Delaware
|
|
62-1117144
|
(State or Other Jurisdiction of Incorporation or Organization)
|
|
(I.R.S. Employer Identification No.)
|
701 Cool Springs Boulevard, Franklin, TN 37067
|
(Address of Principal Executive Offices) (Zip Code)
|
615-614-4929
|
(Registrant's Telephone Number, Including Area Code)
|
|
(Former name, former address and former fiscal year, if changed since last report)
|
Yes
x
|
|
No
o
|
Yes
x
|
|
No
o
|
Large accelerated filer
o
|
|
Accelerated filer
x
|
|
|
|
Non-accelerated filer
o
|
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
Yes
o
|
|
No
x
|
|
|
|
Page
|
|
|||
|
|||
|
|||
|
|||
|
|||
|
|||
|
|||
|
|||
|
|||
|
|||
|
|||
|
|||
|
|
June 30,
2014
|
December 31,
2013
|
||||||
Current assets:
|
|
|
||||||
Cash and cash equivalents
|
$
|
2,427
|
$
|
2,584
|
||||
Accounts receivable, net
|
108,715
|
89,484
|
||||||
Prepaid expenses
|
9,873
|
9,228
|
||||||
Other current assets
|
7,694
|
6,857
|
||||||
Income taxes receivable
|
5,465
|
1,402
|
||||||
Deferred tax asset
|
8,562
|
9,667
|
||||||
Total current assets
|
142,736
|
119,222
|
||||||
|
||||||||
Property and equipment:
|
||||||||
Leasehold improvements
|
38,143
|
37,463
|
||||||
Computer equipment and related software
|
305,482
|
290,392
|
||||||
Furniture and office equipment
|
23,230
|
22,881
|
||||||
Capital projects in process
|
35,618
|
25,228
|
||||||
|
402,473
|
375,964
|
||||||
Less accumulated depreciation
|
(238,949
|
)
|
(217,766
|
)
|
||||
|
163,524
|
158,198
|
||||||
|
||||||||
Other assets
|
63,886
|
53,629
|
||||||
Intangible assets, net
|
74,029
|
79,162
|
||||||
Goodwill, net
|
338,800
|
338,800
|
||||||
|
||||||||
Total assets
|
$
|
782,975
|
$
|
749,011
|
|
June 30,
2014
|
December 31,
2013
|
||||||
Current liabilities:
|
|
|
||||||
Accounts payable
|
$
|
42,206
|
$
|
33,125
|
||||
Accrued salaries and benefits
|
17,325
|
20,157
|
||||||
Accrued liabilities
|
47,767
|
32,065
|
||||||
Deferred revenue
|
11,888
|
4,496
|
||||||
Contract billings in excess of earned revenue
|
18,612
|
17,411
|
||||||
Current portion of long-term debt
|
18,533
|
14,340
|
||||||
Current portion of long-term liabilities
|
784
|
2,822
|
||||||
Total current liabilities
|
157,115
|
124,416
|
||||||
|
||||||||
Long-term debt
|
234,224
|
237,582
|
||||||
Long-term deferred tax liability
|
28,971
|
33,320
|
||||||
Other long-term liabilities
|
64,775
|
51,003
|
||||||
|
||||||||
Stockholders' equity:
|
||||||||
Preferred stock $.001 par value, 5,000,000 shares authorized, none outstanding
|
—
|
—
|
||||||
Common stock $.001 par value, 120,000,000 shares authorized, 35,334,275 and 35,107,303 shares outstanding, respectively
|
35
|
35
|
||||||
Additional paid-in capital
|
288,146
|
283,244
|
||||||
Retained earnings
|
37,887
|
48,000
|
||||||
Treasury stock, at cost, 2,254,953 shares in treasury
|
(28,182
|
)
|
(28,182
|
)
|
||||
Accumulated other comprehensive income (loss)
|
4
|
(407
|
)
|
|||||
Total stockholders' equity
|
297,890
|
302,690
|
||||||
|
||||||||
Total liabilities and stockholders' equity
|
$
|
782,975
|
$
|
749,011
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
Revenues
|
$
|
180,613
|
$
|
162,270
|
$
|
357,391
|
$
|
327,435
|
||||||||
Cost of services (exclusive of depreciation and amortization of $9,604, $8,886, $18,976, and $17,712, respectively, included below)
|
146,476
|
133,468
|
294,624
|
274,726
|
||||||||||||
Selling, general and administrative expenses
|
16,899
|
14,279
|
33,331
|
27,377
|
||||||||||||
Depreciation and amortization
|
13,536
|
13,015
|
26,872
|
26,548
|
||||||||||||
Legal settlement charges
|
—
|
—
|
9,363
|
—
|
||||||||||||
|
||||||||||||||||
Operating income (loss)
|
3,702
|
1,508
|
(6,799
|
)
|
(1,216
|
)
|
||||||||||
Interest expense
|
4,516
|
3,158
|
8,899
|
6,479
|
||||||||||||
|
||||||||||||||||
Loss before income taxes
|
(814
|
)
|
(1,650
|
)
|
(15,698
|
)
|
(7,695
|
)
|
||||||||
Income tax benefit
|
(297
|
)
|
(549
