<PAGE> 1
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 November 30, 2000
Commission File Number 000-19364
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AMERICAN HEALTHWAYS, INC.
-------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 62-1117144
------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3841 Green Hills Village Drive, Nashville, TN 37215
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
615-665-1122
--------------------------------------------------
(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 [ ]
As of January 11, 2001 there were outstanding 8,339,237 shares of the
Registrant's Common Stock, par value $.001 per share.
<PAGE> 2
PART I.
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HEALTHWAYS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
------------------------------------
November 30, August 31,
2000 2000
------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,610,296 $ 7,025,277
Accounts receivable, net 6,154,676 5,036,051
Other current assets 1,865,758 1,465,804
Deferred tax asset 724,000 724,000
------------------------------------
Total current assets 15,354,730 14,251,132
------------------------------------
Property and equipment:
Leasehold improvements 2,448,732 2,448,285
Equipment 17,083,835 16,557,524
------------------------------------
19,532,567 19,005,809
Less accumulated depreciation (6,661,102) (5,570,307)
------------------------------------
12,871,465 13,435,502
------------------------------------
Long-term deferred tax asset 2,132,000 2,132,000
------------------------------------
Other assets, net 1,818,959 835,245
------------------------------------
Excess of cost over net assets
of purchased companies, net 10,605,146 10,700,701
------------------------------------
$ 42,782,300 $ 41,354,580
====================================
</TABLE>
2
<PAGE> 3
AMERICAN HEALTHWAYS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
--------------------------------
November 30, August 31,
2000 2000
--------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,056,154 $ 1,924,077
Accrued salaries and benefits 2,685,944 3,260,418
Accrued liabilities 3,164,268 2,373,444
Income taxes payable 523,649 126,840
Current portion of other long-term liabilities 512,404 704,992
--------------------------------
Total current liabilities 8,942,419 8,389,771
--------------------------------
Other long-term liabilities 3,053,053 3,008,901
--------------------------------
Stockholders' equity:
Common stock
$.001 par value, 15,000,000 shares
authorized, 8,299,139 and 8,246,504
shares outstanding 8,300 8,247
Additional paid-in capital 23,763,633 23,604,823
Retained earnings 7,014,895 6,342,838
--------------------------------
Total stockholders' equity 30,786,828 29,955,908
--------------------------------
$ 42,782,300 $ 41,354,580
================================
</TABLE>
3
<PAGE> 4
AMERICAN HEALTHWAYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------------------------------------
Three Months Ended November 30,
2000 1999
-------------------------------------
<S> <C> <C>
Revenues $ 16,535,820 $ 13,065,079
-------------------------------------
Expenses:
Salaries and benefits 10,086,680 8,525,657
Other operating expenses 4,054,482 2,868,844
Depreciation and amortization 1,230,756 666,645
Interest 11,845 --
-------------------------------------
Total expenses 15,383,763 12,061,146
-------------------------------------
Income before income taxes 1,152,057 1,003,933
Income tax expense 480,000 419,000
-------------------------------------
Net income $ 672,057 $ 584,933
-------------------------------------
Basic income per share $ 0.08 $ 0.07
-------------------------------------
Fully diluted income per share $ 0.08 $ 0.07
-------------------------------------
Weighted average common shares
and equivalents
Basic 8,274,380 8,370,840
Fully diluted 8,797,901 8,782,490
</TABLE>
4
<PAGE> 5
AMERICAN HEALTHWAYS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2000
<TABLE>
<CAPTION>
--------------------------------------------------------------
Additional
Common Paid-in Retained
Stock Capital Earnings Total
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, August 31, 2000 $ 8,247 $ 23,604,823 $ 6,342,838 $ 29,955,908
Exercise of stock options 53 158,810 -- 158,863
Net income -- -- 672,057 672,057
--------------------------------------------------------------
Balance, November 30, 2000 $ 8,300 $ 23,763,633 $ 7,014,895 $ 30,786,828
--------------------------------------------------------------
</TABLE>
5
<PAGE> 6
AMERICAN HEALTHWAYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------
Three Months Ended November 30,
2000 1999
----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 672,057 $ 584,933
Income tax expense 480,000 419,000
----------------------------------
Income before income taxes 1,152,057 1,003,933
Noncash expenses, revenues, losses and gains
included in income:
Depreciation and amortization 1,230,756 666,645
Increase in working capital items (1,170,152) (642,472)
Other noncash transactions 173,415 158,205
----------------------------------
1,386,076 1,186,311
Income taxes (net paid) (45,011) (465,947)
Increase in other assets (50,375) (49,652)
Payments on other long-term liabilities (295,821) (85,582)
----------------------------------
Net cash flows provided by operating activities 994,869 585,130
----------------------------------
Cash flows from investing activities:
Acquisition of property and equipment (530,533) (2,846,968)
----------------------------------
Net cash flows used in investing activities (530,533) (2,846,968)
----------------------------------
Cash flows from financing activities:
Exercise of stock options 120,683 --
Investments in unconsolidated businesses (1,000,000) (150,000)
Repurchase of stock -- (1,119,924)
----------------------------------
Net cash flows used in financing activities (879,317) (1,269,924)
----------------------------------
Net decrease in cash and cash equivalents (414,981) (3,531,762)
Cash and cash equivalents, beginning of period 7,025,277 13,501,016
