<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
- - --- Exchange Act of 1934 for the quarterly period ended March 31, 1997 .
----------------
or
Transition Report pursuant to Section 13 or 15 (d) of the Securities
- - --- Exchange Act of 1934 for the transition period from to .
------- -------
Commission file number 0-20619
Matria Healthcare, Inc.
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-2205984
- - ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 Parkway Place, 12th Floor, Marietta, Georgia 30067
- - ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 423-4500
- - ------------------------------------------------------------------------------
(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 12 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
--- ---
The number of shares outstanding of the issuer's only class of Common Stock,
$.01 par value, as of May 1, 1997 was 36,483,184.
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PART I - FINANCIAL INFORMATION
MATRIA HEALTHCARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
- - ------ --------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,355 6,930
Short-term investments 13,321 17,710
Trade accounts receivable, less allowances of $26,723
and $26,198 at March 31, 1997 and December 31,
1996, respectively 31,157 29,456
Inventories 946 867
Prepaid expenses and other current assets 3,172 1,628
-------- --------
Total current assets 50,951 56,591
Property and equipment, less accumulated depreciation of
$19,381 and $17,993 at March 31, 1997 and
December 31, 1996, respectively 14,220 15,220
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $38,302 and $29,804 at
March 31, 1997 and December 31, 1996, respectively 133,816 142,126
Intangible assets, less accumulated amortization of $2,889
and $2,222 at March 31, 1997 and December 31,
1996, respectively 5,531 5,973
Other assets 3,254 3,278
-------- --------
$207,772 223,188
======== ========
</TABLE>
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MATRIA HEALTHCARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY March 31, December 31,
- - ------------------------------------ 1997 1996
<S> <C> <C>
Current Liabilities:
Current installments of long-term debt
and obligations under capital leases $ 3,052 2,521
Accounts payable, principally trade 4,708 6,486
Accrued liabilities 18,590 25,559
--------- ---------
Total current liabilities 26,350 34,566
Long-term debt and obligations under capital leases, excluding
current installments 2,354 2,499
Accrued pension cost 4,243 4,096
Other long-term liabilities 7,962 8,849
--------- ---------
Total liabilities 40,909 50,010
Shareholders' equity:
Preferred stock, $.01 par value, 50,000 shares
authorized at March 31, 1997 and December 31, 1996;
none issued at March 31, 1997 and December 31, 1996 - -
Common stock, $.01 par value, 100,000 shares
authorized at March 31, 1997 and December 31, 1996;
36,476 and 36,318 shares issued at March 31, 1997 and
December 31, 1996, respectively 365 363
Additional paid-in capital 281,389 281,318
Accumulated deficit (111,436) (105,089)
Notes receivable and accrued interest from officers (3,455) (3,414)
--------- ---------
Total shareholders' equity 166,863 173,178
--------- ---------
$ 207,772 223,188
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues 34,530 24,086
Cost of revenues 14,477 10,301
Selling and administrative expenses 15,680 15,443
Provision for doubtful accounts 1,500 1,467
Amortization of goodwill and other
intangibles 9,164 3,011
Restructuring expenses - 15,025
--------- ---------
40,821 45,247
--------- ---------
Operating loss (6,291) (21,161)
Interest income, net 114 32
Other income (expense), net (170) 39
--------- ---------
Net loss $ (6,347) (21,090)
========= =========
Net loss per common share $ (0.17) (1.23)
========= =========
Weighted average number of common shares 36,373 17,169
========= =========
</TABLE>
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MATRIA HEALTHCARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
------------------------
1997 1996
------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(6,347) (21,090)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Restructuring expenses - 15,025
Depreciation and amortization 10,553 4,001
Provision for doubtful accounts 1,500 1,467
Unrealized losses (gain) on short-term investments (14) 41
Sales of short-term investments 4,403 9,263
Purchase of short-term investments - (4,590)
Other - 132
Changes in operating assets and liabilities, net of
effect of acquisitions:
Decrease (increase) in accounts receivable (3,201) 653
Decrease (increase) in prepaids and other current assets (1,623) 1,021
Decrease (increase) in other assets (389) 397
Increase (decrease) in accounts payable (1,778) 1,478
Decrease in accrued expenses and other current liabilities (7,743) (5,145)
------- --------
Net cash provided by (used in) operating activities (4,639) 2,653
------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment (388) (553)
Disposition of property and equipment - 621
Acquisition of businesses, net of cash acquired - 223
------- --------
Net cash provided by (used in) investing activities (388) 291
------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of debt 1,067 1,502
Principal repayments of debt and capital lease obligations (618) (1,312)
Proceeds from issuance of common stock 883 1,583
Purchase of treasury stock (880) -
------- --------
Net cash provided by financing activities 452 1,773
------- --------
Increase (decrease) in cash and cash equivalents (4,575) 4,717
Cash and cash equivalents at beginning of period 6,930 4,422
------- --------
Cash and cash equivalents at end of period $ 2,355 9,139
======= ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Unaudited)
1. General
The consolidated condensed financial statements as of March 31, 1997 are
unaudited. Certain reclassifications of prior period information have
been made to conform to current year presentation. On March 8, 1996 Tokos
Medical Corporation (Delaware)("Tokos") and Healthdyne, Inc.
