MATRIA HEALTHCARE INC
10-Q, 2000-05-11
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                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[ X ]    QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the quarterly period ended March 31, 2000

                                       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 No. 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, Marietta, Georgia                  30067
   (Address of principal executive offices)              (Zip Code)

                                 (770) 767-4500
               (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,  together with associated  common stock purchase  rights,  as of
April 30, 2000 was 36,873,424.
<PAGE>

                             MATRIA HEALTHCARE, INC.

                          QUARTERLY REPORT ON FORM 10-Q

                                 MARCH 31, 2000

                                TABLE OF CONTENTS



PART I--FINANCIAL INFORMATION

      Item 1.      Financial Statements........................................3
      Item 2.      Management's Discussion and Analysis of Financial
                        Condition and Results of Operations...................11
      Item 3.      Quantitative and Qualitative Disclosures About Market Risk.14


PART II--OTHER INFORMATION

      Item 2.      Changes in Securities and Use of Proceeds..................15
      Item 5.      Other information..........................................15
      Item 6.      Exhibits, Financial Statement Schedules and Reports on
                         Form 8-K.............................................16


SIGNATURES          ..........................................................17
<PAGE>



                          Part I--Financial Information

Item 1.  Financial Statements

                    Matria Healthcare, Inc. and Subsidiaries
                      Consolidated Condensed Balance Sheets
                (Amounts in thousands, except per share amounts)
                                 (Unaudited)
<TABLE>
                                                                                    March 31,          December 31,
ASSETS ...............................................................                2000               1999
                                                                                  ------------        ------------
<S>                                                                                <C>                  <C>
Current assets:
     Cash and cash equivalents ................... ............................    $  5,302              9,548
     Short-term investments ...................................................       1,149              8,243
     Trade accounts receivable, less allowances of $13,371 and
        $14,317 at March 31, 2000 and December 31, 1999, respectively .........      47,596             47,489
     Inventories ..............................................................      10,294             10,406
     Prepaid expenses and other current assets ................................       3,397              3,505
                                                                                   --------           --------
          Total current assets ................................................      67,738             79,191

Property and equipment, less accumulated depreciation of $28,802 and
        $27,303 at March 31, 2000 and December 31, 1999, respectively ........       19,558             18,418
Intangible assets, less accumulated amortization of $13,746 and
        $11,052 at March 31, 2000 and December 31, 1999, respectively ........      136,809            139,352
Deferred income taxes ..........................................................     33,075             36,725
Cash surrender value of life insurance .........................................     13,942             10,803
Other assets ...................................................................      1,228              1,224
                                                                                   --------            -------
                                                                                   $272,350            285,713
                                                                                   ========           ========

</TABLE>


See accompanying notes to consolidated condensed financial statements.
<PAGE>




                    Matria Healthcare, Inc. and Subsidiaries
                    Consolidated Condensed Balance Sheets
                (Amounts in thousands, except per share amounts)
                                 (Unaudited)

<TABLE>
                                                                                    March 31,         December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY .........................................       2000               1999
                                                                                  ------------        ------------
<S>                                                                               <C>                 <C>

Current liabilities:
     Current installments of long-term debt ...................................   $  10,245            10,362
     Accounts payable, principally trade ......................................      19,035            18,826
     Accrued liabilities ......................................................      10,618            12,349
                                                                                  ---------         ---------
          Total current liabilities ...........................................      39,898            41,537
Long-term debt, excluding current installments ................................      79,365            91,090
Accrued benefit costs .........................................................       8,986             8,030
Other long-term liabilities ...................................................       4,463             4,807
                                                                                  ---------         ---------
          Total liabilities ...................................................     132,712           145,464
                                                                                  ---------         ---------

Redeemable preferred stock, $.01 par value. Authorized 50,000 shares:
     Series A convertible, redeemable; issued 10 shares at March 31, 2000
        and December 31, 1999; redemption value $10,000 .......................      10,000            10,000
     Series B redeemable; issued 35 shares at March 31, 2000 and
        December 31, 1999; redemption value $35,000 ...........................      31,114            31,005
                                                                                  ---------         ---------
          Total redeemable preferred stock ....................................      41,114            41,005
                                                                                  ---------         ---------

Common shareholders' equity:
     Common stock, $.01 par value.  Authorized 100,000 shares:
        issued and outstanding 36,836 and 36,771 shares
        at March 31, 2000 and December 31,1999, respectively .................          368               368
     Additional paid-in capital ...............................................     293,315           293,210
     Accumulated deficit ......................................................    (191,620)         (196,576)
     Accumulated other comprehensive earnings (loss) ..........................          (4)            5,777
     Notes receivable and accrued interest from shareholder ...................      (3,535)           (3,535)
                                                                                   ---------         --------
          Total common shareholders' equity ...................................      98,524            99,244
                                                                                  ---------          --------
                                                                                  $ 272,350           285,713
                                                                                  =========          ========
</TABLE>



See accompanying notes to consolidated condensed financial statements.


<PAGE>


                    Matria Healthcare, Inc. and Subsidiaries
                Consolidated Condensed Statements of Operations
                (Amounts in thousands, except per share amounts)
                                  (Unaudited)


<TABLE>

                                                                       Three Months Ended
                                                                            March 31,

                                                                 --------------------------------
                                                                     2000              1999
                                                                     ----              ----
<S>                                                              <C>                  <C>

Revenues                                                         $ 58,282             59,359

Cost of revenues                                                   29,343             31,276
Selling and administrative expenses                                17,826             20,561
Provision for doubtful accounts                                     1,894              1,906
Amortization of intangible assets                                   2,694              2,599
                                                                   ------              -----
          Operating earnings                                        6,525              3,017
Interest expense, net                                              (2,176)            (1,503)
Other income, net                                                   5,057                157
                                                                    -----              -----
          Earnings before income taxes                              9,406              1,671
Income tax expense                                                  3,650                 --
                                                                    -----              -----
          Net earnings                                              5,756              1,671
Preferred stock dividend requirements                                (800)              (649)
Accretion of preferred stock                                         (109)               (87)
                                                                   ------              ------
            Net earnings available to common shareholders         $ 4,847                935
                                                                   ======              ======

Earnings per common share:
          Basic                                                    $ 0.13               0.03
                                                                    =====              =====
          Diluted                                                  $ 0.12               0.03
                                                                    =====              =====

Weighted average shares outstanding:

          Basic                                                    36,823             36,439
                                                                   ======             ======
          Diluted                                                  41,000             36,939
                                                                   ======             ======

</TABLE>

See accompanying notes to consolidated condensed financial statements.
<PAGE>

                    Matria Healthcare, Inc. and Subsidiaries
                 Consolidated Condensed Statements of Cash Flows
                             (Amounts in thousands)
                                  (Unaudited)


<TABLE>
                                                                                      Three Months Ended March 31,
                                                                                      ------------------------------
                                                                                          2000             1999
                                                                                          ----             ----
<S>                                                                                     <C>                <C>

Cash Flows from Operating Activities:
     Net earnings                                                                       $ 5,756            1,671
      Adjustments to reconcile net earnings to net cash
          provided by operating activities:
               Depreciation and amortization                                              4,268            4,403
               Provision for doubtful accounts                                            1,894            1,906
               Deferred tax expense                                                       3,650               --
               Gains on sales of investments                                             (5,789)              --
               Other                                                                        735               --
               Changes in assets and liabilities, net of effect of acquisitions:
                    Trade accounts receivable                                            (2,001)          (3,003)
                    Inventories, prepaids and other current assets                          220            2,949
                    Intangible and other noncurrent assets                               (2,564)          (2,451)
                    Accounts payable                                                        209           (2,932)
                    Accrued and other liabilities                                        (1,386)            (103)
                                                                                         -------        ---------
                         Net cash provided by operating activities                        4,992            2,440
                                                                                         -------        ---------
Cash Flows from Investing Activities:
     Purchases of property and equipment                                                 (2,905)          (1,860)
     Proceeds from sales of short-term investments                                        6,809            2,859
     Acquisition of businesses, net of cash acquired                                         --          (93,019)
                                                                                         -------         --------
               Net cash provided by (used in) investing activities                        3,904          (92,020)
                                                                                         -------         --------
Cash Flows from Financing Activities:
     Borrowings under credit agreement                                                       --          105,000
     Principal repayments of long-term debt                                             (12,281)         (17,219)
     Proceeds from issuance of common stock                                                 210              114
     Preferred stock dividend payments                                                     (800)              --
                                                                                         -------         -------
               Net cash provided by (used in) financing activities                      (12,871)          87,895
                                                                                         -------         -------
Effect of foreign currency exchange rate changes                                           (271)            (178)
                                                                                         -------         --------
               Net decrease in cash and cash equivalents                                 (4,246)          (1,863)
Cash and cash equivalents at beginning of period                                          9,548            9,109
                                                                                         -------         --------
Cash and cash equivalents at end of period                                               $5,302            7,246
                                                                                         =======         ========
Supplemental disclosures of cash paid for:
     Interest                                                                            $2,523               65
                                                                                         =======         ========
Supplemental disclosures of cash paid for:
     Income taxes                                                                        $  383               --
                                                                                         =======         ========
</TABLE>

See accompanying notes to consolidated condensed financial statements.


<PAGE>



              Notes to Consolidated Condensed Financial Statements
            (Amounts in thousands, except share and per share amounts)
                                   (Unaudited)

1.  General

         The consolidated  condensed  financial  statements as of March 31, 2000
and for the three  months  ended March 31, 2000 and 1999 are  unaudited.  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.  The
consolidated condensed balance sheet data for December 31, 1999 was derived from
audited financial  statements,  but does not include all disclosures required by
generally accepted accounting  principles.  Certain  reclassifications  of prior
period  information have been made to conform to the current year  presentation.
The results for the three-month  period ended March 31, 2000 are not necessarily
indicative of the results for the full year ending December 31, 2000.

         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, 1999.

2.  Net Earnings Per Share of Common Stock

         Basic earnings per common share  available to common  shareholders  are
based on the  weighted  average  number of common  shares  outstanding.  Diluted
earnings  per common share are based on the  weighted  average  number of common
shares outstanding and dilutive potential common shares,  such as dilutive stock
options and warrants,  determined using the treasury stock method,  and dilutive
convertible preferred shares, determined using the if-converted method.


