[ X ] Quarterly Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period
Ended February 28, 2005
or
[ ] Transition Report Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 000-19364
(Exact Name of Registrant as Specified in its Charter)
| Delaware (State or Other Jurisdiction of Incorporation) |
62-1117144 (I.R.S. Employer Identification No.) |
| 3841 Green Hills Village Drive Nashville, Tennessee (Address of Principal Executive Offices) |
37215 (Zip Code) |
| (615) 665-1122
(Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
As of April 5, 2005 there were outstanding 33,164,980 shares of the Registrant’s Common Stock, par value $.001 per share.
| February 28, 2005 |
August 31, 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 28,516 | $ | 45,147 | ||||
| Restricted cash | 3,454 | 1,524 | ||||||
| Investments | 7,040 | 7,040 | ||||||
| Accounts receivable, net | ||||||||
| Billed | 40,723 | 33,235 | ||||||
| Unbilled | 451 | 866 | ||||||
| Other current assets | 5,927 | 5,976 | ||||||
| Income taxes receivable | 2,483 | -- | ||||||
| Deferred tax asset | 2,271 | 2,248 | ||||||
| Total current assets | 90,865 | 96,036 | ||||||
| Property and equipment: | ||||||||
| Leasehold improvements | 9,015 | 8,730 | ||||||
| Computer equipment and related software | 57,393 | 53,379 | ||||||
| Furniture and office equipment | 15,133 | 14,514 | ||||||
| 81,541 | 76,623 | |||||||
| Less accumulated depreciation | (45,770 | ) | (36,796 | ) | ||||
| 35,771 | 39,827 | |||||||
| Other assets | 2,595 | 2,456 | ||||||
| Intangible assets, net | 18,090 | 19,854 | ||||||
| Goodwill, net | 92,398 | 93,574 | ||||||
| $ | 239,719 | $ | 251,747 | |||||
| See accompanying notes to the consolidated financial statements. | ||||||||
2
| February 28, 2005 |
August 31, 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| Current liabilities: | ||||||||
| Accounts payable | $ | 5,000 | $ | 10,343 | ||||
| Accrued salaries and benefits | 10,357 | 4,616 | ||||||
| Accrued liabilities | 4,245 | 4,688 | ||||||
| Contract billings in excess of earned revenue | 4,916 | 4,898 | ||||||
| Income taxes payable | -- | 3,294 | ||||||
| Current portion of long-term debt | 155 | 12,243 | ||||||
| Current portion of long-term liabilities | 1,696 | 1,018 | ||||||
| Total current liabilities | 26,369 | 41,100 | ||||||
| Long-term debt | 18,500 | 36,562 | ||||||
| Long-term deferred tax liability | 12,658 | 12,658 | ||||||
| Other long-term liabilities | 5,716 | 5,992 | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock | ||||||||
| $.001 par value, 5,000,000 shares | ||||||||
| authorized, none outstanding | -- | -- | ||||||
| Common stock | ||||||||
| $.001 par value, 75,000,000 shares authorized, | ||||||||
| 33,146,305 and 32,857,041 shares outstanding | 33 | 33 | ||||||
| Additional paid-in capital | 95,852 | 90,980 | ||||||
| Retained earnings | 80,591 | 64,387 | ||||||
| Accumulated other comprehensive income | -- | 35 | ||||||
| Total stockholders' equity | 176,476 | 155,435 | ||||||
| $ | 239,719 | $ | 251,747 | |||||
| See accompanying notes to the consolidated financial statements. | ||||||||
3
| Three Months Ended February 28/29, |
Six Months Ended February 28/29, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 |
2004 |
2005 |
2004 | |||||||||||
| Revenues | $ | 75,337 | $ | 57,122 | $ | 146,523 | $ | 108,200 | ||||||
| Cost of services | 48,132 | 37,020 | 94,103 | 71,164 | ||||||||||
| Gross margin | 27,205 | 20,102 | 52,420 | 37,036 | ||||||||||
Selling, general & administrative expenses | 7,287 | 6,022 | 13,460 | 11,164 | ||||||||||
| Depreciation and amortization | 5,493 | 4,429 | 10,955 | 8,570 | ||||||||||
| Interest | 472 | 890 | 1,114 | 1,834 | ||||||||||
| Income before income taxes | 13,953 | 8,761 | 26,891 | 15,468 | ||||||||||
| Income tax expense | 5,512 | 3,437 | 10,687 | 6,187 | ||||||||||
| Net income | $ | 8,441 | $ | 5,324 | $ | 16,204 | $ | 9,281 | ||||||
| Basic income per share: | $ | 0.26 | $ | 0.17 | $ | 0.49 | $ | 0.29 | ||||||
| Diluted income per share: | $ | 0.24 | $ | 0.15 | $ | 0.46 | $ | 0.27 | ||||||
| Weighted average common shares | ||||||||||||||
| and equivalents: | ||||||||||||||
| Basic | 33,073 | 32,039 | 32,997 | 31,915 | ||||||||||
| Diluted | 35,490 | 34,746 | 35,390 | 34,507 | ||||||||||
| See accompanying notes to the consolidated financial statements. | ||||||||||||||
4
| Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income |
Total | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, August 31, 2004 | $ | -- | $ | 33 | $ | 90,980 | $ | 64,387 | $ | 35 | $ | 155,435 | ||||||||
| Net income | -- | -- | -- | 16,204 | -- | 16,204 | ||||||||||||||
| Termination of interest rate swap | -- | -- | -- | -- | (35 | ) | (35 | ) | ||||||||||||
| Total comprehensive income | 16,169 | |||||||||||||||||||
| Exercise of stock options and other | -- | -- | 1,994 | -- | -- | 1,994 | ||||||||||||||
| Tax benefit of option exercises | -- | -- | 2,878 | -- | -- | 2,878 | ||||||||||||||