|
)
|
(5,585
|
)
|
(2,644
|
)
|
||||||||
|
||||||||||||||||
Net loss
|
$
|
(517
|
)
|
$
|
(1,101
|
)
|
$
|
(10,113
|
)
|
$
|
(5,051
|
)
|
||||
|
||||||||||||||||
Loss per share:
|
||||||||||||||||
Basic
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
$
|
(0.29
|
)
|
$
|
(0.15
|
)
|
||||
|
||||||||||||||||
Diluted
(1)
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
$
|
(0.29
|
)
|
$
|
(0.15
|
)
|
||||
|
||||||||||||||||
Comprehensive loss
|
$
|
(449
|
)
|
$
|
(1,136
|
)
|
$
|
(9,702
|
)
|
$
|
(4,888
|
)
|
||||
|
||||||||||||||||
Weighted average common shares and equivalents:
|
||||||||||||||||
Basic
|
35,285
|
34,188
|
35,219
|
34,089
|
||||||||||||
Diluted
(1)
|
35,285
|
34,188
|
35,219
|
34,089
|
(1)
|
The assumed exercise of stock-based compensation awards for the three and six months ended June 30, 2014 and 2013 was not considered because the impact would be anti-dilutive.
|
|
Preferred Stock
|
Common Stock
|
Additional Paid-in Capital
|
Retained Earnings
|
Treasury Stock
|
Accumulated Other Comprehensive Income (Loss)
|
Total
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Balance, December 31, 2013
|
$
|
—
|
$
|
35
|
$
|
283,244
|
$
|
48,000
|
$
|
(28,182
|
)
|
$
|
(407
|
)
|
$
|
302,690
|
||||||||||||
|
||||||||||||||||||||||||||||
Comprehensive income (loss)
|
—
|
—
|
—
|
(10,113
|
)
|
—
|
411
|
(9,702
|
)
|
|||||||||||||||||||
|
||||||||||||||||||||||||||||
Exercise of stock options
|
—
|
—
|
1,265
|
—
|
—
|
—
|
1,265
|
|||||||||||||||||||||
|
||||||||||||||||||||||||||||
Tax effect of stock options and restricted stock units
|
—
|
—
|
(570
|
)
|
—
|
—
|
—
|
(570
|
)
|
|||||||||||||||||||
|
||||||||||||||||||||||||||||
Share-based employee compensation expense
|
—
|
—
|
3,558
|
—
|
—
|
—
|
3,558
|
|||||||||||||||||||||
|
||||||||||||||||||||||||||||
Issuance of CareFirst warrants
|
—
|
—
|
649
|
—
|
—
|
—
|
649
|
|||||||||||||||||||||
|
||||||||||||||||||||||||||||
Balance, June 30, 2014
|
$
|
—
|
$
|
35
|
$
|
288,146
|
$
|
37,887
|
$
|
(28,182
|
)
|
$
|
4
|
$
|
297,890
|
|
Six Months Ended June 30,
|
|||||||
|
2014
|
2013
|
||||||
Cash flows from operating activities:
|
|
|
||||||
Net loss
|
$
|
(10,113
|
)
|
$
|
(5,051
|
)
|
||
Adjustments to reconcile net loss to net cash flows provided by operating activities, net of business acquisitions:
|
||||||||
Depreciation and amortization
|
26,872
|
26,548
|
||||||
Amortization of deferred loan costs
|
925
|
483
|
||||||
Amortization of debt discount
|
3,303
|
—
|
||||||
Share-based employee compensation expense
|
3,558
|
3,458
|
||||||
Deferred income taxes | (3,332 | ) | 500 | |||||
Excess tax benefits from share-based payment arrangements
|
(310
|
)
|
(231
|
)
|
||||
(Increase) decrease in accounts receivable, net
|
(19,373
|
)
|
26,613
|
|||||
Increase in other current assets
|
(940
|
)
|
(3,917
|
)
|
||||
Decrease in accounts payable
|
(3,251
|
)
|
(1,611
|
)
|
||||
Decrease in accrued salaries and benefits
|
(3,489
|
)
|
(8,090
|
)
|
||||
Increase in other current liabilities
|
17,913
|
293
|
||||||
Other
|
7,548
|
(96
|
)
|
|||||
Net cash flows provided by operating activities
|
19,311
|
38,899
|
||||||
|
||||||||
Cash flows from investing activities:
|
||||||||
Acquisition of property and equipment
|
(20,976
|
)
|
(19,579
|
)
|
||||
Business acquisitions, net of cash acquired |
—
|
(830 | ) | |||||
Other
|
(3,829
|
)
|
(3,843
|
)
|
||||
Net cash flows used in investing activities
|
(24,805
|
)
|
(24,252
|
)
|
||||
|
||||||||
Cash flows from financing activities:
|
||||||||
Proceeds from borrowings of long-term debt
|
224,900
|
228,625
|
||||||
Payments of long-term debt
|
(233,554
|
)
|
(254,252
|
)
|
||||
Deferred loan costs
|
(88
|
)
|
(1,180
|
)
|
||||
Excess tax benefits from share-based payment arrangements
|
310
|
231
|
||||||
Exercise of stock options
|
1,265
|
2,164
|
||||||
Change in outstanding checks and other
|
12,114
|
11,366
|
||||||