3.  Comprehensive Earnings

         Comprehensive earnings generally include all changes in equity during a
period except those resulting from  investments by owners and  distributions  to
owners. For the Company, comprehensive earnings consist of net earnings, foreign
currency translation adjustments (net of income taxes) and changes in unrealized
appreciation   on   available-for-sale   securities   (net  of  income   taxes).
Comprehensive  earnings  for the  three-month  period  ended  March 31, 2000 was
$2,218 and for the corresponding period in 1999 was $1,493.

4.  Acquisitions

         During the first quarter of 1999, the Company completed the acquisition
of substantially all of the assets of Gainor Medical Management, L.L.C. ("Gainor
Medical")  business.  The  acquisition  agreement  provides  for  an  additional
contingent  purchase  price based on 1999  financial  performance  of the Gainor
Medical business.  As of March 31, 2000,  contingent  purchase price adjustments
had not been finalized,  however,  the Company  estimates  $13,319 of contingent
consideration  will be earned and such amount has been reflected in goodwill and
long-term debt on the consolidated  balance sheet. The contingent  consideration
will be paid by the issuance of subordinated notes to the sellers in 2000. These
notes will bear an interest rate of 12% per annum,  8% to be paid  quarterly and
4% accruing to maturity,  and  principal  payments will be made in the amount of
one-third  of the  original  note amount on each of the third,  fourth and fifth
anniversaries of the note.
<PAGE>

5.  Long-Term Debt

         As of March 31,  2000,  the Company had $74,008  outstanding  under its
$125,000  five-year  bank  credit  facility.  This  facility,   which  initially
consisted  of an  $80,000  term loan  facility  and a $45,000  revolving  credit
facility,  is  collateralized  by accounts  receivable,  inventories and certain
assets of the Company.  Borrowings  under this agreement  bear interest,  at the
Company's  option,  of (i) prime plus 1.25% to 2.25% or (ii) the LIBOR rate plus
2.25% to 3.25%.  As of March 31,  2000,  interest  rates  ranged from 8.8125% to
9.0000%.  The facility requires a commitment fee payable quarterly,  in arrears,
of 0.375% to 0.500%,  based upon the unused portion.  Under this agreement,  the
Company is required to maintain certain financial ratios and certain limitations
are placed on cash  dividends.  At March 31, 2000, the Company was in compliance
with these requirements.

6.  Income Taxes

         As of  December  31,  1999,  the  deferred  income tax asset  valuation
allowance  was  eliminated  and the full amount of  deferred  income tax assets,
totaling $36,725, was reflected on the consolidated balance sheet.  Beginning in
2000,  the  Company  is  recognizing  income  tax  expense,  including  a $3,650
provision  in the first  quarter.  No income tax  provision  was recorded in the
comparable period in 1999 due to the Company's  unrecognized deferred income tax
assets,   primarily  resulting  from  net  operating  loss   carryforwards.   No
significant  cash  outflows  for income  taxes are  expected in the near future,
other than alternative  minimum taxes and foreign taxes,  since, as of March 31,
2000,  the Company's  deferred  income tax asset of $33,075 will be available to
offset future tax liabilities.

7.  Business Segment Information

         The Company's  reportable  business segments are the strategic business
units that offer different  products and services.  They are managed  separately
and the  Company  evaluates  performance  based  on  operating  earnings  of the
respective business unit.

         The Company's  operations are classified into three reportable business
segments: Women's Health, Diabetes Supplies and Services and Cardiovascular. The
Women's Health segment offers services  designed to assist physicians and payors
in the cost effective  management of maternity patients  including:  specialized
home nursing;  risk assessment;  patient education and management;  home uterine
contraction monitoring;  infusion therapy;  gestational diabetes management; and
other monitoring and clinical services as prescribed by the patient's physician.
The Diabetes Supplies and Services segment has two components:  diabetes disease
management  services and  microsampling  products,  which are  products  used to
obtain  and test small  samples of bodily  fluids.  The  Cardiovascular  segment
provides cardiac event  monitoring,  holter  monitoring and pacemaker  follow-up
services.  The Other segments include three business segments that are below the
quantitative threshold for disclosure:  respiratory disease management, clinical
records software and services and infertility practice management services (sold
during the third and fourth quarters of 1999).

         The  accounting  policies of the segments are the same as those for the
consolidated  entity.  There are no intersegment  sales, and operating  earnings
(loss) by business  segment  excludes  interest income,  interest  expense,  and
corporate expenses.
<PAGE>

         Summarized financial  information as of and for the three-month periods
ended March 31, 2000 and 1999 by business segment follows:
<TABLE>

                                                               Revenues                      Operating earnings

                                                     ------------------------------    --------------------------------
                                                         2000             1999                2000            1999
                                                     --------------   -------------       -------------   -------------
<S>                                                       <C>               <C>                 <C>             <C>

Women's Health                                            $ 26,489          26,620               5,578           2,761
Diabetes Supplies and Services                              27,008          25,934               2,511           1,437
Cardiovascular                                               4,536           3,690                 702             782
Other segments                                                 249           3,115                (671)           (936)
                                                            ------          ------               ------          -----
         Total segments                                     58,282          59,359               8,120           4,044

General corporate                                               --              --              (1,595)         (1,027)
Interest expense, net                                           --              --              (2,176)         (1,503)
Other income, net                                               --              --               5,057             157
                                                            ------          ------              ------          ------
         Consolidated revenues and earnings
            before income taxes                           $ 58,282          59,359               9,406           1,671
                                                           ========        =======              ======           =====
</TABLE>
<TABLE>

                                                          Identifiable assets
                                                     ------------------------------
                                                        March 31,      December 31,
                                                         2000             1999
                                                     --------------   -------------
<S>                                                       <C>              <C>
Women's Health                                            $ 37,072          39,575
Diabetes Supplies and Services                             150,286         153,772
Cardiovascular                                              24,943          21,906
Other segments                                               2,348           2,462
General corporate                                           57,701          67,998
                                                          --------         -------
Consolidated assets                                       $272,350         285,713
                                                          ========         =======
</TABLE>


         The  Company's   revenues  from   operations   outside  the  U.S.  were
approximately 12% and 11%, respectively,  of total revenues of the first quarter
2000 and 1999. No single customer  accounted for 10% of consolidated net revenue
in either period.

8.  Recent Accounting Pronouncements

        In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133").  SFAS No. 133, which (as
amended through issuance of Statement of Financial Accounting Standards No. 137,
"Deferral of the Effective Date of FASB Statement No. 133") is effective for
2001, requires all derivatives to be recorded on the balance sheet at fair
value and establishes accounting treatment for certain hedge transactions.  The
Company is analyzing the implementation requirements and currently does not
anticipate there will be a material impact on the results of operations or
financial position after adoption of SFAS No. 133.


<PAGE>

9.  Sales of Short-Term Investments

         During  the  first  quarter  of  2000,   the  Company  sold  shares  of
Healtheon/WebMD  Corporation  stock  generating  proceeds of $6,809 and gains of
$5,789,  which are  reflected in "other  income" in the  consolidated  condensed
statements  of  operations.  At March 31,  2000,  the  Company  has a  remaining
investment in Healtheon/WebMD of 49,941 shares.


<PAGE>


Item 2.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

General

         In January 1999,  the Company  completed a series of strategic  actions
which expanded its business focus into other disease management markets with the
acquisition  of the business  and assets of Gainor  Medical  Management,  L.L.C.
("Gainor  Medical") and Diabetes  Management  Services,  Inc. ("DMS"),  diabetes
supplies and services  companies.  Disease management is an emerging  healthcare
sector  receiving  a  heightened  focus  in the  healthcare  industry,  and  the
competition  in this  sector  is  fragmented  without  a  dominant  leader.  The
Company's  management  believes that with the successful  implementation  of its
expansion  strategies,  the  Company  will  become the market  leader in disease
management and that these  strategies will result in significant  revenue growth
in 2000 and beyond.

         During  the third  quarter of 1999,  the  Company  determined  that the
infertility practice management business, National Reproductive Medical Centers,
Inc.  ("NRMC"),  was a  business  that no  longer  fit its  diversified  disease
management  strategy.  As a result of this decision,  assets of the NRMC clinics
were sold in the third and fourth quarters of 1999.

         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,  1999 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 $1.077 million,  or 1.8%, in the three-month period
ended March 31, 2000 as compared to the same period in 1999  primarily  due to a
$2.866 million decrease in the Other segments  resulting from the divestiture of
NRMC during the second half of 1999.  These  decreases were partially  offset by
increases in the Diabetes  Supplies and Services  segment of $1.074 million,  or
4.1%, and the Cardiovascular segment of $0.846 million, or 22.9%.

         Cost of revenues as a percentage of revenues decreased to 50.3% for the
three-month  period ended March 31, 2000 from 52.7% for the same period in 1999.
This  decrease was achieved  primarily in the Women's  Health  segment,  through
consolidation of service sites and operating efficiencies.

         Selling  and  administrative  expenses  as  a  percentage  of  revenues
decreased  to 30.6% for the  three-month  period ended March 31, 2000 from 34.6%
for the same period in 1999  primarily  due to economies of scale  achieved from
the 1999  restructuring  efforts  within the  Women's  Health  segment  and cost
reductions in the Diabetes Supplies and Services segment.

         The Company provides for estimated  uncollectible  accounts as revenues
are recognized.  The provision for doubtful accounts as a percentage of revenues
in the Women's Health and  Cardiovascular  segments was approximately 5% for the
three-month  periods  ended March 31, 2000 and 1999.  The provision for doubtful
accounts as a  percentage  of revenues in the  Diabetes  Supplies  and  Services
segment  was  approximately  1% for the first  quarters  of 2000 and  1999.  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.
<PAGE>

         Amortization of intangible assets increased by approximately $0.095
million in the first quarter of 2000 compared to the same quarter in 1999 due
to additional amortization resulting from recording $13.319 million of incre-
mental goodwill related to the contingent consideration for the Gainor Medical
acquisition.

         Interest  expense  increased in the three-month  period ended March 31,
2000  compared  to the same period in 1999  primarily  due to an increase in the
number of days the Gainor Medical  acquisition  debt was  outstanding and due to
higher interest rates.