----------------------------------
Cash and cash equivalents, end of period $ 6,610,296 $ 9,969,254
==================================
</TABLE>
6
<PAGE> 7
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 month
periods ended November 30, 2000 and 1999 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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<PAGE> 8
Summarized financial information by business segment is as follows:
<TABLE>
<CAPTION>
--------------------------------
Three Months Ended November 30,
2000 1999
--------------------------------
<S> <C> <C>
Revenues:
Health plan contracts $ 11,663,687 $ 7,975,999
Hospital contracts 4,772,481 4,938,777
Other revenue 99,652 150,303
--------------------------------
$ 16,535,820 $ 13,065,079
================================
Income before income taxes:
Health plan contracts $ 2,572,740 $ 1,624,877
Hospital contracts 1,191,614 1,349,151
Shared support services (1,943,300) (1,516,803)
--------------------------------
Total segments 1,821,054 1,457,225
General corporate expenses (668,997) (453,292)
--------------------------------
$ 1,152,057 $ 1,003,933
================================
</TABLE>
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 2000, the Company introduced its MYHEALTHWAYS(SM)
product which is designed to provide health plan members and their physicians
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 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
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<PAGE> 9
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 implement on a cost effective and timely basis its
expansion of its information technology capabilities in connection with the
growth in its business and its Internet communication strategy; the ability of
the Company to negotiate favorable fee structures with health plans; 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 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 successfully implement its cardiac and respiratory disease management
programs and its MYHEALTHWAYS(SM) programs; 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 or 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 months ended
November 30, 2000 and 1999.
<TABLE>
<CAPTION>
------------------------------
Three months ended November 30,
2000 1999
------------------------------
<S> <C> <C>
Health plan contracts 70% 61%
Hospital contracts 29 38
Other 1 1
------------------------------
100% 100%
==============================
</TABLE>
The Company believes that a substantial portion of its future revenue
growth will result from health plan customer contracts.
The Company's 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
revenue from its
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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 November 30, 2000, the Company had contracts with 16 health plans
to provide disease management services in 62 health plan markets compared with
contracts with 11 health plans in 51 markets as of November 30, 1999. 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 as of the end of fiscal 2000 were 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
November 30, 2000 and 1999.
<TABLE>
<CAPTION>
--------------------------------------------------------------
At November 30, 2000 1999
--------------------------------------------------------------
<S> <C> <C>
Equivalent lives under management 215,286 128,548
Equivalent lives in backlog 109,000 19,000
----------------------
Total equivalent lives 324,286 147,548
======================
</TABLE>
During the quarter ended November 30, 2000, the Company executed a
contract to provide cardiac disease management services to approximately 100,000
equivalent lives in CIGNA Healthcare health plans. Services for these enrollees
and fee revenue for the Company under this contract is currently scheduled to be
phased in during the six month period beginning April 1, 2001, and are subject
to the Company providing a letter of credit of up to $6.6 million to guarantee
the Company's performance under the contract.
During the three months ended November 30 2000, approximately 54% 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 would have a material negative impact on the Company's financial
operations. The Company restructured a contract with one of these health plans,
which resulted in a material reduction in revenues and profits under this
contract beginning January 1, 2000.
Two of the Company's health plan customer contracts comprising 2% of
the Company's revenues for the quarter ended November 30, 2000 will terminate
during the quarter ended February 28, 2001. Three of the Company's health plan
customer contracts comprising 18% of the Company's revenues for the quarter
ended November 30, 2000 are eligible to be terminated during the remaining three
quarters of fiscal 2001 under the term of the contracts. 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
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<PAGE> 11
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 November
30, 2000, the Company had 53 hospital contracts to provide services at 73
hospital sites compared with the 57 contracts at 71 hospital sites as of
November 30, 1999. 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 months ended November 30,
2000 and 1999 are presented below.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Three months ended November 30, 2000 1999
-----------------------------------------------------------------------
<S> <C> <C>
Contracts in effect at beginning of period 51 58
Contracts signed 3 2
Contracts discontinued (1) (3)
------------------
Contracts in effect at end of period 53 57
==================
Hospital sites where services are delivered 73 71
------------------
</TABLE>
During the three-month period ended November 30, 2000, two contracts
were renewed for the Company's hospital-based diabetes treatment centers. During
the remainder of fiscal 2001, 25 contracts are eligible to be terminated under
the terms of the contracts with the hospitals.