| Balance, February 28, 2005 | $ | -- | $ | 33 | $ | 95,852 | $ | 80,591 | $ | -- | $ | 176,476 | ||||||||
| See accompanying notes to the consolidated financial statements. | ||||||||||||||||||||
5
| Six Months Ended February 28/29, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 |
2004 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 16,204 | $ | 9,281 | ||||
| Adjustments to reconcile net income to net cash provided by | ||||||||
| operating activities, net of business acquisitions: | ||||||||
| Depreciation and amortization | 10,955 | 8,570 | ||||||
| Amortization of deferred loan costs | 272 | 384 | ||||||
| Tax benefit of stock option exercises | 2,878 | 3,781 | ||||||
| Increase in accounts receivable, net | (7,073 | ) | (11,574 | ) | ||||
| Increase in other current assets | (2,490 | ) | (232 | ) | ||||
| (Decrease) increase in accounts payable | (5,343 | ) | 294 | |||||
| Increase (decrease) in accrued salaries and benefits | 5,741 | (6,179 | ) | |||||
| (Decrease) increase in other current liabilities | (3,719 | ) | 2,947 | |||||
| Other | 1,343 | 1,488 | ||||||
| Decrease in other assets | 319 | 170 | ||||||
| Payments of other long-term liabilities | (650 | ) | (300 | ) | ||||
| Net cash flows provided by operating activities | 18,437 | 8,630 | ||||||
| Cash flows from investing activities: | ||||||||
| Acquisition of property and equipment | (5,035 | ) | (8,538 | ) | ||||
| Business acquisitions, net of cash acquired | 1,176 | (60,223 | ) | |||||
| Proceeds from sale of investments | 2,000 | -- | ||||||
| Purchases of investments | (2,000 | ) | -- | |||||
| Net cash flows used in investing activities | (3,859 | ) | (68,761 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Increase in restricted cash | (1,930 | ) | -- | |||||
| Proceeds from issuance of long-term debt | 48,000 | 60,000 | ||||||
| Deferred loan costs | (730 | ) | (2,315 | ) | ||||
| Payments of long-term debt | (78,150 | ) | (6,214 | ) | ||||
| Exercise of stock options | 1,601 | 1,964 | ||||||
| Net cash flows (used in) provided by financing activities | (31,209 | ) | 53,435 | |||||
| Net decrease in cash and cash equivalents | (16,631 | ) | (6,696 | ) | ||||
| Cash and cash equivalents, beginning of period | 45,147 | 34,846 | ||||||
| Cash and cash equivalents, end of period | $ | 28,516 | $ | 28,150 | ||||
| See accompanying notes to the consolidated financial statements. | ||||||||
6
The accompanying consolidated financial statements of American Healthways, Inc. and its wholly-owned subsidiaries for the six months ended February 28, 2005 and February 29, 2004 are unaudited. However, in our opinion, the financial statements reflect all adjustments consisting of normal, recurring accruals necessary for a fair presentation. We have reclassified certain items in prior periods to conform to current classifications.
We have omitted certain financial information that is normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States but that is not required for interim reporting purposes. You should read the accompanying consolidated financial statements in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2004.
Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures About Segments of an Enterprise and Related Information,” establishes disclosure standards for segments of a company based on a management approach to defining operating segments. Through November 2003, we distinguished operating and reportable segments based upon the types of customers, hospitals or health plans, that contract for our services. In order to improve operational efficiency, in December 2003 we merged our operations into a single operating segment for purposes of presenting financial information and evaluating performance.
Consolidation of Variable Interest Entities
In 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation (“FIN”) No. 46(R), “Consolidation of Variable Interest Entities.” FIN No. 46(R) requires consolidation of variable interest entities if certain conditions are met and generally applies to periods ending after March 15, 2004. The adoption of FIN No. 46(R) did not have a material impact on our financial position or results of operations.
Share-Based Payment
In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS 123(R) requires all companies to measure and recognize compensation cost for all share-based payments (including employee stock options) at fair value. The Statement is effective for interim or annual periods beginning after June 15, 2005. We will adopt SFAS No. 123(R) on September 1, 2005 using the modified prospective method.
We do not yet know the full impact on results of operations of adopting SFAS No. 123(R) because it will partially depend on levels of share-based payments granted in the future. However, we have disclosed the pro forma impact of adopting SFAS No. 123(R) on net income and earnings per share for the three and six months ended February 28, 2005 and February 29, 2004 in Note 6, which includes all share-based payment tran