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 June 30, 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
August 1, 2000 was 36,911,432.
<PAGE>
MATRIA HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 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....15
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...........16
Item 6. Exhibits and Reports on Form 8-K..............................17
SIGNATURES ..............................................................18
<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>
June 30, December 31,
ASSETS 2000 1999
------
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 725 9,548
Short-term investments 243 8,243
Trade accounts receivable, less allowances of $14,092 and
$14,317 at June 30, 2000 and December 31, 1999, respectively 48,437 47,489
Inventories 10,775 10,406
Prepaid expenses and other current assets 3,698 3,505
------- -------
Total current assets 63,878 79,191
Property and equipment, less accumulated depreciation of $28,103 and
$27,303 at June 30, 2000 and December 31, 1999, respectively 20,334 18,418
Intangible assets, less accumulated amortization of $16,444 and
$11,052 at June 30, 2000 and December 31, 1999, respectively 134,111 139,352
Deferred income taxes 32,276 36,725
Cash surrender value of life insurance 12,828 10,803
Other assets 567 1,224
--------- -------
$ 263,994 285,713
========= =======
</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>
June 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
------------------------------------
----------------- -----------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 10,949 10,362
Accounts payable, principally trade 20,104 18,826
Accrued liabilities 8,501 12,349
-------- -------
Total current liabilities 39,554 41,537
Long-term debt, excluding current installments 71,232 91,090
Accrued benefit costs 7,873 8,030
Other long-term liabilities 3,393 4,807
-------- -------
Total liabilities 122,052 145,464
-------- -------
Redeemable preferred stock, $.01 par value. Authorized 50,000 shares:
Series A convertible, redeemable; issued 10 shares at June 30, 2000
and December 31, 1999; redemption value $10,000 10,000 10,000
Series B redeemable; issued 35 shares at June 30, 2000 and
December 31, 1999; redemption value $35,000 31,224 31,005
-------- -------
Total redeemable preferred stock 41,224 41,005
-------- -------
Common shareholders' equity:
Common stock, $.01 par value. Authorized 100,000 shares:
issued and outstanding 36,878 and 36,771 shares
at June 30, 2000 and December 31,1999, respectively 369 368
Additional paid-in capital 293,363 293,210
Accumulated deficit (188,854) (196,576)
Accumulated other comprehensive earnings (loss) (625) 5,777
Notes receivable and accrued interest from shareholder (3,535) (3,535)
--------- -------
Total common shareholders' equity 100,718 99,244
--------- -------
$ 263,994 285,713
========= =======
</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 Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 62,323 62,302 120,605 121,661
Cost of revenues 31,502 30,462 60,845 61,738
Selling and administrative expenses 18,424 21,101 36,250 41,662
Provision for doubtful accounts 2,049 2,034 3,943 3,940
Amortization of intangible assets 2,698 2,601 5,392 5,200
Restructuring expenses 1,599 - 1,599 -
------- ------- ------ ------
Operating earnings 6,051 6,104 12,576 9,121
Interest expense, net (1,936) (2,070) (4,112) (3,573)
Other income, net 1,726 4 6,783 161
------- ------- ------ ------
Earnings before income taxes 5,841 4,038 15,247 5,709
Income tax expense 2,275 - 5,925 -
------- ------ ------ ------
Net earnings 3,566 4,038 9,322 5,709
Preferred stock dividend requirements (800) (800) (1,600) (1,449)
Accretion of preferred stock (110) (110) (219) (197)
------- ------ ------ ------
Net earnings available to common shareholders $ 2,656 3,128 7,503 4,063
======= ====== ====== ======
Earnings per common share:
Basic $ 0.07 0.09 0.20 0.11
====== ====== ====== ======
Diluted $ 0.07 0.08 0.19 0.11
====== ====== ====== ======
Weighted average shares outstanding:
Basic 36,873 36,540 36,848 36,490
====== ====== ====== ======
Diluted 40,269 40,383 40,634 37,558
====== ====== ====== ======
</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>
Six Months Ended June 30,
------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 9,322 5,709
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 8,419 8,347
Provision for doubtful accounts 3,943 3,940
Deferred tax expense 5,925 -
Gains on sales of investments (6,077) -
Other 757 -
Changes in assets and liabilities, net of effect of acquisitions:
Trade accounts receivable (5,189) (5,396)
Inventories, prepaids and other current assets (796) 1,711
Intangible and other noncurrent assets (2,718) (2,328)
Accounts payable 1,278 (3,954)
Accrued and other liabilities (3,742) (3,417)
------- -------
Net cash provided by operating activities 11,122 4,612
------- -------
Cash Flows from Investing Activities:
Purchases of property and equipment (5,900) (3,786)
Proceeds from sales of short-term investments 7,298 2,859
Acquisition of businesses, net of cash acquired - (93,019)
------- --------
Net cash provided by (used in) investing activities 1,398 (93,946)
------- --------
Cash Flows from Financing Activities:
Borrowings under credit agreement 3,000 108,000
Proceeds from issuance of debt 891 711
Principal repayments of long-term debt (23,703) (17,669)
Proceeds from issuance of common stock 369 346
Preferred stock dividend payments (1,600) (649)
------- ---------
Net cash provided by (used in) financing activities (21,043) 90,739
-------- ---------
Effect of foreign currency exchange rate changes (300) (272)
-------- ---------
Net increase (decrease) in cash and cash equivalents (8,823) 1,133
Cash and cash equivalents at beginning of period 9,548 9,109
-------- ---------
Cash and cash equivalents at end of period $ 725 10,242
======= =========
Supplemental disclosures of cash paid for:
Interest $ 5,211 2,852
======= =========
Income taxes $ 1,272 -
======= =========
</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 June 30, 2000 and
for the three months and six months ended June 30, 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 and six-month periods ended June 30, 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 and six-month periods ended June 30,
2000 were $3,187 and $5,405, respectively, and for the corresponding periods in
1999 were $3,932 and $5,437, respectively.