Net cash flows provided by (used in) financing activities
|
4,947
|
(13,046
|
)
|
|||||
|
||||||||
Effect of exchange rate changes on cash
|
390
|
(1,109
|
)
|
|||||
|
||||||||
Net (decrease) increase in cash and cash equivalents
|
(157
|
)
|
492
|
|||||
|
||||||||
Cash and cash equivalents, beginning of period
|
2,584
|
1,759
|
||||||
|
||||||||
Cash and cash equivalents, end of period
|
$
|
2,427
|
$
|
2,251
|
||||
|
||||||||
Noncash Activities:
|
||||||||
Assets acquired through capital lease obligation
|
$
|
5,479
|
$
|
—
|
(1) | Basis of Presentation |
(2) | Recent Accounting Standards |
(3) | Share-Based Compensation |
|
Shares
(000s)
|
Weighted-Average
Exercise Price
|
Weighted-Average Remaining Contractual Term (years)
|
Aggregate Value ($000s)
|
||||||||||||
Stock Options
|
|
|
|
|
||||||||||||
Outstanding at January 1, 2014
|
4,325
|
$
|
15.09
|
|
|
|||||||||||
Granted
|
98
|
16.60
|
|
|
||||||||||||
Exercised
|
(106
|
)
|
12.39
|
|
|
|||||||||||
Forfeited
|
(59
|
)
|
13.00
|
|
|
|||||||||||
Expired
|
(28
|
)
|
33.49
|
|
|
|||||||||||
Outstanding at June 30, 2014
|
4,230
|
15.09
|
6.04
|
$
|
20,135
|
|||||||||||
Exercisable at June 30, 2014
|
2,441
|
$
|
17.72
|
4.62
|
$
|
9,335
|
Restricted Stock and Restricted Stock Units | Performance Share Units | |||||||||||||||
Nonvested Shares
|
Shares
(000s)
|
Weighted- Average
Grant Date
Fair Value
|
Shares
(000s)
|
Weighted- Average
Grant Date
Fair Value
|
||||||||||||
Nonvested at January 1, 2014
|
841
|
$
|
10.44
|
—
|
$
|
—
|
||||||||||
Granted
|
264
|
16.71
|
303
|
14.74
|
||||||||||||
Vested
|
(160
|
)
|
10.92
|
—
|
—
|
|||||||||||
Forfeited
|
(21
|
)
|
11.16
|
—
|
—
|
|||||||||||
Nonvested at June 30, 2014
|
924
|
$
|
12.14
|
303
|
$
|
14.74
|
(4) | Income Taxes |
(5) | Long-Term Debt |
(6) | Derivative Investments and Hedging Activities |
(In $000s)
|
For the Three Months Ended
|
For the Six Months Ended
|
||||||||||||||
Derivatives in Cash Flow Hedging Relationships
|
June 30, 2014
|
June 30, 2013
|
June 30, 2014
|
June 30, 2013
|
||||||||||||
Loss (gain) related to effective portion of derivatives recognized in accumulated OCI, gross of tax effect
|
$
|
216
|
$
|
(754
|
)
|
$
|
281
|
$
|
(696
|
)
|
||||||
Loss related to effective portion of derivatives reclassified from accumulated OCI to interest expense, gross of tax effect
|
$
|
130
|
$
|
551
|
$
|
256
|
$
|
1,180
|
(In $000s)
|
Three Months Ended
June 30, 2014
|
Six Months Ended
June 30, 2014
|
Statements of Comprehensive Income (Loss)
Classification
|
||||||
Cash Convertible Notes Hedges:
|
|
|
|
||||||
Net unrealized gain
|
$
|
1,849
|
$
|
9,580
|
Selling, general and administrative expenses
|
||||
Cash Conversion Derivative:
|
|
||||||||
Net unrealized loss
|
$
|
(1,849
|
)
|
$
|
(9,580
|
)
|
Selling, general and administrative expenses
|
|
June 30, 2014
|
December 31, 2013
|
||||||||||||||||||||||
(In $000s)
|
Foreign currency exchange contracts
|
Interest rate swap agreements
|
Cash Convertible Notes Hedges and Cash Conversion Derivative
|
Foreign currency exchange contracts
|
Interest rate swap agreements
|
Cash Convertible Notes Hedges and Cash Conversion Derivative
|
||||||||||||||||||
Assets:
|
|
|
|
|
|
|
||||||||||||||||||
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
||||||||||||||||||
Other current assets
|
$
|
56
|
$
|
—
|
$
|
—
|
$
|
178
|
$
|
—
|
$
|
—
|
||||||||||||
Other assets
|
—
|
—
|
37,346
|
—
|
—
|
27,766
|
||||||||||||||||||
Total assets
|
$
|
56
|
$
|
—
|
$
|
37,346
|
$
|
178
|
$
|
—
|
$
|
27,766
|
||||||||||||
Liabilities:
|
||||||||||||||||||||||||
Derivatives not designated as hedging instruments:
|
||||||||||||||||||||||||
Accrued liabilities
|
$
|
227
|
$
|
—
|
$
|
—
|
$
|
67
|
$
|
—
|
$
|
—
|
||||||||||||
Other long-term liabilities
|
—
|
—
|
37,346
|
—
|
—
|
27,766
|
||||||||||||||||||
Derivatives designated as hedging instruments:
|
||||||||||||||||||||||||
Accrued liabilities
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
