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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 September 30, 1998.
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
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(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) 767-4500
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(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 October 31, 1998 was 36,409,540.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
- ------ -------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,173 9,086
Short-term investments 2,842 11,856
Trade accounts receivable, less allowances of $26,089
and $22,651 at September 30, 1998 and December 31,
1997, respectively 40,272 39,601
Inventories 1,450 1,088
Prepaid expenses and other current assets 3,809 2,264
-------- --------
Total current assets 54,546 63,895
Property and equipment, less accumulated depreciation of
$29,223 and $23,328 at September 30, 1998 and
December 31, 1997, respectively 14,697 12,364
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $7,330 and $63,741 at
September 30, 1998 and December 31, 1997, respectively 23,304 108,498
Intangible assets, less accumulated amortization of $77
and $4,889 at September 30, 1998 and December 31, 1997,
respectively 737 3,651
Cash surrender value of life insurance 4,425 1,800
Other assets 3,462 924
-------- --------
$101,171 191,132
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
- ------------------------------------ ------------- ------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt
and obligations under capital leases $ 1,118 $ 884
Accounts payable, principally trade 5,810 5,712
Accrued liabilities 9,167 16,147
--------- --------
Total current liabilities 16,095 22,743
Long-term debt and obligations under capital leases,
excluding current installments 18,336 1,712
Accrued benefit cost 4,525 5,328
Other long-term liabilities 6,004 8,180
--------- --------
Total liabilities 44,960 37,963
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 50,000 shares;
none issued at September 30, 1998 and December 31, 1997 -- --
Common stock, $.01 par value. Authorized 100,000 shares;
issued and outstanding 36,352 and 36,791 shares at
September 30, 1998 and December 31, 1997, respectively 363 368
Additional paid-in capital 280,473 282,327
Accumulated deficit (221,090) (125,991)
Notes receivable and accrued interest from shareholder (3,535) (3,535)
--------- --------
Total shareholders' equity 56,211 153,169
--------- --------
$ 101,171 $191,132
========= ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
1998 1997 1998 1997
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 34,107 36,540 100,399 107,432
Cost of revenues 13,790 14,203 39,914 43,329
Selling and administrative expenses 16,173 16,746 45,994 48,946
Provision for doubtful accounts 1,763 1,656 4,967 4,823
Amortization of goodwill and other intangibles 9,404 9,147 27,698 27,456
Impairment of assets 74,496 -- 74,496 --
Acquired in-process research and development 2,482 -- 2,482 --
--------- -------- -------- --------
118,108 41,752 195,551 124,554
--------- -------- -------- --------
Operating loss (84,001) (5,212) (95,152) (17,122)
Interest income (expense), net (285) 159 (291) 417
Other income (expense), net 130 155 344 (57)
--------- -------- -------- --------
Net loss $ (84,156) (4,898) (95,099) (16,762)
========= ======== ======== ========
Basic and diluted net loss per common share $ (2.31) (.13) (2.60) (.46)
========= ======== ======== ========
Weighted average shares outstanding 36,461 36,552 36,646 36,475
========= ======== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(95,099) (16,762)
Adjustments to reconcile net loss to net cash
used in operating activities:
Impairment of assets 74,496 --
Acquired in-process research and development 2,482 --
Depreciation and amortization 31,489 31,558
Provision for doubtful accounts 4,967 4,823
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable (7,496) (11,634)
Inventories, prepaids and other current assets (1,904) (852)
Intangible and other noncurrent assets (2,538) (699)
Accounts payable and accrued liabilities (7,382) (10,686)
Accrued pension cost (3,428) (1,397)
Other noncurrent liabilities (2,116) 2,145
-------- -------
Net cash used in operating activities (6,529) (3,504)
-------- -------
Cash Flows from Investing Activities:
Purchases of property and equipment (2,561) (1,749)
Sales of short-term investments 11,369 6,095
Purchases of short-term investments (2,358) (2,018)
Acquisition of businesses, net of cash acquired (17,370) (249)
-------- -------
Net cash provided by (used in) investing activities (10,920) 2,079
-------- -------
Cash Flows from Financing Activities:
Proceeds from issuance of short-term debt 781 1,067
Principal repayment of short-term debt (526) (711)
Borrowings under credit agreement 16,780 --
Principal repayments of long-term debt and capital lease obligations (567) (1,514)
Proceeds from issuance of common stock 525 1,120
Purchase of treasury stock (2,397) (880)
Distributions to minority interest in partnerships (60) (118)
-------- -------
Net cash provided by (used in) financing activities 14,536 (1,036)
-------- -------
Net decrease in cash and cash equivalents (2,913) (2,461)
Cash and cash equivalents at beginning of period 9,086 6,930
-------- -------
Cash and cash equivalents at end of period $ 6,173 4,469
======== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Unaudited)
1. General
The consolidated condensed financial statements as of September
30, 1998 and December 31, 1997 and for the three and nine months ended
September 30, 1998 and September 30, 1997 are unaudited. The year-end
condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
In the opinion of management, all adjustments, consisting of
normal recurring accruals, necessary for fair presentation of the
consolidated financial position and results of operations for the
periods presented have been included. Certain reclassifications of
prior period information have been made to conform to the current year
presentation. The results for the three and nine month periods ended
September 30, 1998 are not necessarily indicative of the results for
the full year ending December 31, 1998.
The consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and related
notes included in the Annual Report on Form 10-K of Matria Healthcare,
Inc. ("Matria" or the "Company") for the year ended December 31, 1997.
2. Net Loss Per Share of Common Stock
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which
prescribes the calculation methodology and financial reporting
requirements for basic and diluted earnings per share. Basic earnings
(loss) per common share available to common shareholders are based on
the weighted average number of common shares outstanding. Diluted
earnings (loss) per common share available to common shareholders are
based on the weighted average number of common shares outstanding and
dilutive potential common shares, such as dilutive stock options. The
computation of diluted net loss per share of common stock was
antidilutive in each of the periods presented; therefore, the amounts
reported for basic and diluted are the same.
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3. Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income." SFAS 130 established standards for
reporting and display of comprehensive income and its components.
Comprehensive income generally includes all changes in equity during a
period except those resulting from investments by owners and
distribution to owners. There was no impact on the Company's
consolidated financial statements with the adoption of SFAS 130.
Also in June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131 ("SFAS
131"), "Disclosures About Segments of an Enterprise and Related
Information." SFAS 131 established standards for reporting information
about operating segments in annual financial statements and in interim
financial reports to shareholders. The Company adopted SFAS 131 in the
first quarter of 1998; however, the provisions of this statement need
not be applied to interim periods in the initial year of application.
4. Acquisition
Effective July 1, 1998, the Company purchased certain assets of
Quality Diagnostic Services, Inc. ("QDS"), a cardiac event monitoring
company, for $17.000 million cash and incurred $370,000 of transaction
costs. The acquisition was accounted for using the purchase method of
accounting with results of operations of this business being included
in the Company's consolidated results from July 1, 1998. The
acquisition resulted in acquired in-process research and development
costs of $2.482 million, tangible assets of $4.013 million, intangible
assets of $3.846 million, and excess of costs over net assets acquired
of $7.029 million.
The Asset Purchase Agreement provides for additional cash
payments contingent upon 1999 revenues of the Company's cardiac
monitoring business. Any additional payments will be accounted for as
additional excess of costs over net assets acquired, and amortized over
the remaining life of the assets.
The non-recurring charge of $2.482 million related to acquired
in-process research and development costs was equal to the estimated
current fair value, based on the adjusted cash flows, discounted by a
risk-adjusted weighted average cost of capital of 26%, of specifically
identifiable technologies for which technological feasibility has not
been reached pursuant to Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," and for which future alternative uses
did not exist. In
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determining the amount attributable to in-process research and
development, the Company complied with recent SEC guidance which
excludes certain cash flows related to the development effort not
completed and future versions of the product not yet undertaken.
Unaudited pro forma results of operations as if QDS had been
acquired as of January 1, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues $ 105,616 $ 111,619
Net loss (95,211) (17,086)
Net loss per share (2.60) (.47)
</TABLE>
5. Impairment of Long-Lived Assets
On January 1, 1996, the Company adopted the provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of." This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted cash flows expected
to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets.
In the third quarter of 1998, the Company recorded a $74.496
million charge to write down goodwill and intangible assets relating
to the 1996 merger of Tokos Medical Corporation and Healthdyne, Inc.
based upon operating and market specific indicators, as well as the
Company's strategic expansion beyond maternity management. The write
down was calculated based upon an estimate of the fair value of the
long-lived assets, which was determined using future discounted cash
flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
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 increasing enforcement
activity. 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
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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.