4. Acquisitions
During the first quarter of 1999, the Company completed the acquisition of
substantially all of the assets of the Gainor Medical Management, L.L.C.
("Gainor Medical") business. The acquisition agreement provided for an
additional contingent purchase price adjustment based on 1999 financial
performance of the Gainor Medical business. In June 2000, although the
contingent purchase price adjustments had not been finalized, the agreed-upon
contingent consideration of $13,319 was paid by the issuance of a subordinated
note to the sellers. Subsequent to June 30, 2000, a final purchase price
adjustment of $400 has been tentatively agreed upon and, when finalized, will be
paid by the issuance of an additional subordinated note. These notes 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
notes. Estimated amounts of contingent consideration of $13,000 and $13,319 at
December 31, 1999 and March 31, 2000, respectively, were reflected in goodwill
and long-term debt on the consolidated balance sheets. The additional final
agreed-upon consideration will be recorded in the third quarter of 2000.
<PAGE>
5. Long-Term Debt
As of June 30, 2000, the Company had $65,895 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 June 30, 2000, interest rates ranged from 8.9375% to
9.3125%. 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 June 30, 2000, the Company was in compliance
with these requirements.
6. Restructuring
During the second quarter of 2000, the Company incurred restructuring
expenses of $1,599 related to its decision to exit its clinical patient record
software business, Clinical-Management Systems, Inc. Of these costs, $568
relates to customer contract fulfillment costs, $518 relates to remaining
software development costs, $312 relates to payroll costs and related
involuntary severance of employees and $201 relates to other costs and expenses
for the shutdown of the business. Accrued restructuring expenses at June 30,
2000 were $1,154.
7. 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 $2,275
provision in the second quarter and a $5,925 provision for the six months ending
June 30, 2000. 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 June 30, 2000, the Company's deferred
income tax asset of $32,276 will be available to offset future tax liabilities.
8. 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 (business was exited in the second quarter of
2000) and infertility practice management services (sold during the third and
fourth quarters of 1999).
<PAGE>
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.
Summarized financial information as of and for the six-month periods
ended June 30, 2000 and 1999 by business segment follows:
<TABLE>
Revenues Operating earnings
------------------------------ --------------------------------
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Women's Health $55,230 55,294 12,853 6,981
Diabetes Supplies and Services 56,004 52,632 5,083 4,514
Cardiovascular 8,662 7,600 612 1,493
Other segments 709 6,135 (2,620) (1,656)
------- ------- ------- -------
Total segments 120,605 121,661 15,928 11,332
General corporate - - (3,352) (2,211)
Interest expense, net - - (4,112) (3,573)
Other income, net - - 6,783 161
------- ------- ------- -------
Consolidated revenues and earnings
before income taxes $120,605 121,661 15,247 5,709
======== ======= ======= =======
</TABLE>
<TABLE>
Identifiable assets
---------------------------
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Women's Health $ 36,452 39,575
Diabetes Supplies and Services 148,905 153,772
Cardiovascular 25,164 21,906
Other segments 1,021 2,462
General corporate 52,452 67,998
-------- -------
Consolidated assets $263,994 285,713
======== =======
</TABLE>
The Company's revenues from operations outside the U.S. were
approximately 11% of total revenues of the six months in both 2000 and 1999. No
single customer accounted for 10% of consolidated net revenue in either period.
