HEALTHWAYS, INC (Form: 10-Q, Received: 11/06/2015 15:05:11)

To eliminate or reduce lifestyle risks, our programs help to motivate people to make positive lifestyle changes and accomplish individual goals, such as increasing physical activity for seniors, overcoming nicotine addiction or generating sustainable weight loss, by:

·	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.

To help people optimize care for persistent or chronic conditions we:

·	incorporate the latest, evidence-based clinical guidelines into interventions to optimize patient health outcomes;
·	develop care support plans and motivate members to set attainable goals for themselves;
·	provide local market resources to address acute episodic interventions;

·	coordinate members' care as an extension of their healthcare providers;
·	provide software technology solutions in support of well-being improvement services; and
·	provide high-risk care management for members at risk for hospitalization due to complex conditions.

In North America, we operate in all 50 states and the District of Columbia. Our customers include health plans, both commercial and Medicare Advantage, large self-insured employers including state and municipal government entities, and providers of healthcare, including integrated healthcare systems, hospitals and physician groups. We also provide services to commercial healthcare businesses and/or government entities in Australia, Brazil, and France.

Our services are delivered using a range of methods, including venue-based face-to-face interactions; print; phone; mobile and remote devices with unique applications; on-line, including social networks; and any combination of these methods to motivate and sustain healthy behaviors. Many of our programs for lifestyle support, management and education are delivered through web-based portals and mobile applications and may also offer a social networking opportunity.

Our proprietary technology infrastructure and delivery capabilities are currently accessible to approximately 68 million people across four continents. Our intervention services are generally delivered from our domestic and international well-being improvement call centers staffed with a range of professionals including, but not limited to, nurses, dieticians, pharmacists, health coaches, exercise specialists and nutritional counselors. Our fitness center network encompasses approximately 16,000 U.S. locations. We also maintain an extensive network of over 88,000 complementary, alternative and physical medicine practitioners, which offers convenient access to the significant number of individuals who seek health services outside of the traditional healthcare system.

Forward-Looking Statements

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements, which are based upon current knowledge, assumptions, beliefs, estimates and expectations, involve a number of risks and uncertainties, and are subject to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not historical statements of fact and those regarding the intent, belief, or expectations of the Company, including, without limitation, all statements regarding the Company's future earnings and results of operations, and can be identified by the use of words like "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan," or "continue" and similar expressions. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may vary from those in the forward-looking statements as a result of various factors, including, but not limited to:

·	our ability to estimate the costs associated with, and to implement and realize the anticipated benefits of, the reorganization and cost rationalization plan;
·	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 and leadership;

·	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;
·	the risks associated with certain derivatives carried at fair value, which may result in volatility to our consolidated statements of comprehensive income (loss);
·	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, intangible assets, or other long-term 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;

We undertake no obligation to update or revise any such forward-looking statements.

Customer Contracts

Our contracts with health plans and integrated healthcare systems generally range from three to five years with certain comprehensive strategic agreements extending up to ten years in length. Contracts with self-insured employers typically have two to four-year terms. Some of our contracts allow the customer to terminate early.

Some of our contracts place a portion of our fees at risk based on achieving certain performance metrics, cost savings, and/or clinical outcomes improvements or obtaining customer agreement ("performance-based"). Approximately 7 % of revenues recorded during the nine months ended September 30, 2015 were performance-based, and 3 % of revenues were subject to final reconciliation as of September 30, 2015.

Reorganization and Rationalization Plan

On October 29, 2015, we announced a reorganization and cost rationalization plan, which is intended to improve efficiency and deliver greater value to our customers. As part of the 2015 Restructuring Plan, we will move from an organization focused on five customer end markets to a structure centered on two primary businesses – Population Health Services and Network Solutions. The Population Health Services business unit will deliver interventions directly to members of sponsored populations. These interventions are designed to improve people's health and well-being and drive improved performance and lower health-related costs by keeping healthy people healthy, eliminating or reducing lifestyle risks that lead to disease and optimizing care for people with persistent conditions or chronic disease. The Network Solutions business unit will create interventions that are delivered through the networks that we manage, including our SilverSneakers ^® Fitness program and our national network of complementary and alternative medicine providers.

As part of the 2015 Restructuring Plan, we intend to implement a cost rationalization plan focusing in part on our business technology architecture and in part on the cost-effective deployment of human capital and optimization of facilities infrastructure. The 2015 Restructuring Plan is expected to be largely complete in 2016.

We expect to incur a total of approximately $20 million to $25 million in restructuring charges related to the 2015 Restructuring Plan, substantially all of which are expected to result in future cash expenditures, with a majority of the charges expected to be incurred in the fourth quarter of 2015. We expect that the total charges will consist of approximately $9 million to $11 million of severance and other employee-related costs; approximately $6 million to $8 million of lease termination costs; and approximately $5 million to $6 million in consulting and other costs. We expect that the 2015 Restructuring Plan will create significant cost savings beginning in 2016, with total annualized savings of approximately $35 million to $45 million expected to be realized in 2017.

Critical Accounting Policies

We describe our accounting policies in Note 1 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. We prepare the consolidated financial statements in conformity with U.S. GAAP, which requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

We believe the following accounting policies are the most critical in understanding the estimates and judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows.

Revenue Recognition

We recognize revenue as services are performed when persuasive evidence of an arrangement exists, collectability is reasonably assured, and amounts are fixed or determinable.

Our fees are generally billed on a per member per month ("PMPM") basis or upon member participation. For PMPM fees, we generally determine our contract fees by multiplying the contractually negotiated PMPM rate by the number of members covered by our services during the month. We typically set PMPM rates during contract negotiations with customers based on the value we expect our programs to create and a sharing of that value between the customer and the Company. Some of our contracts are performance-based. Approximately 7 % of revenues recorded during the nine months ended September 30, 2015 were performance-based, and 3 % of revenues were subject to final reconciliation as of September 30, 2015.

We generally bill our customers each month for the entire amount of the fees contractually due for the prior month's enrollment, which typically includes the amount, if any, that is performance-based and may be subject to refund should we not meet performance targets. Fees for participation are typically billed in the month after the services are provided. Deferred revenues arise from contracts that permit upfront billing and collection of fees covering the entire contractual service period, generally 12 months. A limited number of our contracts provide for certain performance-based fees that cannot be billed until after they are reconciled with the customer.

We recognize revenue as follows: (1) we recognize the fixed portion of PMPM fees and fees for service as revenue during the period we perform our services; and (2) we recognize performance-based revenue based on the most recent assessment of our performance, which represents the amount that the customer would legally be obligated to pay if the contract were terminated as of the latest balance sheet date.

We generally assess our level of performance for our contracts based on medical claims and other data that the customer is contractually required to supply, interim assessments of achievement against performance targets, or metrics available from our operating platforms. A minimum of four to nine months' data is typically required for us to measure performance. In assessing our performance, we may include estimates such as medical claims incurred but not reported. In addition, we may also provide reserves for contractual allowances (such as data reconciliation differences) as appropriate.

If data is insufficient or incomplete to measure performance, or interim performance measures indicate that we are not meeting performance targets, we do not recognize performance-based fees subject to refund as revenues but instead record them in a current liability account entitled "contract billings in excess of earned revenue." Only in the event we do not meet performance levels by the end of the measurement period, typically one year, are we contractually obligated to refund some or all of the performance-based fees. We would only reverse revenues that we had already recognized if performance to date in the measurement period, previously above targeted levels, subsequently dropped below targeted levels.

During the settlement process under a contract, which generally occurs six to eight months after the end of a contract year, we settle any performance-based fees and reconcile healthcare claims and clinical data. As of September 30, 2015, cumulative performance-based revenues that have not yet been settled with our customers but that have been recognized in the current and prior years totaled approximately $23.0 million, all of which were based on actual data. Data reconciliation differences, for which we provide contractual allowances until we reach agreement with respect to identified issues, can arise between the customer and us due to customer data deficiencies, omissions, and/or data discrepancies.

Performance-related adjustments (including any amounts recorded as revenue that were ultimately refunded), changes in estimates, or data reconciliation differences may cause us to recognize or reverse revenue in a current fiscal year that pertains to services provided during a prior fiscal year. During the nine months ended September 30, 2015 and 2014, we recognized a net increase in revenue of $10.6 million and $4.8 million that related to services provided prior to each respective year.