         Other income for the three months ended March 31, 2000  includes  gains
of $5.789  million  from $6.809  million in  proceeds of sales of the  Company's
investment in Healtheon/WebMD Corporation. See "Liquidity and Capital Resources"
below where the use of these proceeds is discussed.

         As of  December  31,  1999,  the  deferred  income tax asset  valuation
allowance  was  eliminated  and the full amount of  deferred  income tax assets,
totaling  $36.725  million,  was reflected on the  consolidated  balance  sheet.
Beginning in 2000,  the Company is recognizing  income tax expense,  including a
$3.650  million  provision in the first  quarter.  No income tax  provision  was
recorded  in the  comparable  period in 1999 due to the  Company's  unrecognized
deferred  income  tax  assets,  primarily  resulting  from  net  operating  loss
carryforwards. No significant cash outflows for income taxes are expected in the
near future,  other than alternative  minimum taxes and foreign taxes, since, as
of March 31, 2000, the Company's  deferred  income tax asset of $33.075  million
will be available to offset future tax liabilities.

Liquidity and Capital Resources

         As of March 31, 2000, the Company had cash and  short-term  investments
of $6.451 million. Net cash provided by operating activities increased to $4.992
million for the  three-month  period  ended March 31,  2000,  compared to $2.440
million for the same period of 1999.  Contributing to this cash flow improvement
was a  64.2%  improvement  in  operating  earnings,  excluding  amortization  of
intangible assets, from $5.616 million to $9.219 million.

         The Company's accounts  receivable days' sales outstanding were 73 days
as of March 31, 2000  compared to 69 days as of December 31, 1999.  The increase
was due to higher days' sales  outstanding of the Diabetes Supplies and Services
segment  resulting  from growth in revenues in this segment that are  reimbursed
from third-party and domestic and German government healthcare payors and due to
higher days' sales  outstanding of the  Cardiovascular  segment resulting from a
conversion to a new billing system.  These increases were partially  offset by a
reduction of accounts  receivable days' sales  outstanding in the Women's Health
segment.

         Capital  expenditures  of $2.905  million in the first three  months of
2000 relate  primarily to the purchases of patient  equipment to support revenue
growth in the  Cardiovascular  segment  and for the  upgrade  and  expansion  of
computer information systems in all segments of the Company. The Company expects
to expend approximately $11.500 million for capital items in 2000.

         During the three months ended March 31, 2000,  the Company sold 169,875
shares of Healtheon/WebMD resulting in proceeds of approximately $6.809 million.
As of  March  31,  2000,  the  Company  had  49,941  shares  of this  investment
remaining.  The Company  used these  proceeds in February  2000 to repay  $6.600
million of the term loan portion of its bank credit facility. At March 31, 2000,
the Company had a total of $74.008 million outstanding under this facility.
<PAGE>

         During the first quarter of 1999, the Company completed the acquisition
of  substantially  all of  the  assets  of  the  Gainor  Medical  business.  The
acquisition agreement provides for an additional contingent purchase price based
on 1999 financial  performance of the Gainor Medical  business.  As of March 31,
2000, contingent purchase price adjustments had not been finalized, however, the
Company estimates $13.319 million of contingent consideration will be earned and
such  amount  has  been   reflected  in  goodwill  and  long-term  debt  on  the
consolidated  balance sheet.  The contingent  consideration  will be paid by the
issuance of subordinated notes to the sellers in 2000. (See Note 4).

         The Company  believes that its  financial  condition is strong and that
its cash,  other liquid assets,  operating  cash flows and borrowing  capacities
under the existing  credit  facility,  taken  together,  will  provide  adequate
resources to fund ongoing operating  requirements,  future capital  expenditures
and development of new projects.

Forward-Looking Information

         This Form 10-Q contains forward-looking statements and information that
are based on the  Company's  beliefs  and  assumptions,  as well as  information
currently  available  to the  Company.  From time to time,  the  Company and its
officers,  directors  or  employees  may make other  oral or written  statements
(including  statements in press  releases or other  announcements)  that contain
forward-looking  statements and information.  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.
All   forward-looking   statements   and   information   in  this   Report   are
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended,  and are intended to be covered by the safe harbors created thereby.
Such forward-looking statements are not guarantees of future performance and are
subject  to risks,  uncertainties  and other  factors  that may cause the actual
results,  performance or achievements  of the Company to differ  materially from
historical   results  or  from  any  results   expressed   or  implied  by  such
forward-looking  statements.  Such  factors  include,  without  limitation:  (i)
changes in  reimbursement  rates,  policies or payment  practices by third-party
payors,  whether  initiated by the payor or legislatively  maintained;  (ii) the
loss of major  customers;  (iii)  termination of the Company's  exclusive supply
agreement  with Nissho  Corporation  or failure to continue the agreement on the
terms  currently  in  effect;   (iv)  impairment  of  the  Company's  rights  in
intellectual  property;  (v) increased or more effective  competition;  (vi) new
technologies  that render  obsolete or  non-competitive  products  and  services
offered by the Company;  (vii) changes in regulations  applicable to the Company
or failure to comply with  existing  regulations;  (viii)  future health care or
budget legislation or other health reform  initiatives;  (ix) increased exposure
to  professional   negligence   liability;   (x)  difficulties  in  successfully
integrating  recently  acquired  businesses  into the Company's  operations  and
uncertainties related to the future performance of such businesses;  (xi) losses
due to foreign currency  exchange rate fluctuations or deterioration of economic
conditions in foreign markets; (xii) increases in interest rates, and (xiii) the
risk factors discussed 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, 1999.  Many of such factors are beyond the  Company's  ability to control or
predict,   and  readers  are  cautioned  not  to  put  undue  reliance  on  such
forward-looking  statements.  The Company  disclaims any obligation to update or
review  any  forward-looking  statements  contained  in  this  Report  or in any
statement referencing the risk factors and other cautionary statements set forth
in this  Report,  whether  as a result  of new  information,  future  events  or
otherwise,  except as may be required by the Company's disclosure obligations in
filings it makes with the SEC under federal securities laws.


<PAGE>


Item 3.  Quantitative and Qualitative Disclosure About Market Risk

         The Company is exposed to market risk from  changes in the market price
of its  short-term  investment,  interest  rates on  long-term  debt and foreign
exchange rates.

         The Company's short-term  investment in a marketable equity security is
subject to risk of volatility in the market price of the security.

         The Company's  primary  interest rate risk relates to its variable rate
bank credit  facility.  At March 31, 2000,  the  Company's  total  variable rate
long-term debt obligation was $74.008  million.  A hypothetical  10% increase on
the  Company's  variable  interest  rate debt for a  duration  of one year would
result in additional interest expense of $0.657 million.

         The Company's non-U.S.  operations with sales denominated in other than
U.S.  dollars  (primarily  in  Germany)  generated  approximately  12% of  total
revenues in the first quarter of 2000.  In the normal course of business,  these
operations are exposed to fluctuations in the currency  values.  Management does
not consider  the impact of currency  fluctuations  to  represent a  significant
risk, and as such has chosen not to hedge its foreign currency  exposure.  A 10%
change in the dollar  exchange  rate of the German  Deutsche  mark would  impact
annual net earnings by approximately $0.200 million.


<PAGE>

                           PART II--OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         On April 24,  2000,  the  Company  amended  certain  provisions  of its
bylaws, including the advance notice provisions governing stockholder proposals.
Under the Amended and Restated  Bylaws,  a  stockholder  proposal  (other than a
director   nomination)   will  only  be  considered  at  an  annual  meeting  of
stockholders  if  received by the Company  within the time period  specified  in
Securities and Exchange  Commission Rule  14a-8(e)(2),  or any successor rule. A
director  nomination by a stockholder  will also only be considered at an annual
meeting of  stockholders  if received by the  Company  within this time  period;
provided,  however,  that if the Company  did not hold an annual  meeting in the
previous  year,  or if the date of the annual  meeting has been  changed by more
than 30 days from the date of the previous year's  meeting,  then notice of such
nomination  must be received not less than 60 nor more than 75 days prior to the
meeting;  provided  further that in the event less than 70 days' notice or prior
public disclosure of the meeting is given or made to stockholders, notice of the
nomination  must be  received by the 10th day  following  public  disclosure  or
mailing of notice of the date of the meeting.

         The Company also amended its requirements for calling a special meeting
of  stockholders.  Under the Amended and Restated  Bylaws,  a special meeting of
stockholders shall be called,  among other instances,  at the request in writing
of  stockholders  owning 75% of  outstanding  voting stock of the  Company.  The
former provision required a request by only a majority of the outstanding voting
stock of the  Company.  A complete  copy of the  Company's  Amended and Restated
Bylaws is filed herewith as Exhibit 3.

ITEM 5.  OTHER INFORMATION

         The 2001 Annual Meeting of Stockholders  (the "2001 Annual Meeting") is
anticipated  to be held in June 2001.  Under the Company's  Amended and Restated
Bylaws(see Item 2 - Changes in Securities and Use of Proceeds above),a notice of
intent of a stockholder to bring a proposal  (other than a director  nomination)
before  the  2001  Annual  Meeting  must  comply  with the  requirements  of the
Company's  bylaws and must be received by the Company no later than December 19,
2000 in order to be presented  for a vote at the meeting.  However,  if the 2001
Annual Meeting is held on a date more than 30 days before or after May 18, 2001,
notice of a  stockholder  proposal  (other  than a director  nomination),  to be
timely,  must be  received by the Company  within a  reasonable  time before the
Company  begins to print and mail proxy  materials.  If timely  delivered to the
Secretary,  such proposals may be included in the Company's  Proxy Statement for
the 2001 Annual  Meeting,  provided the  proponent(s)  satisfies all  applicable
rules  of  the  Securities  and  Exchange  Commission  relating  to  stockholder
proposals.

         The Amended and Restated  Bylaws,  which contain the requirements for a
notice of intent by a stockholder, are set forth in their entirety in Exhibit 3
filed  herewith.  Notices of intention  to present  proposals at the 2001 Annual
Meeting or  requests  in  connection  therewith  should be  addressed  to Matria
Healthcare,  Inc.,  1850 Parkway  Place,  Marietta,  Georgia  30067,  Attention:
Corporate Secretary.
<PAGE>

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

    3      Amended and Restated Bylaws of Matria Healthcare, Inc. effective
           April 24, 2000.

   11      Computation of Earnings per Share

   27      Financial Data Schedule (for SEC purposes only)

(b)      Reports on Form 8-K

         The  Company  has not filed any  Current  Report on Form 8-K during the
quarter ended March 31, 2000.


