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CONFORMED COPY
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 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 (IRS Employer Identification No.)
incorporation or organization)
1850 PARKWAY PLACE
MARIETTA, GEORGIA 30067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 767-4500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE, TOGETHER
WITH ASSOCIATED COMMON STOCK PURCHASE RIGHTS
(Title of class)
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
--------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained to the best
of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 10, 2000, there were 36,835,339 shares of Common Stock outstanding.
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates was approximately $214,292,159 based upon the closing sale price
on March 10, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the 2000 Annual
Meeting of Shareholders are incorporated by reference into Part III.
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MATRIA HEALTHCARE, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders ........ 10
Special Item Executive Officers of the Company........................... 10
PART II
Item 5. Market for the Company's Common Equity
and Related Stockholder Matters........................... 12
Item 6. Selected Financial Data..................................... 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 14
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk............................................... 19
Item 8. Financial Statements and Supplementary Data................. 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................... 20
PART III
Item 10. Directors and Executive Officers of the Company............. 21
Item 11. Executive Compensation ..................................... 21
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................ 21
Item 13. Certain Relationships and Related Transactions ............. 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................... 22
SIGNATURES .............................................................. 26
</TABLE>
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PART I
ITEM 1. BUSINESS.
GENERAL. Matria Healthcare, Inc., a Delaware corporation ("Matria" or
the "Company"), was incorporated on October 4, 1995 for the purpose of the
merger (the "Merger") of Tokos Medical Corporation (Delaware), a Delaware
corporation ("Tokos"), and Healthdyne, Inc., a Georgia corporation
("Healthdyne"), with and into Matria. The effective date of the Merger was March
8, 1996. Prior to the Merger, Matria had no material assets or liabilities and
its then outstanding shares of common stock, par value $0.01 per share, were
held exclusively by Tokos and Healthdyne. As a result of the Merger, the
operations and assets of Tokos and Healthdyne were consolidated into Matria, and
each share of common stock of Tokos and Healthdyne outstanding on the effective
date of the Merger was exchanged for one share of Matria common stock.
The Company is engaged principally in the business of providing women's
health services, diabetes supplies and services, cardiovascular and respiratory
disease management services.
ACQUISITION/DISPOSITION OF BUSINESSES. On June 1, 1996, the Company
exercised an option and acquired the remaining ownership interest in National
Reproductive Medical Centers, Inc. ("NRMC"), a physician practice management
services business that managed infertility treatment centers in California, in
which Healthdyne had previously owned a minority interest. The Company sold its
entire interest in this business in the third and fourth quarters of 1999.
Effective July 1, 1998, the Company acquired substantially all of the
assets of Quality Diagnostic Services, Inc. ("QDS"), a Georgia-based company
engaged in the business of cardiac event monitoring, holter monitoring and
pacemaker follow-up.
Also in July 1998, the Company entered into a subcontract agreement
with National Jewish Medical and Research Center ("National Jewish"). Under the
terms of the subcontract agreement, the Company provides screening, enrollment
and call support services to participants in National Jewish's respiratory
disease management programs. On October 1, 1998, the Company acquired an
exclusive, five-year license to market and provide National Jewish's respiratory
disease management programs in North America.
On January 15, 1998, the Company acquired 10% of the outstanding stock
of Diabetes Management Services, Inc. ("DMS"), a South Carolina-based company
engaged in the sale of insulin pumps and diabetes supplies as well as providing
diabetes education and management services. The Company also acquired an option
to purchase the balance of the outstanding stock of DMS at a formula price and
agreed to provide working capital for DMS's growth and expansion. Effective
January 1, 1999, the Company acquired the remaining 90% ownership interest in
DMS.
Also effective January 1, 1999, Matria acquired substantially all of
the assets of Gainor Medical Management, L.L.C. ("Gainor Medical"), a Georgia
limited liability company engaged in the business of diabetes disease management
in the United States and Germany and the design, assembly, packaging and
distribution of microsampling products throughout the world.
BUSINESS SEGMENTS AND GEOGRAPHIC AREAS. In 1999, the Company's
operations consisted of three reportable business segments: Women's Health,
Diabetes Supplies and Services, and Cardiovascular. Information regarding net
sales, operating income, and total assets of each of the business segments in
which the Company operated in fiscal years 1997 through 1999 is in Note 15 of
Notes to Consolidated Financial Statements on pages F-23 through F-24 of this
report.
Women's Health. The Women's Health segment offers a wide range of
specialized services designed to assist physicians and payors in the
cost-effective management of maternity patients. Services include specialized
home nursing, risk assessment, patient education and management, home uterine
contraction
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monitoring, infusion therapy, gestational diabetes management and other
monitoring and clinical services as prescribed by the patient's physician. The
Women's Health segment has 44 sites of services throughout the United States, 15
of which are monitoring centers. Forty-one of the 44 sites are or are in the
process of becoming accredited as home care organizations by the Joint
Commission on Accreditation of Health Care Organizations. In addition, the
segment has two after-hours centers. Although this segment maintains a dominant
market share, the industry continues to be vulnerable to several controversies
surrounding the home obstetrical care business, including academic debate as to
the efficacy of certain services and controversy over the "off-label" use of
certain tocolytic medications. See "Regulation and Healthcare Industry Changes"
below in this Item 1. In July 1999, the Women's Health segment entered into an
agreement with Cooper Surgical, Inc. to market Cooper Surgical, Inc.'s
FemExam(R) PH and Amines TestCard(TM) used for point of service differential
diagnosis of vaginitis for both obstetrical and non-obstetrical patients. This
marketing agreement represented the segment's expansion of its product lines
outside the obstetrical market to include the entire gynecological population.
Diabetes Supplies and Services. The Diabetes Supplies and Services
segment has two components: diabetes disease management and microsampling
products, which are products used to obtain and test small samples of bodily
fluid.
The diabetes disease management component sells insulin, insulin pumps,
syringes, microsampling products and other prescription and non-prescription
drugs used by diabetics. The majority of this business's sales are made on a
mail-order basis. In addition, this business provides diabetes screening,
education and patient management services. This business serves patients in the
United States through its facilities in Roanoke, Virginia and Van Nuys,
California and in Germany through its facilities in Neumunster and Dresden,
Germany. Approximately 47% and 50% of this business component's revenues were
derived from its German operations in 1999 and 1998, respectively.
The Company's microsampling products component is the leading global
supplier of standard lancets, lancing devices and safety lancets. This business
designs, assembles, packages and distributes products manufactured by Nissho
Corporation, a publicly traded Japanese manufacturer and distributor of medical
equipment with a core competency in needle-based technology. This business
operates from facilities in McDonough, Georgia, and Milton Keynes and
Northants, England. Its products are shipped primarily to North and South
America, Europe and Asia. Approximately 21% and 27% of this business component's
revenues were derived from sales outside of the United States in 1999 and 1998,
respectively.
Because of the Company's dependence on foreign markets, deterioration
in foreign economic conditions and currency exchange rate fluctuations could
have a material adverse effect on the Company's business. Due to the foregoing
factors, as well as foreign local commercial and economic policies and political
uncertainties, the Company believes its activities outside of the United States
involve greater risk than its domestic business.
Cardiovascular. The Cardiovascular segment provides cardiac event
monitoring services, holter monitoring services and pacemaker follow-up to
patients throughout the United States from its headquarters in Marietta,
Georgia.
Other. The Other business segment has three components that are below
the quantitative threshold for reporting: respiratory disease management,
clinical patient record software and infertility practice management.
The respiratory disease management business (Respiratory Management
Services - "RMS"), which is in its early stages, provides respiratory disease
risk assessment, screening and case management services to patients throughout
the United States from its headquarters in Marietta, Georgia in conjunction with
National Jewish's facility located in Denver, Colorado.
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The clinical patient record software business (Clinical-Management
Systems, Inc. - "CMS") markets a proprietary automated patient record for
obstetricians and gynecologists. This business's operations are currently
confined to the United States. This business is in the process of developing a
new product to replace its existing product in the second quarter of 2000.
The infertility practice management business unit (NRMC) managed three
fertility clinics in California, which provided a broad spectrum of diagnostic
and therapeutic services to infertile couples from throughout the United States,
with particular emphasis on in-vitro fertilization and embryo transfer
procedures. This unit also made its laboratory services available to other
infertility practices. The Company divested itself of this business unit in the
latter half of 1999.
CUSTOMERS, SUPPLIERS AND THIRD-PARTY PAYORS. In 1999, the Company's
revenues were derived from the following types of customers: approximately 54%
from private third-party payors, 22% from original equipment manufacturers, 12%
from domestic government payors, 10% from foreign healthcare systems and 2% from
employers. The Women's Health segment generated approximately 94% of its
revenues from private third-party payors and 6% of its revenues from domestic
government payors in 1999. Of the Diabetes Supplies and Services segment
revenues in 1999, approximately 50% were obtained from original equipment
manufacturers, 23% were from foreign healthcare systems, 18% were from domestic
government payors, 5% were from employers and 4% were from private third-party
payors. Approximately 73% of the Cardiovascular segment's 1999 revenues were
derived from private third-party payors and the remaining 27% were from domestic
government payors.
The Company markets its women's health services, diabetes disease
management services, cardiovascular services and respiratory disease management
services to patients, physicians, other healthcare providers and third-party
payors, primarily through its employee sales force and independent sales
representatives. All of these businesses' revenues depend on reimbursement from
third-party payors, such as managed care companies and government-sponsored
health insurance programs. Third-party payors are having greater control over
patient access and increasingly use their significant bargaining power to secure
discounted rates and other concessions from providers. This trend, as well as
other changes in reimbursement rates, policies or payment practices by
third-party payors (whether initiated by the payor or legislatively mandated)
could have an adverse impact on the Company's disease management businesses.
The microsampling business of the Diabetes Supplies and Services
segment markets its products through its employee sales force. Its customers
include original equipment manufacturers of blood glucose and other
point-of-care test kits, as well as mail order companies, kit companies and
distributors that sell to the acute care, alternate care and primary care
markets. Three major original equipment manufacturer customers represented
approximately 83% of this business's total sales in 1999. Although the Company
believes its relationships with these customers are strong, the loss of any of
these major customers could have a material adverse effect on this business
component. Additionally, this business is highly dependent on its exclusive
supply relationship with Nissho Corporation, from which it purchases virtually
all of its products on favorable payment terms. The exclusive supply agreement
has approximately three years remaining. Termination of the exclusive supply
agreement or failure to continue the exclusive supply agreement on the terms
currently in effect would have a material adverse effect on the Company's
microsampling products business, as would any interruption in the supply of
products from Nissho Corporation, whatever the cause.
