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 September 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
November 1, 2000 was 36,953,333.
<PAGE>
MATRIA HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 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 6. Exhibits 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>
September 30, December 31,
ASSETS 2000 1999
------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,163 9,548
Short-term investments 250 8,243
Trade accounts receivable, less allowances of $13,322 and
$14,317 at September 30, 2000 and December 31, 1999, respectively 49,029 47,489
Inventories 11,759 10,406
Prepaid expenses and other current assets 3,980 3,505
------- -------
Total current assets 67,181 79,191
Property and equipment, less accumulated depreciation of $29,884 and
$27,303 at September 30, 2000 and December 31, 1999, respectively 20,971 18,418
Intangible assets, less accumulated amortization of $19,144 and
$11,052 at September 30, 2000 and December 31, 1999, respectively 131,816 139,352
Deferred income taxes 31,057 36,725
Cash surrender value of life insurance 12,618 10,803
Other assets 892 1,224
------- -------
$264,535 285,713
======= =======
</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>
September 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
------------------ ------------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 11,491 10,362
Accounts payable, principally trade 20,727 18,826
Accrued liabilities 9,651 12,349
------- -------
Total current liabilities 41,869 41,537
Long-term debt, excluding current installments 68,887 91,090
Accrued benefit costs 7,092 8,030
Other long-term liabilities 3,467 4,807
------- -------
Total liabilities 121,315 145,464
------- -------
Redeemable preferred stock, $.01 par value. Authorized 50,000 shares:
Series A convertible, redeemable; issued 10 shares at September 30, 2000
and December 31, 1999; redemption value $10,000 10,000 10,000
Series B redeemable; issued 35 shares at September 30, 2000 and
December 31, 1999; redemption value $35,000 31,335 31,005
------- -------
Total redeemable preferred stock 41,335 41,005
------- -------
Common shareholders' equity:
Common stock, $.01 par value. Authorized 100,000 shares:
issued and outstanding 36,912 and 36,771 shares
at September 30, 2000 and December 31,1999, respectively 369 368
Additional paid-in capital 293,383 293,210
Accumulated deficit (187,191) (196,576)
Accumulated other comprehensive earnings (loss) (1,141) 5,777
Notes receivable and accrued interest from shareholder (3,535) (3,535)
------- -------
Total common shareholders' equity 101,885 99,244
------- -------
$ 264,535 285,713
======= =======
</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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues $ 61,402 63,899 182,007 185,560
Cost of revenues 31,227 32,047 92,072 93,785
Selling and administrative expenses 19,514 19,432 55,764 61,094
Provision for doubtful accounts 1,956 1,947 5,899 5,887
Amortization of intangible assets 2,701 2,610 8,093 7,810
Restructuring expenses - 1,983 1,599 1,983
------ ------ ------ ------
Operating earnings 6,004 5,880 18,580 15,001
Interest expense, net (2,007) (2,086) (6,119) (5,659)
Other income (expense), net 41 (57) 6,824 104
------ ------ ------ ------
Earnings before income taxes 4,038 3,737 19,285 9,446
Income tax benefit (expense) (1,575) 4,000 (7,500) 4,000
------ ------ ------ ------
Net earnings 2,463 7,737 11,785 13,446
Preferred stock dividend requirements (800) (800) (2,400) (2,249)
Accretion of preferred stock (111) (110) (330) (307)
------ ------ ------ ------
Net earnings available to common shareholders $ 1,552 6,827 9,055 10,890
====== ====== ====== ======
Earnings per common share:
Basic $ 0.04 0.19 0.25 0.30
====== ====== ====== ======
Diluted $ 0.04 0.17 0.23 0.28
====== ====== ====== ======
Weighted average shares outstanding:
Basic 36,907 36,667 36,867 36,549
====== ====== ====== ======
Diluted 40,013 41,336 40,427 40,378
====== ====== ====== ======
</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>
Nine Months Ended
September 30,