Other long-term liabilities
|
—
|
583
|
—
|
—
|
505
|
—
|
||||||||||||||||||
Total liabilities
|
$
|
227
|
$
|
583
|
$
|
37,346
|
$
|
67
|
$
|
505
|
$
|
27,766
|
(7)
|
Fair Value Measurements
|
(In $000s)
June 30, 2014
|
Level 2
|
Level 3
|
Gross Fair Value
|
Netting
(1)
|
Net Fair Value
|
|||||||||||||||
Assets:
|
|
|
|
|
|
|||||||||||||||
Foreign currency exchange contracts
|
$
|
56
|
$
|
—
|
$
|
56
|
$
|
(9
|
)
|
$
|
47
|
|||||||||
Cash Convertible Notes Hedges
|
—
|
37,346
|
37,346
|
—
|
37,346
|
|||||||||||||||
Liabilities:
|
||||||||||||||||||||
Foreign currency exchange contracts
|
$
|
227
|
$
|
—
|
$
|
227
|
$
|
(9
|
)
|
$
|
218
|
|||||||||
Interest rate swap agreements
|
583
|
—
|
583
|
—
|
583
|
|||||||||||||||
Cash Conversion Derivative
|
—
|
37,346
|
37,346
|
—
|
37,346
|
(In $000s)
December 31, 2013
|
Level 2
|
Level 3
|
Gross Fair Value
|
Netting
(1)
|
Net Fair Value
|
|||||||||||||||
Assets: | ||||||||||||||||||||
Foreign currency exchange contracts
|
$
|
178
|
$
|
—
|
$
|
178
|
$
|
(57
|
)
|
$
|
121
|
|||||||||
Cash Convertible Notes Hedges
|
—
|
27,766
|
27,766
|
—
|
27,766
|
|||||||||||||||
Liabilities:
|
||||||||||||||||||||
Foreign currency exchange contracts
|
$ |
67
|
$ |
—
|
$ |
67
|
$ |
(57
|
)
|
$ |
10
|
|||||||||
Interest rate swap agreements
|
|
505
|
|
—
|
|
505
|
|
—
|
|
505
|
||||||||||
Cash Conversion Derivative
|
—
|
27,766
|
27,766
|
—
|
27,766
|
(In $000s)
|
Balance at
December 31,
2013
|
Purchases of Level 3 Instruments
|
Issuances of Level 3 Instruments
|
Gains/(Losses) Included in Earnings
|
Balance at
June 30,
2014
|
|||||||||||||||
Cash Convertible Notes Hedges
|
$
|
27,766
|
$
|
—
|
$
|
—
|
$
|
9,580
|
$
|
37,346
|
||||||||||
Cash Conversion Derivative
|
(27,766
|
)
|
—
|
—
|
(9,580
|
)
|
(37,346
|
)
|
• | Cash and cash equivalents – The carrying amount of $2.4 million approximates fair value because of the short maturity of those instruments (less than three months). |
• | Long-term debt – The estimated fair value of outstanding borrowings under the Fifth Amended Credit Agreement, which includes a revolving credit facility and a term loan facility (see Note 5), and the Cash Convertible Notes are determined based on the fair value hierarchy as discussed above. The revolving credit facility and the term loan facility are not actively traded and therefore are classified as Level 2 valuations based on the market for similar instruments. The estimated fair value is based on the average of the prices set by the issuing bank given current market conditions and is not necessarily indicative of the amount we could realize in a current market exchange. The estimated fair value and carrying amount of outstanding borrowings under the Fifth Amended Credit Agreement at June 30, 2014 are $106.1 million and $106.6 million, respectively. |
Commitments and Contingencies
|
(9) | Earnings Per Share |
(In 000s, except per share data)
|
Three Months Ended
|
Six Months Ended
|
||||||||||||||
|
June 30,
|
June 30,
|
June 30,
|
June 30,
|
||||||||||||
|
2014
|
2013
|
2014
|
2013
|
||||||||||||
Numerator:
|
|
|
|
|
||||||||||||
Net loss - numerator for basic loss per share
|
$
|
(517
|
)
|
$
|
(1,101
|
)
|
$
|
(10,113
|
)
|
$
|
(5,051
|
)
|
||||
|
||||||||||||||||
Denominator:
|
||||||||||||||||
Shares used for basic loss per share
|
35,285
|
34,188
|
35,219
|
34,089
|
||||||||||||
Effect of dilutive securities outstanding:
|
||||||||||||||||
Non-qualified stock options
(1)
|
—
|
—
|
—
|
—
|
||||||||||||
Restricted stock units
(1)
|
—
|
—
|
—
|
—
|
||||||||||||
Shares used for diluted loss per share
(1)
|
|
35,285
|
|
34,188
|
|
35,219
|
|
34,089
|
||||||||
|
||||||||||||||||
Loss per share:
|
||||||||||||||||
Basic
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
$
|
(0.29
|
)
|
$
|
(0.15
|
)
|
||||
Diluted
(1)
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
$
|
(0.29
|
)
|
$
|
(0.15
|
)
|
||||
|
