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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended February 28, 2001
Commission File Number 000-19364
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AMERICAN HEALTHWAYS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 62-1117144
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3841 Green Hills Village Drive, Nashville, TN 37215
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(Address of Principal Executive Offices) (Zip Code)
615-665-1122
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(Registrant's Telephone 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 twelve 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
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As of April 12, 2001 there were outstanding 8,518,648 shares of the Registrant's
Common Stock, par value $.001 per share.
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PART I.
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HEALTHWAYS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
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February 28, August 31,
2001 2000
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Current assets:
Cash and cash equivalents $ 8,302,844 $ 7,025,277
Accounts receivable, net 5,401,937 5,036,051
Other current assets 2,132,954 1,465,804
Deferred tax asset 724,000 724,000
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Total current assets 16,561,735 14,251,132
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Property and equipment:
Leasehold improvements 2,463,698 2,448,285
Equipment 17,721,999 16,557,524
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20,185,697 19,005,809
Less accumulated depreciation (7,673,845) (5,570,307)
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12,511,852 13,435,502
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Long-term deferred tax asset 2,132,000 2,132,000
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Other assets, net 1,606,317 835,245
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Excess of cost over net assets
of purchased companies, net 10,509,591 10,700,701
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$ 43,321,495 $ 41,354,580
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AMERICAN HEALTHWAYS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------
February 28, August 31,
2001 2000
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Current liabilities:
Accounts payable $ 1,622,184 $ 1,924,077
Accrued salaries and benefits 2,859,932 3,260,418
Accrued liabilities 2,988,224 2,373,444
Income taxes payable 548,915 126,840
Current portion of other long-term liabilities 379,720 704,992
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Total current liabilities 8,398,975 8,389,771
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Other long-term liabilities 3,105,755 3,008,901
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Stockholders' equity:
Common stock
$.001 par value, 15,000,000 shares
authorized, 8,395,155 and 8,246,504
shares outstanding 8,395 8,247
Additional paid-in capital 24,163,372 23,604,823
Retained earnings 7,644,998 6,342,838
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Total stockholders' equity 31,816,765 29,955,908
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$ 43,321,495 $ 41,354,580
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AMERICAN HEALTHWAYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------- ---------------------------------
Three Months Ended Six Months Ended
February 28/29, February 28/29,
2001 2000 2001 2000
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Revenues $ 17,699,447 $ 13,213,223 $ 34,235,267 $ 26,278,302
--------------------------------- ---------------------------------
Expenses:
Salaries and benefits 10,508,534 8,637,424 20,595,214 17,163,081
Other operating expenses 4,762,669 3,243,153 8,817,151 6,111,997
Depreciation and amortization 1,264,110 841,446 2,494,866 1,508,091
Interest 12,031 5,238 23,876 5,238
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Total expenses 16,547,344 12,727,261 31,931,107 24,788,407
--------------------------------- ---------------------------------
Income before income taxes 1,152,103 485,962 2,304,160 1,489,895
Income tax expense 522,000 311,000 1,002,000 730,000
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Net income $ 630,103 $ 174,962 $ 1,302,160 $ 759,895
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Basic income per share $ 0.08 $ 0.02 $ 0.16 $ 0.09
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Fully diluted income per share $ 0.07 $ 0.02 $ 0.15 $ 0.09
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Weighted average common
shares and equivalents
Basic 8,344,707 8,243,191 8,309,544 8,307,016
Fully diluted 9,089,144 8,566,304 8,943,523 8,674,397
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AMERICAN HEALTHWAYS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2001
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Additional
Common Paid-in Retained
Stock Capital Earnings Total
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Balance, August 31, 2000 $8,247 $ 23,604,823 $6,342,838 $ 29,955,908
Exercise of stock options 148 558,549 -- 558,697
Net income -- -- 1,302,160 1,302,160
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Balance, February 28, 2001 $8,395 $ 24,163,372 $7,644,998 $ 31,816,765
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AMERICAN HEALTHWAYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six Months Ended February 28/29,