The Company markets its clinical patient record software to physicians
using a sales force employed by CMS.
The Company marketed the services of the fertility practices it managed
by advertising in various media in targeted markets and by presentation of
educational seminars to prospective patients. The Company from time to time
offered promotional programs under which qualified patients whose pregnancies
did not succeed were entitled to a refund of a portion of the Company's fees.
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SEASONALITY. The Women's Health segment's revenues tend to be seasonal.
Revenues typically begin to decrease with the onset of the holiday season
starting with Thanksgiving, causing the first quarter revenues of each year to
be less than those of the fourth quarter of the previous year. The Company's
other businesses do not reflect any significant degree of seasonality.
TRADEMARKS, LICENSES AND PATENTS. The Company owns a number of
trademarks and service marks which, in the aggregate, are important to the
marketing and promotion of its products and services. The Company does not
believe, however, that any single trademark or service mark is material in
relation to the Company's business as a whole. The Company generally makes a
practice of protecting its most significant trademarks by registration.
The Company has licensed its respiratory disease management programs
from National Jewish. Insofar as the licensed programs are the cornerstone of
the Company's respiratory disease management programs, the license is material
to that portion of the Company's business. Additionally, the Company has an
exclusive, perpetual right to use and purchase from Respironics, Inc. the only
uterine contraction monitor that has received pre-market approval from the Food
and Drug Administration ("FDA") for home use in connection with preterm labor.
The Company's rights to the monitors are a material competitive advantage in
marketing the Company's uterine contraction monitoring services.
The Company does not possess any patents that are material to its
business, although the patents owned by Nissho Corporation and its
subcontractors with respect to products distributed by the microsampling
business are material to the continued marketing of those products.
Also, the Company considers its clinical and disease management
programs to be proprietary and material to the portion of the Company's business
to which they relate.
Any impairment of the Company's rights in the intellectual property
described above could have a material adverse effect on the particular business
to which they relate.
COMPETITION. The medical industry is characterized by rapidly
developing technology and increased competition. In all its product and service
lines, the Company competes with companies, both large and small, located in the
United States and abroad. Competition is strong in all lines, without regard to
the number and size of the competing companies involved. Certain of the
Company's competitors and potential competitors have significantly greater
financial, technical and sales resources than the Company and may, in certain
locations, possess licenses or certificates that permit them to provide products
and services that the Company cannot currently provide.
Although both the Women's Health segment and the Cardiovascular segment
are leading providers in their respective markets, with market shares of
approximately 85% and 20%, respectively, both they and the Company's other
disease management businesses compete with a vast and ever increasing number of
competitors. Competitors of the Company's disease management businesses include
national, regional and local home health agencies, hospitals and physicians, as
well as other companies devoted primarily to offering one or more products or
services similar or identical to those offered by the Company, such as cardiac
event monitoring, diabetes supplies or diabetes education. The Company competes
on a number of factors, including quality of care and service, reputation within
the medical community, geographical scope and price. The Company believes that
its clinical expertise and coordinated approach to patient services have enabled
it to compete effectively.
Competition in the microsampling business of the Company's Diabetes
Supplies and Services segment also is based on quality, service and price. In
addition, competition in research involving the development of new products and
the improvement of existing products is particularly significant. Competitors'
research efforts could lead to the obsolescence of some or all of the
microsampling business's products. The microsampling industry is highly
fragmented, with numerous competitors of all sizes. The quality of the
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microsampling business's products, as well as its strong distribution system,
value-added approach to customer service, and design and development expertise
have enabled this business to achieve its significant market share,
notwithstanding the highly competitive environment in which it operates.
There can be no assurance that the Company will not encounter increased
or more effective competition in the future, which could limit the Company's
ability to maintain or increase its business or render some products and
services offered by Matria obsolete or non-competitive and which could adversely
affect the Company's operating results.
RESEARCH AND DEVELOPMENT. The microsampling business of the Diabetes
Supplies and Services segment maintains a dedicated research and development
staff at its headquarters in McDonough, Georgia. This business's research and
development activities are key factors in its ability to stay abreast of its
competition.
The Company's Women's Health, Cardiovascular and Other business
segments do not maintain separate research and development teams. Program
development and refinements result from the cooperative efforts of the
businesses' clinical, operating and marketing staff and these costs are charged
to earnings when incurred. The Company's clinical patient record software
business outsources the development of its software products. These costs are
recorded as intangible assets as incurred and are amortized over the estimated
useful life.
REGULATION AND HEALTHCARE INDUSTRY CHANGES. All of the Company's
businesses are subject to varying degrees of government regulation in the
countries in which they operate. There has been a trend in recent years both in
the United States and outside of the United States toward more stringent
regulation of, and enforcement of requirements applicable to, healthcare
providers and medical device manufacturers. The continuing trend of more
stringent regulatory oversight in healthcare, enforcement activities and product
clearance for medical devices have caused healthcare providers and manufacturers
to experience more uncertainty, greater risk, higher expenses and longer
approval cycles. Management does not expect this trend to change in the near or
long term, in the United States or abroad.
In the United States, regulation of the healthcare industry is
particularly pervasive. Many states require providers of home health services,
such as the Company's Women's Health segment, to be licensed as nursing or home
health agencies and to have medical waste disposal permits. In addition, the
operations of Matria's diabetes disease management businesses require Matria to
be licensed as a pharmacy in several states. Moreover, certain employees of the
Company are subject to state laws and regulations regarding the ethics and
professional practice of pharmacy and nursing. The Company may also be required
to obtain certification to participate in governmental payment programs, such as
Medicare and Medicaid. Some states have established Certificate of Need ("CON")
programs regulating the establishment or expansion of healthcare operations. The
failure to obtain, renew or maintain any of the required licenses,
certifications or CONs could adversely affect the Company's disease management
businesses.
In addition, the Company's disease management businesses are subject to
various federal and state statutes regulating payments to or relationships with
referral sources. Penalties for violation of these statutes include substantial
fines and penalties, imprisonment and exclusion from participation in
governmental healthcare programs.
Moreover, many of the medical products distributed by the Company or
utilized by the Company for the provision of its services are classified as
medical devices under the federal Food, Drug and Cosmetic Act (the "FDC Act")
and are subject to regulation by the FDA. In addition, some of the services
involve the use of drugs or tests that are regulated by the FDA under the FDC
Act. Although these medical devices, drugs and tests are labeled for specific
indications and cannot be promoted for any other indications, physicians may and
do prescribe them for indications that have not been approved by the FDA. The
FDA allows physicians to prescribe drugs for such "off-label" indications under
the "practice of medicine" doctrine. For example,
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terbutaline sulfate is labeled for the treatment of asthma but is frequently
prescribed by obstetricians as a tocolytic for the treatment of preterm labor.
In response to a petition filed by the National Women's Health Network, in
November 1997, the FDA issued a letter to physicians reiterating that the use of
terbutaline sulfate has not been approved by the FDA for the management of
preterm labor. In 1998, the Company received and responded to a request from the
FDA for information regarding the Company's promotion of terbutaline sulfate for
off-label uses. The Company believes that publicity concerning the off-label use
of terbutaline sulfate has adversely affected the Company's Women's Health
segment's business.
As a result of the Company's desire to assure compliance with the
increasingly complex regulatory environment for the healthcare industry, the
Company maintains a company-wide compliance program, developed in accordance
with federal guidelines.
Although the Company believes its operations as currently conducted are
in material compliance with existing applicable laws and regulations, there can
be no assurance that the Company will not become the subject of a regulatory or
other investigation or proceeding or that its interpretations of applicable laws
and regulations will not be challenged. The defense of any such challenge could
result in substantial cost to the Company and diversion of management's time and
attention. Thus, any such challenge could have a material adverse effect on the
Company's business, regardless of whether it ultimately is sustained. Moreover,
the Company believes that its businesses will continue to be subject to
increasing regulation, the scope and effect of which the Company cannot predict.
The healthcare industry in the United States is experiencing a period
of extensive change due to economic forces, regulatory influences and political
initiatives. Market-driven reforms from forces within the industry are exerting
pressure on healthcare companies to reduce healthcare costs. These market-driven
changes are resulting in industry wide consolidation that is expected to
increase the downward pressure on healthcare companies' profit margins, as
larger buyer and supplier groups exert pricing pressures on healthcare
companies. In addition, from time to time federal and state legislatures
consider healthcare reform proposals. The ultimate timing or effect of
legislative efforts and market-driven reforms cannot be predicted, and these
initiatives may adversely impact Matria's business.
EMPLOYEES. The Company currently employs a total of approximately 963
full-time employees and over 70 regular part-time employees. In addition, the
Company employs an additional 902 part-time clinical employees to provide, among
other things, patient training and backup support on an "as needed" basis. None
of the Company's employees are represented by a union. The Company considers its
relationship with its employees to be satisfactory.
FORWARD-LOOKING STATEMENTS. This Annual Report on Form 10-K, including
the information incorporated by reference herein, contains various
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 Form 10-K and in such other statements,
are intended to identify forward-looking statements. All forward-looking
statements and information in this Form 10-K 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
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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 healthcare
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; and (xii) increases in interest rates. 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 Annual Report or in any statement referencing the
risk factors and other cautionary statements set forth in this Annual 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 Commission under federal securities laws.
ITEM 2. PROPERTIES.
Matria's principal executive and administrative offices are located at
1850 Parkway Place, Marietta, Georgia, and total approximately 104,000 square
feet. The facility is leased through February 28, 2003.
Additional properties also are leased for the other operations of
Matria. The Women's Health segment's patient service centers are typically
located in suburban office parks and range between 600 and 6,500 square feet of
space with an average of approximately 2,200 square feet. Total square footage
for these facilities is approximately 105,000 square feet. These facilities are
leased for various terms through 2004.