||||||||||||||||
Dilutive securities outstanding not included in the computation of loss per share because their effect is antidilutive:
|
||||||||||||||||
Non-qualified stock options
|
2,237
|
3,848
|
2,164
|
3,892
|
||||||||||||
Restricted stock units
|
300
|
339
|
298
|
423
|
||||||||||||
Performance stock units
|
1
|
—
|
7
|
—
|
||||||||||||
Warrants related to Cash Convertible Notes
|
7,707
|
—
|
7,707
|
—
|
||||||||||||
CareFirst Convertible Note
|
892
|
—
|
892
|
—
|
||||||||||||
CareFirst Warrants
|
36
|
—
|
34
|
—
|
(10) | Accumulated OCI |
(In $000s)
|
Net Change in Fair Value of Interest Rate Swaps
|
Foreign Currency Translation Adjustments
|
Total
|
|||||||||
Accumulated OCI, net of tax, as of January 1, 2014
|
$
|
(513
|
)
|
$
|
106
|
$
|
(407
|
)
|
||||
Other comprehensive income (loss) before reclassifications, net of tax
|
(150
|
)
|
407
|
257
|
||||||||
Amounts reclassified from accumulated OCI, net of tax
|
154
|
—
|
154
|
|||||||||
Net increase in other comprehensive income (loss), net of tax
|
4
|
407
|
411
|
|||||||||
Accumulated OCI, net of tax, as of June 30, 2014
|
$
|
(509
|
)
|
$
|
513
|
$
|
4
|
(In $000s)
|
Net Change in Fair Value of Interest Rate Swaps
|
Foreign Currency Translation Adjustments
|
Total
|
|||||||||
Accumulated OCI, net of tax, as of January 1, 2013
|
$
|
(1,790
|
)
|
$
|
861
|
$
|
(929
|
)
|
||||
Other comprehensive income (loss) before reclassifications, net of tax
|
421
|
(971
|
)
|
(550
|
)
|
|||||||
Amounts reclassified from accumulated OCI, net of tax
|
713
|
—
|
713
|
|||||||||
Net increase (decrease) in other comprehensive income (loss), net of tax
|
1,134
|
(971
|
)
|
163
|
||||||||
Accumulated OCI, net of tax, as of June 30, 2013
|
$
|
(656
|
)
|
$
|
(110
|
)
|
$
|
(766
|
)
|
|
Six Months Ended June 30,
|
Statement of Comprehensive
|
|||||||
(In $000s)
|
2014
|
2013
|
Loss Classification
|
||||||
Interest rate swaps
|
$
|
256
|
$
|
1,180
|
Interest expense
|
||||
|
(102
|
)
|
(467
|
)
|
Income tax benefit
|
||||
|
$
|
154
|
$
|
713
|
Net of tax
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
·
|
Physical: Having good health and enough energy to get things done daily
|
·
|
Financial: Managing your economic life to reduce stress and increase security
|
·
|
Social: Having supportive relationships and love in your life
|
·
|
Community: Liking where you live, feeling safe and having pride in your community
|
·
|
Purpose: Liking what you do each day and being motivated to achieve your goals
|
|
·
|
fostering wellness and disease prevention through total population screening and well-being assessments;
|
|
·
|
engaging people in our well-being improvement programs, such as fitness, weight management, stress management, and financial and lifestyle management; and
|
|
·
|
providing access to our fitness, chiropractic, and complementary and alternative medicine networks.
|
|
·
|
promoting personal change and improvement in the lifestyle behaviors that lead to poor health or chronic conditions; and
|
|
·
|
providing personal interactions with highly trained healthcare professionals and educational materials to create and sustain healthier behaviors for those individuals at risk or in the early stages of chronic conditions.
|
|
·
|
incorporating the latest, evidence-based clinical guidelines into interventions to optimize patient health outcomes;
|
|
·
|
developing care support plans and motivating members to set attainable goals for themselves;
|
|
·
|
providing local market resources to address acute episodic interventions;
|
|
·
|
coordinating members' care as an extension of their healthcare providers;
|
|
·
|
providing software technology solutions and management consulting in support of well-being improvement services; and
|
|
·
|
providing high-risk care management for members at risk for hospitalization due to complex conditions.
|
|
·
|
the effectiveness of management's strategies and decisions;