("Healthdyne") merged with and into Matria Healthcare, Inc.("Matria" or
the "Company") (see Note 3 - Acquisitions). The merger was accounted for
using the purchase method of accounting with Tokos deemed to be the
acquirer, and accordingly, the financial statements include the results of
operations for Tokos only for the first two months of 1996 and for Tokos
and Healthdyne combined since such date. Effective June 1, 1996 the
Company also acquired National Reproductive Medical Centers, Inc. ("NRMC")
(see Note 3). The NRMC acquisition was accounted for using the purchase
method of accounting, and the results of operations of NRMC since June 1,
1996 are included in the consolidated operations of the Company. The
results for the three month period ended March 31, 1997 are not
necessarily indicative of the results for the full year ending December
31, 1997.
The consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and related notes
of the Company included in the Company's Form 10-K for the year ended
December 31, 1996.
2. Loss Per Share of Common Stock
The loss per common share and common share equivalent was based on the
weighted average number of common shares outstanding. The inclusion of
additional shares assuming the exercise of stock options would have been
antidilutive. The computation of fully diluted net loss per share was
antidilutive in each of the periods presented; therefore, the amounts
reported for primary and fully diluted loss per share are the same.
3. Acquisitions
On March 8, 1996, the Company completed a merger (the "Merger") with
Tokos and Healthdyne, national providers of specialized obstetrical home
healthcare and risk assessment services, following the approval of the
respective shareholders of each company. The Merger was accounted for
using the purchase method and Tokos has been deemed the acquirer since
Tokos shareholders received
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approximately 51% of the newly issued shares. The purchase price of
Healthdyne was $186.697 million, of which $156.922 million was allocated to
goodwill and other intangibles and is being amortized on a straight-line
basis over 5 years. The financial position and results of operations of
Tokos and Healthdyne were consolidated effective March 1, 1996.
In March 1995 Healthdyne acquired a 15% ownership interest in NRMC, a
multi-site provider of infertility treatment services. Effective June 1,
1996 the Company purchased the remaining 85% ownership interest in NRMC
for $5.697 million in cash and 899,000 shares of Matria Common Stock. The
NRMC acquisition has been accounted for using the purchase method of
accounting. The purchase price was allocated based on estimated fair
values at acquisition. The excess of purchase price over the fair values
of the net assets acquired was $15.053 million and is being amortized on a
straight-line basis over 5 years. Results of operations of NRMC have been
included in the consolidated results of operations of the Company since
June 1, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL.
On March 8, 1996, Tokos and Healthdyne merged with and into the Company,
which had been created solely for the purpose of the Merger. The Merger was
accounted for using the purchase method of accounting, and Tokos was deemed to
be the acquirer since its shareholders received approximately 51% of the newly
issued shares of Matria's Common Stock.
In March 1995, Healthdyne acquired a 15% ownership interest in NRMC for
$1.250 million cash, and effective June 1, 1996 the Company acquired the
remaining 85%. The acquisition was accounted for using the purchase method of
accounting.