We are currently evaluating the impact that the adoption of ASC Topic 606, "Revenue from Contracts with Customers", will have on our revenue recognition policies and procedures, financial position, result of operations, cash flows, financial disclosures and control framework.

Impairment of Intangible Assets and Goodwill

We review goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis or more frequently whenever events or circumstances indicate that the carrying value may not be recoverable. We may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we conclude during the qualitative assessment that this is the case or if we elect not to perform a qualitative assessment, we perform a quantitative review as described below.

During a quantitative review of goodwill, we estimate the fair value of each reporting unit using a combination of a discounted cash flow model and a market-based approach, and we reconcile the aggregate fair value of our reporting units to our consolidated market capitalization. Estimating fair value requires significant judgments, including management's estimate of future cash flows, which is dependent on internal forecasts, estimation of the long-term growth rate for our business, the useful life over which cash flows will occur, and determination of our weighted average cost of capital, as well as relevant comparable company earnings multiples for the market-based approach. Changes in these estimates and assumptions could materially affect the estimate of fair value and potential goodwill impairment for each reporting unit.

If we determine that the carrying value of goodwill is impaired based upon an impairment review, we calculate any impairment using a fair value-based goodwill impairment test as required by U.S. GAAP. The fair value of a reporting unit is the price that would be received upon a sale of the unit as a whole in an orderly transaction between market participants at the measurement date.

Except for a trade name that has an indefinite life and is not subject to amortization, we amortize identifiable intangible assets, such as acquired technologies and customer contracts, over their estimated useful lives using the straight-line method. We assess the potential impairment of intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying values may not be recoverable. If we determine that the carrying value of other identifiable intangible assets may not be recoverable, we calculate any impairment using an estimate of the asset's fair value based on the estimated price that would be received to sell the asset in an orderly transaction between market participants.

We review intangible assets not subject to amortization, which consist of a trade name, on an annual basis or more frequently whenever events or circumstances indicate that the assets might be impaired. We estimate the fair value of the trade name using a present value technique, which requires management's estimate of future revenues attributable to this trade name, estimation of the long-term growth rate for these revenues, and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the estimate of fair value for the trade name.

Future events could cause us to conclude that impairment indicators exist and that goodwill and/or other intangible assets are impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Accounting for income taxes requires significant judgment in evaluating tax positions and in determining income tax provisions, including determination of deferred tax assets, deferred tax liabilities, and any valuation allowances that might be required against deferred tax assets.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. U.S. GAAP also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financial position, results of operations, and cash flows.

Share-Based Compensation

We measure and recognize compensation expense for all share-based payment awards over the required vesting period based on estimated fair values at the date of grant. Determining the estimated fair value of stock options at the grant date requires judgment in developing assumptions, which involve a number of variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards and expected stock option exercise behavior. In addition, we also use judgment in estimating the number of share-based awards that are expected to vest, after consideration of expected forfeitures and estimated vesting of performance-based stock units.

Results of Operations

The following table shows the components of the consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2015 and 2014 expressed as a percentage of revenues.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014

Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of services (exclusive of depreciation and amortization included below)	81.0	%	80.2	%	82.0	%	81.7	%
	81.0	%	80.2	%	82.0	%	81.7	%
Selling, general and administrative expenses	7.4	%	8.5	%	8.8	%	9.0	%
Depreciation and amortization	6.2	%	7.2	%	6.3	%	7.4	%
Restructuring and related charges	0.9	%	—	%	0.3	%	—	%
Legal settlement charges	—	%	—	%	—	%	1.7	%
Operating income (loss) ⁽¹⁾	4.5	%	4.1	%	2.5	%	0.1	%

Interest expense	2.3	%	2.5	%	2.3	%	2.5	%
Equity in loss from joint ventures	(10.0	)%	—	%	(3.5	)%	—	%

Income (loss) before income taxes ⁽¹⁾	(7.7	)%	1.6	%	(3.3	)%	(2.3	)%
Income tax expense (benefit)	(3.1	)%	0.6	%	(1.3	)%	(0.8	)%

Net income (loss) ⁽¹⁾	(4.7	)%	1.1	%	(2.0	)%	(1.5	)%
Net loss attributable to non-controlling interest	(0.1	)%	—	%	(0.1	)%	—	%
Net income (loss) attributable to Healthways, Inc. ⁽¹⁾	(4.6	)%	1.1	%	(2.0	)%	(1.5	)%

⁽¹⁾ Figures may not add due to rounding.

Revenues

Revenues increased $10.7 million, or 5.8% , and $41.3 million, or 7.6% for the three and nine months ended September 30, 2015, respectively, compared to the same periods in 2014, primarily due to the following:

·	an increase in average participation per member in our fitness solutions, primarily due to our initiatives to drive higher participation ;

·	an increase in the number of members eligible to participate in our fitness solutions, primarily due to increased enrollment in Medicare Advantage as well as growth in our customers' membership;

·	the commencement of contracts with new customers and ramping revenues under existing contracts; and

·	an increase in performance-based revenues, primarily due to the positive impact of our ability to recognize certain such revenues earlier in 2015 than in 2014.

These increases were somewhat offset by contract terminations in 2014 and 2015, including four health plan contracts in 2014 for our disease management solution (the "four terminated contracts"), and the completion of short-term consulting engagements with certain customers during 2014.

Cost of Services

Cost of services (excluding depreciation and amortization) as a percentage of revenues remained relatively consistent at 81.0% and 82.0% for the three and nine months ended September 30, 2015, respectively, compared to 80.2% and 81.7% for the three and nine months ended September 30, 2014, respectively, although there were offsetting increases and decreases within the periods.

Increases in cost of services as a percentage of revenues were primarily due to the following:

·	the impact of the four terminated contracts and the completion of certain short-term consulting engagements that were in effect during 2014 and carried a lower than average cost of services as a percentage of revenues; and

·	three customer contract renewals that changed certain contract terms and structure, resulting in lower contract margins for the three and nine months ended September 30, 2015, but that provide us an opportunity to grow revenue and expand margins over the term of the contracts.

Decreases in cost of services as a percentage of revenues were primarily due to the following:

·	an increase in the recognition of performance-based revenues, while the related costs remained relatively consistent;

·	improved operating leverage and efficiency gains;

·	a decrease in support costs related to our technology platform, partially offset by recoupment of fees in 2014 related to certain supplier service level agreements; and

·	a decrease in the level of long-term incentive compensation expense based on the Company's actual and projected financial performance against established targets.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of revenues decreased to 7.4% for the three months ended September 30, 2015 compared to 8.5 % for the three months ended September 30, 2014 primarily due to the following:

·	a decrease in expenses related to proxy contest defense costs, which were incurred in 2014 and did not recur in 2015; and

a decrease in the level of long-term incentive compensation expense based on the Company's actual and projected financial performance against established targets as well as the absence of such expenses in the three months ended September 30, 2015 related to our former president and chief executive officer.

Selling, general and administrative expenses as a percentage of revenues remained relatively consistent at 8.8% for the nine months ended September 30, 2015 compared to 9.0% for the nine months ended September 30, 2014, with a decrease in expenses related to proxy contest defense costs, which were incurred in 2014 and did not recur in 2015, mostly offset by increased expenses associated with the termination in May 2015 of our former president and chief executive officer.

Depreciation and Amortization

Depreciation and amortization expense decreased $1.1 million, or 8.5% , and $3.2 million, or 7.8% , respectively, for the three and nine months ended September 30, 2015 compared to the same periods in 2014, primarily due to certain intangible assets becoming fully amortized during 2014.

Restructuring and Related Charges

In connection with the 2015 Restructuring Plan, we incurred charges of $1.8 million, which primarily consisted of third-party consulting charges incurred in connection with the 2015 Restructuring Plan.

Legal Settlement Charges

On April 17, 2014, we entered into an agreement with BCBSMN to resolve a contractual dispute. As a result of this settlement, we incurred charges of approximately $9.4 million during the nine months ended September 30, 2014.

Interest Expense

Interest expense remained relatively consistent for the three and nine months ended September 30, 2015 compared to the same periods in 2014.

