content and services and to increase your brand awareness.
Here and in your liquidity section, please discuss these
investments
in more detail, including anticipated R&D expenses.
Acquisitions, page 33
39. Describe briefly the milestones for HealthShare to receive $5
million in 2006 and for MedicineNet and RxList to receive $20
million
in 2006 and 2007. Also, please describe consideration paid for
and
goodwill and intangible assets associated with MedicineNet,
RxList,
The Little Blue Book and Optate separately and describe briefly
what
these companies, and WellMed on page 34, do.
Critical Accounting Policies and Estimates, page 34
40. In your description of revenue recognition for continuing
education products, please explain what you mean by "minimum
distribution requirements."
41. On page 35, in discussing transactions with your parent,
please
be more specific as to allocation of costs between you and your
parent. Disclose the kinds of costs considered under each of your
approaches to allocating these costs, and explain why. Also,
please
disclose whether these allocations were used as basis for the
terms
of your services agreement, how they might differ and why.
Results of Operations, page 35
42. Please discuss separately any material impairments to your
acquired assets in 2002, 2003 or 2004.
43. Please explain why you believe net income as a percentage of
total revenue will increase in the future. Also, please disclose
whether you calculate your cost of sale. If so, please discuss
your
historical gross margins and your expectations going forward.
2004 and 2003, page 36
44. Where appropriate, please explain your relationship with AOL,
including how the AOL agreement works, whether significant revenue
is
attributable to it, and when it expires. Consider whether
additional
risk factor analysis may be warranted, as well. Please attach a
copy
of this agreement to your registration statement as an exhibit.
Revenue, page 36
45. We note that your 2004 revenue increased 16% as you recognized
for a full year your 2003 publishing acquisitions. In order to
better assess your results, please discuss the performance in 2004
of
assets that were not acquired in 2003. Also, with respect to your
2003 acquisitions, please discuss whether these acquisitions
experienced revenue growth themselves in 2004 and why. What are
your
expectations going forward for both assets held through all of
2004
and assets acquired in 2004? Try to give investors an
understanding
of whether your revenue growth is due to internal growth of your
assets or the aggregation of acquired revenue streams. We have
similar comments with respect to your 2003-2002 results.
Costs and Expenses, page 36
46. Please explain in detail how you achieved increases in revenue
with no concomitant increase in expenses, including operational
costs, sales and marketing expenses and G&A. We have similar
comments
with respect to your discussion of 2003 versus 2002 results.
47. On page 37, please explain what "non-cash" advertising
expenses
are, why they decreased from 2003 to 2004, and how these results
relate to sales of offline advertising. Also, please explain the
"non-cash" portion of your sales and marketing expenses and how
they
are related to your distribution "arrangement" with AOL. We note
from page 38 that your non-cash charges appear to relate to
"services
acquired" in exchange for your parent`s "equity securities in
acquisitions and strategic alliances." Disclose which
acquisitions
and alliances you are referring to and explain what is strategic
about them.
2003 and 2002, page 37
Revenue, page 37
48. We note your disclosure that your acquisitions are integrated
within 12 months of closing so that you are unable to track their
performance on an individual basis after that. Please explain how
this comports with the contingency arrangements that would appear
to
require you to track individual performance for longer periods
(see
your description of the HealthShare, MedicineNet and RxList
acquisitions). If the milestones are aggregate in nature, please
make this clear and add a risk factor describing the fact that you
may be obligated to pay contingent consideration regardless of the
performance of individual assets and that you do not track the
performance of such assets after one year. Finally, please
explain
in more detail how you integrate them such that you are unable to
track the performance of individual acquisitions after 12 months.
Results of Operations by Operating Segment, page 38
49. We note from page 39 that you do not "disaggregate" assets for
purposes of internal reporting. Please explain what "assets"
refers
to in this context.
2004 and 2003, page 39
Online Services, page 39
50. Please explain where your continuing education services
revenue
appears and break it out separately to support statements in your
last presentation to investors that Medscape accounted for 63% of
the
online continuing medical education market.
51. We note that the bulk of your increase in Online Services
revenues from 2003 to 2004 was attributable to an increase in
advertising and licensing-related revenues. Please explain why
you
believe these business lines experienced growth in 2004 and what
your
expectations are going forward.
52. Please discuss the likely impact on content syndication and
overall revenue in 2005 of the loss of $12 million per year from
News
Corporation. Please tell us the nature of this relationship and
how
you earned revenues under it. Please attach a copy of this
agreement
as an exhibit to your registration statement and discuss under
"strategic relationships," on page 59.