<PAGE>


                                   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 11, 2000                       By:   /s/  Donald R. Millard
                                         ----------------------
                                         Donald R. Millard
                                         Director, President and
                                         Chief Executive Officer
                                         (Principal Executive Officer)

                                   By:   /s/  George W. Dunaway
                                         ----------------------
                                         George W. Dunaway, Vice President--
                                         Finance and Chief Financial Officer
                                         (Principal Financial Officer)




                         AMENDED AND RESTATED BYLAWS

                           OF MATRIA HEALTHCARE, INC.,

                             a Delaware corporation

                            Effective April 24, 2000


<PAGE>


                                TABLE OF CONTENTS

                                                                          PAGE

ARTICLE I....................................................................1

         Offices.............................................................1

                  Section 1.1 Registered Office..............................1

                  Section 1.2 Principal Office...............................1

                  Section 1.3 Other Offices..................................1

ARTICLE II...................................................................1

         Meetings of Stockholders............................................1

                  Section 2.1 Time and Place of Meetings.....................1

                  Section 2.2 Annual Meetings of Stockholders................1

                  Section 2.3 Special Meetings...............................2

                  Section 2.4 Stockholder Lists..............................2

                  Section 2.5 Notice of Meetings.............................3

                  Section 2.6 Quorum and Adjournment.........................3

                  Section 2.7 Voting.........................................3

                  Section 2.8 Proxies........................................4

                  Section 2.9 Inspectors of Election.........................4

ARTICLE III..................................................................5

         Directors...........................................................5

                  Section 3.1 Powers.........................................5

                  Section 3.2 Number, Election and Tenure....................5

                  Section 3.3 Nominations....................................5

                  Section 3.4  Vacancies and Newly Created Directorships.....6

                  Section 3.5  Meetings......................................6

                  Section 3.6  Annual Meeting................................6

                  Section 3.7  Regular Meetings..............................6

                  Section 3.8  Special Meetings..............................6

                  Section 3.9  Quorum and Voting Requirements................7

                  Section 3.10  Fees and Compensation........................7

                  Section 3.11 Meetings by Telephonic Communication..........7

                  Section 3.12 Action Without Meetings.......................7

                  Section 3.13 Committees....................................7

                  Section 3.14 Designation of Committees, Powers and Duties,
                  Meetings, Vacancies and Removal............................8

ARTICLE IV...................................................................10

         Officers.10

                  Section 4.1 Appointment, Duties and Terms of Office........10

                  Section 4.2 Removal and Resignation........................10

                  Section 4.3 Chairman.......................................10

                  Section 4.4 President/CEO..................................10

                  Section 4.5 Vice President.................................10

                  Section 4.6 Secretary and Assistant Secretary..............11

                  Section 4.7 Chief Financial Officer........................11

                  Section 4.8 Treasurer......................................11

                  Section 4.9 Assistant Officers.............................11

ARTICLE V....................................................................12

         Seal................................................................12

ARTICLE VI...................................................................12

         Form of Stock Certificate...........................................12

ARTICLE VII..................................................................12

         Representation of Shares of Other Corporation.......................12

ARTICLE VIII.................................................................13

         Transfers of Stock..................................................13

ARTICLE IX...................................................................13

         Lost, Stolen or Destroyed Certificates..............................13

ARTICLE X....................................................................13

         Record Date.........................................................13

ARTICLE XI...................................................................13

         Registered Stockholders.............................................13

ARTICLE XII..................................................................14

         Fiscal Year.........................................................14

ARTICLE XIII.................................................................14

         Amendments..........................................................14

ARTICLE XIV..................................................................14

         Dividends...........................................................14

                  Section 14.1 Declaration...................................14

                  Section 14.2 Set Aside Funds...............................14

ARTICLE XV...................................................................14

         Indemnification and Insurance.......................................14

                  Section 15.1 Right to Indemnification......................14

                  Section 15.2 Right of Claimant to Bring Suit...............15

                  Section 15.3 Non-Exclusivity of Rights.....................15

                  Section 15.4 Insurance.....................................16

                  Section 15.5 Expenses as a Witness.........................16

                  Section 15.6 Indemnity Agreements..........................16

                  Section 15.7 Settlement of Claims..........................16

                  Section 15.8 Effect of Amendment...........................16

                  Section 15.9 Subrogation...................................16

                  Section 15.10 No Duplication of Payments...................16




<PAGE>




                           AMENDED AND RESTATED BYLAWS

                           OF MATRIA HEALTHCARE, INC.,

                             a Delaware corporation

                                    ARTICLE I

                                     Offices

         Section  1.1  Registered   Office.  The  registered  office  of  Matria
Healthcare, Inc. (the "Corporation") shall be in the City of Wilmington,  County
of New Castle,  Delaware and the name of the resident agent in charge thereof is
the agent named in the Certificate of  Incorporation  until changed by the Board
of Directors (the "Board").

         Section 1.2 Principal Office.  The principal office for the transaction
of the business of the Corporation  shall be such place as may be established by
the  Board.  The Board is  granted  full  power  and  authority  to change  said
principal office from one location to another.

         Section 1.3 Other Offices.  The  Corporation may also have an office or
offices at such other places, either within or without the State of Delaware, as
the Board may from time to time designate or the business of the Corporation may
require.

                                      ARTICLE II
                               Meetings of Stockholders

         Section 2.1 Time and Place of Meetings.  Meetings of stockholders shall
be held at such time and place,  within or  without  the State of  Delaware,  as
shall be stated in the  notice of the  meeting or in a duly  executed  waiver of
notice thereof.

         Section 2.2 Annual  Meetings  of  Stockholders.  The annual  meeting of
stockholders  shall be held on such  date and at such  time and  place as may be
fixed by the Board and stated in the notice of the  meeting,  for the purpose of
electing directors and for the transaction of such other business as is properly
brought  before the  meeting in  accordance  with these  Bylaws.  To be properly
brought before the annual meeting,  business must be either (i) specified in the
notice of annual meeting (or any supplement or amendment thereto) given by or at
the direction of the Board,  (ii) otherwise brought before the annual meeting by
or at the direction of the Board,  or (iii)  properly  brought before the annual
meeting by a stockholder. In addition to any other applicable requirements,  for
business  to be  properly  brought  before an annual  meeting by a  stockholder,
either  pursuant to Securities and Exchange  Commission  Rule 14a-8,  14a-4,  or
otherwise,  the stockholder  must have given timely notice thereof in writing to
the Secretary of the Corporation.  To be timely,  a stockholder's  notice (other
than a notice of director  nominations,  which shall be governed by Section 3.3)
must be delivered to or mailed and received at the principal  executive  offices
of the Corporation  within the time period  specified in Securities and Exchange
Commission Rule 14a-8(e)(2), or any successor rule.

         A  stockholder's  notice (other than a notice of director  nominations,
which shall be  governed  by Section  3.3) shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a description of the
business desired to be brought before the annual meeting containing all material
information related thereto,  (ii) the name, business address and record address
of the  stockholder  proposing  such business and any person or entity acting in
concert with the  stockholder  with respect to such  proposal,  (iii) the class,
series and number of shares of the Corporation  which are beneficially  owned by
the stockholder  and any other person or entity  identified in clause (iv), (iv)
any  material  interest  of the  stockholder,  and any  other  person  or entity
identified in clause (ii), in such business,  and (v) such other  information as
the Board reasonably  determines is necessary or appropriate to enable the Board
and the stockholder to consider such proposal. No business shall be conducted at
the annual  meeting  except in accordance  with the procedures set forth in this
Section  2.2.  The officer of the  Corporation  presiding  at an annual  meeting
shall,  if the facts  warrant,  determine and declare to the annual meeting that
business was not properly  brought before the annual meeting in accordance  with
the  provisions of this Section 2.2, and if he should so determine,  he shall so
declare to the annual meeting and any such business not properly  brought before
the meeting shall not be transacted.

         Section 2.3 Special  Meetings.  Special meetings of the stockholders of
the  Corporation  for any purpose or  purposes  may be called at any time by the
Board, or by a committee of the Board that has been duly designated by the Board
and whose powers and  authority,  as provided in a resolution of the Board or in
these Bylaws,  include the power to call such  meetings,  and shall be called by
the president or secretary at the request in writing of a majority of the Board,
or at the request in writing of  stockholders  owning 75% of the entire  capital
stock of the  Corporation  issued and outstanding and entitled to vote, but such
special  meetings  may not be called by any other  person or persons;  provided,
however,  that if and to the extent that any special meeting of stockholders may
be called by any other  person or persons  specified  in any  provisions  of the
Certificate of Incorporation or any amendment thereto,  or any certificate filed
under Section 151(g) of the Delaware  General  Corporation Law (or its successor
statute as in effect from time to time hereafter), then such special meeting may
also be called by the person or persons in the manner,  at the times and for the
purposes  so  specified.   Business   transacted  at  any  special   meeting  of
stockholders shall be limited to the purposes stated in the notice.

         Section 2.4 Stockholder  Lists. The officer who has charge of the stock
ledger of the Corporation  shall prepare and make, at least ten (10) days before
every meeting of stockholders,  a complete list of stockholders entitled to vote
at the meeting,  arranged in  alphabetical  order by each class and/or series of
stock  entitled to vote,  and showing  the address of each  stockholder  and the
number of shares registered in the name of each stockholder.  Such list shall be
open to the  examination  of any  stockholder,  for any  purpose  germane to the
meeting,  during ordinary business hours, for a period of at least ten (10) days
prior to the meeting,  either at a place within the city where the meeting is to
be held,  which place shall be  specified in the notice of the meeting or at the
place of the meeting, and the list shall also be available at the meeting during
the duration thereof, and may be inspected by any stockholder who is present.

         Section 2.5 Notice of Meetings. Notice of each meeting of stockholders,
whether annual or special,  stating the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which such meeting
has been called,  shall be given to each  stockholder of record entitled to vote
at such  meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting,  except that where the matter to be acted on is a merger or
consolidation  of  the  Corporation  or a  sale,  lease  or  exchange  of all or
substantially all of its assets, such notice shall be given not less than twenty
(20) nor more than sixty (60) days prior to such  meeting.  Except as  otherwise
expressly  required by law, notice of any adjourned  meeting of the stockholders
need not be given if the time and place  thereof are announced at the meeting at
which the adjournment is taken.