Equity in Loss from Joint Ventures

For the three months ended September 30, 2015, in connection with the Gallup Joint Venture (see Note 7 of the Notes to the Consolidated Financial Statements in this report), we incurred an impairment charge of $12.2 million based on the estimated fair value of our equity method investment in the Gallup Joint Venture at September 30, 2015 as well as a loss of $7.3 million on the Gallup Derivative.

Income Tax Expense

For the three months ended September 30, 2015, we had an effective tax benefit rate of 39.7%, compared to an effective income tax rate of 34.2% for the three months ended September 30, 2014. For the nine months ended September 30, 2015, we had an effective tax benefit rate of 38.0% compared to 35.9% for the nine months ended September 30, 2014. The change in the effective rates was primarily due to the smaller base of pre-tax income (loss) for the three and nine months ended September 30, 2014 compared to the same periods in 2015 in relation to certain unrecognized tax benefits and non-deductible expenses.

Liquidity and Capital Resources

Operating activities for the nine months ended September 30, 2015 provided cash of $ 38.8 million, compared to $ 32.3 million for the nine months ended September 30, 2014, primarily due to increased cash collections on accounts receivable for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.

Investing activities during the nine months ended September 30, 2015 used $33.3 million in cash which primarily consisted of capital expenditures, most of which were associated with our Embrace platform.

Financing activities during the nine months ended September 30, 2015 used $3.6 million in cash primarily due to net payments under the Fifth Amended Credit Agreement partially offset by proceeds from non-controlling interest and the exercise of stock options.

Credit Facility

For a detailed description of the Fifth Amended Credit Agreement, refer to Note 5 of the Notes to Consolidated Financial Statements in this report. The Fifth Amended Credit Agreement contains financial covenants that require us to maintain specified ratios or levels at September 30, 2015 of (1) a maximum total funded debt to EBITDA of 4.25 and (2) a minimum total fixed charge coverage of 1.50. We were in compliance with all of the financial covenant requirements of the Fifth Amended Credit Agreement as of September 30, 2015.

Cash Convertible Senior Notes

For a detailed description of the Cash Convertible Notes, Cash Convertible Notes Hedges, Cash Conversion Derivative, and Warrants entered into in July 2013, refer to Note 5 of the Notes to Consolidated Financial Statements in this report. Aside from the initial premium paid, we will not be required to make any cash payments under the Cash Convertible Notes Hedges and could be entitled to receive an amount of cash from the option counterparties generally equal to the amount by which the market price per share of common stock exceeds the strike price of the Cash Convertible Note Hedges during the relevant valuation period. The strike price under the Cash Convertible Notes Hedges is initially equal to the conversion price of the Cash Convertible Notes. Additionally, if the market price per share of our common stock exceeds the strike price of the Warrants on any warrant exercise date, we will be obligated to issue to the option counterparties a number of shares based on the amount by which the then-current market price per share of our common stock exceeds the then-effective strike price of each Warrant. We will not receive any additional proceeds if the Warrants are exercised.

CareFirst Convertible Note

For a description of the CareFirst Convertible Note and CareFirst Warrants, refer to Note 5 of the Notes to Consolidated Financial Statements in this report.

We believe that cash flows from operating activities, our available cash, and our anticipated available credit under the Fifth Amended Credit Agreement will continue to enable us to meet our contractual obligations and fund our current operations for at least the next 12 months. We cannot assure you that we would always be able to secure additional financing if needed and, if such funds were available, whether the terms or conditions would be acceptable to us.

If contract development accelerates or acquisition opportunities arise, we may need to issue additional debt or equity securities to provide the funding for these increased growth opportunities. We may also issue debt or equity securities in connection with future acquisitions or strategic alliances. We cannot assure you that we would be able to issue additional debt or equity securities on terms that would be acceptable to us.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU No. 2014-9 which creates FASB ASC Topic 606, "Revenue from Contracts with Customers" and supersedes ASC Topic 605, "Revenue Recognition." The provisions of ASC Topic 606 provide for a single comprehensive principles-based standard for the recognition of revenue across all industries and expanded disclosure about the nature, amount, timing and uncertainty of revenue, as well as certain additional quantitative and qualitative disclosures. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those years. We are currently evaluating the impact of adopting ASC Topic 606.

In June 2014, the FASB issued ASU No. 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period". ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. ASU 2014-12 is effective for annual periods beginning after December 15, 2015, including interim periods within those annual periods, with earlier adoption permitted. The adoption of ASU 2014-12 is not expected to have a material effect on our financial position or results of operations.

In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs " ("ASU 2015-03"), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. This ASU is effective for reporting periods beginning after December 15, 2015, including interim periods within those years, and should be applied on a retrospective basis to all periods presented. The adoption of ASU 2015-03 is not expected to have an impact on our results of operations or cash flows but will result in debt issuance costs being presented as a direct deduction from the carrying amount of the related debt liability rather than as an asset.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risk related to interest rate changes, primarily as a result of the Fifth Amended Credit Agreement. Borrowings under the Fifth Amended Credit Agreement generally bear interest at variable rates based on a margin or spread in excess of either (1) one-month, two-month, three-month or six-month (or with the approval of affected lenders, nine-month or twelve-month) LIBOR or (2) the greatest of (a) the SunTrust Bank prime lending rate, (b) the federal funds rate plus 0.50%, and (c) the Base Rate, as selected by the Company. The LIBOR margin varies between 1.75% and 3.00%, and the Base Rate margin varies between 0.75% and 2.00%, depending on our leverage ratio.

In order to reduce our interest rate exposure under the Fifth Amended Credit Agreement, we have entered into interest rate swap agreements effectively converting a portion of our floating rate debt to fixed obligations with interest rates ranging from 0.690% to 1.480% plus a spread.

We estimate that a one-point interest rate change would have resulted in a change in interest expense of approximately $0.4 million for the nine months ended September 30, 2015.

As a result of our investment in international initiatives, we are also exposed to foreign currency exchange rate risks. Because a significant portion of these risks is economically hedged with currency options and forwards contracts and because our international initiatives are not yet material to our consolidated results of operations, a 10% change in foreign currency exchange rates would not have had a material impact on our consolidated results of operations, financial position, or cash flows for the nine months ended September 30, 2015. We do not execute transactions or hold derivative financial instruments for trading purposes.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has reviewed and evaluated the effectiveness of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of September 30, 2015. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2015. They are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms and to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting during the three months ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II

Other Information

Item 1.

Legal Proceedings

Junk Fax Prevention Act Lawsuits

On September 16, 2014, Healthways and its wholly owned subsidiary, HWHN, were named in a putative class action lawsuit filed by Edward Simon, DC in the Superior Court of California, County of Los Angeles, seeking damages and other relief relating to alleged violations of the TCPA, as amended by the JFPA, in connection with faxes allegedly transmitted to members of HWHN's network of complementary and alternative care practitioners. The JFPA prohibits sending an "unsolicited advertisement" to a fax machine and requires the sender to provide a notice to allow a recipient to "opt out" of future fax transmissions (including, pursuant to rules promulgated by the FCC, those sent with the prior express invitation or permission of the recipient). The complaint seeks damages in excess of $5 million. The case has been removed to the United States District Court for the Central District of California, Eastern Division.

On December 22, 2014, HWHN was also named in a putative class action lawsuit filed by Affiliated Health Care Associates, P.C. in the United States District Court for the Northern District of Illinois, Eastern Division ("Illinois Matter"), seeking damages and other relief relating to alleged violations of the TCPA, the Illinois Consumer Fraud and Deceptive Business Practices Act, and Illinois common law in connection with faxes allegedly sent to members of HWHN's network of complementary and alternative care practitioners. The complaint seeks damages in an unstated amount. On May 29, 2015, the plaintiff in the Illinois Matter voluntarily dismissed its lawsuit without prejudice; that plaintiff has been joined as a party in the California Matter. We deny the claims and intend to vigorously defend these actions.

In connection with these actions, on March 2, 2015, Healthways and HWHN filed with the FCC a Petition for Retroactive Waiver ("Waiver Petition") of the FCC's regulation that requires advertising faxes sent with the prior express invitation or permission of the recipient to include an "opt-out" notice. On August 28, 2015, the FCC granted the Company relief requested in the Waiver Petition . We cannot predict the impact on the California Matter of the F CC' s grant of relief pursuant to the Waiver Petition .