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
has 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 Company's revenues from its preterm labor management business tend
to be seasonal. Revenues typically begin to decline with the onset of the
holiday season, starting with Thanksgiving, causing the first quarter revenues
of each year to be less than those of fourth quarter of the previous year. Over
the previous four-year period the decline in revenues from the fourth to the
first quarters has averaged 7%. In the first quarter of 1998, revenues declined
13.0% from the fourth quarter of 1997. As compared to prior quarters, revenues
in the second quarter of 1998 increased 1.9% and in the third quarter declined
5.4%. Management believes that seasonality will continue to impact comparability
between quarters. In addition to seasonality, the decline in revenues in the
first quarter, and continuing through the third quarter of 1998, was partially
due to a decrease in physician prescriptions for the Company's preterm labor
management services, as discussed below.
The trend within the healthcare industry to deliver quality healthcare
services in a more cost-effective manner 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. The Company 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
have value in
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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 in the Company's Annual Report on Form
10-K for the year ended December 31, 1997 as filed with the Securities and
Exchange Commission. 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 decreased $2.433 million or 6.7% and $7.033 million or 6.5% in
the three and nine month periods ended September 30, 1998, respectively, as
compared to the same periods in 1997 primarily due to declines in the preterm
labor management business. The declines in revenues were due in part to a
decrease in prescriptions for the Company's preterm labor management business.
The decrease in the preterm labor management business revenues was partially
offset by growth in the Company's Diabetes in Pregnancy Program, which was
initiated in the last half of 1997 and has a current annualized run rate in
excess of $8.000 million. The reduction was also offset by the additional QDS
revenues of approximately $3.150 million included in the Company's revenues from
July 1, 1998. A significant amount of the Company's future revenues is expected
to be derived from expansion into diversified disease management markets,
including cardiac, respiratory disorders and general diabetes.
Through a marketing agreement entered into by a predecessor company in
1991, the Company had exclusive rights to market the fetal fibronectin
immunoassay (fFN) test, an in vitro diagnostic test used as an aid in assessing
the risk of preterm delivery in women, in the United States, Canada and Puerto
Rico. In March 1998, the Company entered into a settlement agreement with the
manufacturer of the test in the litigation over the exclusive rights to
distribute the test. Under the terms of the settlement, the Company agreed to
relinquish its distribution rights and equity interest in the test manufacturer
in exchange for the opportunity to recoup its investment over time, from
payments based upon future sales of the product. As a result, following a
six-month transition period, which ended August 31, 1998, the Company will no
longer record revenues on sales of fFN tests. Revenues from the marketing of
these tests were $678,000 and $2.958 million in the three and nine month periods
ended September 30, 1998, respectively, and $846,000 and $2.342 million in the
same respective periods in 1997.
Cost of revenues as a percentage of revenues increased to 40.4% for the
three month period ended September 30, 1998 from 38.9% for the same period in
1997. This increase resulted primarily from an increase in the preterm labor
management business where cost of revenues as a percentage of revenues increased
to 38.4% for the third quarter of 1998 from 35.8% for the same period in
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1997. Cost of revenues as a percentage of revenues remained relatively constant
at 39.8% and 40.3% for the nine month periods ended September 30, 1998 and
1997, respectively.
Selling and administrative expenses as a percent of revenues increased
to 47.4% for the three month period ended September 30, 1998 from 45.8% for the
same period in 1997. This increase is due in part to increased expenses
associated with the Company's strategy to diversify into the disease management
market. These expenses remained relatively constant at approximately 45.8% and
45.6% of revenues for the nine month periods ended September 30, 1998 and 1997,
respectively.
The Company provides for estimated uncollectible accounts as revenues
are recognized. The provision for doubtful accounts as a percentage of revenues
for the preterm labor management business was approximately 5% for the three and
nine month periods ended September 30, 1998 and 1997. 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. The provision for doubtful accounts for the
infertility management business is not significant as substantially all charges
for patient services are collected at the time services are provided.
In the third quarter of 1998, the Company recorded a $74.496 million
charge to write-down goodwill and intangible assets relating to the 1996 merger
of Tokos Medical Corporation and Healthdyne, Inc. based upon operating and
market specific indicators (see Note 5). Additionally, the Company recorded a
$2.482 million charge for acquired in-process research and development costs as
a result of the acquisition of QDS (see Note 4).