2001 2000
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Cash flows from operating activities:
Net income $ 1,302,160 $ 759,895
Income tax expense 1,002,000 730,000
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Income before income taxes 2,304,160 1,489,895
Noncash expenses, revenues, losses and gains
included in income:
Depreciation and amortization 2,494,866 1,508,091
Increase in working capital items (1,120,635) (2,427,376)
Other noncash transactions 696,611 421,199
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4,375,002 991,809
Income taxes (net paid) (444,351) (693,030)
Increase in other assets (151,945) (120,991)
Payments on other long-term liabilities (537,119) (242,074)
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Net cash flows provided by
(used in) operating activities 3,241,587 (64,286)
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Cash flows from investing activities:
Acquisition of property and equipment (1,341,822) (5,408,115)
Investments in unconsolidated businesses (1,000,000) (150,000)
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Net cash flows used in investing activities (2,341,822) (5,558,115)
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Cash flows from financing activities:
Exercise of stock options 377,802 6,600
Repurchase of stock -- (1,119,924)
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Net cash flows used in financing activities 377,802 (1,113,324)
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Net increase (decrease) in cash and cash equivalents 1,277,567 (6,735,725)
Cash and cash equivalents, beginning of period 7,025,277 13,501,016
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Cash and cash equivalents, end of period $ 8,302,844 $ 6,765,291
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AMERICAN HEALTHWAYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL REPORTING
The accompanying consolidated financial statements of American
Healthways, Inc. and its subsidiaries (the "Company") for the three and six
month periods ended February 28, 2001 and February 29, 2000 are unaudited.
However, in the opinion of the Company, all adjustments consisting of normal,
recurring accruals necessary for a fair presentation, have been reflected
therein.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting principles,
but which is not required for interim reporting purposes, has been omitted. The
accompanying consolidated financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended August 31, 2000.
(2) BUSINESS SEGMENTS
The Company provides disease and care management services to health
plans and hospitals. The Company's reportable segments are the types of
customers, hospital or health plan, who contract for the Company's services. The
segments are managed separately and the Company evaluates performance based on
operating profits of the respective segments. Because the Company's services are
similar for both types of customers, the Company supports both segments with
common human resources, clinical, marketing and information technology
resources.
The accounting policies of the segments are the same as those discussed
in the summary of significant accounting policies. There are no intersegment
sales. Income (loss) before income taxes and discontinued operations by
operating segment excludes interest income, interest expense and general
corporate expenses.
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Summarized financial information by business segment is as follows:
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Three Months Ended Six Months Ended
February 28/29, February 28/29,
2001 2000 2001 2000
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Revenues:
Health plan contracts $ 12,714,638 $ 7,997,227 $ 24,378,325 $ 15,973,226
Hospital contracts 4,866,130 5,081,995 9,638,611 10,020,772
Other revenue 118,679 134,001 218,331 284,304
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$ 17,699,447 $ 13,213,223 $ 34,235,267 $ 26,278,302
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Income before income taxes:
Health plan contracts $ 3,041,324 $ 1,233,922 $ 5,614,064 $ 2,858,799
Hospital contracts 1,229,165 1,416,388 2,420,779 2,765,539
Shared support services (2,160,313) (1,581,954) (4,103,613) (3,098,757)
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Total segments 2,110,176 1,068,356 3,931,230 2,525,581
General corporate expenses (958,073) (582,394) (1,627,070) (1,035,686)
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$ 1,152,103 $ 485,962 $ 2,304,160 $ 1,489,895
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
American Healthways, Inc. (the "Company"), a corporation formed in
1981, provides specialized, comprehensive care and disease management services
to health plans and hospitals. The Company's programs are designed to improve
the quality and lower the cost of healthcare for people with one or more chronic
diseases such as diabetes, cardiac disease and respiratory disease. The Company
provides its services through its DIABETES HEALTHWAYS(SM), CARDIAC
HEALTHWAYS(SM) and RESPIRATORY HEALTHWAYS(SM) product lines. In addition, during
the first quarter of fiscal 2001, the Company introduced its MYHEALTHWAYS(SM)
product which is designed to provide health plan members and their physicians
with personalized health assessments and customized action plans that can be
utilized by all health plan members, not just those with chronic diseases.