The Company's microsampling business maintains its headquarters in
McDonough, Georgia, where its facility consists of approximately 48,000 square
feet of office and warehouse space. The lease term on the facility expires in
2011. The microsampling business also leases approximately 1,000 square feet of
warehouse space in Milton Keynes, England under an automatically renewable
lease, which can be cancelled with six months notice. It also has a 200 square
foot office in Northants, England under a lease that expires in August 2000 and
which is expected to be amended to allow for a longer term. The Company's
diabetes disease management business maintains its United States headquarters in
Roanoke, Virginia, where its facility consists of approximately 24,000 square
feet of office and warehouse space, which is leased through November 2000. This
business also leases approximately 3,200 square feet of office and warehouse
space in Van Nuys, California on a month-to-month basis. This operation is
tentatively scheduled to move to an existing Matria facility in Irvine,
California in May 2000. This business also maintains leased facilities in
Neumunster and Dresden, Germany, consisting of approximately 3,200 and 6,500
square feet, respectively. The Neumunster lease expires in 2000, with automatic
unlimited renewals, and the Dresden lease expires in 2005.
The three NRMC clinics, which were located in California, totaled
approximately 29,000 square feet. The leases on two of the clinics terminated in
1999 with the sale of those clinics. The third facility was leased pursuant to
an agreement that expires in 2006. The Company has sublet most of that facility
to the acquirer of the business operated from that facility.
These facilities are generally in good condition, and Matria believes
that they are adequate for and suitable to its requirements.
ITEM 3. LEGAL PROCEEDINGS
Matria is subject to various legal claims and actions incidental to its
business and the businesses of its predecessors and their respective
subsidiaries, including product liability claims and professional liability
claims. As did its predecessors, Matria maintains insurance, including insurance
covering professional and product liability claims, with customary deductible
amounts. There can be no assurance, however, that (i)
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additional suits will not be filed in the future against Matria, (ii) Matria's
prior experience with respect to the disposition of its litigation accurately
indicates the results that will occur in pending or future cases or (iii)
adequate insurance coverage will be available at acceptable prices for incidents
arising or claims made in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SPECIAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY.
The following sets forth certain information with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Donald R. Millard 52 President and Chief Executive Officer
Frank D. Powers 51 Executive Vice President and Chief Operating Officer
George W. Dunaway 39 Vice President--Finance and Chief Financial Officer
Thornton A. Kuntz, Jr. 46 Vice President--Administration
Roberta L. McCaw 44 Vice President--Legal, General Counsel and Secretary
Yvonne V. Scoggins 50 Vice President, Treasurer and Chief Accounting Officer
James P. Reichmann 43 President, Women's Health Division
</TABLE>
The executive officers of the Company are elected annually and serve at
the pleasure of the Board of Directors.
Mr. Millard has served as President and Chief Executive Officer since
October 5, 1999 and previously was President, Chief Executive Officer and Chief
Financial Officer from October 20, 1997 to October 5, 1999. Mr. Millard was
Senior Vice President--Finance, Chief Financial Officer and Treasurer of the
Company from March 8, 1996 to October 20, 1997. Prior thereto, he served as Vice
President--Finance and Chief Financial Officer of Healthdyne from July 1987 to
March 1996 and, in addition, was Treasurer of Healthdyne from March 1990 to
March 1996.
Mr. Powers has been Executive Vice President and Chief Operating
Officer since October 20, 1997 and previously was Executive Vice President of
the Company from March 8, 1996 to October 20, 1997. Prior thereto, he served as
President of Healthdyne Maternity Management, a subsidiary of Healthdyne, from
October 1989 until March 1996, and as President of Healthdyne's Home Care Group
from November 1986 to October 1989. In addition, he was President of
Healthdyne's Home Care Products Division from September 1984 to November 1986
and Corporate Controller of Healthdyne from January 1983 to September 1984.
Mr. Dunaway has been Vice President--Finance and Chief Financial
Officer since October 5, 1999. Prior thereto, Mr. Dunaway was employed by The
Dun & Bradstreet Corporation, a commercial credit information services provider,
in the following capacities: Chief Financial Officer of Dun & Bradstreet, U.S.
from 1996 to October 1999; Vice President--Finance, Dun & Bradstreet, U. S. from
1995 to 1996; Chief Financial Officer of Dun & Bradstreet Plan Services from
1992 to 1995 and Assistant Vice President--Strategic Planning, Dun & Bradstreet
Plan Services from 1989 to 1992.
10
<PAGE> 11
Mr. Kuntz has been Vice President--Administration since February 24,
1998 and previously was Vice President--Human Resources of the Company from
March 8, 1996 to February 24, 1998. Prior thereto, he served as Vice
President--Administration of Healthdyne from August 1992 to March 1996.
Ms. McCaw has been Vice President--Legal, General Counsel and Secretary
of the Company since April 23, 1998 and previously was Assistant General Counsel
and Assistant Secretary of the Company from December 15, 1997 to April 23, 1998,
and Assistant General Counsel from July 1996 to December 1997. Prior thereto,
Ms. McCaw was a partner at Tyler, Cooper & Alcorn, a Connecticut-based law firm,
from January 1990 to July 1996.
Ms. Scoggins has been Vice President, Treasurer and Chief Accounting
Officer of the Company since December 15, 1997 and previously was Vice President
and Controller from March 8, 1996 to December 15, 1997. Prior thereto, Ms.
Scoggins was Vice President and Controller of Healthdyne from May 1995 to March
8, 1996; Vice President--Planning and Analysis of Healthdyne from May 1993 to
May 1995; and Vice President and Chief Financial Officer of Home Nutritional
Services, Inc., a former majority owned subsidiary of Healthdyne, from February
1990 to April 1993.
Mr. Reichmann has been President, Women's Health Division since June 1,
1999, and was Vice President--Operations of that division from January 1997 to
June 1999. Prior thereto, Mr. Reichmann was Vice President of Sales at RIK
Medical, L.L.C., a specialty support services company, and was Executive Vice
President of Healthdyne Perinatal Services, a subsidiary of Healthdyne, as
Executive Vice President from February 1992 to March 1996.
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Matria's common stock is traded in the over-the-counter market and is
quoted on the Nasdaq National Market ("NASDAQ") under the symbol "MATR". The
approximate number of record holders as of March 10, 2000 was 2,725.
Neither Matria nor its predecessors paid any cash dividends with
respect to their respective common stocks and Matria does not intend to declare
any dividends in the near future. The Company is a party to a Loan and Security
Agreement that contains covenants restricting the payment of dividends on the
Company's common stock. Matria is a party to an indenture assumed from
Healthdyne relating to subordinated debentures that contains provisions
restricting the payment of cash dividends during the continuation of a default
in the payment of interest on the subordinated debentures.
The following table sets forth, for the calendar quarters indicated,
the high and low sales prices of Matria common stock from January 1, 1998
through December 31, 1999:
<TABLE>
<CAPTION>
QUARTER LOW HIGH
------- ------ ------
<S> <C> <C>
1998
First ...... $4.750 $6.375
Second ..... 3.500 6.500
Third ...... 2.000 4.125
Fourth ..... 1.625 3.750
1999
First ...... $2.375 $4.438
Second ..... 2.688 6.375
Third ...... 5.250 7.500
Fourth ..... 3.000 5.875
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected consolidated financial data in
respect of the Company's continuing operations. The data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements. The statement of operations
data for the five years ended December 31, 1999 and the related balance sheet
data have been derived from the audited consolidated financial statements of the
Company.
The selected financial information represents the financial performance
of Matria from March 1, 1996 through December 31, 1999 and, for all prior
periods, of Tokos (deemed for accounting purposes to be the acquiror of
Healthdyne in the Merger). For all practical purposes, Matria did not engage in
business prior to the effective date of the Merger, and the results of Tokos are
not necessarily indicative of Matria's future performance.
12
<PAGE> 13
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated statements of operations:
Revenues ..................................... $ 247,335 135,215 144,533 130,806 85,209
Operating expenses ........................... 203,141 116,413 122,630 122,686 83,990
Provision for doubtful accounts............... 7,983 6,662 6,599 7,591 5,251
Amortization of goodwill and other intangibles 10,422 28,155 36,604 30,083 1,235
Asset impairment, restructuring,
severance and other charges ................ 4,241 85,367 -- 22,525 6,756
--------- --------- --------- --------- ---------
Earnings (loss) from operations ........... 21,548 (101,382) (21,300) (52,079) (12,023)
Interest income (expense), net................ (7,711) (608) 483 824 333
Other income (expense), net................... 16,169 448 (85) 134 46
--------- --------- --------- --------- ---------
Earnings (loss) before income tax expense . 30,006 (101,542) (20,902) (51,121) (11,644)
Income tax benefit (expense) ................. 4,000 -- -- -- (150)
--------- --------- --------- --------- ---------
Net earnings (loss) ....................... 34,006 (101,542) (20,902) (51,121) (11,794)
Redeemable preferred stock dividends ......... (3,049) -- -- -- --
Accretion of preferred stock ................. (420) -- -- -- --
--------- --------- --------- --------- ---------
Net earnings (loss) available to common
shareholders ........................... $ 30,537 (101,542) (20,902) (51,121) (11,794)
========= ========= ========= ========= =========
Net earnings (loss) per common share:
Basic ..................................... $ 0.83 (2.78) (0.57) (1.58) (0.68)
========= ========= ========= ========= =========
Diluted ................................... $ 0.77 (2.78) (0.57) (1.58) (0.68)
========= ========= ========= ========= =========
Weighted average shares outstanding:
Basic ..................................... 36,603 36,580 36,527 32,328 17,396
========= ========= ========= ========= =========
Diluted ................................... 40,144 36,580 36,527 32,328 17,396
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Consolidated balance sheets data:
Total assets ................................. $285,713 97,034 191,132 223,188 44,468
Long-term debt, excluding current installments 91,090 18,385 1,712 2,499 2,078
Redeemable preferred stock ................... 41,005 -- -- -- --
Common shareholders' equity................... 99,244 49,881 153,169 173,178 29,489
</TABLE>
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
During 1998 and early 1999, the Company announced several strategic
actions to expand its business focus beyond managing the condition of pregnancy
into other disease management markets. These actions included: (i) the
acquisition in July 1998 of Quality Diagnostic Services, Inc. ("QDS"), a cardiac
event monitoring company; (ii) the completion of a licensing agreement in
October 1998 with National Jewish Medical and Research Center ("National
Jewish") to provide services in the respiratory disease management market; and
(iii) the acquisition in January 1999 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 continued
revenue growth in 2000 and beyond.