Performance Award Lawsuit

On September 4, 2012, Milton Pfeiffer, claiming to be a stockholder of the Company, filed a putative derivative action against the Company and the Board in Delaware Chancery Court alleging that the Compensation Committee of the Board and the Board breached their fiduciary duties and violated the Company's 2007 Stock Incentive Plan by granting Ben R. Leedle, Jr., then chief executive officer and president of the Company, discretionary performance awards under the Plan in the form of options to purchase an aggregate of 500,000 shares of the Company's common stock, which consisted of a performance award in November 2011 granting Mr. Leedle the right to purchase 365,000 shares and a performance award in February 2012 granting Mr. Leedle the right to purchase 135,000 shares. Plaintiff alleges that the Performance Awards exceeded what is authorized by the Plan and that the Company's 2012 proxy statement, in which the Performance Awards are disclosed, is false and misleading. Plaintiff also alleges that Mr. Leedle breached his fiduciary duties and was unjustly enriched by receiving the Performance Awards. Plaintiff is seeking, among other things, the rescission or disgorgement of all alleged "excess" awards granted to Mr. Leedle under the Performance Awards, to recover any incidental damages to the Company, and an award of attorneys' fees and expenses. On November 2, 2012, the Company and the Board filed a Motion to Dismiss because Plaintiff failed to make a demand upon the Board as required by Delaware law. On November 8, 2013, the Court denied the Company's Motion to Dismiss. On February 21, 2014, the Company filed its answer. On May 15, 2015, in connection with the termination of Mr. Leedle's employment, the Board ratified the awards to Mr. Leedle pursuant to Section 204 of the Delaware General Corporate Law and subsequently sent notice of the ratification to shareholders. No shareholder filed a timely objection to the ratification. Upon the expiration of the time period for shareholders to object to the ratification, the Company took the position that the ratification rendered the Plaintiff's claims moot. The parties then agreed to submit a stipulation of dismissal of the case to the Court. On October 30, 2015, the Court entered an Order that dismissed the case with prejudice with respect to Plaintiff Milton Pfeiffer as moot but without prejudice to the proposed class. No compensation in any form passed to the Plaintiff or to Plaintiff's attorneys. The Order preserves the right of counsel for Milton Pfeiffer to petition the Court for an award of attorneys' fees.

Outlook

We are also subject to other contractual disputes, claims and legal proceedings that arise from time to time in the ordinary course of our business. While we are unable to estimate a range of potential losses, we do not believe that any of the legal proceedings pending against us as of the date of this report will have a material adverse effect on our liquidity or financial condition. As these matters are subject to inherent uncertainties, our view of these matters may change in the future.

Item 1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties previously reported under the caption "Part I — Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, the occurrence of which could materially and adversely affect our business, prospects, financial condition and operating results. The risks previously reported and described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and in this report are not the only risks facing our business. Additional risks and uncertainties not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business operations.

There have been no material changes to our risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Pursuant to the Investment Agreement with CareFirst (as described under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – CareFirst Convertible Note"), CareFirst has an opportunity to earn warrants based on achievement of Revenue Thresholds for Quarterly Revenue. On September 8 , 2015, we issued to CareFirst warrants to purchase 126,940 shares of our common stock at an exercise price of $13.67 per share in accordance with the terms of the Investment Agreement. The issuance of the CareFirst Warrants was exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, because it was a transaction not involving a public offering.

Item 3.

Defaults Upon Senior Securities

Not Applicable.

Item 4.

Mine Safety Disclosures

Not Applicable.

Item 5.

Other Information

Not Applicable.

Item 6.

Exhibits

(a)

Exhibits

10.1		Form of Restricted Stock Unit Award Agreement (for Executive Officers) for July 1, 2015 under the Company's Amended and Restated 2014 Stock Incentive Plan

10.2		Separation Agreement, dated November 1, 2015, between the Company and Michael R. Farris

10.3		Employment Agreement, dated August 3, 2015, between Healthways, Inc. and Donato Tramuto [incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 7, 2015, File No. 000-19364]

10.4		Form of Restricted Stock Unit Award Agreement for Mr. Tramuto [incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 7, 2015, File No. 000-19364]

10.5		Form of Market Stock Unit Award Agreement for Mr. Tramuto [incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 7, 2015, File No. 000-19364]

10.6		Form of Market Stock Unit Award Agreement for September 24, 2015 [incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated September 28, 2015, File No. 000-19364]

10.7		Form of Restricted Stock Unit Award Agreement (for Executive Officers and Other Senior Officers) for September 24, 2015 [incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated September 28, 2015, File No. 000-19364]

10.8		Seventh Amendment to Fifth Amended and Restated Revolving Credit and Term Loan Agreement [incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated October 29, 2015, File No. 000-19364]

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

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.

			Healthways, Inc.
			(Registrant)

Date	November 6, 2015	By	/s/ Alfred Lumsdaine
			Alfred Lumsdaine
			Chief Financial Officer
			(Principal Financial Officer)

Exhibit 10.2

SEPARATION, NON-COMPETITION AND RELEASE AGREEMENT

This SEPARATION, NON-COMPETITION AND RELEASE AGREEMENT (this " Agreement ") is entered into as of November 1, 2015 by and between Healthways, Inc. (the " Company ") and Michael R. Farris (" Executive ") (together, the " Parties ").

RECITALS

WHEREAS, Executive is employed by the Company pursuant to the terms of the Amended and Restated Employment Agreement between the Company and Executive, dated September 2, 2014 (the " Employment Agreement ");

WHEREAS, pursuant to the terms of that certain Purchase Agreement, dated as of October 28, 2015, among American Healthways Services, LLC (a wholly owned subsidiary of the Company) (" AHS "), Executive and NAVCO Acquisition, LLC (the " Purchase Agreement "), as a condition to the consummation of the transactions contemplated by the Purchase Agreement, Executive must execute and deliver this Agreement; and

WHEREAS, in connection with the transactions contemplated by the Purchase Agreement, the Company and Executive have agreed to terminate Executive's employment pursuant to the Employment Agreement by the mutual written agreement of the Company and Executive.

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth hereinafter, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

AGREEMENT

1. EXECUTIVE'S SEPARATION . Executive's employment with the Company shall terminate on the date on which the transactions contemplated by the Purchase Agreement are consummated (the " Separation Date "). As of the Separation Date, Executive shall resign from and no longer be an employee, officer, director and/or manager (or any equivalent position) of the Company or any subsidiaries or affiliates thereof, and Executive agrees he shall execute all documents necessary to effect such resignations. The Parties hereby agree that, for purposes of the Employment Agreement, Executive's termination of employment will be treated as a termination by Executive without Good Reason (as defined in the Employment Agreement) pursuant to Section V.G of the Employment Agreement; provided , however , that the Company hereby waives the 90-day notice of resignation requirement set forth in Section V.G.1 of the Employment Agreement.

2. SEPARATION PAYMENTS AND BENEFITS . In full and final satisfaction of any and all amounts and benefits due or which could become due to Executive pursuant to the Employment Agreement, any employee benefit or incentive plans or agreements in which Executive participates or is a party (including, without limitation, (i) any of the Company's equity incentive or stock option plans and (ii) all cash, equity and equity-based award agreements between the Company and Executive (each agreement listed in clause (ii) , an " Award Agreement " and, collectively, the " Award Agreements ")), it is agreed as follows:

a. Executive will receive from the Company (i) a lump sum cash payment equal to any accrued yet unpaid Base Salary (as defined in the Employment Agreement) through the Separation Date and (ii) any group medical and life insurance benefits accrued through the Separation Date, in each case, payable within 30 days following the Separation Date;

b. Executive will receive from the Company a pro-rated portion, based upon the number of days during which Executive was employed during the 2015 fiscal year, of the 2015 Bonus (as defined in the Employment Agreement), which amount will be determined for the period beginning on January 1, 2015 and ending on the Separation Date. As soon as practicable after the Company's audited financial statements for the applicable period become available, but no later than March 31, 2016, the Company shall calculate the amount of the 2015 Bonus to which Executive was entitled pursuant to the immediately preceding sentence based on such audited financial statements. Subject to Section 3 , the Company shall pay Executive the 2015 Bonus no later than April 15, 2016;

c. Executive will receive from the Company a pro-rated portion (at the rate of $41,666 per month), based upon the number of days during which Executive was employed during the 2015 fiscal year (including the Separation Date), of the Retention Payment (as defined in the Employment Agreement); and

d. Executive will receive from the Company the $250,000.00 bonus based upon achievement of Hawaii Medical Services Association's 2015 budgeted contribution margin and the execution of a binding long-term renewal of the Hawaii Medical Service Association relationship.