         Whenever  any notice is required to be given  under the  provisions  of
applicable law or of the  Certificate  of  Incorporation  or of these Bylaws,  a
waiver  thereof in  writing,  signed by the person or persons  entitled  to said
notice,  whether  before  or after  the time  stated  therein,  shall be  deemed
equivalent thereto. Notice of any meeting of stockholders shall be deemed waived
by any stockholder who shall attend such meeting in person or by proxy, except a
stockholder  who shall attend such meeting for the express purpose of objecting,
at the beginning of the meeting,  to the transaction of any business because the
meeting is not lawfully called or convened.

         Section  2.6 Quorum and  Adjournment.  The holders of a majority of the
stock issued and outstanding and entitled to vote thereat,  present in person or
represented  by proxy,  shall  constitute  a quorum for holding all  meetings of
stockholders,  except  as  otherwise  provided  by  applicable  law  or  by  the
Certificate of Incorporation;  provided,  however, that the stockholders present
at a duly called or held  meeting at which a quorum is present  may  continue to
transact  business until  adjournment  notwithstanding  the withdrawal of enough
stockholders  to leave  less than a quorum,  if any  action  taken  (other  than
adjournment)  is  approved  by at least a  majority  of the shares  required  to
constitute  a quorum.  If it shall  appear  that such  quorum is not  present or
represented  at any meeting of  stockholders,  the Chairman of the meeting shall
have power to adjourn the meeting from time to time,  without  notice other than
announcement at the meeting, until a quorum shall be present or represented.  At
such adjourned  meeting at which a quorum shall be present or  represented,  any
business may be  transacted  which might have been  transacted at the meeting as
originally  noticed. If the adjournment is for more than thirty (30) days, or if
after the  adjournment a new record date is fixed for the adjourned  meeting,  a
notice of the  adjourned  meeting shall be given to each  stockholder  of record
entitled to vote at the meeting.  The Chairman of the meeting may determine that
a quorum is present based upon any reasonable evidence of the presence in person
or by proxy  of  stockholders  holding  a  majority  of the  outstanding  votes,
including without limitation,  evidence from any record of stockholders who have
signed a register indicating their presence at the meeting.

         Section 2.7  Voting.  In all  matters,  when a quorum is present at any
meeting,  the vote of the holders of a majority  of the shares of capital  stock
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter shall decide any question brought before such meeting, unless
the question is one upon which by express  provision of applicable law or of the
Certificate of Incorporation  or these Bylaws, a different vote is required,  in
which case such express  provision shall govern and control the decision of such
question.  Such vote may be by voice or by written  ballot;  provided,  however,
that the Board may, in its  discretion,  require a written  ballot for any vote,
and further  provided that all elections for directors must be by written ballot
upon demand made by a stockholder at any election and before the voting begins.

         Unless  otherwise  provided in the  Certificate of  Incorporation  each
stockholder  shall at every meeting of the  stockholders be entitled to one vote
in person or by proxy for each share of the capital  stock  having  voting power
held by such stockholder.

         Section 2.8 Proxies.  Each stockholder entitled to vote at a meeting of
stockholders  may authorize in writing another person or persons to act for such
holder by proxy,  but no proxy  shall be voted or acted upon after  three  years
from its date,  unless the person  executing  the proxy  specifies  therein  the
period of time for which it is to continue in force. A duly executed proxy shall
be irrevocable if it states that it is irrevocable  and if, and only as long as,
it is coupled  with an  interest  sufficient  in law to  support an  irrevocable
power. A stockholder  may revoke any proxy which is not irrevocable by attending
the meeting and voting in person or by filing an instrument in writing  revoking
the proxy or another duly executed proxy bearing a later date with the Secretary
of the Corporation.

         Section 2.9 Inspectors of Election.  The Corporation  shall, in advance
of any meeting of  stockholders,  appoint one or more  inspectors  to act at the
meeting and make a written report  thereof.  The  Corporation or the Chairman of
the  meeting  shall  appoint  one or more  alternate  inspectors  to replace any
inspector  who  fails to act.  Each  inspector,  before  undertaking  his or her
duties,  shall  take  and sign an oath  faithfully  to  execute  the  duties  of
inspector  with  strict  impartiality  and  according  to the best of his or her
ability. The inspectors shall ascertain the number of shares outstanding and the
voting power of each,  determine the shares  represented  at the meeting and the
validity of the proxies and ballots, count all votes and ballots,  determine and
retain for a reasonable  period a record of the  disposition  of any  challenges
made to any  determination by the inspectors and certify their  determination of
the number of shares represented at the meeting and their count of all votes and
ballots.  Each  inspector  shall  perform  his or her  duties and shall make all
determinations   in  accordance  with  the  Delaware  General   Corporation  Law
including,  without limitation,  Section 231 of the Delaware General Corporation
Law.

         The date and time of the  opening  and  closing  of the  polls for each
matter upon which the stockholders  will vote at a meeting shall be announced at
the meeting.  No ballot,  proxies or votes,  nor revocations  thereof or changes
thereto,  shall be  accepted  by the  inspectors  after the closing of the polls
unless the Court of Chancery upon  application by a stockholder  shall determine
otherwise.

         The appointment of inspectors of election shall be in the discretion of
the Board  except that as long as the  Corporation  has a class of voting  stock
that is (i)  listed on a  national  securities  exchange,  (ii)  authorized  for
quotation on an interdealer quotation system of a registered national securities
association,   or  (iii)  held  of  record  by  more  than  2,000  stockholders,
appointment of inspectors shall be obligatory.

                                   ARTICLE III

                                    Directors

         Section 3.1 Powers.  The Board shall have the power to manage or direct
the  management of the property,  business and affairs of the  Corporation,  and
except as expressly limited by law, to exercise all of its corporate powers. The
Board may establish  procedures and rules,  for the fair and orderly  conduct of
any meeting  including,  without  limitation,  registration of the  stockholders
attending the meeting, adoption of an agency, establishing the order of business
at the  meeting,  recessing  and  adjourning  the  meeting  for the  purposes of
tabulating any votes and receiving the results thereof,  the time of the opening
and closing of the polls,  and the  physical  layout of the  facilities  for the
meeting.

         Section 3.2 Number,  Election  and Tenure.  The Board shall  consist of
nine (9) members, or such other number as shall be fixed or altered from time to
time  exclusively by resolutions  adopted by the Board.  The directors  shall be
divided into three  classes as nearly  equal in number as  possible,  designated
Class I, Class II and Class III. The initial term of office of Class I directors
shall expire at the 1996 annual meeting of  stockholders;  of Class II directors
at the 1997 annual  meeting of  stockholders;  and of Class III directors at the
1998 annual meeting of  stockholders.  At each annual  meeting of  stockholders,
successors  to the class of directors  whose terms of office expire in that year
shall be elected to hold office for a term of three (3) years.  Directors  shall
be elected by a  plurality  of the votes of shares of capital  stock  present in
person or  represented  by proxy at such  meeting  and  entitled  to vote on the
election of directors.  Each  director  shall hold office until his successor is
elected  and  qualified  or until his  earlier  resignation.  No decrease in the
number of directors shall shorten the term of any incumbent director.

         Section 3.3 Nominations.  Nominations for the election of directors may
be made by the Board of Directors or by any  stockholder  of record  entitled to
vote generally in the election of directors. However, a stockholder may nominate
one (1) or more  persons  for  election  as  directors  at an annual  meeting of
stockholders  only if written notice of such  stockholder's  intent to make such
nomination or  nominations  has been  delivered or mailed to and received at the
principal  executive office of the Corporation  within the time period specified
for other  stockholder  proposals  by  Section  2.2 of these  Bylaws;  provided,
however,  that if the Corporation did not hold an annual meeting in the previous
year, or if the date of the annual  meeting has been changed by more than thirty
(30) days from the date of the previous  year's  meeting,  the  applicable  time
period  shall be as follows:  such notice must have been  delivered or mailed to
and received not less than sixty (60) days nor more than  seventy-five (75) days
prior to the  meeting;  provided  that in the event less than seventy (70) days'
notice  or  prior  public  disclosure  of  the  meeting  is  given  or  made  to
stockholders,  notice by the  stockholder  to be timely must be so received  not
later than the close of business on the tenth  (10th) day  following  the day on
which  such  notice  of the  date of the  meeting  was  mailed  or  such  public
disclosure was made, whichever first occurs.

         A  stockholder's  notice  shall set forth (i) the name and  address  of
record  of  the  stockholder  who  intends  to  make  the  nomination;   (ii)  a
representation  that the  stockholder  is a holder  of  record  of shares of the
Corporation'  capital  stock  entitled  to vote at such  meeting  and intends to
appear in person or by proxy at the  meeting to  nominate  the person or persons
specified  in the notice;  (iii) the class and number of shares of common  stock
held of record, owned beneficially and represented by proxy, by the stockholder,
and each proposed  nominee,  as of the date of the notice;  (iv) the name,  age,
business and residence addresses, and principal occupation or employment of each
proposed  nominee;  (v) a  description  of all  arrangements  or  understandings
between  the  stockholder  and each  proposed  nominee  and any other  person or
persons  (naming  such person or persons)  pursuant to which the  nomination  or
nominations  are to be made by the  shareholder;  (vi)  such  other  information
regarding  each proposed  nominee as would be required to be included in a proxy
statement  filed  pursuant to the proxy  rules of the  Securities  and  Exchange
Commission; and (vii) the written consent of each proposed nominee to serve as a
director of the  Corporation  if so  elected.  The  Corporation  may require any
proposed nominee to furnish such other information as may be reasonably required
by the Board and the stockholders of the Corporation to consider the nomination.
The officer of the  Corporation  presiding at an annual  meeting  shall,  if the
facts warrant, determine and declare to the annual meeting that a nomination was
not made in accordance with the provisions of this Section,  and if he should so
determine,  he shall so  declare to the annual  meeting  and any such  defective
nomination shall be disregarded.