In connection with the above acquisitions, the Company acquired
intangible assets that are being amortized over various useful lives from 5-15
years. The amortization periods are based on, among other things, the nature of
the products and markets, the competitive position of the acquired companies and
the adaptability to changing market conditions of the acquired companies.
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 of the Company included in this Annual
Report on Form 10-K for the year ended December 31, 1999 as filed with the
Securities and Exchange Commission (the "Commission"). As a result of the 1998
and 1999 strategic actions and acquisitions, the historical results of
operations are not necessarily indicative of the results that will be achieved
by the Company during future periods.
RESULTS OF OPERATIONS
Revenues increased $112.120 million or 82.9% in 1999 compared to 1998,
primarily due to the acquisitions of the Gainor Medical business and DMS, the
businesses that are included in the Diabetes Supplies and Services segment since
January 1, 1999, and QDS, the business that is included in the Cardiovascular
segment since July 1, 1998. Revenues for the Diabetes Supplies and Services
segment were $110.529 million in 1999. Revenues for the Cardiovascular segment
were $15.596 million for 1999 and $6.644 million in 1998. The increase in
revenues for these two segments in 1999 was partly offset by a $5.161 million or
4.5% decrease in revenues in the Women's Health segment in 1999, as well as a
$2.180 million decline in revenues in the Other segments resulting primarily
from the sale of the infertility practice management business. The decline in
the Women's Health segment resulted from the termination of marketing rights of
the fetal fibronectin immunoassay (fFN) test effective August 31, 1998, as well
as a decline in prescriptions for preterm labor management services.
Revenues for 1998 decreased $9.318 million or 6.4% from 1997, primarily
due to a $13.342 million or 10.4% decline in revenues in the Women's Health
segment. A 15.5% decrease in revenues from preterm labor management services,
resulting primarily from a decrease in prescriptions for these services, was
partially offset by growth in revenues from maternity education and assessment
services as well as the Diabetes in Pregnancy Program, which was initiated in
the last half of 1997. Additionally, the Company entered into an agreement
14
<PAGE> 15
with the manufacturer of the fFN test to relinquish all marketing rights to the
test, effective August 31, 1998. After this date, the Company no longer had
revenues on sales of fFN tests. Revenues from marketing these tests, which are
included in the Women's Health segment, were $2.991 million and $3.636 million
in 1998 and 1997, respectively. The Cardiovascular segment produced revenues of
$6.644 million in 1998 as a result of the acquisition of QDS, effective July 1,
1998.
Cost of revenues as a percentage of revenues increased to 50.0% for
1999 from 39.5% and 39.9%, in 1998 and 1997, respectively. The 1999 increase
resulted from the acquisition of the Gainor Medical business with its cost of
revenues of 66.0%. Excluding the Diabetes Supplies and Services segment, cost of
revenues for 1999 was 37.1% of revenues. This reduction was primarily the result
of a decrease in the cost of revenues of the Women's Health segment, which was
35.5% of revenues in 1999 compared to 36.9% in 1998 and 36.6% in 1997, primarily
achieved through consolidation of service sites and operating efficiencies.
Selling and administrative expenses as a percentage of revenues
decreased to 32.1% for 1999 from 46.6% for 1998 due to economies of scale
achieved as a result of the Company's acquisitions of Gainor Medical, QDS and
DMS. Selling and administrative expenses as a percentage of revenues was 45.0%
in 1997. The increase in 1998 was due in part to increased expenses associated
with the Company's strategy to diversify into the disease management market.
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% in 1999,
1998 and 1997. The provision for doubtful accounts as a percentage of revenues
in the Diabetes Supplies and Services segment was 1% for 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.
Amortization of intangible assets decreased in 1999 compared to 1998
and 1997 due to the write-offs of intangible assets taken in 1998. The impact of
the decrease resulting from these write-offs was partially offset by the
additional amortization of the intangible assets recorded as part of the
acquisitions described above.
In 1998, the Company recorded an $82.885 million asset impairment
charge of which $74.496 million was to write-down goodwill and intangible assets
relating to the 1996 merger of Tokos and Healthdyne and $8.389 million was to
write-down goodwill relating to the acquisition of NRMC. As part of its 1997
Business Assessment Plan, the Company assessed the future of its preterm labor
management business and expected revenue growth and profits to improve in 1998
and future years. However, in 1998, revenues continued to decline due to
negative market forces which impacted this business. In addition, in 1998, the
Company revised its strategic plan to expand beyond maternity management. As a
result, in the third quarter of 1998, the Company determined that estimated
future undiscounted cash flows of this segment of the business were below the
carrying value of its long-lived assets and goodwill. Accordingly, the Company
adjusted the carrying value of these long-lived assets and goodwill downward by
$74.496 million to their estimated fair value. The estimated fair value was
based on anticipated cash flows discounted at a rate commensurate with the risk
involved.
As a result of NRMC's inability to achieve improvements specified in
the 1997 Business Assessment Plan, as well as continued operational issues,
including the termination of the employment of the founding physician in July
1998, NRMC's net revenue declined approximately 17% in 1998. As a result, in the
fourth quarter of 1998, the Company determined that NRMC's estimated future cash
flows were below the carrying value of its long-lived assets. Accordingly, the
Company adjusted the carrying value of NRMC's long-lived assets, primarily
goodwill, to their estimated fair value by recording an $8.389 million asset
impairment charge. The estimated fair value was based on anticipated cash flows
discounted at a rate commensurate with the risk involved.
15
<PAGE> 16
The Company recorded a $2.482 million charge in 1998 for acquired
in-process research and development costs as a result of the acquisition of QDS.
During the third quarter of 1999, the Company began an assessment of
the cost structure of its Women's Health segment and decided that the number of
its monitoring centers could be significantly reduced without compromising
patient care or reducing services provided to patients, physicians or payors.
These cost-saving initiatives continued into the fourth quarter of 1999 and
resulted in total restructuring charges of $4.241 million in 1999. These
cost-saving measures are expected to result in total annualized cost reductions
in excess of $5 million.
Interest expense increased by $7.102 million in 1999 compared to 1998
due to a significant increase in borrowings related to business acquisitions.
Other income for 1999 includes gains of $17.349 million from $20.720
million in proceeds of sales of the Company's investment in Healtheon/WebMD
Corporation. The Company's investment and sales activity related to its holdings
in Healtheon/WebMD Corporation is summarized below.
The Company did not record a federal or state income tax expense in
1999, 1998 or 1997 due to the Company's operating loss carryforwards. A $4.000
million income tax benefit was recognized in the third quarter of 1999 as a
result of the elimination of the valuation allowance related to the deferred
income tax asset based on expected future operating earnings of the combined
Company. With this complete recognition of the deferred income tax asset, future
pre-tax earnings will result in the recognition of income tax expense. However,
no significant cash outflows are expected in the near future for income taxes
since, as of December 31, 1999, the Company's deferred tax asset of $36.725
million (which includes the tax effect of tax net operating loss carryforwards
of $74.827 million) will be available to offset future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations increased to $13.188 million in 1999
compared to $4.931 million in 1998 and $667,000 in 1997. Contributing to the
1999 cash flow improvement was a 198% improvement in operating earnings,
excluding amortization of intangibles and one-time charges, from $12.140 million
in 1998 to $36.211 million in 1999.
The Company's accounts receivable days' sales outstanding were 69 days
as of December 31, 1999, compared to 96 days as of December 31, 1998. The
reduction is due to lower days' sales outstanding of the Diabetes Supplies and
Services segment (41 days' sales outstanding), as well as a reduction of
accounts receivable days' sales outstanding in the Women's Health segment from
111 days at December 31, 1998 to 90 days at December 31, 1999. Approximately 25%
of the Gainor Medical business's sales are reimbursed by third-party and
domestic and German government healthcare payors with the remaining sales being
to original equipment manufacturers, corporate employers and international
healthcare systems.
Net cash used in (provided by) investing activities was $78.227 million
in 1999, $18.902 million in 1998 and $(3.090) million in 1997. In 1999, $93.022
million was expended on the purchases of the Gainor Medical business and DMS.
Capital expenditures of $7.361 million in 1999 and $5.942 in 1998 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 as the Company positioned itself for expansion into new
markets. In 1998, expenditures of $19.947 million were made related to the
acquisitions of QDS and DMS.
In connection with the acquisition of QDS, the Company invested $2.010
million in 1998 in preferred stock of WebMD, Inc. and received options and
warrants to purchase additional shares of WebMD, Inc. for $2.680 million, which
were exercised in 1999. In November 1999, WebMD, Inc. merged with Healtheon
16
<PAGE> 17
Corporation into Healtheon/WebMD Corporation. The Company sold 561,030 shares of
Healtheon/WebMD in the fourth quarter of 1999. At December 31, 1999, the Company
had a remaining investment in Healtheon/WebMD of 219,816 shares. Subsequent to
year-end, the Company sold an additional 169,570 shares of Healtheon/WebMD
resulting in proceeds of approximately $6.800 million and a gain of
approximately $5.800 million, which will be recognized in the first quarter of
2000. As of March 15, 2000, the Company had 50,246 shares of this investment
remaining.
As discussed above, total proceeds of $27.500 million have been
received in 1999 and 2000 from sales of Healtheon/WebMD. Of this amount, $2.680
million was used in 1999 to exercise the options and warrants to purchase
additional shares and $21.600 million was used to reduce the Company's term loan
facility ($15.000 million in 1999 and $6.600 million in the first quarter of
2000).
In 1997, the Company entered into a bank credit agreement for a $25.000
million secured line of credit. The acquisition of QDS in July 1998 for $17.000
million was financed primarily by borrowings under this agreement, and the
balance outstanding under this agreement as of December 31, 1998 was $16.659
million.
In January 1999, in connection with the acquisitions of Gainor Medical
and DMS, the Company entered into a $125.000 million, five-year secured credit
facility and the then-existing credit facility was terminated. The new credit
facility consists of an $80.000 million term loan facility and a $45.000 million
revolving credit facility. In January 1999, the Company borrowed $105.000
million under the facility, using $90.300 million for the purchases of Gainor
Medical and DMS and $14.700 million to repay existing debt. The 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%. 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 December 31, 1999, the Company was in compliance with
these requirements. At December 31, 1999, $59.000 million of the term loan and
$27.000 million under the revolving credit facility was outstanding. Subsequent
to year-end, the Company further reduced the term loan to $50.000 million and
the revolving credit facility to $24.000 million.