3. RELEASE OF CLAIMS. The Company shall not be required to make the payments and provide the benefits specified in Section 2 , other than those set forth in Section 2(a ) (the " Accrued Amounts "), unless Executive has executed and delivered to the Company the Release of Claims attached as Exhibit A hereto (the " Release ") within 30 days following the Separation Date. Any payments or benefits specified in Section 2 , other than the Accrued Amounts, payable during such 30-day period shall be withheld and shall be paid to Executive on the first payroll date following the 30th day following the Separation Date as long as Executive executed and delivered to the Company the Release in accordance with this Section 3 . In the event the Release is not executed and delivered to the Company in accordance with this Section 3 , the payments and benefits specified in Section 2 , other than the Accrued Amounts, shall be forfeited.

4. NO OTHER PAYMENTS OR BENEFITS . Except for the payments and benefits provided for in Section 2 of this Agreement, any 401(k) plan or other vested benefits due to Executive pursuant to the terms and conditions of any employee benefit plan in which Executive was a participant on or prior to the Separation Date (but not including the Award Agreements) and any benefits that are due or may become due to Executive under any health or welfare plan of the Company in which Executive was a participant on or prior to the Separation Date, Executive acknowledges and agrees that he is entitled to no other compensation, payments or benefits from the Company and/or its subsidiaries and affiliates of any kind or nature whatsoever, including, without limitation, pursuant to the Employment Agreement or the Award Agreements, and/or for salary, severance pay, medical benefits, fringe benefits, vacation pay, bonuses, incentive compensation, sick pay, insurance, disability insurance, medical benefits, paid or unpaid leave, vesting of cash, equity or equity-based awards or any other allowance, payment, grant, award or benefit of any nature or description.

5. TAX WITHHOLDING . The Company shall be entitled to withhold from any amounts otherwise payable hereunder to Executive any amounts required to be withheld in respect of federal, state or local taxes, and Executive shall be responsible for all taxes on amounts received under or related to this Agreement.

6. REPRESENTATIONS . Executive and the Company make the following representations, each of which is an important consideration to the other party's willingness to enter into this Agreement:

a. Executive understands and agrees that he has been advised to consult with an attorney of his choice concerning the legal consequences of this Agreement. Executive hereby acknowledges that prior to signing this Agreement, he had the opportunity to consult, and did consult, with an attorney of his choosing regarding the effect of each and every provision of this Agreement.

b. Executive acknowledges and agrees that he knowingly and voluntarily entered into this Agreement with complete understanding of all relevant facts and that he was neither fraudulently induced nor coerced to enter into this Agreement.

c. Each of the Parties represents and warrants to the other that such Party has the capacity or authority, as applicable, to enter into this Agreement and be bound by its terms and that, when executed, this Agreement will constitute a valid and binding agreement of such Party enforceable against such Party in accordance with its terms.

7. CONFIDENTIALITY, NON-COMPETITION, NON-SOLICITATION .

a. The Company and Executive acknowledge and agree that the terms and conditions described in Section VIII of the Employment Agreement shall terminate and be of no further force or effect as of the Separation Date, and that such terms and conditions are replaced in their entirety by the provisions of this Section 7 .

b. For purposes of this Agreement, the term:

(i)

" Business " means the provision of certain healthcare consulting and advisory services provided by Navvis Healthcare, LLC and its Subsidiaries (as defined in the Purchase Agreement) in the Ordinary Course of Business (as defined in the Purchase Agreement), including, without limitation, the consulting and advisory services described in the customer contracts listed on Exhibit A to the Purchase Agreement. To ensure clarity, the Business does not include the promotion, sale or operation of the Dean Ornish Program for the reversal of heart disease or the promotion, sale or operation of Company's Well-Being Improvement Solutions (as defined in the Purchase Agreement);

(ii)

" Restricted Business " shall mean the delivery of care support services, health support services and population health management services that are the same as or substantially similar to the care support services, health support services and population health management services being offered by the Company or any of its subsidiaries or affiliates as of the Separation Date; and

(iii)

" Permitted Services " shall mean (A) the services and activities performed by the Company and its Subsidiaries in the conduct of the Business, (B) providing consulting and advisory services to health systems, physician groups and health plans controlled by health systems (" Permitted Clients ") regarding the design, implementation and operation of (i) care models (including transitions of care) for the management of insured and self-insured populations and (ii) health system and physician payment programs such as ACOs, bundled payments, episodes of care, performance contracts and risk contracts, (C) offering and selling to Permitted Clients, solely through a product distribution or commission arrangement with a third party vendor, software whose primary purpose is to support the administration and management of such care models and payment programs (" Permitted Software ") and (D) providing consulting and advisory services to managed Medicare and managed Medicaid health plans related to revenue optimization, care models (including transitions of care) and care coordination, health system payment methodologies and physician payment methodologies, and offering and selling Permitted Software to such health plans, solely through a product distribution or commission arrangement with a third party vendor of such Permitted Software.

c. The Executive acknowledges:

that the Restricted Business is intensely competitive and that the Executive's employment by the Company required that the Executive have access to and knowledge of confidential information of the Company relating to its business plans, financial data, marketing programs, client information, contracts and other trade secrets, in each case other than as and to the extent such information is generally known or publicly available through no violation of this Agreement by Executive;

ii.	the use or disclosure of such information other than in furtherance of the Restricted Business may place the Company at a competitive disadvantage and may do damage, monetary or otherwise, to the Restricted Business; and

iii.

the engaging by Executive in any of the activities prohibited by this Section 7(c) shall constitute improper appropriation and/or use of such information. Executive expressly acknowledges the trade secret status of the Company's or its subsidiaries' or affiliates' confidential information and that the confidential information constitutes a protectable business interest of the Company and its subsidiaries and affiliates. Executive expressly agrees not to use such confidential information or divulge such confidential information to anyone outside the Company without prior permission by the Company.

d. The Company (which shall be construed to include the Company, its subsidiaries and their respective affiliates) and Executive agree that for a period beginning on the date hereof and ending on December 31, 2016, Executive shall not:

directly or indirectly engage in Competition (as defined below), with the Company or its subsidiaries or affiliates within any market where the Company is conducting the Restricted Business on the date hereof. For purposes of this Agreement, " Competition " by Executive shall mean Executive's being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of or permitting his name to be used in connection with the activities of any person or entity engaged in the Restricted Business, provided that, (A) it shall not be a violation of this subsection for Executive to become the registered or beneficial owner of less than five percent (5%) of any class of the capital stock of any one or more competing corporations registered under the 1934 Act, provided that, the Executive does not participate in the business of such corporation until such time as this covenant expires and (B) Executive is expressly permitted to engage in Permitted Services; and

ii.	Executive further agrees that he will not, directly or indirectly, for his benefit or for the benefit of any other person or entity, do any of the following:

a.	solicit from any customer doing business with the Company as of Executive's termination business of the same or of a similar nature to the Restricted Business with such customer, provided , however , Executive shall not be restricted from soliciting such customers for Permitted Services;

solicit from any potential customer of the Company business of the same or of a similar nature to that which, to the knowledge of Executive, has been the subject of a written or oral bid, offer or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal or offer, within 18 months prior to the Separation Date, provided , however , Executive shall not be restricted from soliciting such customers for Permitted Services;

c.	except as contemplated by the Purchase Agreement, recruit or solicit the employment or services of any person who was employed by the Company as of the Separation Date and is employed by the Company at the time of such recruitment or solicitation; or

d.	make comments, whether oral or in writing, that disparage or injure the Company, its officers, directors, agents, employees, products and services.

iii.