53. It appears that your publishing services segment is growing
more
rapidly than your online services segment. Please discuss this
trend
and future expectations.
Liquidity and Capital Resources, page 40
54. Please revise your discussion of cash flow from operating
activities to discuss the underlying drivers impacting the changes
in
working capital. Simply identifying items that are apparent from
the
statement of cash flows does not provide a sufficient basis to
analyze your cash flow from operating activities. Refer to
Release
33-8350.
55. Please disclose your current cash position, discuss the
potential
impact on liquidity of any timing mismatch between your payables
and
receivables, and explain the potential impact of any negative
covenants contained in any agreements to which you are a party,
issues related to seasonality of your offline publishing segment,
and
the loss of News Corporation-related revenue.
56. Please describe the timing of contingent payments with
specificity.
57. Please disclose how much sublease income you are receiving, if
significant.. Also, please disclose the length of your sublease,
if
less than your lease.
58. With respect to your material commitments, including your
contingent fees and roll out of new and updated products, please
disclose the source of funding for each.
59. We note that you believe you can meet your liquidity
requirements
for the "foreseeable future." Please be more specific and explain
your basis for this belief. In this regard, we note anticipated
outflows of $45 million over the next two years, based on
contingent
fees and product roll-out costs alone, and an additional roughly
$10
million in other obligations. This would appear to exceed
offering
proceeds (not considering underwriting fees). Also, please
consider
the possibility of a smaller offering or lack of profitable
operations (especially in light of the loss of News Corporation
revenue). Would you forestall any of your plan to roll out
updated
or new products?
Business, page 43
60. Where relevant, discuss your R&D activities, pursuant to Item
101(c)(xi) of Reg. S-K, including your planned expenditure of $20
million on new and updated products to be rolled out over the next
two years. Also, where relevant, please discuss in more detail
the
"strategic" relationships you refer to on page 41.
61. We note from pages F-37 and F-39 that you may have
international
operations. Where relevant, please discuss your operations
overseas
and business with foreign entities and consumers. If
MedicineNet`s
international operations were sold, please discuss whether the
buyers
represent a potential competitor.
Our Strategy, page 46
62. For each strategy listed, please provide more specific
disclosure
of companies with which you currently do business, goals achieved,
and goals that have not been achieved. In revising this section,
consider the following:
* How do you intend to enhance your product offerings and expand
brand awareness (and what kind of "strategic" relationships are
you
seeking)?
* How do you intend to "deepen" advertising relationships or
expand
your client base (and how many consumer products clients do you
have
now)?
* How do you intend to increase market penetration of your
portals?
* How do all of these strategies relate to your financial
condition?
Try to give investors an idea of the costs associated with each of
these strategies and the difficulties associated with achieving
them.
Also, we note from page 47 that you have a history of
"successfully"
integrating acquired companies. Which ones are you referring to
and
why do you believe the integrations were successful? What
criteria
are you using?
Our Online Services, page 47
Public Portals, page 47
63. Where relevant, please describe in more detail your
relationship
with your advertisers (i.e., how you generate revenue from those
relationships). For instance, do you sell advertising primarily
on a
cost-per-action or cost-per-impression basis? Also discuss your
reliance on third party network participants, such as AOL, for
users
and page views. Please identify any third parties that count for
a
material part of your public portal users or page views, please
break
out page views on sites that you own and sites that you do not own
and describe any restrictions on your ability to advertise to
consumers using third party sites.
64. Where appropriate, please discuss opportunities with the
"federal
government" that you mentioned in your most recent meeting with
investors.
Professional Portals, page 52
65. Where relevant, please discuss how you generate revenue
through
your professional portal in more detail. Do you receive fees
directly from consumers and then remit payments for content to a
third party? Do you develop the content independently? Do you
rely
on any one or a few content providers for a material part of your
content?
66. Please explain how Medscape is "well positioned" to increase
usage and membership.
67. On page 53, please disclose when current ACCME accreditation
lapses and discuss what must be done in order to renew
accreditation.
Private Portals, page 53
68. Where relevant, please discuss your relationship with
licensees
in more detail, including how you bill your licensees. Is it a
fixed
monthly fee or does it vary by number of users or some other
factor?
Also, please disclose whether you may advertise to these private
portals and how many of your gross user and page view numbers they
account for.
69. We note your belief that directed health plans will be a
"significant driver for the growth" of your private portals
"during
the next several years." Please clarify what you mean.