         Section 3.4 Vacancies and Newly Created  Directorships.  Any vacancy on
the Board,  including any newly created directorship  resulting from an increase
in the number of  directors,  may be filled by a  majority  of the Board then in
office.

        Section 3.5  Meetings.  The Board may hold  meetings,  both regular and
special, either within or outside the State of Delaware.

        Section 3.6 Annual  Meeting.  The Board shall meet as soon as
 practicable after each annual election of directors.

         Section 3.7 Regular  Meetings.  Regular  meetings of the Board shall be
held without call or notice at such time and place as shall from time to time be
determined by resolution of the Board.

         Section  3.8  Special  Meetings.  Special  meetings of the Board may be
called at any time, and for any purpose permitted by law, by the Chairman of the
Board,  or by the  Secretary  on the  written  request of any two members of the
Board  unless the Board  consists of only one director in which case the special
meeting  shall be called on the  written  request  of the sole  director,  which
meetings shall be held at the time and place designated by the person or persons
calling the meeting.  Not less than twenty-four (24) hours notice of all special
meetings of the Board of Directors  shall be given by the Secretary,  or in case
of the Secretary's  absence,  refusal or inability to act, by any other officer,
to each director, via personal delivery, telephone,  facsimile, electronic mail,
or any other means reasonably  calculated to provide timely notice to a director
of the  meeting.  Such notice shall set forth the time,  date,  and place of the
meeting.  A waiver of notice in  writing,  signed by any  director  entitled  to
notice of a meeting,  whether before or after the time stated therein,  shall be
deemed equivalent  thereto.  Notice of any meeting shall be deemed waived by any
director who shall attend such meeting,  except a director who shall attend such
meeting for the express  purpose of objecting,  at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.

         Section  3.9 Quorum and Voting  Requirements.  At all  meetings  of the
Board,  a  majority  of the  whole  Board  shall  constitute  a  quorum  for the
transaction of business.  For all purposes hereof,  the phrase "whole Board" and
phrase "total number of directors" shall mean the total number of directors that
the Corporation would have if there were no vacancies. The vote of a majority of
the directors present at a meeting at which a quorum is present shall constitute
the act of the Board.  Even though a quorum is not present,  as required in this
Section, a majority of the directors present at any meeting of the Board, either
regular or  special,  may  adjourn  from time to time until a quorum is present.
Notice of any adjourned meeting need not be given.

         Section 3.10 Fees and Compensation.  Each director and each member of a
committee  of the Board shall  receive such fees and  reimbursement  of expenses
incurred on behalf of the Corporation or in attending  meetings as the Board may
from time to time  determine.  No such payment shall  preclude any director from
serving  the  Corporation  in any  other  capacity  and  receiving  compensation
therefor.

         Section 3.11 Meetings by Telephonic Communication. Members of the Board
or any committee thereof may participate in a regular or special meeting of such
Board or committee by means of  conference  telephone or similar  communications
equipment  by means of which all persons  participating  in the meeting can hear
each other. Participation in a meeting pursuant to this Section shall constitute
presence in person at such meeting.

         Section 3.12 Action Without  Meetings.  Unless otherwise  restricted by
applicable law or by the Certificate of  Incorporation  or by these Bylaws,  any
action  required  or  permitted  to be taken at a meeting of the Board or of any
committee  thereof may be taken without a meeting if all members of the Board or
of such  committee,  as the case may be,  consent  thereto in  writing,  and the
writing or writings are filed with the minutes of the  proceedings  of the Board
or committee.

         Section 3.13 Committees. The Board may designate and appoint members to
committees,  each  committee  to consist of one or more of the  directors of the
Corporation. Any such committee, to the extent provided in the resolution of the
Board,  shall have and may exercise all the powers and authority of the Board in
the management of the business and affairs of the Corporation, and may authorize
the seal of the  Corporation  to be affixed to all papers  that may  require it.
Notwithstanding the foregoing, no committee of the Board shall have the power or
authority in reference to (a) amending the Certificate of Incorporation  (except
that a committee may, to the extent  authorized in the resolution or resolutions
providing  for the issuance of shares of stock  adopted by the Board as provided
in Section 151(a) of the Delaware General  Corporation Law, fix the designations
and any of the  preferences  or rights of such  shares  relating  to  dividends,
redemption,  dissolution,  any  distribution of assets of the Corporation or the
conversion  into, or the exchange of such shares for,  shares of any other class
or  classes  or any other  series of the same or any other  class or  classes of
stock of the  Corporation  or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series); (b) adopting an
agreement of merger or consolidation under Section 251, 252, 254, 255, 256, 257,
258, 263, or 264 of the Delaware  General  Corporation  Law; (c) recommending to
the stockholders the sale, lease or exchange of all or substantially  all of the
Corporation's  property  and assets;  (d)  recommending  to the  stockholders  a
dissolution of the Corporation or a revocation of a dissolution; or (e) amending
the Bylaws of the Corporation.  Unless the resolution  appointing such committee
or the  Certificate of  Incorporation  expressly so provides,  no such committee
shall have the power or  authority  to declare a dividend  or to  authorize  the
issuance of stock or to adopt a certificate of ownership and merger  pursuant to
Section 253 of the Delaware General Corporation Law.

         Section 3.14  Designation of Committees,  Powers and Duties,  Meetings,
Vacancies and Removal.  The Board of Directors of the Corporation  shall have an
executive committee (the "Executive Committee"),  an audit committee (the "Audit
Committee"),  a  compensation  and stock  option  committee  (the  "Compensation
Committee"), a nominating committee (the "Nominating Committee"), and such other
committees as may be designated by the Board.

         (a)......The  Executive  Committee  shall consist of at least three (3)
members.  In addition to such powers as may be delegated to it from time to time
by the Corporation's  Board of Directors,  the Executive Committee shall: act in
the  absence  of the full  Board  of  Directors  of the  Corporation  as  deemed
necessary  and  appropriate  and as permitted by  applicable  law; keep the full
Board of Directors of the Corporation apprised of Executive Committee activities
and decisions;  and conduct  detailed review and evaluation of the annual budget
prior to submission to the full Board of Directors of the Corporation.

         (b)......The  Audit  Committee  shall  consist  of at least  three  (3)
members, all of whom shall be eligible to serve on the Audit Committee under any
applicable  requirements of the National Association of Securities Dealers, Inc.
("NASD"). In addition to such powers as may be delegated to it from time to time
by the Corporation's  Board of Directors,  the Audit Committee shall:  recommend
outside  accountants  for  approval  by  the  full  Board  of  Directors  of the
Corporation;  meet with the Corporation's outside auditors and the Corporation's
Chief  Financial  Officer  and their  respective  staffs to review and  evaluate
accounting and control systems,  issues and related matters;  meet independently
with the  Corporation's  auditors  and Chief  Financial  Officer to discuss  the
accuracy and  integrity of the  Corporation's  financial  reporting,  management
information and control systems,  and any other appropriate  issues; and perform
any other  functions which are required by applicable NASD or other rules or are
otherwise appropriate for the Audit Committee's review or involvement. The Audit
Committee  shall  meet no less  frequently  than  twice per year,  with  special
meetings  to  be  called  at  the  direction  of  the  Chairman  of  the  Board,
President/CEO,  Chief Financial  Officer,  outside  auditors,  any member of the
Audit Committee or any member of the Corporation's Board of Directors.

         (c)......The  Compensation  Committee shall consist of at least two (2)
members,  and the  composition of such committee  shall at all times satisfy the
requirements of Securities and Exchange Commission Rule 16b-3 and Section 162(m)
of the Internal Revenue Code of 1986, as amended.  In addition to such powers as
may be  delegated  to it  from  time  to  time  by the  Corporation's  Board  of
Directors,  the  Compensation  Committee  shall:  review and  approve  salaries,
bonuses  and other  compensation  for all  officers  designated  by the Board as
executive  officers;  review,  approve and  administer all incentive and special
compensation plans and programs, including stock option plans and related longer
term incentive compensation  programs;  determine grants under all incentive and
special   compensation  plans  and  programs;   review  and  approve  management
succession  planning;  and conduct special competitive  compensation studies and
retain  compensation  consultants  as  deemed  necessary  and  appropriate.  The
Compensation Committee may, in its discretion,  review and approve the salaries,
bonuses and other  compensation of other officers of the Corporation  upon their
initial election or appointment as officers.  The  Compensation  Committee shall
meet no less frequently than twice a year, with special meetings to be called at
the direction of the Chairman of the Board, President/CEO,  or any member of the
Compensation Committee.

         (d)......The  Nominating  Committee  shall  consist of at least two (2)
members.  In addition to such powers as may be delegated to it from time to time
by the  Corporation's  Board  of  Directors,  the  Nominating  Committee  shall:
identify,  screen and nominate candidates for election to the Board of Directors
of the  Corporation by the full Board of Directors of the  Corporation or by the
stockholders of the Corporation,  as applicable;  and establish compensation and
retirement  policies for members of the Board of  Directors of the  Corporation.
The Nominating  Committee shall meet no less frequently than once per year, with
special  meetings to be called at the direction of any member of the  Nominating
Committee.

         (e)......Each  committee  designated  and  appointed  pursuant  to this
Article III shall keep regular minutes of its actions and proceedings and report
the same to the Board of Directors at its meeting next  succeeding  such action,
shall  fix  its  own  rules  or  procedures  (unless  fixed  in  the  resolution
designating such  committee),  and shall meet at such times and at such place or
places as may be provided by such rules,  or by such  committee  or the Board of
Directors.  Should  a  committee  (or the  Board)  fail to fix such  rules,  the
provisions of these Bylaws, pertaining to the calling of meetings and conduct of
business by the Board of Directors,  shall apply as nearly as may be possible to
such committee. At every meeting of any committee, the presence of a majority of
all the members thereof shall constitute a quorum, and the affirmative vote of a
majority of the members present shall be necessary for the adoption by it of any
resolution.

         (f)......The  Board may  designate  one or more  directors as alternate
members of any committee,  who may replace any absent or disqualified  member at
any meeting of such committee. In the absence or disqualification of a member of
a committee,  the member or members present at any meeting and not  disqualified
from voting,  whether or not  constituting  a quorum,  may  unanimously  appoint
another  member of the Board of  Directors to act at the meeting in the place of
the absent or disqualified member. The Board shall have the power at any time to
remove any member of a committee and to appoint  other  directors in lieu of the
person  so  removed  and  shall  also  have  the  power to fill  vacancies  in a
committee.