Executive acknowledges that the services that were rendered by Executive to the Company were of a special and unique character, which causes this Agreement to be of significant value to the Company, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by the Executive of any of the provisions contained in this Section 7 will cause the Company irreparable injury. Executive therefore agrees that the Company will be entitled, in addition to any other right or remedy, to a temporary, preliminary and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining Executive from any such violation or threatened violations. Executive acknowledges that the terms of this Section 7 and his obligations are reasonable and will not prohibit Executive from being employed or employable in the health care industry.

e. If any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the fullest extent permitted by law.

8. TAX MATTERS; SECTION 409A . Notwithstanding any provision of this Agreement, this Agreement shall be construed and interpreted to comply with or otherwise be exempt from Section 409A of the Internal Revenue Code of 1986 (the " Code "), as amended, and if necessary, any provision shall be held null and void to the extent such provision (or part thereof) fails to comply with Section 409A of the Code or regulations thereunder. For purposes of the limitations on nonqualified deferred compensation under Section 409A of the Code, each payment of compensation under this Agreement shall be treated as a separate payment of compensation for purposes of applying the Section 409A of the Code deferral election rules and the exclusion from Section 409A of the Code for certain short-term deferral amounts. Executive may not, directly or indirectly, designate the calendar year of any payment due hereunder. Any amounts payable solely on account of an involuntary separation from service within the meaning of Section 409A of the Code shall be excludible from the requirements of Section 409A of the Code, either as involuntary separation pay or as short-term deferral amounts (e.g., amounts payable under the schedule prior to March 15 of the calendar year following the calendar year of involuntary separation) to the maximum possible extent. If, as of the Separation Date, Executive is a "specified employee" as determined by the Company, then to the extent that any amount or benefit that would be paid or provided to Executive under this Agreement within six (6) months of his "separation from service" (as determined under Section 409A) constitutes an amount of deferred compensation for purposes of Section 409A and is considered for purposes of Section 409A to be owed to Executive by virtue of his separation from service, then such amount or benefit will not be paid or provided during the six-month period following the date of Executive's separation from service and instead shall be paid or provided on the first business day that is at least seven months following the date of Executive's separation from service, except to the extent that, in the Company's reasonable judgment, payment during such six-month period would not cause Executive to incur additional tax, interest or penalties under Section 409A. Further, any reimbursements or in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the period of time specified in this Agreement, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

9. RETURN OF COMPANY PROPERTY . Upon the Separation Date, Executive shall return to the Company all files, records, credit cards, keys, equipment and all other Company property or documents maintained by Executive for the Company's use or benefit.

10. GOVERNING LAW . This Agreement, its Exhibits and all rights, duties and remedies hereunder shall be governed by and construed and enforced in accordance with the laws of the State of Tennessee, without reference to its choice of law rules, except as preempted by federal law.

11. SUCCESSORS AND ASSIGNS . This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive's death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, "successor" means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of Executive's right to compensation or other benefits will be null and void.

12. AMENDMENTS . This Agreement may not be amended or modified other than by a written instrument signed by an authorized representative of the Company and Executive.

13. INTERPRETATION . The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. Each of the Parties has participated in the drafting and negotiation of this Agreement. If any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if it is draft by both Parties, and no presumption or burden of proof share arise favoring or disfavoring any Party by virtue of authorship of any of the provisions of this Agreement.

14. COUNTERPARTS . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. Facsimile and .pdf signatures will suffice as original signatures.

15. NOTICES . All notices hereunder shall be in writing and delivered personally or sent by United States registered or certified mail, postage prepaid and return receipt requested.

If to the Company:

Attn: General Counsel

Healthways, Inc.

701 Cool Springs Blvd.

Franklin, TN 37067

If to Executive:

Michael R. Farris

[address on file]

16. ENTIRE AGREEMENT . This Agreement and its Exhibits, together with any other obligations specifically preserved herein and the specific terms of the Award Agreements referenced herein, set forth the entire agreement and understanding of the Parties relating to the subject matter hereof and merges and supersedes all prior discussions, agreements, and understandings of every kind and nature between the Parties hereto, and neither Party shall be bound by any term or condition other than as expressly set forth or provided for in this Agreement.

17. SEVERABILITY . If any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision.

18. WAIVER OF JURY TRIAL . EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY IN ANY PROCEEDINGS BROUGHT BY THE OTHER PARTY IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT. THE PROVISIONS OF THIS SECTION 18 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT .

[ Signature Page Follows ]

IN WITNESS WHEREOF, the Parties, intending to be legally bound, have caused this Agreement to be executed as of the dates set forth below.

COMPANY HEALTHWAYS, INC.		EXECUTIVE

By:	/s/ Alfred Lumsdaine	/s/ Michael R. Farris
Name:	Alfred Lumsdaine	Michael R. Farris
Title:	Chief Financial Officer

Date:	11/1/2015	Date:	10/28/15

Exhibit A

RELEASE OF CLAIMS

In exchange for the payments described in Section 2 and 3 of the Separation, Non-Competition and Release Agreement (the " Separation Agreement ") by and between Healthways, Inc. (the " Company ") and Michael R. Farris (" Executive ") (together, the " Parties ") and in accordance with the terms of the Employment Agreement (as defined in the Separation Agreement), Executive hereby agrees as follows:

Except as set forth in the Purchase Agreement, dated as of October 28, 2015, among American Healthways Services, LLC (" AHS "), Executive and NAVCO Acquisition, LLC (the " Purchase Agreement ") or any of the other Transaction Documents (as defined in the Purchase Agreement), Executive hereby forever releases and discharges the Company, and each of its predecessors, assigns, former and current employees, representatives, agents, partners, owners, parent companies, subsidiaries, affiliates, successors, including any and all persons acting with any of them (collectively, " Released Parties " or individually, " Released Party "), from any claims or causes of action, known or unknown (" Claims "), which Executive had, now has or claims to have, or may hereafter claim to have against any of the Released Parties. Such Claims include those under any local, state or federal law, Executive Order, or at common law including, but not limited to, for wrongful termination, breach of an express or implied contract (including, without limitation, the Employment Agreement), breach of the covenant of good faith and fair dealing, breach of fiduciary duty, employment discrimination (including harassment, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability and loss of future earnings), and any claims pursuant to any Tennessee state law, and all claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 1981(a), the Employment Retirement Income Security Act, the Family and Medical Leave Act, the Americans with Disabilities Act, the Fair Labor Standards Act, the National Labor Relations Act, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Immigration Reform Control Act, the Genetic Information Non-Discrimination Act and the Equal Pay Act, as well as all federal and state executive orders including Executive Order 11246 and all claims under other applicable federal, state and local codes, laws, regulations or ordinances concerning his employment with the Company or the termination thereof. Such Claims also include any claims that may be made by Executive or his affiliates pursuant to the Purchase Agreement, dated as August 24, 2011, among Executive, AHS, Navvis Healthcare, LLC and other parties thereto. This Release further specifically encompasses all claims related to compensation, benefits, incentive packages and/or any other form of compensation Executive may or may not have received during his employment. This provision does not include the release of claims with respect to any rights to indemnification, contribution or advancement of expenses Executive may have under the Company's certificate of incorporation or bylaws, in each case as currently in effect and as may be in effect from time to time, including any rights Executive may have under directors' and officers' insurance policies.

2.	In compliance with the Older Worker Benefit Protection Act, Executive acknowledges that he is specifically waiving any claims under the federal Age Discrimination in Employment Act of 1967, as amended.

Executive represents and agrees that he is fully aware of his rights and has been advised in this writing and otherwise to discuss any and all aspects of the Separation Agreement and this Release with his attorney or counselor of his choice, that he has carefully read and fully understands all of the provisions of the Separation Agreement and that before the execution of this Agreement he has been provided a period of twenty-one (21) days within which to consider each and every provision of the Separation Agreement and this Release in consultation with counsel of his choosing. Executive acknowledges and agrees that he knowingly and voluntarily entered into the Separation Agreement and this Release with complete understanding of all relevant facts, and that he was neither fraudulently induced nor coerced to enter into the Separation Agreement or this Release.