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements, which are based upon current
expectations and involve a number of risks and uncertainties. In order for the
Company to utilize the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, investors are hereby cautioned that these
statements may be affected by the important factors, among others, set forth
below, and consequently, actual operations and results may differ materially
from those expressed in these forward-looking statements. The important factors
include: the Company's ability to renew and/or maintain contracts with its
customers under existing terms or restructure these contracts on terms that
would not have a material negative impact on the Company's results of
operations; the Company's ability to execute new contracts for health plan
diabetes, cardiac and respiratory disease management services, MYHEALTHWAYS(SM)
services and to execute
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new contracts for hospital-based diabetes services; the risks associated with a
significant concentration of the Company's revenues with a small number of
health plan customers; the Company's ability to effect estimated cost savings
and clinical outcome improvements under health plan contracts and reach mutual
agreement with customers with respect to cost savings, or to effect such savings
and improvements within the time frames contemplated by the Company; the ability
of the Company's health plan customers to provide timely and accurate data that
is essential to the operation and measurement of its performance under the terms
of its health plan contracts; the Company's ability to resolve favorably
contract billing and interpretation issues with its health plan customers; the
ability of the Company to obtain adequate financing or reinsurance to support
the Company's performance under new health plan contracts; unusual and
unforeseen patterns of healthcare utilization by individuals with diabetes,
cardiac and respiratory disease in the health plans with which the Company has
executed a disease management contract; the ability of the health plans to
maintain the number of covered lives enrolled in the plans during the terms of
the agreements between the health plans and the Company; the Company's ability
to implement its backlog of contracted lives within anticipated time frames
contemplated by the Company; the Company's ability to attract and/or retain and
effectively manage the employees required to implement its agreements with
hospitals and health plan organizations; the impact of existing litigation
involving the Company; and the impact of future state and federal healthcare
legislation and regulations on the ability of the Company to deliver its
services and on the financial health of the Company's customers and their
willingness to purchase the Company's services. The Company undertakes no
obligation to update or revise any such forward-looking statements.
The following table sets forth the sources of the Company's revenues by
customer type as a percentage of total revenues for the three and six months
ended February 28, 2001 and February 29, 2000.
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Three Months Ended Six Months Ended
February 28/29, February 28/29,
2001 2000 2001 2000
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Health plan contracts 72% 61% 71% 61%
Hospital contracts 27 38 28 38
Other 1 1 1 1
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100% 100% 100% 100%
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The Company believes that a substantial portion of its future revenue
growth will result from health plan customer contracts.
The Company's care and disease management services for health plans are
designed to meet the needs of individual health plan customers. The Company's
services range from telephone and mail contacts directed primarily to enrollees
with targeted diseases that can be provided from one of the Company's four
centralized operating unit call centers to services that also include providing
local market resources to address acute episode interventions as well as
coordination of care with local healthcare providers. The fees charged by the
Company vary according to the level of service being provided under each of its
health plan customer contracts and are structured primarily as a monthly fee for
each member of the health plan identified with the particular chronic disease
under contract. These contracts are generally for terms of three to five years
with provisions for subsequent renewal and typically provide that between 15%
and 100% of the Company's fees are at risk subject to the Company's performance
against financial cost savings and clinical criteria. The Company records
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revenue from its performance-based health plan contracts based on its estimates
of expected performance levels under these contracts and adjusts these estimates
as additional data necessary to determine performance levels becomes available.