------------------------------
<S> <C> <C>
2000 1999
Cash Flows from Operating Activities:
Net earnings $ 11,785 13,446
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 12,793 12,631
Provision for doubtful accounts 5,899 5,887
Deferred tax (benefit) expense 7,500 (4,000)
Gains on sales of investments (6,077) -
Changes in assets and liabilities, net of effect of acquisitions:
Trade accounts receivable (7,662) (9,891)
Inventories, prepaids and other current assets (2,075) (812)
Intangible and other noncurrent assets (4,034) (2,964)
Accounts payable 2,192 (1,953)
Accrued and other liabilities (1,931) (5,508)
------ ------
Net cash provided by operating activities 18,390 6,836
------ ------
Cash Flows from Investing Activities:
Purchases of property and equipment (7,995) (5,982)
Proceeds from sales of short-term investments 7,298 2,859
Acquisition of businesses, net of cash acquired - (93,019)
------ ------
Net cash used in investing activities (697) (96,142)
------ ------
Cash Flows from Financing Activities:
Borrowings under credit agreement 7,000 108,000
Proceeds from issuance of debt 891 891
Principal repayments of long-term debt (30,172) (22,045)
Proceeds from issuance of common stock 369 635
Preferred stock dividend payments (2,400) (1,449)
------ ------
Net cash provided by (used in) financing activities (24,312) 86,032
------ ------
Effect of foreign currency exchange rate changes (766) (235)
------ ------
Net decrease in cash and cash equivalents (7,385) (3,509)
Cash and cash equivalents at beginning of period 9,548 9,109
------ ------
Cash and cash equivalents at end of period $ 2,163 5,600
====== ======
Supplemental disclosure of cash paid for:
Interest $ 6,577 5,534
====== ======
Income taxes $ 1,686 -
====== ======
Supplemental disclosure of noncash investing and financing activities:
Equipment acquired under capital lease obligations $ 266 $ 526
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statement
<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 September 30,
2000 and for the three months and nine months ended September 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 nine-month
periods ended September 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 nine-month periods ended
September 30, 2000 were $2,148 and $7,553, respectively, and for the
corresponding periods in 1999 were $7,774 and $13,211, 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 August 2000, a final purchase
price adjustment of $400 was agreed upon and was paid by the issuance of an
additional subordinated note. As of September 30, 2000, total purchase price
adjustments of $13,719 were reflected in the consolidated condensed balance
sheets. The subordinated notes associated with the acquisition 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.
<PAGE>
5. Long-Term Debt
As of September 30, 2000, the Company had $63,782 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 September 30, 2000, interest rates ranged from 9.1250% 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 September 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
related to customer contract fulfillment costs, $518 related to remaining
software development costs, $312 related to payroll costs and related
involuntary severance of employees and $201 related to other costs and expenses
for the shutdown of the business. Accrued restructuring expenses at September
30, 2000 were $960.
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 $1,575
provision in the third quarter and a $7,500 provision for the nine months ended
September 30, 2000. In the third quarter of 1999, the Company recorded a $4,000
income tax benefit resulting from a reduction in the valuation allowance due to
continued improved operating results. No significant cash outflows for income
taxes are expected in the near future, other than alternative minimum taxes and
foreign taxes, since, as of September 30, 2000, the Company's net operating
losses reflected in the deferred income tax asset 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 by
business segment excludes interest income, interest expense, and corporate
expenses.