|
|
·
|
our ability to sign and implement new contracts for our solutions;
|
|
·
|
our ability to accurately forecast the costs required to successfully implement new contracts;
|
|
·
|
our ability to renew and/or maintain contracts with our customers under existing terms or restructure these contracts on terms that would not have a material negative impact on our results of operations;
|
|
·
|
our ability to effectively compete against other entities, whose financial, research, staff, and marketing resources may exceed our resources;
|
|
·
|
our ability to accurately forecast our revenues, margins, earnings and net income, as well as any potential charges that we may incur as a result of changes in our business;
|
|
·
|
our ability to accurately forecast performance and the timing of revenue recognition under the terms of our customer contracts ahead of data collection and reconciliation;
|
|
·
|
the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, "PPACA") on our operations and/or the demand for our services;
|
|
·
|
our ability to anticipate change and respond to emerging trends in the domestic and international markets for healthcare and the impact of the same on demand for our services;
|
|
·
|
the risks associated with deriving a significant concentration of our revenues from a limited number of customers;
|
|
·
|
the risks associated with foreign currency exchange rate fluctuations and our ability to hedge against such fluctuations;
|
|
·
|
our ability to achieve and reach mutual agreement with customers with respect to the contractually required performance metrics, cost savings and clinical outcomes improvements, or to achieve such metrics, savings and improvements within the timeframes contemplated by us;
|
|
·
|
our ability to achieve estimated annualized revenue in backlog in the manner and within the timeframe we expect, which is based on certain estimates regarding the implementation of our services;
|
|
·
|
our ability and/or the ability of our customers to enroll participants and to accurately forecast their level of enrollment and participation in our programs in a manner and within the timeframe anticipated by us;
|
|
·
|
the ability of our customers to provide timely and accurate data that is essential to the operation and measurement of our performance under the terms of our contracts;
|
|
·
|
our ability to favorably resolve contract billing and interpretation issues with our customers;
|
|
·
|
our ability to service our debt, make principal and interest payments as those payments become due, and remain in compliance with our debt covenants;
|
|
·
|
the risks associated with changes in macroeconomic conditions, which may reduce the demand and/or the timing of purchases for our services from customers or potential customers, reduce the number of covered lives of our existing customers, or restrict our ability to obtain additional financing;
|
|
·
|
counterparty risk associated with the Cash Convertible Notes Hedges, interest rate swap agreements, and foreign currency exchange contracts;
|
|
·
|
the risks associated with valuation of the Cash Convertible Notes Hedges and the Cash Conversion Derivative, which may result in volatility to our consolidated statements of comprehensive income (loss) if these transactions do not completely offset one another;
|
|
·
|
our ability to integrate new or acquired businesses, services (including outsourced services), or technologies into our business and to accurately forecast the related costs;
|
|
·
|
our ability to anticipate and respond to strategic changes, opportunities, and emerging trends in our industry and/or business and to accurately forecast the related impact on our revenues and earnings;
|
|
·
|
the impact of any impairment of our goodwill or other intangible assets;
|
|
·
|
our ability to develop new products and deliver and report outcomes on those products;
|
|
·
|