As of February 28, 2001, the Company had contracts with 16 health plans
to provide disease management services in 61 health plan markets compared with
contracts with 13 health plans in 51 markets as of February 29, 2000. The
Company reports the number of disease lives under its health plan contracts
utilizing a calculation of "equivalent" covered lives. Because the Company's
original disease management efforts focused on enrollees with diabetes and the
majority of its lives currently under contract are diabetes lives, contracted
enrollee lives for its cardiac and its respiratory programs are converted into
the revenue and service cost equivalent of a diabetes enrollee for reporting and
internal management purposes. While the average service intensity and the
Company's fee per cardiac enrollee is greater than the service intensity and fee
per diabetes enrollee, the Company believes that the contribution margin
percentage is similar for its diabetes lives and its cardiac disease lives. The
average service and fee intensity of the Company's respiratory disease program
varies in comparison with a diabetes enrollee depending on whether it involves a
lower intensity asthma population or a higher intensity chronic obstructive
pulmonary disease population. However, as with its cardiac disease program, the
Company believes that the contribution margin percentage is similar for its
diabetes lives and its respiratory disease lives. The number of equivalent lives
under management and generating revenues for the Company as well as the number
of equivalent lives under contract and scheduled for implementation but not
currently generating revenue are shown below at February 28, 2001 and February
29, 2000.
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At February 28/29, 2001 2000
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Equivalent lives under management * 215,149 127,786
Equivalent lives in backlog 142,000 29,000
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Total equivalent lives * 357,149 156,786
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* Includes approximately 40,000 equivalent lives in 2001 and 2000 for a contract
that expired March 31, 2001.
During the quarter ended February 28, 2001, the Company executed two
contracts to provide disease management services. The first contract, with Blue
Cross Blue Shield of Massachusetts, will provide cardiac disease management
services to approximately 40,000 equivalent lives. The second contract will
provide diabetes disease management services to approximately 1,000 equivalent
lives. Services for these enrollees and fee revenue for the Company under these
contracts is currently scheduled to begin during the third quarter of fiscal
2001.
In addition, during the quarter ended February 28, 2001, the Company
extended and expanded an existing contract with a health plan to add cardiac
disease management services and expand diabetes disease management services to
an additional 3,000 equivalent lives. Services for these additional enrollees
began February 1, 2001.
During the three and six months ended February 28, 2001, approximately
53% of the Company"s revenues were derived from contracts with three health
plans. The loss of any of these contracts or a reduction in the profitability of
these contracts could have a material negative impact on the Company's results
of operations.
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During the quarter ended February 28, 2001, two of the Company's health
plan customer contracts comprising 4% of the Company's revenues for the six
months ended February 28, 2001 terminated. One of the Company's health plan
customer contracts comprising 15% of the Company's revenues for the six months
ended February 28, 2001 terminated during the quarter ended May 31, 2001. No
other material contracts are subject to termination during the remainder of
fiscal 2001. Because the disease management industry is relatively new and the
Company's contracts were some of the first large scale contracts to be executed
with health plans for disease management services, the renewal experience in
this industry is limited. No assurances can be given that the results from
restructurings and possible terminations at renewal would not have a material
negative impact on the Company's results of operations.
The Company's hospital-based diabetes treatment centers are located in
and operated under contracts with general acute care hospitals. As of February
28, 2001, the Company had 55 hospital contracts to provide services at 74
hospital sites compared with the 54 contracts at 68 hospital sites as of
February 29, 2000. The number of hospital contracts and hospital sites for these
periods includes an Arthritis and Osteoporosis Care Center contract with a
hospital to provide comprehensive arthritis and osteoporosis services that are
operated by the Company.
The components of changes to the total number of hospital contracts and
hospital sites under these contracts for the three and six months ended February
28, 2001 and February 29, 2000 are presented below.
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Three Months Ended Six Months Ended
February 28/29, February 28/29,
2001 2000 2001 2000
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Contracts in effect at beginning of period 53 57 51 58
Contracts signed
Contracts discontinued (10) (1) (7) (2)
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Contracts in effect at end of period 55 54 55 54
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Hospital sites where services are delivered 74 68 74 68
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During the three month period ended February 28, 2001, four contracts
were renewed for the Company's hospital-based diabetes treatment centers. During
the remainder of fiscal 2001, 16 contracts are either subject to expiration if
not renewed or have early cancellation provisions that could result in contract
termination.