<PAGE>
9. Pending 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.
10. Gain on Disposition of Assets
During the second quarter of 2000, the Company recognized a gain of
$1,371 from the 1999 sale of assets of the clinics of its former infertility
business, National Reproductive Medical Centers ("NRMC"). At December 31, 1999,
the Company's balance sheet reflected notes receivable from the purchasers of
NRMC totaling $1,079, and liabilities for patient refunds and reserves for
potentially uncollectible notes receivable and facility lease obligations
totaling $2,751. In June 2000, the Company received $750 in full settlement of
notes receivable from one purchaser. The recognized gain reflects realization of
most of the proceeds and a re-assessment of remaining patient refunds and other
obligations. The gain is reflected in "other income" in the consolidated
condensed statements of operations.
11. 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. During the second quarter of 2000, the Company sold additional shares
and generated proceeds of $489 and gains of $288. These gains are reflected in
"other income" in the consolidated condensed statements of operations. At June
30, 2000, the Company has a remaining investment in Healtheon/WebMD of 16,423
shares.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
During the second quarter of 2000, the Company decided to exit its
clinical patient record software business, Clinical-Management Systems, Inc.
("CMS"), and, as a result, suspended its sales efforts and fully reserved the
value of any remaining assets.
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 remained relatively unchanged in the three-month period ended
June 30, 2000 and decreased $1.056 million, or 0.9%, for the six months ended
June 30, 2000 as compared to the same periods in 1999. Excluding the revenues
generated by NRMC, which was divested during the second half of 1999, revenues
increased by 5.0% for the three-month period and 4.0% for the six-month period.
During the three-month and six-month periods of 1999, NRMC had revenues of
$2.948 million and $5.711 million, respectively. Revenues of the Diabetes
Supplies and Services segment increased by $2.298 million, or 8.6%, and $3.372
million, or 6.4%, for the three-month and six-month periods, respectively. The
Cardiovascular segment also achieved revenue increases of $0.215 million, or
5.5%, and $1.062 million, or 14.0%, for the three-month and six-month periods,
respectively.
Cost of revenues as a percentage of revenues increased to 50.5% for the
three-month period ended June 30, 2000 from 48.9% for the same period in 1999,
due primarily to a change in the mix of microsampling products sold in the
Diabetes Supplies and Services segment. For the six-month periods, cost of
revenues as a percentage of revenues was relatively constant at 50.4% in 2000
and 50.7% in 1999.
Selling and administrative expenses as a percentage of revenues
decreased to 29.6% and 30.1% for the three-month and six-month periods ended
June 30, 2000 from 33.9% and 34.2% for the same periods 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 and six-month periods ended June 30, 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 three-month and six-month periods
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 $0.097 million and
$0.192 million in the three-month and six-month periods of 2000 compared to the
same periods in 1999 due to additional amortization resulting from recording
$13.319 million of incremental goodwill related to the contingent consideration
for the Gainor Medical acquisition.
During the second quarter of 2000, the Company recorded restructuring
expenses of $1.599 million related to its decision to exit its clinical patient
record software business of CMS. Of these costs, $0.568 million relates to
customer contract fulfillment costs, $0.518 million relates to remaining
software development costs, $0.312 million relates to payroll costs and related
involuntary severance of employees and $0.201 million relates to other costs and
expenses for the shutdown of the business. At June 30, 2000, estimated future
restructuring expenditures of $1.154 million has been included in accrued
liabilities.
Interest expense decreased 6.5% for the three-month period June 30,
2000 compared to the same period in 1999 primarily due to a lower average
outstanding debt balance in 2000. Interest expense increased 15.1% for the
six-month period due primarily to an increase in the number of days the Gainor
Medical acquisition debt was outstanding and due to higher interest rates.
During the second quarter of 2000, the Company recognized a gain of
$1.371 million from the 1999 sale of assets of NRMC. At December 31, 1999, the
Company's balance sheet reflected notes receivable from the purchasers of NRMC
totaling $1.079 million, and liabilities for patient refunds and reserves for
potentially uncollectible notes receivable and facility lease obligations
totaling $2.751 million. In June 2000, the Company received $0.750 million in
full settlement of notes receivable from one purchaser. The recognized gain
reflects realization of most of the proceeds and a re-assessment of remaining
patient refunds and other obligations.
Other income for the three months and six months ended June 30, 2000
also includes gains of $0.288 million and $6.077 million, respectively, from
$0.489 million and $7.298 million, respectively, in proceeds from 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
$2.275 million provision in the second quarter and $5.925 million provision in
the first six months of 2000. 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 June 30,
2000, the Company's deferred income tax asset of $32.276 million will be
available to offset future tax liabilities.
Liquidity and Capital Resources
As of June 30, 2000, the Company had cash and short-term investments of
$0.968 million. Net cash provided by operating activities increased to $11.122
million for the six-month period ended June 30, 2000, compared to $4.612 million
for the same period of 1999. Contributing to this cash flow improvement was a
36.6% improvement in operating earnings, excluding amortization of intangible
assets and restructuring charges, from $14.321 million to $19.567 million.