The Company did not record federal or state income tax benefits in 1998
or 1997. The tax net operating loss of approximately $87.000 million will be
available to offset future taxable income, if any.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998 the Company had cash and short-term
investments of $9.015 million.
Net cash used in operating activities increased from $3.504 million for
the nine month period ended September 30, 1997, to $6.529 million for the same
period in 1998. During 1998, cash flow from operating activities was reduced by
payments of $4.183 million relating to severance costs of terminated employees,
$2.487 million for performance incentives paid under the Company's management
incentive plan, $2.640 million for funding of a split dollar life insurance
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arrangement for certain current and retired officers, $1.328 million for
lump-sum payouts related to the termination of a pension plan, and $3.100
million investments in strategic partners. In the first nine months of 1997,
cash flow from operating activities was reduced by $7.926 million for merger
related costs.
The Company's accounts receivable days sales outstanding were 106 days
as of September 30, 1998 as compared to 96 days as of December 31, 1997 and 112
days as of June 30, 1998. The Company began reorganizing its reimbursement and
verification processes during the first quarter of 1998 and expects days sales
outstanding to decline further during the fourth quarter of 1998.
As of September 30, 1998, the remaining liability for estimated costs
related to the merger of the Company's predecessor companies was approximately
$600,000. Additionally, the Company may be required to make additional severance
payments of approximately $2.549 million in accordance with employment
agreements with certain officers.
In 1997, the Company entered into a credit agreement with a leading
national banking organization for a $25.000 million secured line of credit (the
"Credit Agreement") that is available for general corporate purposes. The
acquisition of QDS in July 1998 for $17.000 million cash (See Note 4) was
financed primarily by borrowings under the Credit Agreement, and the balance
outstanding as of September 30, 1998 was $16.780 million.
The Asset Purchase Agreement for the acquisition of QDS provides for
additional cash payments of up to $6.000 million contingent upon 1999 revenues
of the Company's cardiac monitoring business.
In February 1998, the Board of Directors of the Company approved the
purchase of up to ten percent of the Company's outstanding common stock. As of
September 30, 1998, 626,000 shares have been purchased for $2.397 million.
The Company believes that its current cash balances, expected cash
flows from operations and investing activities and amounts available under the
Credit Agreement will be sufficient to finance its current operations. However,
the Company is currently negotiating with several banking organizations to
increase its credit facilities to fund future expansion of the business.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 established standards for reporting and display of
comprehensive income and its components. Comprehensive income generally includes
all changes in equity during a period except those resulting from
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investments by owners and distribution to owners. There was no impact on the
Company's consolidated financial statements with the adoption of SFAS 130.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures
About Segments of an Enterprise and Related Information." SFAS 131 established
standards for reporting information about operating segments in annual financial
statements and in interim financial reports to shareholders. The Company adopted
SFAS 131 in the first quarter of 1998; however, the provisions of this statement
need not be applied to interim periods in the initial year of application.
YEAR 2000 ISSUE
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. Many existing computer
programs use only two digits to identify a year in the date field. The issue is
whether such code exists in the Company's mission-critical applications and if
that code will produce accurate information for date-sensitive calculations on
or after January 1, 2000.
The Company is involved in an extensive, ongoing program to identify
and correct problems arising from the year 2000 issues. The program is broken
down into the following categories: (1) application systems; (2) hardware; (3)
monitoring equipment; and (4) computer applications of its significant suppliers
and significant payors.
The Company has evaluated the application systems in two parts: (1)
AS400 applications and (2) client server applications. The AS400 applications
are believed to be year 2000 compliant. Notwithstanding the year 2000 issue, the
Company had planned on replacing the client server applications. The completion
date of implementation and testing is scheduled to take place during September
1999. If such systems do not appear to be approaching completion by June 1999,
the Company's contingency plan is to remediate the existing systems, a process
that the Company estimates will take four months to complete.
Remediation and testing of the AS400 hardware is 100% complete, and the
remediation and testing of the individual personal computers is approximately
50% complete. The Company expects the remainder of conversion and testing to be
complete by March 1999.
The Company has no formal budget in place for year 2000 remediation,
except for $60,000 of software and consulting fees associated with the initial
year 2000 evaluation. The Company is primarily addressing all year 2000 issues
with current staffing levels.