The Company's present operations and future prospects may be influenced by
several factors, including developments in the healthcare industry, third-party
reimbursement policies and practices, and changes in regulatory requirements or
the manner in which such requirements are enforced. As a result of the
increasing cost of healthcare in the United States and overall efforts to
reduce or control government and corporate spending, government and third-party
payors are becoming increasingly focused on promoting cost-effective healthcare
services, and payors, in particular, have become more involved in decisions
regarding diagnosis and treatment to ensure that care is delivered in a
cost-effective manner.
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A substantial portion of the Company's current revenues are derived
directly from third-party payors for services rendered to patients by the
Company. The financial performance of all healthcare companies, including the
Company, could be adversely affected by the financial condition of certain
governmental and private payors and by their continuing efforts to reduce
healthcare costs by lowering reimbursement rates, increasing medical reviews of
invoices for services and negotiating for reduced contract rates. The Company
and its predecessor companies responded to these developments by attempting to
emphasize cost-effective therapies and procedures, pre-qualifying insurance
coverage prior to the delivery of services and educating third-party payors on
the benefits of the Company's home therapies. Although reduction in the
reimbursement rates that the Company receives for services rendered could have
an adverse impact on operations, the Company is hopeful that the overall
cost-effective nature of treatment in the home (as compared to
hospitalization), coupled with the potential benefits to be derived from
prenatal care, will be recognized and encouraged by any new healthcare
initiatives.
The trend within the healthcare industry to deliver quality healthcare
services in a more cost-effective manner had an impact on the Company's
predecessors and is expected to continue to have an impact on the Company.
Driven by employers and third-party payors, as well as by legislation and
regulation, prices for services provided to patients, in general, are being
reduced, cost-effective preventative health care is being stressed and
vertically integrated networks of care providers (some of whom are accepting
the insurance risk of providing care through capitation contracts with
third-party payors) are being established. Matria anticipates that this trend
will continue and is attempting to focus its efforts on services, some of which
are offered in conjunction with third-party payors, which it believes can
benefit from this new environment. There can be no assurance, however, that
either additional changes or presently unforeseen consequences from this trend
may not develop.
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the consolidated
financial statements and related notes of the Company's Annual Report on Form
10-K for the year ended December 31, 1996 as filed with the Securities and
Exchange Commission. The results of Matria for the three month period ended
March 31, 1996 include the results of Healthdyne only since March 1, 1996 and
also include certain costs and expenses associated with the Merger. The
historical results of operations are not necessarily indicative of the results
that will be achieved by the Company during future periods.
RESULTS OF OPERATIONS.
Revenues increased $10.444 million or 43.4% in the three month period
ended March 31, 1997, as compared to the same period in 1996. The decline in
revenues experienced by Tokos throughout 1995, which was primarily a result of
decreases in preterm labor management patient service days, continued into
1996; however, it was offset by the additional Healthdyne revenues included in
the Company's revenues from March 1, 1996 and by the additional NRMC revenues
included in the Company's revenues from June 1, 1996.
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Additional revenues are also realized in 1997 from the marketing of the
fetal fibronectin immunoassay, a new in vitro diagnostic test ("fFN test")used
as an aid in assessing the risk of preterm delivery in women. Through a
marketing agreement entered into by Tokos in 1991, the Company has exclusive
rights to market the fFN test in the United States, Canada and Puerto Rico (See
Item 3 - "Legal Proceedings" herein). The FDA approved this product in
September 1995 and the Company began marketing the fFN test in May 1996 as a
means of predicting whether preterm delivery was likely in women with symptoms
associated with preterm labor. In January 1997 the FDA expanded the marketing
approval of the fFN test to also include asymptomatic patients - women who do
not have symptoms of preterms labor. Revenues from the fFN test increased more
than 50% from the fourth quarter of 1996 to the first quarter of 1997.