Summarized financial information as of and for the nine-month periods
ended September 30, 2000 and 1999 by business segment follows:
<TABLE>
Revenues Operating earnings
------------------------------------ ------------------------------
2000 1999 2000 1999
------------------ ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Women's Health $82,014 82,179 18,296 10,822
Diabetes Supplies and Services 86,402 81,590 8,226 7,589
Cardiovascular 12,630 11,500 293 2,041
Other segments 961 10,291 (3,106) (1,490)
------- ------- ------- -------
Total segments 182,007 185,560 23,709 18,962
General corporate - - (5,129) (3,961)
Interest expense, net - - (6,119) (5,659)
Other income, net - - 6,824 104
------- ------- ------- -------
Consolidated revenues and earnings
before income taxes $ 182,007 185,560 19,285 9,446
======= ======= ======= =======
</TABLE>
<TABLE>
Identifiable assets
------------------------------------
September 30, December 31,
2000 1999
------------------ ----------------
<S> <C> <C>
Women's Health $ 36,296 39,575
Diabetes Supplies and Services 149,538 153,772
Cardiovascular 25,244 21,906
Other segments 582 2,462
General corporate 52,875 67,998
------- -------
Consolidated assets $ 264,535 285,713
======= =======
</TABLE>
The Company's revenues from operations outside the U.S. were
approximately 11% and 10% of total revenues for the nine months ended September
2000 and 1999, respectively. 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. In June
2000, the FASB issued Statement of Financial Accounting Standards No. 138,
"Accounting for Derivative Instruments and Hedging Activities--an amendment of
FASB Statement No. 133" ("SFAS No. 138"). SFAS No. 138 adds to the guidance
related to accounting for derivative instruments and hedging activities. 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 or SFAS No. 138.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes existing guidance on revenue recognition.
The implementation date of SAB No. 101 is no later than the fourth quarter of
2000. The Company does not anticipate that implementation of SAB No. 101 will
have a material impact on the Company's financial statements.
10. Gain on Disposition of Assets
During the three-month and nine-month periods of 2000, the Company
recognized gains of $100 and $1,471, respectively, 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 gains reflect the 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 and second quarters of 2000, the Company sold shares
of Healtheon/WebMD Corporation stock generating proceeds of $7,298 and gains of
$6,077. These gains are reflected in "other income" in the consolidated
condensed statements of operations. At September 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 decreased $2.5 million, or 3.9%, and $3.6 million, or 1.9%,
for the three and nine-month periods ended September 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 1.5% for the
three-month period and 3.2% for the nine-month period. During the three-month
and nine-month periods of 1999, NRMC had revenues of $3.4 million and $9.1
million, respectively. Revenues of the Diabetes Supplies and Services segment
increased by $1.4 million, or 5.0%, and $4.8 million, or 5.9%, for the
three-month and nine-month periods, respectively. The Cardiovascular segment
also achieved revenue increases of $69,000, or 1.8%, and $1.1 million, or 9.8%,
for the three-month and nine-month periods, respectively.
Cost of revenues as a percentage of revenues increased slightly to
50.9% for the three-month period ended September 30, 2000 from 50.2% for the
same period in 1999. For the nine-month periods, cost of revenues as a
percentage of revenues was relatively constant at 50.6% in 2000 and 50.5% in
1999.
Selling and administrative expenses as a percentage of revenues
increased to 31.8% for the three-month period ended September 30, 2000 from
30.4% for the same period in 1999 primarily due to increased Corporate segment
expenses primarily in the information technologies area relating to the
development and expansion of the Company's new disease management technology
platform, the TRAX(TM) system. Selling and administrative expenses as a percent
of revenue decreased to 30.6% for the nine-month period in 2000 compared to
32.9% in 1999 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 nine-month periods ended September 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
nine-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.
<PAGE>
Amortization of intangible assets increased by $91,000 and $283,000 in
the three-month and nine-month periods of 2000 compared to the same periods in
1999 due to additional amortization resulting from recording $13.7 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 $1.6 million related to its decision to exit its clinical patient
record software business of CMS. Of these costs, $568,000 related to customer
contract fulfillment costs, $518,000 related to remaining software development
costs, $312,000 related to payroll costs and related involuntary severance of
employees and $201,000 related to other costs and expenses for the shutdown of
the business. At September 30, 2000, estimated future restructuring expenditures
of $960,000 has been included in accrued liabilities. During the third quarter
of 1999, the Company incurred approximately $2.0 million of restructuring costs
related to the implementation of a consolidation plan for the Women's Health
segment to reduce the number of monitoring centers from 38 to 21.