A-1

Executive further understands that even after signing this Release, he shall have a period of seven (7) days to reconsider and change his mind and revoke this Release. This Release shall become effective and binding only on the 8 ^th calendar day after he has signed this Release and only in the absence of an effective waiver (the " Effective Date ").

Executive represents that, he has not filed any other complaint(s), charge(s) or Lawsuit(s) against the Company or any other Released Party with the United States Equal Employment Opportunity Commission (the " EEOC ") or with any other local, state or federal agency or court. This Agreement will not affect Executive's right to hereafter file a charge with the EEOC relating to matters outside the scope of this Agreement or to participate in an investigation or proceeding conducted by the EEOC; however , while this Agreement shall not act to prevent Executive from filing a charge of discrimination with or participating in an investigation or proceeding conducted by the EEOC, by signing this Agreement, Executive waives his right to recover any damages or other relief in any claim or suit brought by or through the EEOC or any other state or local agency on his behalf under any federal, state, or local anti-discrimination law against the Company or any other Released Party for any event which occurred as of the date of hereof, except where prohibited by law. Executive further agrees that if any state or federal agency or court assumes jurisdiction of any complaint(s), charge(s) or lawsuit(s) against the Company or any other Released Party on behalf of Executive, Executive will request such agency or court withdraw from the matter, and Executive will refuse any benefits derived therefrom and hereby waives his right to recover any damages or other relief with respect thereto.

ACCEPTED AND AGREED,

as of the date set forth below:

/s/ Michael R. Farris

Michael R. Farris

Date: 11/1/15 _____________________________________

A-2

Delaware		62-1117144
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

Large accelerated filer ☐		Accelerated filer ☒

Non-accelerated filer ☐	(Do not check if a smaller reporting company)	Smaller reporting company ☐

	September 30, 2015			December 31, 2014
Current assets:
Cash and cash equivalents	$	1,765		$	1,765
Accounts receivable, net		123,926			126,559
Prepaid expenses		10,657			10,680
Other current assets		6,386			7,662
Income taxes receivable		1,529			2,917
Deferred tax asset		7,148			13,118
Total current assets		151,411			162,701

Property and equipment:
Leasehold improvements		39,020			39,285
Computer equipment and related software		356,595			316,808
Furniture and office equipment		23,214			23,257
Capital projects in process		24,905			38,389
		443,734			417,739
Less accumulated depreciation		(282,511	)		(252,043	)
		161,223			165,696

Other assets		26,231			75,550
Intangible assets, net		64,762			69,161
Goodwill, net		338,800			338,800

Total assets	$	742,427		$	811,908

	September 30, 2015			December 31, 2014
Current liabilities:
Accounts payable	$	37,951		$	37,204
Accrued salaries and benefits		19,174			24,198
Accrued liabilities		54,819			62,674
Deferred revenue		7,984			8,282
Contract billings in excess of earned revenue		15,172			15,232
Current portion of long-term debt		23,622			20,613
Current portion of long-term liabilities		3,390			2,127
Total current liabilities		162,112			170,330

Long-term debt		228,277			231,112
Long-term deferred tax liability		19,291			32,883
Other long-term liabilities		36,661			72,993

Stockholders' equity:
Preferred stock $.001 par value, 5,000,000 shares authorized, none outstanding		—			—
Common stock $.001 par value, 120,000,000 shares authorized, 36,022,426 and 35,511,221 shares outstanding, respectively		36			35
Additional paid-in capital		298,969			292,346
Retained earnings		29,086			42,439
Treasury stock, at cost, 2,254,953 shares in treasury		(28,182	)		(28,182	)
Accumulated other comprehensive loss		(4,440	)		(2,048	)
Total Healthways, Inc. stockholders' equity		295,469			304,590
Non-controlling interest		617			—
Total stockholders' equity		296,086			304,590

Total liabilities and stockholders' equity	$	742,427		$	811,908

	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015			2014
Revenues	$	196,382		$	185,656	$	584,317		$	543,047
Cost of services (exclusive of depreciation and amortization of $9,864, $9,392, $29,205, and $28,368, respectively, included below)		159,053			148,950		479,147			443,574
Selling, general and administrative expenses		14,467			15,756		51,644			49,086
Depreciation and amortization		12,238			13,378		37,099			40,250
Restructuring and related charges		1,752			—		1,752			—
Legal settlement charges		—			—		—			9,363

Operating income		8,872			7,572		14,675			774
Interest expense		4,433			4,574		13,485			13,472
Equity in loss from joint ventures		(19,602	)		—		(20,443	)		—

Income (loss) before income taxes		(15,163	)		2,998		(19,253	)		(12,698	)
Income tax expense (benefit)		(6,020	)		1,025		(7,313	)		(4,559	)

Net income (loss)	$	(9,143	)	$	1,973	$	(11,940	)	$	(8,139	)
Less: net loss attributable to non-controlling interest		(117	)		—		(420	)		—
Net income (loss) attributable to Healthways, Inc.	$	(9,026	)	$	1,973	$	(11,520	)	$	(8,139	)

Earnings (loss) per share attributable to Healthways, Inc.:
Basic	$	(0.25	)	$	0.06	$	(0.32	)	$	(0.23	)

Diluted ⁽¹⁾	$	(0.25	)	$	0.05	$	(0.32	)	$	(0.23	)

Comprehensive income (loss)	$	(10,442	)	$	849	$	(14,494	)	$	(8,853	)
Comprehensive loss attributable to non-controlling interest		(284	)		—		(582	)		—
Comprehensive income (loss) attributable to Healthways, Inc.	$	(10,158	)	$	849	$	(13,912	)	$	(8,853	)

Weighted average common shares and equivalents:
Basic		35,939			35,351		35,756			35,263
Diluted ⁽¹⁾		35,939			36,477		35,756			35,263

			Page
Part I
	Item 1.	Financial Statements	3
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
	Item 4.	Controls and Procedures	32
Part II
	Item 1.	Legal Proceedings	33
	Item 1A.	Risk Factors	34
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
	Item 3.	Defaults Upon Senior Securities	34
	Item 4.	Mine Safety Disclosures	34
	Item 5.	Other Information	35
	Item 6.	Exhibits	35

	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Non-controlling interest			Total
Balance, December 31, 2014	$	—	$	35	$	292,346		$	42,439		$	(28,182	)	$	(2,048	)	$	—		$	304,590

Net loss attributable to Healthways, Inc.		—		—		—			(11,520	)		—			—			—			(11,520	)

Net loss attributable to non-controlling interest		—		—		—			—			—			—			(420	)		(420	)

Other comprehensive loss, net of tax:

Net change in fair value of interest rate swaps, net of income tax benefit of $60		—		—		—			—			—			(15	)		—			(15	)

Foreign currency translation adjustment		—		—		—			—			—			(2,377	)		(162	)		(2,539	)

Total other comprehensive loss		—		—		—			—			—			(2,392	)		(162	)		(2,554	)

Total comprehensive loss		—		—		—			(11,520	)		—			(2,392	)		(582	)		(14,494	)

Exercise of stock options		—		1		2,463			—			—			—			—			2,464

Repurchase of common stock		—		—		—			(1,833	)		—			—			—			(1,833	)

Tax effect of stock options and restricted stock units		—		—		(5,231	)		—			—			—			—			(5,231	)

Share-based employee compensation expense		—		—		7,539			—			—			—			—			7,539

Issuance of CareFirst Warrants		—		—		1,436			—			—			—			—			1,436

Proceeds from non-controlling interest		—		—		416			—			—			—			1,199			1,615

Balance, September 30, 2015	$	—	$	36	$	298,969		$	29,086		$	(28,182	)	$	(4,440	)	$	617		$	296,086

	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities:
Net loss	$	(11,940	)	$	(8,139	)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Depreciation and amortization		37,099			40,250
Amortization of deferred loan costs		1,481			1,390
Amortization of debt discount		5,308			5,018
Share-based employee compensation expense		7,539			5,867
Equity in loss from joint ventures		20,443			—
Deferred income taxes		(8,046	)		(6,464	)
Excess tax benefits from share-based payment arrangements		—			(340	)
Decrease (increase) in accounts receivable, net		1,828			(25,482	)
Decrease in other current assets		558			1,867
Increase (decrease) in accounts payable		1,281			(7,591	)
Decrease in accrued salaries and benefits		(6,518	)		(3,404	)
(Decrease) increase in other current liabilities		(7,216	)		20,561
Other		(2,990	)		8,786
Net cash flows provided by operating activities		38,827			32,319