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 in
contract restructurings that reduce the fees paid to the Company for the
Company's services. 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 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-month period ended November 30, 2000 increased
27% over the same period in 1999. 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 209,000 lives for the three
month period ended November 30, 2000 from approximately 120,000 lives for the
comparable three month period during the prior year. This increase in the
average number equivalent lives under
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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 was 16% less during the three-month period ended
November 30, 2000 than during the prior year period. 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. Revenues from the Company's hospital contract
operations for the three month period ended November 30, 2000 were 3% less than
hospital contract revenues for the comparable period last year principally due
to fewer average number of contracts in operation for the three month period.
The Company anticipates that revenues for fiscal 2001 will increase over fiscal
2000 primarily as a result of additional lives enrolled under disease management
contracts with health plans offset somewhat by the impact of lower revenues from
the restructuring of one of its health plan customer contracts effective January
1, 2000 and by lower revenues from its hospital contract operations.
Salaries and benefits for the three-month period ended November 30,
2000 increased 18% 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
operating performance during the current year. Salaries and benefits as a
percentage of revenues decreased to 61% for the three month period ended
November 30, 2000 from 65% for the comparable period 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 increases in the number of
equivalent lives enrolled under the Company's health plan contracts.
Other operating expenses for the three-month period ended November 30,
2000 increased 41% from the comparable period last year. The increase for the
quarter was primarily the result of higher operating costs at its health plan
operations compared to the same period last year. Other operating expenses as a
percentage of revenues increased to 25% for the three month period ended
November 30, 2000 from 22% for the comparable period last year primarily as a
result of higher operating costs associated with its health plan operations
during the fiscal 2001 quarter. 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 anticipated increases
in the number of equivalent lives enrolled under the Company's health plan
contracts as well as from increased expenses associated with improvements in the
Company's information technology capabilities.
The increase in depreciation and amortization expense to $1.2 million
for the three month period ended November 30, 2000 from $666,645 for the
comparable period 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-month period ended
November 30, 2000 was $480,000 compared to $419,000 for the comparable period
last year. The increase in the income tax expense between these periods resulted
primarily from an increase in profitability. The differences
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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 three months ended November 30, 2000
generated $995,000 in cash flow. Investing activities during this period used
$531,000 in cash which consisted of the acquisition of property and equipment
purchases for the Company primarily associated with its expanding health plan
contract operations. Financing activities for the three months ended November
30, 2000 used $880,000 in cash flow primarily for a $1.0 million minority
investment in a company whose software provides the basic structure for the
Company's MYHEALTHWAYS(SM) system offset by 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 November 30, 2000, there were no
borrowings outstanding under this agreement, however during the quarter ended
November 30, 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. Also during the quarter ended November 30, 2000, the Company
entered into a new health plan management contract for cardiac services covering
approximately 100,000 equivalent lives which requires that the Company provide a
letter of credit for up to $6.6 million during 2001 to guarantee the Company's
performance under the terms of that contract
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 its working capital needs and other expenditures
associated with the growth and expansion of its health plan operations including
expenditures and minority interest investments required to implement its
strategy to extend the Company's health plan programs beyond its current chronic
disease focus. 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 may be restricted.
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<PAGE> 14
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, and 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. Currently, 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.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
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ITEM 5. Other Information.
Not Applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Second Amendment to Credit Agreement and First Amendment
to Revolving Credit Note between American Healthways,
Inc. and SunTrust Bank dated January 9, 2001
10.2 Employment Agreement dated September 1, 1998 between the
Company and Ben R. Leedle
27. Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated September 27, 2000 was filed during
the quarter ended November 30, 2000 reporting a broadcast of the fourth
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 January 12, 2001 By /s/ Henry D. Herr
---------------- -----------------------------
HENRY D. HERR
Executive Vice President
Finance and Administration,
(Principal Financial Officer)
Date January 12, 2001 By /s/ David A. Sidlowe
---------------- ------------------------------
DAVID A. SIDLOWE
Senior Vice President
and Controller
(Principal Accounting Officer)
16