Interest expense decreased 3.8% for the three-month period ended
September 30, 2000 compared to the same period in 1999 primarily due to a lower
average outstanding debt balance in 2000. Interest expense increased 8.1% for
the nine-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 three and nine-month periods of 2000, the Company recognized
gains of $100,000 and $1.5 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 $1.1 million, and liabilities for patient
refunds and reserves for potentially uncollectible notes receivable and facility
lease obligations totaling $2.8 million. In June 2000, the Company received
$750,000 in full settlement of notes receivable from one purchaser. The
recognized gains reflect realization of most of the proceeds and a re-assessment
of remaining patient refunds and other obligations.
Other income for nine months ended September 30, 2000 also includes
gains of $6.1 million from $7.3 million 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 $36.7 million, was reflected on the consolidated balance sheet.
Beginning in 2000, the Company is recognizing income tax expense, including a
$1.6 million provision in the third quarter and $7.5 million provision in the
first nine months of 2000. In the comparable periods in 1999, the Company
recorded a $4.0 million income tax benefit resulting from a reduction in the
deferred tax valuation allowance due to continued improved operating results. No
significant cash outflows for income taxes are expected in the near future,
other than alternative minimum taxes and foreign taxes, since, as of September
30, 2000, the Company's net operating losses reflected in the deferred income
tax asset will be available to offset future tax liabilities.
Liquidity and Capital Resources
As of September 30, 2000, the Company had cash and short-term
investments of $2.2 million. Net cash provided by operating activities increased
to $18.4 million for the nine-month period ended September 30, 2000, compared to
$6.8 million for the same period of 1999. Contributing to this cash flow
improvement was a 14.0% improvement in operating earnings, excluding
amortization of intangible assets and restructuring charges, from $24.8 million
to $28.3 million. The remainder of the increase in cash provided by operations
was primarily the result of reductions in accounts payable and accrued
liabilities in 1999.
<PAGE>
The Company's accounts receivable days' sales outstanding increased to
72 days' sales as of September 30, 2000 from 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 as of December 31, 1999 to 83 days' sales as
of September 30, 2000 were offset by an increase in accounts receivable days'
sales outstanding of the Cardiovascular segment resulting from a conversion to a
new billing system.
Capital expenditures of $8.0 million in the first nine months of 2000
relate primarily to 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 $11.5 million for capital items in 2000.
During the nine months ended September 30, 2000, the Company sold 203,393
shares of Healtheon/WebMD resulting in proceeds of approximately $7.3 million.
As of September 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 $22.2 million of its bank credit
facility during the nine months ended September 30, 2000. At September 30, 2000,
the Company had a total of $63.8 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 August 2000, a final purchase
price adjustment of $400,000 was agreed upon and was paid by the issuance of an
additional subordinated note. As of September 30, 2000, total purchase price
adjustments of $13.7 million were reflected in the consolidated condensed
balance sheets.
In September 2000, the Board of Directors of the Company approved the
repurchase and retirement of $3.0 million of the Company's outstanding common
stock. On October 31, 2000, the Company completed this repurchase program,
having purchased approximately 1.2 million shares of common stock. In November
2000, the Board of Directors approved a continuation of the share repurchase
program and authorized the repurchase of an additional $3.0 million of common
stock.
In September 2000, the Board of Directors also approved, and
recommended that shareholders approve, a proposal to effect a reverse stock
split of the Company's common stock. If approved by the Company's shareholders
at a special shareholders' meeting on December 5, 2000, the Company would issue
one new share of common stock in exchange for not less than three nor more than
five shares of outstanding common stock.
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,
repurchases of outstanding common stock 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 September 30, 2000, the Company's total variable rate
long-term debt obligation was $63.8 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 $600,000.
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 nine 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 $250,000.
<PAGE>
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Earnings per Share
27 Financial Data Schedule (for SEC purposes only)
Reports on Form 8-K
The Company has not filed any Current Report on Form 8-K during the
quarter ended September 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.
November 13, 2000 By: /s/ Parker H. Petit
Parker H. Petit
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ George W. Dunaway
George W. Dunaway, Vice President--
Finance and Chief Financial Officer
(Principal Financial Officer)