The Company's accounts receivable days' sales outstanding decreased
from 73 days as of March 31, 2000 to 70 days' sales as of June 30, 2000, as
compared to 69 days' sales as of December 31, 1999. Reductions of accounts
receivable days' sales outstanding in the Women's Health segment from 90 days'
sales at December 31, 1999 to 85 days' sales and 79 days' sales as of March 31,
2000 and June 30, 2000, respectively, were partially offset by higher days'
sales outstanding of the Cardiovascular segment resulting from a conversion to a
new billing system.
<PAGE>
Capital expenditures of $5.900 million in the first six 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 six months ended June 30, 2000, the Company sold 203,393
shares of Healtheon/WebMD resulting in proceeds of approximately $7.298 million.
As of June 30, 2000, the Company had 16,423 shares of this investment remaining.
The Company used these proceeds, along with available cash and cash derived from
operations to repay a total of $20.100 million of its bank credit facility
during the six months ended June 30, 2000. At June 30, 2000, the Company had a
total of $65.895 million outstanding under this facility.
During the first quarter of 1999, the Company completed the acquisition of
substantially all of the assets of the Gainor Medical Management, L.L.C.
("Gainor Medical") business. The acquisition agreement provided for an
additional contingent purchase price adjustment based on 1999 financial
performance of the Gainor Medical business. In June 2000, although the
contingent purchase price adjustments had not been finalized, the agreed-upon
contingent consideration of $13.319 million was paid by the issuance of a
subordinated note to the sellers. Subsequent to June 30, 2000, a final purchase
price adjustment of $0.400 million has been tentatively agreed upon and, when
finalized, will be paid by the issuance of an additional subordinated note.
Estimated amounts of contingent consideration of $13.000 million and $13.319
million at December 31, 1999 and March 31, 2000, respectively, were reflected in
goodwill and long-term debt on the consolidated balance sheets. The additional
final agreed-upon consideration will be recorded in the third quarter of 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.
<PAGE>
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 June 30, 2000, the Company's total variable rate
long-term debt obligation was $65.895 million. A hypothetical 10% increase in
the Company's variable interest rate for a duration of one year would result in
additional interest expense of approximately $0.600 million.
The Company's non-U.S. operations with sales denominated in other than U.S.
dollars (primarily in Germany) generated approximately 11% of total revenues in
the first six months of 2000. In the normal course of business, these operations
are exposed to fluctuations in 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 $0.250 million.
<PAGE>
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The directors of the Company are divided into three classes. The class
comprised of Donald R. Millard, Rod F. Dammeyer and Carl E. Sanders will
continue to serve until the 2002 annual meeting of stockholders and until their
successors are elected and qualified. The class comprised of Parker H. Petit,
Frank D. Powers and Morris S. Weeden will continue to serve until the 2001
annual meeting of stockholders and until their successors are elected and
qualified.
At the annual meeting of stockholders of the Company held May 18, 2000
(the "Meeting"), the following directors were elected, each of whom will serve
until the 2003 annual meeting of stockholders and until their successors are
elected and qualified:
Nominee Affirmative Votes Withheld Votes
Mark J. Gainor 32,695,831 794,942
Jackie M. Ward 32,689,950 800,823
Frederick P. Zuspan, M.D. 32,658,319 832,454
Following the Meeting on May 18, 2000, two new directors were elected as
directors by the Board of Directors to fill vacancies created by increasing the
size of the Board of Directors from nine to eleven members. Mr. Donald W. Weber
was elected as a Class III director to serve until the 2001 annual meeting of
stockholders or until his successor is elected and qualified and Mr. Thomas S.
Stribling was elected as a Class I director to serve until the 2002 annual
meeting of stockholders or until his successor is elected and qualified. In
addition, Mr. Frank D. Powers resigned as a Class III director and Mr. Jeffrey
D. Koepsell was elected to fill the vacancy created to serve until the 2001
annual meeting of stockholders or until his successor is elected and qualified.
In addition, the following proposals were approved at the Meeting:
Approval to adopt the Matria Healthcare, Inc. 2000 Stock Incentive
Plan:
Affirmative Votes Negative Votes Absentions Broker Non-votes
13,918,050 9,330,051 87,047 10,155,625
Approval to adopt the Matria Healthcare, Inc. 2000 Director's Non-
Qualified Stock Option Plan:
Affirmative Votes Negative Votes Absentions Broker Non-votes
19,183,548 4,024,978 126,622 10,155,625
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4 Non-Negotiable Subordinated Promissory Note, dated June 9, 2000
10.1 Employment Letter Agreement between the Company and Jeffrey D.
Koepsell, dated May 16, 2000
10.2 Amendment to Employment Letter Agreement between the Company and
Jeffrey D. Koepsell, dated May 18, 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 June 30, 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.
August 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)