The hospital industry continues to experience pressures on its
profitability as a result of constrained revenues from governmental and private
revenue sources as well as from increasing underlying medical care costs. The
Company believes that these pressures will continue. While the Company believes
that its products are geared specifically to assist hospitals in controlling the
high costs associated with the treatment of chronic diseases, the pressures to
reduce costs immediately may have a negative effect, in certain circumstances,
on the ability of or the length of time required by the Company to sign new
hospital contracts as well as on the Company's ability to retain hospital
contracts. This focus on cost reduction may also result in a continuation of
downward pressure on the fee structures of existing contracts. While the Company
believes that the overall environment for hospitals may become somewhat more
positive as a result of Medicare reimbursement relief that has been
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granted for hospitals as a result of recently passed federal legislation, there
can be no assurance that these financial pressures will not continue to have a
negative impact on the Company's hospital contract operations.
RESULTS OF OPERATIONS
Revenues for the three and six month periods ended February 28, 2001
increased 34% and 30%, respectively, over the same periods in 2000. This
increase in revenues resulted primarily from an increase in the average number
of equivalent lives enrolled in the Company's health plan contracts to
approximately 218,000 lives and 213,000 lives, respectively, for the three and
six month periods ended February 28, 2001 from approximately 128,000 lives and
124,000 lives, respectively, for the comparable three and six month periods
during the prior year. The increase in the average number equivalent lives under
management was primarily the result of new health plan contracts signed during
fiscal 2000. The average revenue per member per month for enrollees under the
Company's health plan contracts were 7% and 11% less during the three-month and
six month periods ended February 28, 2001, respectively, than during the prior
year periods. This decrease in average per member per month revenue occurred
primarily as a result of a greater mix of equivalent lives under contracts with
lower revenue intensity levels in the fiscal 2001 period when compared with the
fiscal 2000 period and from a reduction of revenues resulting from the
restructuring of a health plan customer contract in January, 2000, offset
somewhat by revenues earned from the transition activities of a contract that
was terminated on February 28, 2001. Revenues from the Company's hospital
contract operations for the three and six month periods ended February 28, 2001
were 4% less than hospital contract revenues for the comparable periods last
year principally due to selected rate reductions for contract renewals which
occurred subsequent to February 29, 2000 and, for the six months ended February
29, 2001, fewer average number of contracts in operation from the comparable
period last year. The Company anticipates that total revenues for the remainder
of fiscal 2001 will increase over comparative fiscal 2000 periods primarily as a
result of additional lives enrolled under new and existing care and disease
management contracts with health plans offset somewhat by the impact of lower
revenues from the termination of one of its health plan customer contracts
effective during the third quarter and by lower revenues from its hospital
contract operations.
Salaries and benefits for the three and six month periods ended
February 28, 2001 increased 22% and 20%, respectively, primarily from higher
staffing levels associated with increases in the number of equivalent lives
enrolled in the Company's health plan contracts and increased employee incentive
compensation associated with improved operating performance during the current
year. Salaries and benefits as a percentage of revenues decreased to 59% and 60%
for the three and six month periods ended February 28, 2001, respectively,
compared to 65% for both periods last year primarily as a result of improved
revenue performance at the Company's health plan contract operations offset by
higher staffing levels at its health plan contract operations. The Company
anticipates salaries and benefits expense to increase during the remainder of
fiscal 2001 compared with fiscal 2000 primarily as a result of increased staff
required for expected expansion of the Company's health plan operations.
Other operating expenses for the three and six month periods ended
February 28, 2001 increased 47% and 44%, respectively, from the comparable
periods last year. The increase for the three and six month periods was
primarily attributable to higher operating costs resulting from the growth of
the Company's health plan operations compared to the same periods last year and
the write off of a $250,000 minority interest investment in a small startup
cancer care management company in February 2001. Other operating expenses as a
percentage of revenues increased to 27% and 26%,
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respectively, for the three and six month periods ended February 28, 2001 from
25% and 23%, respectively, for the comparable periods last year primarily as a
result of higher operating costs associated with its health plan operations
during fiscal 2001 and the write off of the investment in a small startup cancer
care management company in February 2001 offset by improved revenue performance
at the Company's health plan contract operations. The Company anticipates other
operating expenses will increase during the remainder of fiscal 2001 compared
with fiscal 2000 primarily as a result of increased costs associated with the
expansion of the Company's health plan operations.