Advertising and Sponsorship, page 55
70. Please discuss on page 56 your success in attracting consumer
packaged goods advertisers in more detail. How many such
advertisers
do you currently have? How does this compare with past periods?
71. Please describe the "objective" measures of responsiveness you
offer to advertisers and discuss how these measures have changed,
in
the aggregate, over time and support your assertions that you
offer
advertisers a more "efficient" means of marketing than traditional
media (see page 55).
Seasonality, page 58
72. Please discuss seasonality in more detail, including any
material
impact on revenue trends through the year.
Strategic Relationships, page 59
73. With respect to your relationship with Fidelity Human
Resources
Services Company, please disclose whether Fidelity has any
discretion
to discontinue using your services with respect to existing
employer
customers and any limitations on your rights to approach those
customers directly. Do you consider those customers to be your
customers or Fidelity`s?
Intellectual Property, page 61
74. Please revise your disclosure to meet the requirements of Item
101(c)(iv) of Reg. S-K, including the duration of all intellectual
property rights. Also, please discuss in detail the arrangements
related to use of the WebMD brand.
Legal Proceedings, page 61
75. Please revise to include disclosure related to the proceeding
described on page 20.
Government Regulation, page 64
International Data Regulation, page 68
76. Please describe the business you do overseas or with non-U.S.
residents, which would subject you to possible conflicting or more
burdensome international data regulatory schemes. Please revise
your
risk factors, as necessary.
Consumer Protection Regulation, page 69
77. Please discuss potential liability as a result of the
activities
of third party marketing services, driving consumer membership on
your behalf. What kind of control do you exercise over their
practices?
Management, page 71
78. For each executive officer, please discuss what services they
will be required to continue to provide to your parent after the
close of this offering, and how these services will comport with
their obligations to you.
79. Please attach consents to show that Messrs. Gattinella, Gang,
Wygod, Vuolo and Wamsley have consented to be listed as directors
and/or officers in this registration statement.
80. With respect to Mr. Gang, please indicate his positions with
AOL
for the last five years.
Compensation Arrangements with Named Executive Officers, page 77
81. We have the following comments with respect to your
compensation
arrangements:
* Please disclose Mr. Gattinella`s financial and non-financial
goals.
Please indicate whether your board has discretion to award a bonus
regardless of whether these goals are met. Also, please define
"change of control," "without cause" and "good reason" with more
specificity. Finally, please describe the non-compete agreement
and
indicate the state law to which it is subject. We have similar
comments with respect to the disclosure of employment arrangements
with Messrs. Gang, Wygod and Vuolo (including a more detail
description of Mr. Vuolo`s bonus opportunity).
* Please describe Mr. Wygod`s duties with more specificity.
* Please disclose, to the extent known, how Mr. Vuolo`s
compensation
may change under the amended agreement and when you expect to
enter
into it.
* Please describe the key terms and timing of the agreement you
expect to enter into with Mr. Wamsley.
* Where you disclose gross-up rights, please explain in more
detail
what this might mean to investors, including the potential size of
the excise tax you may be required to cover.
Certain Relationship and Related Party Transactions, page 87
82. Please disclose estimated fees related to the services
agreement.
Also, with regard to the indemnity agreement, please be more
specific
as to the matters it addresses.
Description of Capital Stock, page 90
Amendment of certificate of incorporation and bylaws, page 94
83. Please disclose what provisions will be subject to
supermajority
voting once your parent no longer holds a majority stake.
Shares Eligible for Future Sale, page 95
84. Please disclose the conversion ratio for Class B into Class A
shares and revise your disclosure here and in your risk factors to
reflect the availability of such shares for future sale.
Underwriting, page 100
Relationships, page 102
85. Please describe these transactions with more specificity. We
may
have further comment.
Consolidated Financial Statements - WebMD Health Holdings, Inc.
Report of Independent Registered Public Accounting Firm, page F-2
86. We note that the audit report and consent of Ernst & Young LLP
will be signed upon completion of the contribution and transfer
described in Note 1 to the consolidated financial statements.
Please
confirm to us that you will provide a pre-effective amendment to
the
registration statement with the preface removed and the
accountant`s
report and consent signed.
Combined Consolidated Statements of Operations, page F-4
87. We note that you intend to present pro forma basic and diluted
income per share amounts for the year ended December 31, 2004 as
if
the planned recapitalization had occurred on January 1, 2004.
Please
revise to present retroactive per share information for all
periods
presented. In addition, disclose this information in your
Selected
Financial Information. Finally, please explain how you intend to
calculate weighted average shares outstanding for basic and
diluted
earnings per share for all periods.