Cost of revenues as a percent of revenues for the three month period ended
March 31, 1997 declined to 41.9% from 42.8% in the same period in 1996. The
reduction of cost of revenues as a percentage of revenues of the preterm labor
management business from 42.8% in the first quarter of 1996 to 38.7% in the
first quarter of 1997 was primarily achieved through consolidation of service
sites and operating efficiencies arising from the Merger. This reduction was
partially offset by the inclusion of the results of operations of NRMC in the
first quarter of 1997, whose costs of revenues as a percentage of revenues in
the first quarter of 1997 was 68.6%.
Selling and administrative expenses increased $237,000 to $15.680 million
for the three month period ended March 31, 1997 compared with $15.443 million
for the same period in 1996. Although these costs increased in absolute
dollars, the costs declined as a percent of revenues to 45.4% from 64.1%
primarily due to synergies achieved as a result of the Merger.
Excluding the amortization of the additional goodwill and other
intangibles associated with the Merger ($32.613 million per year for three
years and $29.946 million per year for two additional years), the Company
achieved annualized cost savings on a quarterly run rate basis compared to the
historical combined costs of Tokos and Healthdyne of approximately $28.000
million by the end of 1996, primarily as a result of reductions of patient
services center expenses in overlapping geographic locations, elimination of
duplicate facilities including corporate headquarters, and synergies in staff
and functional areas. Additional annualized cost savings in excess of $7.000
million were achieved in the first quarter of 1997.
As a result of the Merger and the acquisition of NRMC, a large percentage
of the assets reflected on the Company's balance sheet are intangible assets or
goodwill (as opposed to tangible assets such as cash, accounts receivable,
inventory and equipment). At March 31, 1997, the Company's total assets were
$207.772 million, of which $139.347 million, or 67.1% of total assets, were
goodwill and intangibles. The amortization or any future write-down of such
goodwill and intangibles by the Company could have a material adverse effect on
the results of operations of the Company.
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The Company provides for estimated uncollectable accounts as revenues are
recognized. The provision for doubtful accounts as a percentage of revenues
was approximately 5% for the three month period ended March 31, 1997 and 6% for
the same period during 1996. The provision is adjusted periodically based upon
the Company's quarterly evaluation of historical collection experience,
recoveries of amounts previously provided, industry reimbursement trends and
other relevant factors. Therefore, the provision rate could vary on a
quarterly basis. NRMC collects substantially all charges for patient services
at the time services are provided. Therefore, the provision for doubtful
accounts for NRMC is not significant.
In connection with the Merger, in the three month period ended March 31,
1996, the Company incurred approximately $15.025 million of restructuring costs
which were charged to operations. Of these costs, approximately $4.100 million
related to involuntary severance of employees, $2.500 million related to the
consolidation of facilities, $5.400 million related to the write-down of
software and equipment that will be obsolete as a result of the adoption of new
systems, and $3.025 million related to other miscellaneous Merger related
costs.
The Company did not record any federal or state income tax benefits in
1997 or 1996. The net tax operating loss carryforward of approximately $80.000
million will be available to offset future taxable income, if any.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31,1997 the Company had cash and short-term investments of
$15.676 million.
Net cash used by operating activities was $4.639 million for the three
month period ended March 31,1997, compared with $2.653 million provided by
operating activities for the same period in 1996. For the three month period
ended March 31, 1997, cash flow from operating activities was reduced by
payments of approximately $5.982 million for Merger related costs. As of March
31, 1997, the Company's accounts receivable days sales outstanding increased to
81 days from 73 days as of December 31, 1996, primarily due to the
consolidation of the accounts receivable/collection process from two locations
to one location and the conversion to a new computerized billing system. The
days sales outstanding are expected to return to the 70 to 75 day range by the
end of 1997. During 1995, Tokos purchased certain physician-owned companies
for which it originally provided services and during 1995 and the first quarter
of 1996, Healthdyne purchased the minority interest of certain affiliated
partnerships. Notes issued in connection with these acquisitions have a balance
outstanding of $1.622 million at March 31, 1997. The remaining balances are to
be paid at various times over the next four years.
The Company incurred substantial costs in connection with the Merger.