The increase in depreciation and amortization expense to $1.3 million
and $2.5 million, respectively, for the three and six month periods ended
February 28, 2001 from $841,446 and $1.5 million for the comparable periods last
year principally resulted from increased depreciation expense associated with
equipment and computer-related capital expenditures for the Company's health
plan operations. The Company anticipates depreciation and amortization expense
to increase during the remainder of fiscal 2001 compared with fiscal 2000
primarily as a result of capital expenditures associated with expected increases
in the number of equivalent lives enrolled under the Company's health plan
contracts as well as from growth and improvement in the Company's information
technology capabilities.
The Company's income tax expense for the three and six month periods
ended February 28, 2001 was $522,000 and $1.0 million, respectively, compared to
$311,000 and $730,000 for the comparable periods last year. The increase in the
income tax expense between these periods resulted primarily from an increase in
profitability. The differences between the statutory federal income tax rate of
34% and the Company's effective tax rates during both periods are due primarily
to the impact of state income taxes and certain non-deductible expenses for
income taxes, primarily amortization of excess costs over net assets of
purchased companies.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the six months ended February 28, 2001
generated $3.2 million in cash flow. Investing activities during this period
used $2.3 million in cash which consisted of the acquisition of property and
equipment purchases for the Company primarily associated with its expanding
health plan contract operations and for a $1.0 million minority investment in
Caresteps.com, Inc., a company whose software provides the basic structure for
the Company's MYHEALTHWAYS(SM) system. Financing activities for the six months
ended February 28, 2001 provided $378,000 in cash flow in proceeds from the
exercise of options to purchase the Company's common stock.
Effective January 9, 2001, the Company's credit agreement with a
financial institution was amended to increase its borrowing capacity from $6
million to $10 million, including the ability to issue up to $8 million of
letters of credit, an increase of $4 million from the previous agreement. The
amended agreement expires on January 4, 2003. Borrowings under this agreement
bear interest at 2.5% above LIBOR, are secured by the Company's accounts
receivable and contract rights and are guaranteed by the Company's subsidiaries.
The agreement also contains various financial covenants, limits the amount of
repurchases of the Company's common stock, and requires the Company to maintain
cash and cash equivalents of $5 million. As of February 28, 2001, there were no
borrowings outstanding under this agreement, however during the quarter ended
August 31, 2000, a letter of credit for approximately $600,000 was issued to a
health plan customer under the terms of this credit agreement to support the
Company's performance under the terms of a new health plan contract signed
during 2000. Subsequent to February 28, 2001, another letter of credit for $6.6
million was issued to a health plan customer under
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the terms of the amended credit agreement to support the Company's performance
under the terms of a new health plan contract signed during the first quarter of
fiscal 2001.
The Company believes that cash flow from operating activities, its
available cash and available credit under its financing agreement will continue
to enable the Company to fund the current level of growth in its health plan
operations. However, to the extent that the expansion of the Company's health
plan operations requires significant additional financing resources such as the
issuance of letters of credit to guarantee the Company's performance under the
terms of new health plan contracts, the Company's ability to arrange such
financing capability will be limited and the Company's ability to expand its
health plan operations could be restricted. In addition, should health plan
development accelerate or should acquisition opportunities arise that would
enhance the Company's planned expansion of its health plan operations beyond its
current chronic disease focus, the Company may need to issue additional equity
to provide the funding for these increased growth opportunities. No assurance
can be given that the Company would be able to issue additional equity on terms
that would be acceptable to the Company.
During March 2000, the Company's Board of Directors authorized the
repurchase of up to 500,000 shares of the Company's common stock. The
authorization enables the Company to make repurchases from time to time in open
market and private transactions prior to March 1, 2002. As of February 28, 2001,
the Company had repurchased 37,900 shares at a cost of $153,557 pursuant to this
authorization.