Also, in connection with the acquisitions of Gainor Medical and DMS,
the Company issued $45.000 million of redeemable preferred stock to the former
owners of Gainor Medical, consisting of $10 million of 4% convertible redeemable
preferred stock and $35.000 million of 8% redeemable preferred stock with
attached warrants to purchase four million shares of the Company's common stock.
See Note 9 of Notes to Consolidated Financial Statements for a description of
the redemption provisions.
The acquisition agreement for the Gainor Medical business provides for
an additional contingent purchase price of up to $35.000 million based upon 1999
financial performance of the Gainor Medical business. As of December 31, 1999,
the Company estimates that approximately $13.000 million of the additional
contingent purchase price will be earned and such amount is reflected as
additional goodwill and long-term debt on the consolidated balance sheet. The
Company will complete its final purchase price adjustments and contingent
consideration calculations in the first quarter of 2000. The contingent purchase
price will be payable by the issuance of subordinated notes to the sellers in
2000. These notes will bear an interest rate of 12% per annum and principal
payments will be made in the amount of one-third of the original note amount on
the third, fourth and fifth anniversaries of the note.
The acquisition agreement for the purchase of QDS provided for
additional cash payments of up to $6.000 million contingent upon 1999 revenues
of the Company's Cardiovascular segment. The 1999 revenue amounts required to
earn additional consideration were not achieved and no additional payments will
be made.
In February 1998, the Board of Directors of the Company approved the
purchase of up to ten percent of the Company's outstanding common stock. In
1998, a total of 626,000 shares were purchased for $2.397 million. No purchases
were made in 1999.
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<PAGE> 18
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.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133, which (as amended through the
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 133.
YEAR 2000 ISSUE
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems for Year 2000 compliance. As a result of
those planning and implementation efforts, the Company experienced no
significant disruptions in mission critical information technology and
non-information technology systems and believes those systems successfully
responded to the Year 2000 date change. The Company is not aware of any material
problems resulting from the Year 2000 issues, either with its products, its
internal systems, products and services of third-party suppliers or
reimbursements by third-party payors. The Company will continue to monitor its
mission critical computer applications and those of its suppliers and payors
throughout 2000 to ensure that any latent Year 2000 issues that may arise are
addressed promptly.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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
Annual Report and in such other statements, are intended to identify
forward-looking statements. All forward-looking statements and information in
this Annual 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 healthcare 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
18
<PAGE> 19
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 Annual Report or in any statement referencing the risk factors and other
cautionary statements set forth in this Annual 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 Commission under
federal securities laws.
ITEM 7A. 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 December 31, 1999, the Company's total variable rate
long-term debt obligation was $86.000 million. A hypothetical 10% change in the
interest rates applied to the December 31, 1999 balance of variable rate debt
obligations for a duration of one year would result in additional interest
expense of $779,000.
The Company's non-U.S. operations with sales denominated in other than
U.S. dollars (primarily in Germany) generated approximately 10% of total
revenues in 1999. 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 net earnings by approximately
$150,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following Consolidated Financial Statements of the Company and its
subsidiaries and independent auditors' report thereon are included as pages F-1
through F-25 of this Annual Report on Form 10-K:
PAGE
----
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1999 and 1998 F-2
Consolidated Statements of Operations - Years Ended
December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of Common Shareholders' Equity and
Comprehensive Earnings - Years Ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows - Years Ended
December 31, 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-7
19
<PAGE> 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
20
<PAGE> 21
PART III
ITEMS 10-13.
The information contained under the heading "Management of the Company"
in the Company's definitive proxy materials for its 2000 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission, is
incorporated by reference herein. Additional information relating to the
executive officers of the Company is included as a Special Item in Part I of
this Annual Report on Form 10-K.
For purposes of determining the aggregate market value of the Company's
common stock held by non-affiliates as shown on the cover page of this report,
shares held by all directors and executive officers of the Company have been
excluded. The exclusion of such shares is not intended to, and shall not,
constitute a determination as to which persons may be "affiliates" of the
Company as defined by the Securities and Exchange Commission.
Section 16(a) of the Securities Exchange Act of 1934 as amended (the
"Act"), requires the Company's directors and executive officers and persons who
own more than ten percent of a registered class of the Company's equity
securities to file reports with the SEC regarding beneficial ownership of common
stock and other equity securities of the Company. To the Company's knowledge,
based solely on a review of copies of such reports furnished to the Company and
written representations that no other reports were required, during the fiscal
year ended December 31, 1999, all officers, directors and greater than ten
percent beneficial owners complied with the Section 16(a) filing requirements of
the Act in all instances.
21
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements of the Company
and its subsidiaries and report of independent auditors thereon are included as
pages F-1 through F-25 of this Annual Report on Form 10-K:
PAGE
----
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1999 and 1998 F-2
Consolidated Statements of Operations - Years Ended
December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of Common Shareholders' Equity and
Comprehensive Earnings - Years Ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows - Years Ended
December 31, 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-7
(a)(2) The following supporting financial statement schedule and report
of independent auditors thereon are included as part of this Annual Report on
Form 10-K:
Independent Auditors' Report.
Schedule II - Valuation and Qualifying Accounts.
All other Schedules are omitted because the required information is
inapplicable or information is presented in the Consolidated Financial
Statements or related notes.
(a)(3) EXHIBITS:
The following exhibits are incorporated by reference herein as part of
this Report as indicated:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger, dated October 2, 1995, as
amended, between Healthdyne, Tokos and Registrant
(incorporated by reference to Appendix A to the Joint Proxy
Statement/Prospectus filed as part of the Company's
Registration Statement No. 333-00781 on Form S-4 (Registration
No. 333-00781) filed February 7, 1996 (the "Form S-4").
2.2 Agreement and Plan of Merger, dated June 24, 1996, between
National Reproductive Medical Centers, Inc. ("NRMC"), Matria,
NRMC Acquisition Corporation and certain NRMC shareholders
(incorporated by reference to Exhibit 2.1 to the Matria
Current Report on Form 8-K dated July 10, 1996).
22
<PAGE> 23
2.3 Asset Purchase Agreement, dated July 21, 1998, for the
purchase of assets of Quality Diagnostic Services, Inc.
("QDS") (incorporated by reference to Exhibit 2 to the Matria
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
2.4 Purchase and Sale Agreement, dated December 21, 1998, by and
between Matria and Gainor Medical Management, L.L.C., with
exhibits (incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K dated February 3, 1999 with those portions
omitted for confidentiality reasons filed separately with the
Commission).
3.1 Amended and Restated Certificate of Incorporation
(incorporated by reference to Appendix D to the Joint Proxy
Statement/Prospectus filed as part of the Company's Form S-4).
3.2 Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Matria Annual Report on Form
10-K for the year ended December 31, 1995).
3.3 Bylaws, as amended (incorporated by reference to Exhibit 3.3
to the Matria Annual Report on Form 10-K for the year ended
December 31, 1998).
4.1 Indenture dated as of December 1, 1986, between Healthdyne and
National Bank of Georgia, trustee, for 8% Convertible
Subordinated Indentures due December 31, 2001 (incorporated by
reference to Exhibit (4)(b) to the Healthdyne Annual Report on
Form 10-K for the year ended December 31, 1986, Commission
File No. 0-10647).
4.2 Supplemental Indenture dated March 7, 1996, between the
Company and SouthTrust Estate & Trust Company of Georgia,
N.A., Trustee to Indenture, dated December 1, 1986, for 8%
Convertible Subordinated Debentures due December 31, 2001
(incorporated by reference to Exhibit 4.3 to the Matria Annual
Report on Form 10-K for the year ended December 31, 1995).
4.3 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of 4% Series
A Convertible Preferred Stock dated January 15, 1999
(incorporated by reference to Exhibit 4.1 to the Company's
Form 8-K dated February 3, 1999).
4.4 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of 8% Series
B Redeemable Preferred Stock dated January 15, 1999
(incorporated by reference to Exhibit 4.2 to the Company's
Form 8-K dated February 3, 1999).
4.5 Credit Agreement, dated January 19, 1999, among Matria,
certain other borrowers from time to time party thereto, the
banks and other financial institutions from time to time party
thereto, and First Union National Bank as Administrative Agent
(incorporated by reference to Exhibit 4.3 to the Company's
Form 8-K dated February 3, 1999).
4.6 Amended and Restated Rights Agreement, dated April 27, 1999
between Matria and SunTrust Bank Atlanta (incorporated by
reference as Exhibit 4 to the Matria Quarterly Report on Form
10-Q for the quarter ended March 31, 1999).
10.1 Form of Rights Agreement between Registrant and SunTrust Bank,
Atlanta (incorporated by reference to Exhibit 10.1 to the
Company's Form S-4).
*10.2 1996 Stock Incentive Plan (incorporated by reference to
Appendix F-1 to the Joint Proxy Statement/Prospectus filed as
a part of the Company's Form S-4).
*10.3 1996 Directors' Non-Qualified Stock Option Plan (incorporated
by reference to Appendix F-11 to the Joint Proxy
Statement/Prospectus filed as a part of the Company's Form
S-4).
23
<PAGE> 24
*10.4 1996 Employee Stock Purchase Plan (incorporated by reference
to Appendix F-111 to the Joint Proxy Statement/Prospectus
filed as a part of the Company's Form S-4).
*10.5 Form of Promissory Note with Tokos officers and related
Security Agreement (incorporated by reference to an Exhibit
to the Tokos Registration Statement on Form S-1 (Registration
No. 33-33340), Commission File No. 0-18320).
10.6 Shareholders Agreement, dated February 28, 1995, among
Healthdyne, Inc. (a predecessor of Matria), certain
shareholders of National Reproductive Medical Centers, Inc.
("NRMC") and NRMC (incorporated by reference to Exhibit 99.3
to the Matria Current Report on Form 8-K dated July 10, 1996).
10.7 Settlement Agreement, dated March 3, 1998 between the Company
and Adeza Biomedical Corporation (incorporated by reference to
Exhibit 10.33 to the Matria Annual Report on Form 10-K for the
year ended December 31, 1997 with those portions omitted for
confidentiality reasons filed separately with the Commission).
10.8 Amendment to Rights Agreement effective December 21, 1998
(incorporated by reference to Exhibit 99 to the Company's Form
8-K dated February 3, 1999).