These costs include: (i) restructuring costs incurred by Tokos of approximately
$15.025 million, consisting of $4.100 million relating to severance costs of
terminated employees, $2.500 million of lease termination costs for duplicate
facilities, $5.400 million for the write-off of
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computer equipment and $3.025 million for other Merger-related expenses; (ii)
additional liabilities incurred by Healthdyne as a result of the Merger of
approximately $9.350 million, consisting of $9.200 million relating to
severance costs of terminated employees and $150,000 for patient service
centers specifically identified to be closed; and (iii) transaction costs of
approximately $3.700 million, consisting of $2.275 million for investment
banking fees, $1.000 million for legal and accounting fees and $425,000 for
other costs such as document printing and mailing and filing fees. As of March
31, 1997 the remaining liability for these estimated costs was approximately
$7.973 million.
Additionally, the Company may be required to make additional severance
payments of approximately $2.235 million in accordance with employment
agreements with certain officers of Tokos and Healthdyne, and may be required
to place in trust approximately $3.200 million under a retirement benefit
awards program for such officers.
The Company believes that its current cash balances, and expected cash
flows from operations and investing activities, will be sufficient to finance
its current operations and fund any expansion of NRMC's business for the
foreseeable future.
This Management's Discussion and Analysis contains forward-looking
statements including statements concerning expected increases in revenues
arising from the Merger, expected increased revenues arising from the marketing
of fetal fibronectin immunoassay, expected synergies arising from the Merger,
the effect of goodwill on the Company's results of operations, capital
expenditures to be made in the future and the adequacy of the Company's sources
of cash to finance its current and future operations. These forward-looking
statements involve a number of risks and uncertainties. In addition to the
factors discussed above, among other factors that could cause actual results to
differ materially are the following: business conditions and growth in the
home healthcare industry and the general economy; competitive factors, such as
the possible entry of large diversified healthcare companies into the
obstetrical home healthcare business; new technologies and pricing pressures;
changes in third-party reimbursement policies and practices and regulatory
requirements applicable to the Company's business; the continued availability
for sale of existing products and services; management decisions to pursue new
product lines or lines of business which involve additional costs, risks or
capital expenditures; and the risk factors listed from time to time in the
Company's SEC reports, including but not limited to, its Annual Report on Form
10-K for the year ended December 31, 1996.
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PART II - OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS
As previously reported by the Company, a complaint was filed by Adeza
Biomedical Corporation ("Adeza") in the Superior Court of Santa Clara
County, California, alleging that Matria breached an Exclusive
Marketing Agreement, dated December 31, 1991, as amended (the
"Agreement"), between Adeza and Tokos, in an attempt by Adeza to
market the product on its own behalf and eliminate the exclusivity
within the United States, Canada and Puerto Rico of the Company's
marketing rights to the fFN test, which is utilized to predict the
likelihood of the onset of preterm labor. The Company has filed an
answer to the complaint, denying that it breached the Agreement and
contending that the termination thereof was inappropriate. In
addition, the Company has filed for a preliminary injunction to
preclude Adeza from marketing the fFN test or otherwise violating any
terms of the Agreement, pending resolution of the matter. Matria
intends to continue to defend the matter vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) The Company has not filed any Reports on Form 8-K during the quarter
ended March 31, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Matria Healthcare, Inc.
May 13, 1997 By: /s/ Donald R. Millard
-------------------------------------
Donald R. Millard
Senior Vice President -Finance,
Chief Financial Officer and Treasurer
(duly authorized and principal
financial officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE COMTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MATRIA FOR THE THREE MONTHS ENDED MARCH 31, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,355
<SECURITIES> 13,321
<RECEIVABLES> 57,880
<ALLOWANCES> (26,723)
<INVENTORY> 946
<CURRENT-ASSETS> 50,951
<PP&E> 33,601
<DEPRECIATION> (19,381)
<TOTAL-ASSETS> 207,772
<CURRENT-LIABILITIES> 26,350
<BONDS> 0
0
0
<COMMON> 365
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 166,498
<SALES> 0
<TOTAL-REVENUES> 34,530
<CGS> 0
<TOTAL-COSTS> (39,321)
<OTHER-EXPENSES> 133
<LOSS-PROVISION> (1,500)
<INTEREST-EXPENSE> (77)
<INCOME-PRETAX> (6,347)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,347)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,347)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