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The Company has not completed its review of embedded computer chips and
software applications which control certain monitoring and other equipment. The
Company expects to complete this review during the first quarter of 1999. This
review is being performed by the vendors of the equipment. Remediation efforts
are expected to be minor.
The Company has not yet sent inquiries to its significant suppliers of
equipment and medical supplies and significant payors concerning the year 2000
compliance of their significant computer applications. The Company plans to send
initial inquiries during the fourth quarter of 1998 and second requests during
the first quarter of 1999.
The Company will continue to evaluate year 2000 risks with respect to
such suppliers and payors as responses are received. In that connection, it
should be noted that substantially all of the Company's revenues are derived
from reimbursement by third-party payors, and that the Company is dependent upon
such payors' evaluation of their year 2000 compliance status to assess such
risks. If such payors are incorrect in their evaluation of their own year 2000
compliance status, this could result in delays or errors in reimbursement to the
Company, the effects of which could be material to the Company.
Based on the information currently available, the Company believes that
its risk associated with problems arising from year 2000 issues is not
significant. However, because of the many uncertainties associated with year
2000 compliance issues, and because the Company's assessment is necessarily
based on information from third-party payors and suppliers, there can be no
assurance that the Company's assessment is correct or as to the materiality or
effect of any failure of such assessment to be correct. The Company will
continue with its assessment process as described above and, to the extent that
changes in such assessment require it, will attempt to develop alternatives or
modifications to its compliance plan described above. There can, however, be no
assurance that such compliance plan, as it may be changed, augmented or modified
from time to time, will be successful.
The SEC's recent guidance for year 2000 disclosure calls for companies
to describe their most likely worst case year 2000 scenarios. Notwithstanding
the aforementioned issues, the Company does not expect significant problems at
the turn of the century with internal conversions and remediation. However, the
most likely worst case scenario is that if third-party payors are not able to
reimburse the Company after the turn of the century, the Company would be
required to sustain operations through existing cash balances or through the use
of available borrowings on debt facilities. Also, the Company would be required
to add additional staff during the time period leading up to and immediately
following January 1, 2000, in order to address any unexpected year 2000 issues.
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FORWARD-LOOKING INFORMATION
This Management's Discussion and Analysis contains forward-looking
statements including statements concerning possible changes in the healthcare
industry, the effect of goodwill on the Company's results of operations and the
adequacy of the Company's sources of cash to finance its current and future
operations. Without limiting the generality of the foregoing, the words
"believe," "anticipate," "estimate," "expect," "intend," "plan," "seek" and
similar expressions, when used in this report and in such other statements, are
intended to identify forward-looking statements. 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 or
cardiac 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, 1997. By making these forward-looking
statements, the Company does not undertake to update them in any manner except
as may be required by the Company's disclosure obligations in filings it makes
with the Securities and Exchange Commission under the federal securities laws.
15
<PAGE> 16
ITEM 5. 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 September 30, 1998.
16
<PAGE> 17
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.
November 13, 1998 By: /s/ Donald R. Millard
---------------------------------------
Donald R. Millard
Director, President, Chief Executive
Officer and Chief Financial Officer
(Principal Financial Officer)
By: /s/ Yvonne V. Scoggins
---------------------------------------
Yvonne V. Scoggins
Vice President, Chief Accounting
Officer and Treasurer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 9,015
<SECURITIES> 0
<RECEIVABLES> 66,361
<ALLOWANCES> (26,089)
<INVENTORY> 1,450
<CURRENT-ASSETS> 54,546
<PP&E> 43,920
<DEPRECIATION> (29,223)
<TOTAL-ASSETS> 101,171
<CURRENT-LIABILITIES> 16,095
<BONDS> 0
0
0
<COMMON> 363
<OTHER-SE> 55,848
<TOTAL-LIABILITY-AND-EQUITY> 101,171
<SALES> 0
<TOTAL-REVENUES> 100,399
<CGS> 0
<TOTAL-COSTS> 39,914
<OTHER-EXPENSES> 150,670
<LOSS-PROVISION> 4,967
<INTEREST-EXPENSE> 291
<INCOME-PRETAX> (95,099)
<INCOME-TAX> 0
<INCOME-CONTINUING> (95,099)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95,099)
<EPS-PRIMARY> (2.60)
<EPS-DILUTED> (2.60)
</TABLE>