*10.9 Split-Dollar Life Insurance Agreement between the Company and
Parker H. Petit, effective January 1, 1997 (incorporated by
reference to Exhibit 10.12 to the Matria Annual Report on Form
10-K for the year ended December 31, 1998).
*10.10 Split-Dollar Life Insurance Agreement between the Company and
Donald R. Millard, effective January 1, 1997 (incorporated by
reference to Exhibit 10.13 to the Matria Annual Report on Form
10-K for the year ended December 31, 1998).
*10.11 Split-Dollar Life Insurance Agreement between the Company and
Frank D. Powers, effective January 1, 1997 (incorporated by
reference to Exhibit 10.14 to the Matria Annual Report on Form
10-K for the year ended December 31, 1998).
*10.12 Split-Dollar Life Insurance Agreement between the Company and
Thornton A. Kuntz, Jr. effective January 8, 1998 (incorporated
by reference to Exhibit 10.15 to the Matria Annual Report on
Form 10-K for the year ended December 31, 1998).
*10.13 Split-Dollar Life Insurance Agreement between the Company and
Roberta L. McCaw, effective January 8, 1998 (incorporated by
reference to Exhibit 10.16 to the Matria Annual Report on Form
10-K for the year ended December 31, 1998).
*10.14 Split-Dollar Life Insurance Agreement between the Company and
Yvonne V. Scoggins, effective January 8, 1998 (incorporated by
reference to Exhibit 10.17 to the Matria Annual Report on Form
10-K for the year ended December 31, 1998).
*10.15 Management Agreement between the Company and Lucor Holdings,
LLC, Mark J. Gainor and J. Michael Highland, dated January 19,
1999 (incorporated by reference to Exhibit 10.18 to the Matria
Annual Report on Form 10-K for the year ended December 31,
1998).
10.16 Standstill Agreement between the Company and Mark J. Gainor
and SZ Investments, L.L.C., dated January 19, 1999
(incorporated by reference to Exhibit 10.19 to the Matria
Annual Report on Form 10-K for the year ended December 31,
1998).
24
<PAGE> 25
*10.17 Severance Compensation and Restrictive Covenant Agreement
dated as of April 27, 1999 between the Company and Donald R.
Millard (incorporated by reference to Exhibit 10.12 to the
Matria Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
*10.18 Severance Compensation and Restrictive Covenant Agreement
dated as of April 27, 1999 between the Company and Frank D.
Powers (incorporated by reference to Exhibit 10.13 to the
Matria Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
*10.19 Severance Compensation and Restrictive Covenant Agreement
dated as of April 27, 1999 between the Company and Yvonne V.
Scoggins (incorporated by reference to Exhibit 10.14 to the
Matria Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
*10.20 Change in Control Severance Compensation and Restrictive
Covenant Agreement dated as of April 27, 1999 between the
Company and Donald R. Millard (incorporated by reference to
Exhibit 10.15 to the Matria Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999).
*10.21 Change in Control Severance Compensation and Restrictive
Covenant Agreement dated as of April 27, 1999 between the
Company and Frank D. Powers (incorporated by reference to
Exhibit 10.16 to the Matria Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999).
*10.22 Change in Control Severance Compensation and Restrictive
Covenant Agreement dated as of April 27, 1999 between the
Company and Yvonne V. Scoggins (incorporated by reference to
Exhibit 10.17 to the Matria Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999).
*10.23 1997 Stock Incentive Plan incorporated by reference to Exhibit
A to Matria's Definitive Proxy Statement filed with the
Commission on April 16, 1998.
The following exhibits are filed as part of this Report:
4.7 First Amendment to Credit Agreement and Waiver, dated November
15, 1999, among Matria, certain other borrowers from time to
time party thereto, the bank and other financial institutions
from time to time party thereto, and First Union National Bank
as Administrative Agent.
4.8 Second Amendment to Credit Agreement, dated January 19, 2000,
among Matria, certain other borrowers from time to time party
thereto, the banks and other financial institutions from time
to time thereto, and First Union National Bank as
Administrative Agent.
11.0 Computation of Earnings (Loss) per Share
21.0 List of Subsidiaries.
23.0 Accountants' Consent.
24.0 Power of Attorney (included in signature page to this report).
27.0 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
The Company has not filed any Current Report on Form 8-K for the
quarter ended December 31, 1999.
*Management contract or compensatory plan or arrangement
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 27, 2000 By: /s/ Donald R. Millard
---------------------------------------
Donald R. Millard
Director, 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)
/s/ Yvonne V. Scoggins
---------------------------------------
Yvonne V. Scoggins, Vice President,
Treasurer and Chief Accounting Officer
(Principal Accounting Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Donald R. Millard as his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
re-substitution, for and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and to perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he or she might or would
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Parker H. Petit Chairman of the Board, March 27, 2000
- ------------------------------- Director
Parker H. Petit
/s/ Donald R. Millard Director, President and March 27, 2000
- ------------------------------- Chief Executive Officer
Donald R. Millard (Principal Executive Officer)
26
<PAGE> 27
/s/ Frank D. Powers Director, Executive March 27, 2000
- ------------------------------- Vice President and
Frank D. Powers Chief Operating Officer
/s/ Rod F. Dammeyer Director March 22, 2000
- -------------------------------
Rod F. Dammeyer
/s/ Mark J. Gainor Director March 22, 2000
- -------------------------------
Mark J. Gainor
/s/ Carl E. Sanders Director March 22, 2000
- -------------------------------
Carl E. Sanders
/s/ Jackie M. Ward Director March 21, 2000
- -------------------------------
Jackie M. Ward
/s/ Morris S. Weeden Director March 22, 2000
- -------------------------------
Morris S. Weeden
/s/ Frederick P. Zuspan, M.D. Director March 27, 2000
- -------------------------------
Frederick P. Zuspan, M.D.
27
<PAGE> 28
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
-------------------------------
Balance at Charges to
beginning costs and Charges to Balance at
Description of period expenses other accounts Deductions end of period
----------- --------- -------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1997
Allowance for doubtful accounts 26,198 6,599 -- 10,146 22,651
December 31, 1998
Allowance for doubtful accounts 22,651 6,662 2,836(1) 10,914 21,235
December 31, 1999
Allowance for doubtful accounts 21,235 7,983 2,089(1) 16,990 14,317
</TABLE>
- ----------
(1) Represents beginning balances in allowance for doubtful accounts of
acquired companies.
28
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Matria Healthcare, Inc.:
We have audited the accompanying consolidated balance sheets of Matria
Healthcare, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, common shareholders' equity and
comprehensive earnings, and cash flows for each of the years in the three-year
period ended December 31, 1999. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule of valuation and qualifying accounts. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Matria Healthcare,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Atlanta, Georgia
February 14, 2000
F-1
<PAGE> 30
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
ASSETS 1999 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................. $ 9,548 9,109
Short-term investments (notes 2 and 17) ................................... 8,243 2,859
Trade accounts receivable, less allowances of $14,317 and
$21,235 at December 31, 1999 and 1998, respectively .................... 47,489 37,311
Inventories ............................................................... 10,406 1,699
Prepaid expenses .......................................................... 1,978 1,642
Notes receivable (notes 2 and 16) ......................................... 169 1,335
Other current assets ...................................................... 1,358 1,579
--------- ---------
Total current assets .................................... 79,191 55,534
Property and equipment, net (note 4) .......................................... 18,418 16,865
Intangible assets, less accumulated amortization of $11,052 and
and $612 at December 31, 1999 and 1998, respectively
(notes 1, 2 and 3) ........................................................ 139,352 16,261
Deferred income taxes (note 7) ................................................ 36,725 --
Cash surrender value of life insurance (note 10) .............................. 10,803 4,425
Other assets (notes 2 and 16) ................................................. 1,224 3,949
--------- ---------
$ 285,713 97,034
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (notes 5 and 12) ................... $ 10,362 718
Accounts payable, principally trade ....................................... 18,826 8,939
Accrued liabilities (notes 6, 11 and 16) .................................. 12,349 9,536
--------- ---------
Total current liabilities ............................... 41,537 19,193
Long-term debt, excluding current installments (notes 2, 5 and 12) ............ 91,090 18,385
Accrued benefit costs (note 10) ............................................... 8,030 4,705
Other long-term liabilities (note 11) ......................................... 4,807 4,870
--------- ---------
Total liabilities ....................................... 145,464 47,153
--------- ---------
Redeemable preferred stock, $.01 par value. Authorized 50,000 shares (note 9):
Series A convertible: issued and outstanding - 10 shares at
December 31, 1999 and none at December 31, 1998; redemption
value of $10,000 ....................................................... 10,000 --
Series B: issued and outstanding - 35 shares at December 31, 1999
and none at December 31, 1998; redemption value of $35,000 ............. 31,005 --
--------- ---------
Total redeemable preferred stock ........................ 41,005 --
--------- ---------
Common shareholders' equity (note 8):
Common stock, $.01 par value. Authorized 100,000
shares; issued and outstanding - 36,771 and 36,410 shares
at December 31, 1999 and 1998, respectively ............................ 368 364
Additional paid-in capital ................................................ 293,210 280,585
Accumulated deficit ....................................................... (196,576) (227,533)
Accumulated other comprehensive earnings .................................. 5,777 --
Notes receivable and accrued interest from shareholder .................... (3,535) (3,535)
--------- ---------
Total common shareholders' equity ....................... 99,244 49,881
Commitments and contingencies (notes 10, 12, and 13)
--------- ---------
$ 285,713 97,034
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 31
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues ............................................... $ 247,335 135,215 144,533
Cost of revenues ....................................... 123,709 53,385 57,610
Selling and administrative expenses .................... 79,432 63,028 65,020
Provision for doubtful accounts ........................ 7,983 6,662 6,599
Amortization of intangible assets ...................... 10,422 28,155 36,604
Asset impairment charges (note 3) ...................... -- 82,885 --
Acquired in-process research and development (note 2) .. -- 2,482 --
Restructuring expenses (note 11) ....................... 4,241 -- --
--------- --------- ---------
Operating earnings (loss) .......................... 21,548 (101,382) (21,300)
Interest income ........................................ 474 475 794
Interest expense ....................................... (8,185) (1,083) (311)
Other income (expense), net (note 17) .................. 16,169 448 (85)
--------- --------- ---------
Earnings (loss) before income taxes ................ 30,006 (101,542) (20,902)
Income tax benefit (note 7) ............................ 4,000 -- --
--------- --------- ---------
Net earnings (loss) ................................ 34,006 (101,542) (20,902)
Redeemable preferred stock dividends ................... (3,049) -- --
Accretion of preferred stock ........................... (420) -- --
--------- --------- ---------