Combined Consolidated Statements of Cash Flows, page F-6
88. With respect to your purchases of property and equipment, net
of
disposals, revise to present gross cash receipts and cash
payments.
In that regard, separately disclose your capital expenditures and
proceeds from sales of assets. Refer to paragraph 75 of SFAS 95.
Note 3 - Transactions with Parent, page F-12
Charges from Parent to the Company
89. We note that the Company`s costs and benefits received as a
stand-alone company would likely be different than the amounts
reflected in the combined consolidated statements of operations.
Revise to disclose an estimate of what those costs would have been
if
the services had been received from third parties. Refer to SAB
Topic 1.B. In addition, your MD&A disclosure should be similarly
revised to alert investors to the fact that the costs would have
been
significantly higher had they been paid to a third party and to
provide an estimate of the increased cost.
90. We note that stock compensation is reflected in general and
administrative expense in the combined consolidated statements of
operations. Revise your presentation to classify stock
compensation
in the same expense captions as the related salary costs of the
relevant employees.
Note 4 - Business Combinations, page F-14
91. With respect to each acquisition, revise to provide a
condensed
balance sheet disclosing the amount assigned to each major asset
and
liability caption of the acquired entity at the acquisition date.
Refer to paragraph 51(e) of SFAS 141.
92. We note that you still appear to be utilizing the domain names
of
your targets acquired in recent years. Please advise us why you
have
not allocated any of the purchases prices to these intangible
assets.
Note 5 - Significant Transactions, page F-16
America Online, Inc.
93. Please provide us with your basis for classifying the
amortization of warrants issued to Time Warner as sales and
marketing
expenses. Refer to EITF 01-9. In your response, please summarize
the
terms of the warrants and agreement as a whole.
News Corporation
94. We note that you received advertising services from News
Corporation to be used over ten years expiring in 2010 in exchange
for equity securities issued by Parent. We also note that the
advertising services were recorded at fair value and included in
prepaid advertising in the combined consolidated balance sheets.
With respect to this transaction, clarify the nature and type of
advertising services received. In addition, tell us your basis in
GAAP for the capitalization of these expenses and cite the
relevant
accounting literature that supports your accounting treatment.
Based
upon the nature of your response, we may have additional comments.
95. Related to the News Corporation transaction, please tell us
how
you considered the guidance in EITF 96-18 in accounting for equity
securities issued to News Corporation. Explain why you used a
discounted cash flow methodology to value the securities instead
of
the fair value of the securities issued. Please include a summary
of
the relevant terms of the agreement including any performance
commitments or termination provisions. Finally, please explain
any
difference between the amount of the asset recorded by the Parent
as
compared to deferred revenue recorded by News Corporation.
Note 10 - Commitments and Contingencies
Other Contingencies, page F-21
96. We note that you have not recorded a liability for you
indemnification provisions because "future payment ... is
unlikely."
Please explain how you considered the guidance in paragraph 9 of
FIN
45 when reaching this conclusion.
Consolidated Financial Statements - MedicineNet, Inc. and
HealthShare
Technology, Inc.
Report of Independent Registered Public Accounting Firm, page F-27
and F-40
97. Pursuant to Item 2.02(a) of Regulation S-X, revise the reports
to
include the signature of the independent registered public
accounting
firm.
Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements
Statement of Operations, page F-55
98. Revise to present per share data on the face of the pro forma
statement of operations, as well as the number of shares used to
compute per share data. Refer to Item 11-02(b)(7) of Regulation
S-X.
Other
As appropriate, please amend your registration statement in
response to our comments. You may wish to provide us with marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendments that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
No further review of the registration statement has been or
will
be made. We urge all persons who are responsible for the accuracy
and adequacy of the disclosure in the filings to be certain that
they
have provided all information investors require for an informed
decision. Since the company and its management are in possession
of
all facts relating to a company`s disclosure, they are responsible
for the accuracy and adequacy of the disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the above registration
statement. We will act on the request and, pursuant to delegated
authority, grant acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendments for further
review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Rachel Zablow at 202-551-3428 or Steven
Jacobs,
Accounting Branch Chief, at 202-551-3403 if you have questions
regarding comments on the financial statements and related
matters.
Please contact Geoffrey Ossias at 202-551-3404 or the undersigned
at
202-551-3780 with any other questions.
Sincerely,
Elaine Wolff
Branch Chief
cc: Stephen T. Giove (via facsimile)
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WebMD Health Holdings, Inc.
June 13, 2005
Page 22