                                   ARTICLE IV

                                    Officers

         Section  4.1  Appointment,  Duties  and  Terms of  Office.  The  senior
officers  of the  Corporation  shall be  elected  by the  Board  and  shall be a
Chairman of the Board  ("Chairman"),  a President  and Chief  Executive  Officer
("President/CEO"),  a Secretary,  a Treasurer and a Chief Financial Officer. The
Board may also elect such other officers as it deems  necessary or  appropriate.
Each  officer  elected by the Board  shall  hold  office for such term and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.  In addition to the  authority of the Board set forth in this
Section 4.1, the Chairman,  President/CEO,  and any Executive  Vice President of
the Corporation shall have the authority to appoint one or more Vice Presidents,
Assistant Secretaries or Assistant Treasurers, none of whom may be designated an
Executive Vice President or Senior Vice President ("Appointed Officers"). Unless
prohibited by applicable law or by the Certificate of  Incorporation or by these
Bylaws,  one  person  may be  elected  or  appointed  to serve in more  than one
official capacity.

         Section 4.2 Removal and Resignation. Any officer may be removed, either
with or without cause, by the Board. Any Appointed Officer may be removed at any
time,  either  with or without  cause,  by the  Chairman,  President/CEO  or any
Executive Vice President. Any officer may resign at any time by giving notice to
the Board, the  President/CEO or the Secretary.  Any such resignation shall take
effect at the date of  receipt  of such  notice or at any later  time  specified
therein and, unless  otherwise  specified in such notice,  the acceptance of the
resignation shall not be necessary to make it effective.

         Section 4.3 Chairman. The Chairman shall preside at all meetings of the
stockholders and of the Board and shall have such other powers and duties as may
from time to time be assigned to him or her by the Board.

         Section  4.4  President/CEO.  The  President/CEO  shall  be  the  chief
executive officer of the Corporation and shall have such other powers and duties
as may from time to time be assigned to him or her by the Board.

         Section 4.5 Vice  President.  The rank of Vice Presidents in descending
order  shall  be  Executive  Vice  President,  Senior  Vice  President  and Vice
President. The Vice Presidents shall perform such duties and have such powers as
the Board may from time to time prescribe.

         Section 4.6  Secretary  and Assistant  Secretary.  The Secretary  shall
attend all meetings of the Board  (unless the Board shall  determine  otherwise)
and all  meetings  of the  stockholders  and record all the  proceedings  of the
meetings  of the  Board  and of the  stockholders  in a book to be kept for that
purpose and shall  perform like duties for the  committees  when  required.  The
Secretary  shall  give,  or  cause  to be  given,  notice  of  all  meetings  of
stockholders and special meetings of the Board. The Secretary shall have custody
of the  corporate  seal of the  Corporation  and shall (as well as any Assistant
Secretary)  have authority to affix the same to any instrument  requiring it and
to attest it. The Secretary  shall perform such other duties and have such other
powers as the Board may from time to time prescribe.

         Section  4.7 Chief  Financial  Officer.  Subject  to the  powers of the
Chairman  and the  President/CEO,  the  Chief  Financial  Officer  shall  be the
principal  officer in charge of the  financial  affairs of the  Corporation  and
shall perform such other duties and have such other powers as the Board may from
time to time prescribe.

         Section  4.8  Treasurer.  Subject to the powers of the Chief  Financial
Officer,  the Treasurer shall have custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the  Corporation  and shall  deposit all monies and other  valuable
effects in the name and to the credit of the Corporation in such depositories as
may be  designated  by the Board.  Subject to the powers of the Chief  Financial
Officer,  the  Treasurer  may  disburse the funds of the  Corporation  as may be
ordered by the Board, taking proper vouchers for such  disbursements,  and shall
render to the Board at its  regular  meetings,  or when the Board  requires,  an
account of the transactions  and of the financial  condition of the Corporation.
The Treasurer  shall perform such other duties and have such other powers as the
Board may from time to time prescribe.

         If  required by the Board and at the  expense of the  Corporation,  the
Chief Financial Officer,  the Treasurer,  and the Assistant  Treasurer,  if any,
shall  give the  Corporation  a bond  (which  shall be  renewed at such times as
specified by the Board) in such sum and with such surety or sureties as shall be
satisfactory  to the Board for the  faithful  performance  of the duties of such
person's  office and for the  restoration  to the  Corporation,  in case of such
person's  death,  resignation  retirement or removal from office,  of all books,
papers,  vouchers,  money and other  property of whatever  kind in such person's
possession or under such person's control belonging to the Corporation.

         Section 4.9 Assistant  Officers.  An assistant  officer  shall,  in the
absence of the  officer to whom such  person is an  assistant  officer or in the
event of such officer's  inability or refusal to act, perform the duties of such
officer  and when so acting,  shall have all the powers of and be subject to all
the  restrictions  upon such  officer.  An assistant  officer shall perform such
other duties and have such other  powers as the Board or the officer  appointing
any such assistant officer may from time to time prescribe.

                                    ARTICLE V

                                      Seal

         It shall not be necessary to the validity of any instrument executed by
any authorized officer or officers of the Corporation that the execution of such
instrument be evidenced by the corporate  seal, and all documents,  instruments,
contracts and writings of all kinds signed on behalf of the  Corporation  by any
authorized  officer  or  officers  shall  be as  effectual  and  binding  on the
Corporation without the corporate seal, as if the execution of the same had been
evidenced by affixing the  corporate  seal  thereto.  The Board may give general
authority to any officer to affix the seal of the  Corporation and to attest the
affixing by signature.

                                 ARTICLE VI

                          Form of Stock Certificate

         Every  holder of stock in the  Corporation  shall be entitled to have a
certificate  signed by, or in the name of, the  Corporation  by the  Chairman or
Vice Chairman of the Board, if any, or by the President/CEO or a Vice President,
and by the  Treasurer  or  Chief  Financial  Officer,  or  the  Secretary  or an
Assistant  Secretary  certifying the number of shares (and, if  applicable,  the
class and series) owned in the Corporation.  Any or all of the signatures on the
certificate  may be a facsimile  signature.  If any officer,  transfer  agent or
registrar  who has signed or whose  facsimile  signature  has been placed upon a
certificate  shall have ceased to be such officer,  transfer  agent or registrar
before such certificate is issued,  it may be issued by the Corporation with the
same effect as if such person were such officer,  transfer agent or registrar at
the date of the issuance.

         If the Corporation  shall be authorized to issue more than one class of
stock  or  more  than  one  series  of  any  class,  the  powers,  designations,
preferences  and relative,  participating,  optional or other special  rights of
each class of stock or series  thereof and the  qualifications,  limitations  or
restrictions  of such  preferences  or  rights  shall  be set  forth  in full or
summarized on the face or back of the  certificate  that the  Corporation  shall
issue to represent such class or series of stock.  Except as otherwise  provided
in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing
requirements,  there may be set forth on the face or back of the  certificate  a
statement that the Corporation  will furnish without charge to each  stockholder
who  so  requests   the  powers,   designations,   preferences   and   relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications,  limitations or restrictions of such preferences
or rights.

                                   ARTICLE VII

                  Representation of Shares of Other Corporation

         Any and all shares of any other corporation or corporations standing in
the name of the  Corporation  shall be voted,  and all rights  incident  thereto
shall be  represented  and exercised on behalf of the  Corporation by the Board,
Chairman or  President/CEO.  The foregoing  authority may be exercised either by
the  President/CEO in person or by any other person authorized so to do by proxy
or power of attorney duly executed by said officer.

                                  ARTICLE VIII

                               Transfers of Stock

         Upon surrender of a certificate for shares duly endorsed or accompanied
by proper evidence of succession,  assignment or authority to transfer, it shall
be the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.

                                   ARTICLE IX

                     Lost, Stolen or Destroyed Certificates

         The Board may direct a new  certificate  or  certificates  be issued in
place of any certificate theretofore issued alleged to have been lost, stolen or
destroyed,  upon the making of an affidavit  of the fact by the person  claiming
the certificate to be lost, stolen or destroyed.  When authorizing such issue of
a new certificate, the Board may, in its discretion and as a condition precedent
to the issuance, require the owner of such certificate or certificates,  or such
person's legal representative,  to give the Corporation a bond in such sum as it
may  direct  as  indemnity  against  any  claim  that  may be made  against  the
Corporation with respect to the lost, stolen or destroyed certificate.

                                    ARTICLE X

                                   Record Date

         The Board may fix in advance a date, which shall not be more than sixty
(60) days nor less  than ten (10)  days  preceding  the date of any  meeting  of
stockholders,  nor more than  sixty (60) days  prior to any other  action,  as a
record date for the  determination  of stockholders  entitled to notice of or to
vote at any such meeting and any adjournment  thereof,  or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other  distribution  or allotment of any rights,  or entitled to
exercise the rights in respect of any change,  conversion  or exchange of stock,
and in such case such  stockholders,  and only  such  stockholders,  as shall be
stockholders  of record on the date so fixed shall be entitled to notice of, and
to vote at, such meeting and any adjournment  thereof,  or to receive payment of
such  dividend,  or to receive  such  allotment of rights,  or to exercise  such
rights,  or to give  such  consent,  as the  case  may be,  notwithstanding  any
transfer of any stock on the books of the Corporation after any such record date
fixed as aforesaid.

                                   ARTICLE XI

                             Registered Stockholders

         The Corporation  shall be entitled to treat the holder of record of any
share or shares of stock of the  Corporation  as the holder in fact  thereof and
shall not be bound to recognize  any  equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, except as expressly provided by applicable law.

                                   ARTICLE XII

                                   Fiscal Year

         The fiscal year of the Corporation  shall be fixed by resolution of the
Board.

                                  ARTICLE XIII

                                   Amendments

         These Bylaws may be amended or  repealed,  or new Bylaws may be adopted
(a) by the  affirmative  vote  of the  holders  of at  least a  majority  of the
outstanding Common Stock of the Corporation, or (b) by the Board of Directors at
any  regular  or  special  meeting.   Any  Bylaws  adopted  or  amended  by  the
stockholders may be amended or repealed by the Board or the stockholders.