Net earnings (loss) available to common shareholders $ 30,537 (101,542) (20,902)
========= ========= =========
Net earnings (loss) per common share:
Basic .............................................. $ 0.83 (2.78) (0.57)
========= ========= =========
Diluted ............................................ $ 0.77 (2.78) (0.57)
========= ========= =========
Weighted average shares outstanding:
Basic .............................................. 36,603 36,580 36,527
========= ========= =========
Diluted ............................................ 40,144 36,580 36,527
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 32
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Common Shareholders' Equity
and Comprehensive Earnings
(Amounts and shares in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------ --------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 ....................................... 36,333 $ 363 $ 281,318 ($105,089)
Issuance of common stock:
Exercise of options .......................................... 500 5 1,471 --
Employee Stock Purchase Plan ................................. 111 1 454 --
Conversion of subordinated debentures ........................ 3 -- 15 --
Purchase and cancellation of treasury stock ...................... (156) (1) (931) --
Accrued interest on shareholder notes ............................ -- -- -- --
Net loss ......................................................... -- -- -- (20,902)
------ --------- --------- ---------
Balance, December 31, 1997 ....................................... 36,791 368 282,327 (125,991)
Issuance of common stock:
Exercise of options .......................................... 121 1 272 --
Employee Stock Purchase Plan ................................. 121 1 364 --
Conversion of subordinated debentures ........................ 3 -- 13 --
Purchase and cancellation of treasury stock ...................... (626) (6) (2,391) --
Net loss ......................................................... -- -- -- (101,542)
------ --------- --------- ---------
Balance, December 31, 1998 ....................................... 36,410 364 280,585 (227,533)
Issuance of common stock:
Exercise of options .......................................... 150 2 307 --
Employee Stock Purchase Plan ................................. 194 2 526 --
Conversion of subordinated debentures ........................ 17 -- 87 --
Recognition of deferred tax effect of exercise of options ........ -- -- 7,710 --
Issuance of warrants on Series B redeemable preferred stock ...... -- -- 4,415 --
Accretion on Series B redeemable preferred stock ................. -- -- (420) --
Dividends on redeemable preferred stock .......................... -- -- -- (3,049)
Net earnings ..................................................... -- -- -- 34,006
Change in foreign currency translation adjustment ................ -- -- -- --
Change in unrealized appreciation on available-for-sale securities -- -- -- --
------ --------- --------- ---------
Balance, December 31, 1999 ....................................... 36,771 $ 368 $ 293,210 ($196,576)
====== ========= ========= =========
<CAPTION>
NOTES
ACCUMULATED RECEIVABLE TOTAL
OTHER AND ACCRUED COMMON
COMPREHENSIVE INTEREST FROM SHAREHOLDERS' COMPREHENSIVE
EARNINGS SHAREHOLDER EQUITY EARNINGS (LOSS)
-------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 ....................................... $ -- ($ 3,414) $ 173,178
Issuance of common stock:
Exercise of options .......................................... -- -- 1,476
Employee Stock Purchase Plan ................................. -- -- 455
Conversion of subordinated debentures ........................ -- -- 15
Purchase and cancellation of treasury stock ...................... -- -- (932)
Accrued interest on shareholder notes ............................ -- (121) (121)
Net loss ......................................................... -- -- (20,902) ($ 20,902)
-------- --------- --------- ---------
Balance, December 31, 1997 ....................................... -- (3,535) 153,169
Issuance of common stock:
Exercise of options .......................................... -- -- 273
Employee Stock Purchase Plan ................................. -- -- 365
Conversion of subordinated debentures ........................ -- -- 13
Purchase and cancellation of treasury stock ...................... -- -- (2,397)
Net loss ......................................................... -- -- (101,542) ($101,542)
-------- --------- --------- ---------
Balance, December 31, 1998 ....................................... -- (3,535) 49,881
Issuance of common stock:
Exercise of options .......................................... -- -- 309
Employee Stock Purchase Plan ................................. -- -- 528
Conversion of subordinated debentures ........................ -- -- 87
Recognition of deferred tax effect of exercise of options ........ -- -- 7,710
Issuance of warrants on Series B redeemable preferred stock ...... -- -- 4,415
Accretion on Series B redeemable preferred stock ................. -- -- (420)
Dividends on redeemable preferred stock .......................... -- -- (3,049)
Net earnings ..................................................... -- -- 34,006 $ 34,006
Change in foreign currency translation adjustment ................ (537) -- (537) (537)
Change in unrealized appreciation on available-for-sale securities 6,314 -- 6,314 6,314
-------- --------- --------- ---------
Balance, December 31, 1999 ....................................... $ 5,777 ($ 3,535) $ 99,244 $ 39,783
======== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 33
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) .................................... $ 34,006 (101,542) (20,902)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization .................... 16,740 33,345 41,944
Provision for doubtful accounts .................. 7,983 6,662 6,599
Deferred tax benefit ............................. (4,000) -- --
Gains on sales of investments .................... (17,349) -- --
Change in accrued restructuring expenses ......... 3,369 -- --
Asset impairment charges ......................... -- 82,885 --
Acquired in-process research and development ..... -- 2,482 --
Other, net ....................................... -- 146 218
Changes in assets and liabilities, net of effects
of acquisitions and dispositions:
Trade accounts receivable ................... (9,537) (7,230) (16,770)
Inventories ................................. (235) (611) (221)
Prepaid expenses and other current assets ... 442 (957) (547)
Other assets ................................ (3,503) (2,398) 14
Accounts payable ............................ (6,432) 3,227 (774)
Accrued and other liabilities ............... (8,296) (11,078) (8,894)
-------- -------- --------
Net cash provided by operating activities 13,188 4,931 667
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of short-term investments .......... 23,579 8,997 5,854
Investment in an affiliated company .................... (2,680) (2,010) --
Purchases of property and equipment .................... (7,361) (5,942) (2,529)
Acquisition of businesses, net of cash acquired ........ (93,022) (19,947) (249)
Proceeds from disposal of property and equipment ....... 1,257 -- 14
-------- -------- --------
Net cash (used in) provided by
investing activities ................. (78,227) (18,902) 3,090
-------- -------- --------
</TABLE>
F-5
<PAGE> 34
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Amounts in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowings under credit agreement ................... 108,000 16,659 --
Proceeds from issuance of long-term debt ............ 979 781 --
Principal repayments of long-term debt .............. (41,552) (1,627) (2,369)
Proceeds from issuance of common stock .............. 837 638 1,931
Redeemable preferred stock dividend payments ........ (2,249) -- --
Purchase of treasury stock .......................... -- (2,397) (932)
Other, net .......................................... -- (60) (231)
--------- --------- ---------
Net cash provided by (used in)
financing activities .................... 66,015 13,994 (1,601)
--------- --------- ---------
Effect of foreign currency exchange rate changes ........ (537) -- --
--------- --------- ---------
Net increase in cash and cash equivalents ... 439 23 2,156
Cash and cash equivalents at beginning of year .......... 9,109 9,086 6,930
--------- --------- ---------
Cash and cash equivalents at end of year ................ $ 9,548 9,109 9,086
========= ========= =========
Supplemental disclosures of cash paid for:
Interest ............................................ $ 6,325 1,161 311
========= ========= =========
Income taxes ........................................ $ 208 10 --
========= ========= =========
Supplemental disclosures of noncash investing and
financing activities:
Equipment acquired under capital lease obligations $ 526 707 --
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 35
<PAGE> 36
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and per share amounts)
December 31, 1999, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS
Prior to 1998, Matria Healthcare, Inc. ("Matria" or the
"Company"), a Delaware corporation, was primarily a nationwide
provider of women's health services. During 1998, Matria
established itself as a diversified provider of disease
management. In July 1998, the Company acquired Quality Diagnostic
Services, Inc. ("QDS") and entered the cardiovascular disease
management market. In October 1998, the Company entered the
respiratory disease management market by signing a licensing
agreement with National Jewish Medical Research Center ("National
Jewish") that gives Matria exclusive rights to market the
comprehensive asthma and chronic obstructive pulmonary disease
management programs developed by National Jewish. In 1998, the
Company expanded its existing diabetes-in-pregnancy program to
include the general diabetes population. In January 1999, the
Company significantly expanded its offering of diabetes supplies
and disease management services through the acquisitions of Gainor
Medical Management, L.L.C. ("Gainor Medical") and Diabetes
Management Systems, Inc. ("DMS"). See note 2 for a summary of
recent acquisitions and note 15 for a description of the revenues,
operating earnings, identifiable assets, depreciation and
amortization and capital expenditures of the Company's reportable
business segments.
(b) BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the
consolidated balance sheets, and revenues, other income and
expenses for the periods. Actual results could differ from those
estimates.
The consolidated financial statements include the accounts of
Matria and all of its majority owned subsidiaries and
partnerships. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) REVENUES AND ALLOWANCES FOR UNCOLLECTIBLE ACCOUNTS
Revenues for the Women's Health, Cardiovascular and Other segments
are generated by providing services through patient service
centers. Revenues from these segments are recognized as the
related services are rendered and are net of contractual
allowances and related discounts. The Diabetes Supplies and
Services segment provides services through its patient service
center, provides supplies to patients, and assembles, packages and
distributes lancing products to original equipment manufacturers.
Revenues for services are recognized when services are provided
and revenues from product sales are recognized when product is
shipped. Revenues from this segment are recorded net of
contractual and other discounts. A significant portion of the
Company's revenues is billed to third-party reimbursement sources.
Accordingly, the ultimate collectibility of a substantial portion
of the Company's trade accounts receivable is susceptible to
changes in third-party reimbursement policies.
A provision for doubtful accounts is made for revenues estimated
to be uncollectible and is adjusted periodically based upon the
Company's evaluation of current industry conditions, historical
collection experience, and other relevant factors which, in the
opinion of management, deserve recognition in estimating the
allowance for uncollectible accounts.
F-7
<PAGE> 37
(d) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of accounts
receivable from third-party payors. The collectibility of accounts
receivable from third-party payors is directly affected by
conditions and changes in the insurance industry and governmental
programs, which are taken into account by the Company in computing
and evaluating its allowance for uncollectible accounts.