Cash flows from investing activities:
Acquisition of property and equipment		(26,390	)		(31,927	)
Investment in joint ventures		(6,075	)		(5,425	)
Other		(851	)		(893	)
Net cash flows used in investing activities		(33,316	)		(38,245	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		461,456			350,750
Payments of long-term debt		(468,334	)		(357,962	)
Deferred loan costs		—			(88	)
Excess tax benefits from share-based payment arrangements		—			340
Exercise of stock options		2,464			1,498
Repurchase of common stock		(1,833	)		—
Proceeds from non-controlling interest		1,615			—
Change in cash overdraft and other		1,005			11,221
Net cash flows (used in) provided by financing activities		(3,627	)		5,759

Effect of exchange rate changes on cash		(1,884	)		(709	)

Net increase (decrease) in cash and cash equivalents		—			(876	)

Cash and cash equivalents, beginning of period		1,765			2,584

Cash and cash equivalents, end of period	$	1,765		$	1,708

	Shares (000s)			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ($000s)
Options
Outstanding at January 1, 2015		3,564		$	13.01
Granted		—			—
Exercised		(900	)		10.08
Forfeited		(100	)		11.42
Expired		(396	)		18.26
Outstanding at September 30, 2015		2,168			13.35		5.80	$	1,570
Exercisable at September 30, 2015		1,520		$	13.74		5.23	$	1,119

	Restricted Stock and Restricted Stock Units
	Shares (000s)			Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2015		1,047		$	13.15
Granted		896			12.44
Vested		(327	)		13.04
Forfeited		(161	)		13.38
Nonvested at September 30, 2015		1,455		$	12.74

	Performance -Based Stock Units					Market Stock Units
	Shares (000s)			Weighted- Average Grant Date Fair Value		Shares (000s)		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2015		341		$	14.77		—	$	—
Granted		—			—		108		11.75
Vested		—			—		—		—
Forfeited		(28	)		14.74		—		—
Nonvested at September 30, 2015		313		$	14.77		108	$	11.75

(In thousands)	September 30, 2015			December 31, 2014
Cash Convertible Notes, net of unamortized discount	$	128,456		$	123,148
CareFirst Convertible Note		20,000			20,000
Fifth Amended Credit Agreement:
Term Loan		85,000			97,500
Revolver		12,300			4,950
Capital lease obligations and other		6,143			6,127
		251,899			251,725
Less: current portion		(23,622	)		(20,613	)
	$	228,277		$	231,112

(In $000s) September 30, 2015	Level 2		Level 3		Gross Fair Value		Netting ⁽¹⁾			Net Fair Value
Assets:
Foreign currency exchange contracts	$	240	$	—	$	240	$	(32	)	$	208
Cash Convertible Notes Hedges		—		10,190		10,190		—			10,190
Liabilities:
Foreign currency exchange contracts	$	32	$	—	$	32	$	(32	)	$	—
Interest rate swap agreements		547		—		547		—			547
Cash Conversion Derivative		—		10,190		10,190		—			10,190
Gallup Derivative		—		7,325		7,325		—			7,325

(In $000s) December 31, 2014	Level 2		Level 3		Gross Fair Value		Netting ⁽¹⁾			Net Fair Value
Assets:
Foreign currency exchange contracts	$	477	$	—	$	477	$	(111	)	$	366
Cash Convertible Notes Hedges		—		48,025		48,025		—			48,025
Liabilities:
Foreign currency exchange contracts	$	111	$	—	$	111	$	(111	)	$	—
Interest rate swap agreements		395		—		395		—			395
Cash Conversion Derivative		—		48,025		48,025		—			48,025

(In $000s)	Balance at December 31, 2014			Purchases of Level 3 Instruments		Issuances of Level 3 Instruments		Gains/(Losses) Included in Earnings			Balance at September 30, 2015
Cash Convertible Notes Hedges	$	48,025		$	—	$	—	$	(37,835	)	$	10,190
Cash Conversion Derivative		(48,025	)		—		—		37,835			(10,190	)
Gallup Derivative		—			—		—		(7,325	)		(7,325	)

(In $000s)	For the Three Months Ended							For the Nine Months Ended
Derivatives in Cash Flow Hedging Relationships	September 30, 2015			September 30, 2014				September 30, 2015		September 30, 2014
Loss (gain) related to effective portion of derivatives recognized in accumulated OCI, gross of tax effect		$	105		$	(118	)	$	360	$	164
Loss related to effective portion of derivatives reclassified from accumulated OCI to interest expense, gross of tax effect		$	91		$	130		$	285	$	386

(In $000s)	Three Months Ended September 30, 2015				Nine Months Ended September 30, 2015				Statements of Comprehensive Income (Loss) Classification
Cash Convertible Notes Hedges:
Net unrealized loss		$	(4,938	)		$	(37,835	)	Selling, general and administrative expenses
Cash Conversion Derivative:
Net unrealized gain		$	4,938			$	37,835		Selling, general and administrative expenses
Gallup Derivative:
Net unrealized loss		$	(7,325	)		$	(7,325	)	Equity in loss from joint ventures

(In 000s, except per share data)	Three Months Ended					Nine Months Ended
	September 30,			September 30,		September 30,			September 30,
	2015			2014		2015			2014
Numerator:
Net income (loss) attributable to Healthways, Inc. - numerator for basic earnings (loss) per share	$	(9,026	)	$	1,973	$	(11,520	)	$	(8,139	)

Denominator:
Shares used for basic income (loss) per share		35,939			35,351		35,756			35,263
Effect of dilutive securities outstanding:
Non-qualified stock options ⁽¹⁾		—			770		—			—
Restricted stock units ⁽¹⁾		—			318		—			—
Performance-based stock units ⁽¹⁾		—			34		—			—
CareFirst Warrants ⁽¹⁾		—			4		—			—
Shares used for diluted income per share ⁽¹⁾	$	35,939		$	36,477	$	35,756		$	35,263

Earnings (loss) per share:
Basic	$	(0.25	)	$	0.06	$	(0.32	)	$	(0.23	)
Diluted ⁽¹⁾	$	(0.25	)	$	0.05	$	(0.32	)	$	(0.23	)

Dilutive securities outstanding not included in the computation of loss per share because their effect is antidilutive:
Non-qualified stock options		1,770			1,131		1,284			2,153
Restricted stock units		662			54		580			390
Performance-based stock units		—			2		—			16
Market stock units		8			—		3			—
Warrants related to Cash Convertible Notes		7,707			7,707		7,707			7,707
CareFirst Convertible Note		892			892		892			892
CareFirst Warrants		432			83		223			86

(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, 2015	$	(342	)	$	(1,706	)	$	(2,048	)
Other comprehensive loss before reclassifications, net of tax		(187	)		(2,377	)		(2,564	)
Amounts reclassified from accumulated OCI, net of tax		172			—			172
Net increase (decrease) in other comprehensive income (loss), net of tax		(15	)		(2,377	)		(2,392	)
Accumulated OCI, net of tax, as of September 30, 2015	$	(357	)	$	(4,083	)	$	(4,440	)

	Nine Months Ended September 30,								Statement of Comprehensive
(In $000s)	2015				2014				Loss Classification
Interest rate swaps		$	285			$	386		Interest expense
			(113	)			(153	)	Income tax benefit
		$	172			$	233		Net of tax

(In $000s)	Severance and Other Employee-Related Costs			Consulting and Other Costs ⁽¹⁾		Total
2015 restructuring charges	$	210		$	1,542	$	1,752
Payments		(63	)		—		(63	)
Accrued restructuring and related charges liability as of September 30, 2015	$	147			1,542	$	1,689

⁽¹⁾ Consulting and other costs primarily consist of consulting charges incurred in connection with the 2015 Restructuring Plan.

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

		HEALTHWAYS, INC.
		By: /s/ Alfred Lumsdaine Name: Alfred Lumsdaine Title: Chief Financial Officer