                                   ARTICLE XIV

                                    Dividends

         Section  14.1  Declaration.  Dividends  on  the  capital  stock  of the
Corporation,  subject to the provisions of the Certificate of Incorporation,  if
any, may be declared by the Board at any regular or special meeting, pursuant to
law, and may be paid in cash, in property or in shares of capital stock.

         Section 14.2 Set Aside Funds. Before payment of any dividend, there may
be set aside out of any funds of the  Corporation  available for dividends  such
sums as the directors  from time to time, in their  absolute  discretion,  think
proper  as a  reserve  or  reserves  to meet  contingencies,  or for  equalizing
dividends,  or for repairing or maintaining any property of the Corporation,  or
for such  other  purpose  as the  directors  shall  determine  to be in the best
interest of the  Corporation,  and the  directors may modify or abolish any such
reserve in the manner in which it was created.

                                   ARTICLE XV

                          Indemnification and Insurance

         Section  15.1  Right to  Indemnification.  Each  person who was or is a
party or is threatened to be made a party to or is involved in any action,  suit
or  proceeding,   whether  civil,  criminal,   administrative  or  investigative
(hereinafter a "proceeding"),  by reason of the fact that he or she, or a person
of whom he or she is the legal  representative,  is or was a director or officer
of the  Corporation or is or was serving at the request of the  Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint  venture,  trust or other  enterprise,  including  service with respect to
employee  benefit plans,  whether the basis of such proceeding is alleged action
or inaction in an official  capacity or in any other capacity while serving as a
director,  officer, employee or agent, shall be indemnified and held harmless by
the  Corporation  to the fullest  extent  permitted  by the laws of the State of
Delaware,  as the same exist or may  hereafter  be  amended,  against all costs,
charges, expenses, liabilities and losses (including attorneys' fees, judgments,
fines,  ERISA  excise  taxes  or  penalties  and  amounts  paid or to be paid in
settlement)  reasonably  incurred  or  suffered  by such  person  in  connection
therewith, and such indemnification shall continue as to a person who has ceased
to be a director,  officer,  employee or agent and shall inure to the benefit of
his or her heirs,  executors and  administrators;  provided,  however,  that the
Corporation  shall  indemnify  any  such  person  seeking   indemnification   in
connection with a proceeding (or part thereof)  initiated by such person only if
such  proceeding  (or part thereof) was  authorized  by the Board.  The right to
indemnification  conferred in this Article  shall be a contract  right and shall
include  the  right  to be paid  by the  Corporation  the  expense  incurred  in
defending  any such  proceeding in advance of its final  disposition;  provided,
however,  that, if the Delaware General Corporation Law requires, the payment of
such  expenses  incurred  by a director  or officer in his or her  capacity as a
director or officer  (and not in any other  capacity in which  service was or is
rendered  by such  person  while  a  director  or  officer,  including,  without
limitation,  service  to an  employee  benefit  plan) in  advance  of the  final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an  undertaking,  by or on behalf of such  director or officer,  to repay all
amounts so advanced if it shall  ultimately be determined  that such director or
officer is not entitled to be indemnified  under this Section or otherwise.  The
Corporation may, by action of the Board,  provide  indemnification  to employees
and agents of the  Corporation  with the same scope and effect as the  foregoing
indemnification of directors and officers.

         Section 15.2 Right of Claimant to Bring Suit.  If a claim under Section
15.1 is not paid in full by the  Corporation  within  thirty  (30) days  after a
written claim has been received by the Corporation, the claimant may at any time
thereafter  bring suit against the  Corporation  to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting  such claim. It shall be a defense to
any such action  (other than an action  brought to enforce a claim for  expenses
incurred in defending any proceeding in advance of its final  disposition  where
the  required  undertaking,  if  any  is  required,  has  been  tendered  to the
Corporation)  that the claimant  has failed to meet a standard of conduct  which
makes it  permissible  under  Delaware law for the  Corporation to indemnify the
claimant  for  the  amount  claimed.  Neither  the  failure  of the  Corporation
(including its Board,  independent  legal counsel,  or its stockholders) to have
made  a   determination   prior  to  the   commencement   of  such  action  that
indemnification  of the claimant is permissible in the circumstances  because he
or she has met such  standard of  conduct,  nor an actual  determination  by the
Corporation   (including  its  Board,   independent   legal   counsel,   or  its
stockholders) that the claimant has not met such standard of conduct, shall be a
defense to the action or create a  presumption  that the  claimant has failed to
meet such standard of conduct.

         Section 15.3  Non-Exclusivity  of Rights.  The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition  conferred in this Article shall not be exclusive of any other
right  which  any  person  may have or  hereafter  acquire  under  any  statute,
provision  of the  Certificate  of  Incorporation,  bylaw,  agreement,  vote  of
stockholders or disinterested directors or otherwise.

         Section 15.4 Insurance.  The Corporation may maintain insurance, at its
expense, to protect itself and any director,  officer,  employee or agent of the
Corporation or another corporation,  partnership,  joint venture, trust or other
enterprise  against  any such  expense,  liability  or loss,  whether or not the
Corporation  would have the power to indemnify such person against such expense,
liability or loss under Delaware law.

         Section 15.5  Expenses as a Witness.  To the extent that any  director,
officer, employee or agent of the Corporation, is by reason of such position, or
a position with another entity at the request of the  Corporation,  a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and  expenses  actually and  reasonably  incurred by him or her or on his or her
behalf in connection therewith.

         Section  15.6  Indemnity  Agreements.  The  Corporation  may enter into
agreements  with any  director,  officer,  employee or agent of the  Corporation
providing for indemnification to the fullest extent permitted by Delaware law.

         Section 15.7 Settlement of Claims.  The Corporation shall not be liable
to indemnify any director, officer, employee or agent under this Article (a) for
any  amounts  paid in  settlement  of any action or claim  effected  without the
Corporation's written consent, which consent shall not be unreasonably withheld;
or (b) for any judicial award if the  Corporation was not given a reasonable and
timely opportunity at its expense, to participate in the defense of such action.

         Section  15.8  Effect  of  Amendment.   Any   amendment,   repeal,   or
modification of this Article shall not adversely  affect any right or protection
of any  director,  officer,  employee  or  agent  existing  at the  time of such
amendment, repeal or modification.

         Section 15.9  Subrogation.  In the event of payment under this Article,
the Corporation  shall be subrogated to the extent of such payment to all of the
rights of  recovery  of the  director,  officer,  employee  or agent,  who shall
execute all papers  required  and shall do  everything  that may be necessary to
secure such  rights,  including  the  execution of such  documents  necessary to
enable the Corporation effectively to bring suit to enforce such rights.

         Section 15.10 No Duplication of Payments.  The Corporation shall not be
liable under this Article to make any payment in connection  with any claim made
against the  director,  officer,  employee or agent to the extent the  director,
officer,  employee or agent has otherwise  actually  received payment (under any
insurance  policy,  agreement,  vote,  or  otherwise)  of the amounts  otherwise
indemnifiable hereunder.


                    Matria Healthcare, Inc. and Subsidiaries
                       Computation of Earnings per Share
                (Amounts in thousands, except per share amounts)
                                  (Unaudited)

<TABLE>
                                                     Three Months Ended
                                                          March 31,
                                                -----------------------------
                                                      2000              1999
                                                      ----              ----
<S>                                                 <C>                 <C>
Basic

Net earnings                                        $ 5,756              1,671
Preferred stock dividend requirements                  (800)              (649)
Accretion on preferred stock                           (109)               (87)
                                                      ------             ------
Net earnings available to common shareholders       $ 4,847                935
                                                     =======             ======
Shares:
  Weighted average number of common shares
  outstanding                                        36,823             36,439
                                                     ======             ======

Net earnings per common share                        $ 0.13               0.03
                                                      =====               ====

Diluted

Net earnings available to common shareholders       $ 4,847                935
Interest on convertible preferred shares                100                 --
                                                      -----                ---
Net earnings for diluted calculation                $ 4,987                935
                                                    =======                ===

Shares:
     Weighted average number of common shares
        outstanding                                  36,823             36,439
     Shares issuable from assumed exercise of
        options and warrants                          1,955                500
     Convertible preferred stock                      2,222                 --
                                                     ------             ------
                                                     41,000             36,939
                                                     ======             ======

Net earnings per common share                        $ 0.12               0.03
                                                     ======               ====
</TABLE>


<TABLE> <S> <C>


<ARTICLE>                     5
<LEGEND>
     This Schedule contains summary financial information extracted from the
     Consolidated Condensed Balance Sheets and Consolidated Condensed
     Statements of Operations and is qualified in its entirety by reference
     to such Form 10-Q
</LEGEND>
<CIK>                                          0001007228
<NAME>                                         Matria Healthcare, Inc.
<MULTIPLIER>                                   1,000
<CURRENCY>                                     US Dollars

<S>                             <C>
<PERIOD-TYPE>                                  3-MOS
<FISCAL-YEAR-END>                              DEC-31-2000
<PERIOD-START>                                 JAN-01-2000
<PERIOD-END>                                   MAR-31-2000
<EXCHANGE-RATE>                                1
<CASH>                                           5,302
<SECURITIES>                                     1,149
<RECEIVABLES>                                   60,967
<ALLOWANCES>                                   (13,371)
<INVENTORY>                                     10,294
<CURRENT-ASSETS>                                67,738
<PP&E>                                          48,360
<DEPRECIATION>                                 (28,802)
<TOTAL-ASSETS>                                 272,350
<CURRENT-LIABILITIES>                           39,898
<BONDS>                                         79,365
                           41,114
                                          0
<COMMON>                                           368
<OTHER-SE>                                      98,156
<TOTAL-LIABILITY-AND-EQUITY>                   272,350
<SALES>                                         13,311
<TOTAL-REVENUES>                                58,282
<CGS>                                            8,661
<TOTAL-COSTS>                                   29,343
<OTHER-EXPENSES>                                 2,694
<LOSS-PROVISION>                                 1,894
<INTEREST-EXPENSE>                               2,176
<INCOME-PRETAX>                                  9,406
<INCOME-TAX>                                     3,650
<INCOME-CONTINUING>                              5,756
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     5,756
<EPS-BASIC>                                       0.13
<EPS-DILUTED>                                     0.12



</TABLE>


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