our ability to implement our integrated data and technology solutions platform within the required timeframe and expected cost estimates and to develop and enhance this platform and/or other technologies to meet evolving customer and market needs;
|
|
·
|
our ability to obtain adequate financing to provide the capital that may be necessary to support our operations and to support or guarantee our performance under new contracts;
|
|
·
|
unusual and unforeseen patterns of healthcare utilization by individuals with diseases or conditions for which we provide services;
|
|
·
|
the ability of our customers to maintain the number of covered lives enrolled in the plans during the terms of our agreements;
|
|
·
|
the risks associated with data privacy or security breaches, computer hacking, network penetration and other illegal intrusions of our information systems or those of third-party vendors or other service providers, which may result in unauthorized access by third parties to customer, employee or our information or patient health information and lead to enforcement actions, fines and other litigation against us;
|
||
|
·
|
the impact of any new or proposed legislation, regulations and interpretations relating to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and any legislative or regulatory changes with respect to Medicare Advantage;
|
||
|
·
|
the impact of future state, federal, and international legislation and regulations applicable to our business, including PPACA, on our ability to deliver our services and on the financial health of our customers and their willingness to purchase our services;
|
||
|
·
|
current geopolitical turmoil, the continuing threat of domestic or international terrorism, and the potential emergence of a health pandemic;
|
||
|
·
|
the impact of legal proceedings involving us and/or our subsidiaries; and
|
||
|
|
|
||
|
·
|
other risks detailed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and in this Report, including those set forth in Part II, Item 1A. "Risk Factors."
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
||||||
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
||||||
|
|
|
|
2014
|
|
2013
|
|
|
2014
|
|
2013
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Cost of services (exclusive of depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and amortization included below)
|
|
|
81.1
|
%
|
|
82.3
|
%
|
|
|
82.4
|
%
|
|
83.9
|
%
|
|
Selling, general and administrative expenses
|
|
|
9.4
|
%
|
|
8.8
|
%
|
|
|
9.3
|
%
|
|
8.4
|
%
|
|
Depreciation and amortization
|
|
|
7.5
|
%
|
|
8.0
|
%
|
|
|
7.5
|
%
|
|
8.1
|
%
|
|
Legal settlement charges
|
|
|
—
|
|
|
—
|
|
|
|
2.6
|
%
|
|
—
|
|
|
Operating income (loss)
(1)
|
|
|
2.0
|
%
|
|
0.9
|
%
|
|
|
(1.9
|
)%
|
|
(0.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2.5
|
%
|
|
1.9
|
%
|
|
|
2.5
|
%
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(0.5
|
)%
|
|
(1.0
|
)%
|
|
|
(4.4
|
)%
|
|
(2.4
|
)%
|
|
Income tax benefit
|
|
|
(0.2
|
)%
|
|
(0.3
|
)%
|
|
|
(1.6
|
)%
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
(1)
|
|
|
(0.3
|
)%
|
|
(0.7
|
)%
|
|
|
(2.8
|
)%
|
|
(1.5
|
)%
|
•
|
the commencement of contracts with new customers and growth with existing customers; and
|
|
•
|
an increase in participation in our fitness solutions, as well as in the number of members eligible to participate in such solutions.
|
•
|
economies of scale resulting from certain types of costs that remain relatively fixed or do not increase at the same rate as revenues; and
|
|
•
|
a decrease in employees' healthcare benefit costs related to a decrease in cost of claims.
|
•
|
an increase in days sales outstanding in accounts receivable from 46 days at June 30, 2013 to 55 days at June 30, 2014; and
|
|
•
|
the timing of several significant vendor payments.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 4.
|
Controls and Procedures
|
Item 1.