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PART II
ITEM 1. Legal Proceedings.
In November 1994, the Company received an administrative subpoena for
documents from a regional office of the Office of the Inspector General
("OIG") of the Department of Health and Human Services in connection
with an investigation of a wholly-owned subsidiary of the Company,
American Healthways Services, Inc. ("AHSI"), formerly Diabetes
Treatment Centers of America, Inc., under certain federal Medicare and
Medicaid statutes. On February 10, 1995, the Company learned that the
federal government had declined to take over and pursue a civil
"whistle blower" action brought under seal in June 1994 on behalf of
the government by a former employee dismissed by the Company in
February 1994. The Company believes that this lawsuit triggered the OIG
investigation. The civil suit was filed in June 1994 against the
Company, AHSI, and certain named and unnamed medical directors and
client hospitals and was kept under seal to permit the government to
determine whether to take over the lawsuit. Following its review, the
government made the determination not to take over the litigation.
Accordingly, the complaint was unsealed on February 10, 1995. Various
preliminary motions have been filed regarding jurisdictional and
pleading matters, resulting in the filing of a number of amended
complaints and the dismissal of the Company as a defendant. AHSI
continues to be a defendant. The case has been transferred to the
United States District Court for the District of Columbia so that court
can coordinate discovery with other qui tam cases in which certain
client hospitals and their affiliates are named as defendants. On
January 30, 2001, that court ordered the government to file any notice
of intervention in each of the consolidated cases on or before March
15, 2001. The government again filed papers indicating that it would
not be intervening in AHSI's case. The case is still in the discovery
stage and has not yet been set for trial.
The Company has cooperated fully with the OIG in its investigation, and
believes that its operations have been conducted in full compliance
with applicable statutory requirements. Although there can be no
assurance that the existence of, or the results of, the investigation
would not have a material adverse effect on the Company, the Company
believes that the resolution of issues, if any, which may be raised by
the government and the resolution of the civil litigation would not
have a material adverse effect on the Company's financial position or
results of operations except to the extent that the Company incurs
material legal expenses associated with its defense of this matter and
the civil suit.
ITEM 2. Changes in Securities.
Not Applicable.
ITEM 3. Defaults Upon Senior Securities.
Not Applicable.
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ITEM 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders of American Healthways,
Inc. was held on January 22, 2001.
(c) The following proposals were voted upon at the Annual Meeting
of Stockholders:
(i) Nominations to elect Frank A. Ehmann and William C.
O'Neil, Jr. as Directors of the Company. The results
of the election of the above mentioned nominees were
as follows:
For Against Withheld
--------- ------- --------
Frank A. Ehman 6,341,786 -- 393,800
William C. O'Neil, Jr. 6,341,660 -- 393,926
(ii) Approval to amend the Company's 1996 Stock Incentive
Plan to increase the number of shares of the
Company's common stock available for issuance. The
voting results of the above mentioned amendment are
as follows:
For Against Withheld
--------- --------- --------
5,090,191 1,631,148 14,247
ITEM 5. Other Information.
Not Applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Employment Agreement dated March 1, 2001 between the
Company and David A. Sidlowe
10.2 Employment Agreement dated September 1, 2000 between
the Company and Ben R. Leedle
(b) Reports on Form 8-K
A report on Form 8-K dated December 14, 2000 was filed during
the quarter ended February 28, 2001 reporting a broadcast of the first
quarter conference call to analysts live on the Internet.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
American Healthways, Inc.
--------------------------------------
(Registrant)
Date April 13, 2001 By /s/ Henry D. Herr
-------------- --------------------------------------
HENRY D. HERR
Executive Vice President
Finance and Administration,
(Principal Financial Officer)
Date April 13, 2001 By /s/ David A. Sidlowe
-------------- --------------------------------------
DAVID A. SIDLOWE
Senior Vice President and Controller
(Principal Accounting Officer)
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