|
Legal Proceedings
|
Item 3. | Defaults Upon Senior Securities |
(a)
|
Exhibits
|
3.1 |
Amended and Restated Bylaws [incorporated by reference to Exhibit 3.2 to Form 10-Q of the Company's fiscal quarter ended February 29, 2004, File No. 000-19364]
|
|
3.2 |
Amendment to Amended and Restated Bylaws [incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated November 15, 2007, File No. 000-19364]
|
|
3.3 |
Amendment No. 2 to Amended and Restated Bylaws [incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated September 3, 2008, File No. 000-19364]
|
|
3.4 |
Amendment No. 3 to Amended and Restated Bylaws
|
|
10.1 | Fourth Amendment to Fifth Amended and Restated Revolving Credit and Term Loan Agreement dated April 14, 2014 between the Company and SunTrust Bank as Administrative Agent | |
10.2 |
Nomination and Standstill Agreement dated June 2, 2014 among the Company, North Tide Capital Master, LP, North Tide Capital, LLC and Conan J. Laughlin [incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated June 3, 2014, File No.
000-19364]
|
|
|
|
|
Healthways, Inc.
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
Date
|
August 8, 2014
|
|
By
|
/s/ Alfred Lumsdaine
|
|
|
|
|
Alfred Lumsdaine
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer)
|
2.8
|
Voting Groups; Quorum; Adjournment.
|
4.
|
Reaffirmations and Acknowledgments
.
|
Percentage Vested
|
|
Date of Vesting
|
25%
50%
75%
100%
|
|
One Year from Grant Date
Two Years from Grant Date
Three Years from Grant Date
Four Years from Grant Date
|
To the Company: |
|
Healthways, Inc. |
|
|
701 Cool Springs Boulevard |
|
|
Franklin, Tennessee 37067 |
|
|
|
|
|
|
To the Colleague: |
|
PARTICIPANT NAME |
(Colleague name and address)
|
|
Address on File |
|
|
at Healthways |
Vesting Date
|
|
Award Percentage of Restricted Stock Units
|
One Year from Grant Date
Two Years from Grant Date
Three Years from Grant Date
Four Years from Grant Date
|
|
25%
25%
25%
25%
|
To the Company:
|
Healthways, Inc.
|
|
701 Cool Springs Blvd
|
|
Franklin, Tennessee 37067
|
|
|
To the Grantee:
|
PARTICIPANT NAME
|
(Grantee name and address)
|
Address on File
|
|
at Healthways
|
|
|
To the Company:
|
Healthways, Inc.
|
|
701 Cool Springs Blvd
|
|
Franklin, Tennessee 37067
|
|
|
To the Grantee:
|
PARTICIPANT NAME
|
(Grantee name and address)
|
Address on File
|
|
at Healthways
|
|
|
To the Company:
|
Healthways, Inc.
|
|
701 Cool Springs Blvd
|
|
Franklin, Tennessee 37067
|
To the Grantee:
|
PARTICIPANT NAME
|
(Grantee name and address)
|
Address on File
|
|
at Healthways
|
|
|
Percentage Vested
|
|
Date of Vesting
|
|
|
25%
|
|
One Year from Grant Date
|
|
|
25%
|
|
Two Years from Grant Date
|
|
|
25%
|
|
Three Years from Grant Date
|
|
|
25%
|
|
Four Years from Grant Date
|
|
|
To the Corporation:
|
Healthways, Inc.
|
|
701 Cool Springs Blvd
|
|
Franklin, Tennessee 37067
|
To the Director:
|
PARTICIPANT NAME
|
(Director name and address)
|
Address on File
|
|
at Healthways
|
|
|
|
Vesting Date
|
|
Award Percentage of Restricted Stock Units
|
One Year from Grant Date
|
|
25%
|
Two Years from Grant Date
|
|
25%
|
Three Years from Grant Date
|
|
25%
|
Four Years from Grant Date
|
|
25%
|
To the Company:
|
Healthways, Inc.
|
|
701 Cool Springs Blvd
|
|
Franklin, Tennessee 37067
|
To the Director:
|
PARTICIPANT NAME
|
(Director name and address)
|
Address on File
|
|
at Healthways
|
|
|
|
|
HEALTHWAYS, INC.
|
|
|
By:
/s/ Ben R. Leedle, Jr.
|
|
|
Name: Ben R. Leedle, Jr.
|
|
|
Title: Chief Executive Officer
|
|
/s/ Ben R. Leedle, Jr.
|
|
|
Ben R. Leedle, Jr.
|
|
|
Chief Executive Officer
|
|
|
/s/ Alfred Lumsdaine
|
|
|
Alfred Lumsdaine
|
|
|
Chief Financial Officer
|
|