(e) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and interest-bearing
deposits. For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(f) SHORT-TERM INVESTMENTS
At December 31, 1999, short-term investments consist of the
Company's holdings in marketable equity securities (see notes 2
and 17). Under the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities ("SFAS 115"), the Company classifies these
short-term investments as available-for-sale securities which are
carried at fair value with any unrealized gains and losses
included in accumulated other comprehensive earnings in common
shareholders' equity. Unrealized gains of $6,314 are included in
common shareholders' equity in the consolidated balance sheet at
December 31, 1999.
At December 31, 1998, short-term investments consisted of United
States Government and municipal bonds. Under the provisions of
SFAS 115, the Company classified these short-term investments as
trading securities which were carried at fair value with any
unrealized gains and losses included in earnings. Unrealized gains
of $51 were included in "other income" in the consolidated
statement of operations for the year ended December 31, 1998.
(g) INVENTORIES
Inventories, which consist primarily of disposable medical
products, drugs and patient supplies, are stated at the lower of
cost (first-in, first-out) or market (net realizable value).
(h) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is provided primarily
on the straight-line method over the estimated useful lives of the
assets ranging from three to ten years. Amortization of leasehold
improvements and leased equipment is recorded over the shorter of
the lives of the related assets or the lease terms.
F-8
<PAGE> 38
(i) INTANGIBLE ASSETS
A summary of intangible assets follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Goodwill .................... $142,580 12,538
Other intangible assets ..... 7,824 4,335
-------- --------
150,404 16,873
Less accumulated amortization 11,052 612
-------- --------
$139,352 16,261
======== ========
</TABLE>
Intangible assets consist of goodwill and other intangible assets,
primarily resulting from the Company's acquisitions (see note 2).
Goodwill is being amortized using the straight-line method over
periods ranging from 5 to 15 years. At each balance sheet date,
the Company assesses the recoverability of goodwill by determining
whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of
goodwill impairment, if any, is measured based upon projected
discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds (see note 3).
Other intangible assets consist of customer lists, trade names,
work force, purchased software, and covenants not to compete.
These costs are being amortized on a straight-line basis over
periods ranging from 4 to 15 years.
(j) LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets (see note 3).
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(k) STOCK OPTION PLANS
Prior to January 1, 1996, the Company accounted for its stock
option plans in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such,
compensation expense to be recognized over the related vesting
period would generally be determined on the date of grant only if
the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement
of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123
also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net earnings (loss) and pro
forma earnings (loss) per share
F-9
<PAGE> 39
disclosures for employee stock option grants as if the fair
value-based method defined in SFAS 123 had been applied. The
Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures required by
SFAS 123 (see note 8).
(l) INCOME TAXES
The Company accounts for income taxes using an asset and liability
approach. Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases
of existing assets and liabilities and net operating loss and
credit carryforwards. Additionally, the effect on deferred taxes
of a change in tax rates is recognized in earnings in the period
that includes the enactment date. Investment and research and
experimental tax credits are accounted for by the flow-through
method.
(m) NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Basic earnings (loss) per common share available to common
shareholders are based on the weighted average number of common
shares outstanding. Diluted earnings (loss) per common share
available to common shareholders are based on the weighted average
number of common shares outstanding and dilutive potential common
shares, such as dilutive stock options and warrants, determined
using the treasury stock method, and dilutive convertible
preferred shares, determined using the if-converted method. In
1998 and 1997, the computation of diluted net earnings (loss) per
share of common stock was antidilutive in each of the periods
presented; therefore, the amounts reported for basic and diluted
earnings (loss) per share are the same.
(n) COMPREHENSIVE EARNINGS
Comprehensive earnings generally includes all changes in equity
during a period except those resulting from investments by owners
and distributions to owners. Until 1999, the Company had no
elements of comprehensive earnings other than net earnings (loss).
For 1999, comprehensive earnings consists of net earnings, foreign
currency translation adjustments and changes in unrealized
appreciation on available-for-sale securities.
(o) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses financial instruments in the normal course of
business. The carrying values of cash equivalents, short-term
investments, accounts receivable, accounts payable, and accrued
liabilities approximate fair value due to the short-term
maturities of these assets and liabilities. The Company estimates
that the carrying amounts of the Company's long-term debt
approximate the fair value based on the current rates offered to
the Company for debt with the same remaining maturities.
(p) RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 consolidated financial
statements have been reclassified to conform to presentations
adopted in 1999.
F-10
<PAGE> 40
(2) ACQUISITIONS
Effective January 1, 1999, the Company acquired substantially all of the
assets of Gainor Medical for an initial purchase price of approximately
$134,000. The acquisition was accounted for under the purchase method of
accounting and resulted in the recognition of intangible assets of
$3,800, consisting of purchased U.S. patient lists and executive
noncompete agreements (being amortized over five years), international
patient lists (being amortized over 10 years), and goodwill of $106,044
(being amortized over 15 years). Results of its operations have been
included in the Company's consolidated results of operations effective
January 1, 1999.
In connection with the acquisition of the Gainor Medical business, the
Company recognized a $25,015 deferred tax asset for the estimated tax
benefits of the net operating loss carry forwards to be realized in the
future as a result of the acquisition (see note 7).
The acquisition agreement also provides for an additional contingent
purchase price of up to $35,000 based on 1999 financial performance of
the Gainor Medical businesses. As of December 31, 1999, the Company
estimates that approximately $13,000 of the additional contingent
purchase price will be earned and such amount is reflected in goodwill
and long-term debt on the consolidated balance sheet. The Company will
complete its final purchase price adjustments and contingent
consideration calculations in the first quarter of 2000. The contingent
purchase price will be payable by the issuance of subordinated notes in
2000. These notes will bear an interest rate of 12% per annum and
principal payments will be made in the amount of one-third of the
original note amount on the third, fourth and fifth anniversaries of the
note.
At the closing of the transaction, the Company paid $83,758 of the
purchase price in cash, assumed approximately $1,242 in debt and issued
$45,000 in redeemable preferred stock and warrants of the Company (see
note 9). The transaction also included a cash adjustment payable by the
Company of approximately $6,573, one-half of which was paid at the
closing and the remaining one-half of which was paid during the second
quarter of 1999.
The cash portion of the purchase price was financed partially through a
$125,000 five-year bank credit facility, which the Company entered into
in January 1999. The credit facility consists of an $80,000 term loan
facility and a $45,000 revolving credit facility (see note 5).
In January 1998, the Company converted a $250 note receivable from DMS
and paid $500 cash to acquire a 10% equity interest in DMS. During 1998,
the Company made advances to fund the working capital of DMS totaling
$1,335 (reflected in notes receivable at December 31, 1998). In January
1999, the Company converted the note receivable for these advances and
paid cash of $6,500 to acquire the remaining equity interests of DMS. The
acquisition was accounted for using the purchase method of accounting and
resulted in the recognition of $10,765 of goodwill, which is being
amortized over 15 years. Results of operations of this business have been
included in the Company's consolidated results of operations effective
January 1, 1999.
On July 21, 1998, Matria purchased certain assets of QDS, a cardiac event
monitoring company, a Georgia corporation and wholly owned subsidiary of
Endeavor Technologies, Inc. (subsequently named WebMD, Inc.) for $17,000
in cash. The acquisition agreement also provides for additional cash
payments of up to $6,000 contingent upon 1999 revenues of the
cardiovascular businesses. The 1999 revenue amounts required to earn
additional consideration were not achieved and no additional payments
will be made. The assets purchased include intellectual property,
accounts receivable, and contract rights. The acquisition was accounted
for in accordance with the purchase method of accounting with the results
of operations of the business acquired included in the consolidated
financial
F-11
<PAGE> 41
statements from the effective date of the acquisition, July 1, 1998. The
acquisition resulted in expensed acquired in-process research and
development of $2,482, intangible assets of $3,846, including noncompete
agreements and workforce (being amortized over five years), customer
lists and trade names (being amortized over 15 years), and goodwill of
$8,254 (being amortized over 15 years). In connection with the
acquisition, the Company made a $2,010 preferred stock investment in
WebMD, Inc., which was reflected in other long-term assets at December
31, 1998. In 1999, the Company made an additional $2,680 investment to
exercise options and warrants to purchase additional shares of WebMD,
Inc. At December 31, 1999, the Company's remaining investment in WebMD,
Inc. is reflected in short-term investments. See note 17 for a summary of
gains from sales of shares of WebMD, Inc.
The following unaudited pro forma consolidated results of operations are
presented as if the Gainor Medical, DMS and QDS acquisitions had been
made at January 1, 1998:
<TABLE>
<S> <C>
Revenues ................................ $ 224,097
Net loss ................................ (112,882)
Net loss available to common shareholders (116,502)
Net loss per common share ............... (3.18)
</TABLE>
The pro forma consolidated results of operations include adjustments to
give effect to amortization of goodwill and interest expense on
acquisition debt, together with related income tax effects. The unaudited
pro forma amounts are not necessarily indicative of the results of
operations that would have occurred had the purchases been made at the
beginning of the period presented or the future results of the combined
operations.
The following is a summary of the fair value of assets acquired and
consideration paid in connection with these acquisitions:
<TABLE>
<CAPTION>
GAINOR QDS DMS
-------- -------- --------
<S> <C> <C> <C>
Cash paid for the assets acquired, net of cash acquired $ 81,770 17,000 8,492
Preferred stock issued for assets acquired ............ 45,000 -- --
Contingent consideration .............................. 13,000 -- --
Cash paid for acquisition costs ....................... 5,337 370 --
-------- -------- --------
Fair value of assets acquired, including goodwill ..... $145,107 17,370 8,492
======== ======== ========
</TABLE>
F-12
<PAGE> 42
(3) ASSET IMPAIRMENT CHARGES
In the third quarter of 1998, the Company recorded a $74,496 asset
impairment charge to write down goodwill and intangible assets relating
to the 1996 merger ("Merger") of Tokos Medical Corporation (Delaware)
("Tokos") and Healthdyne, Inc. ("Healthdyne"). As part of its 1997
Business Assessment Plan, the Company assessed the future of its preterm
labor management business, and management expected revenue growth rates
and earnings to improve in 1998 and future years. However, in 1998,
revenues continued to decline due to negative market forces. In addition,
in 1998, the Company revised its strategic plan to expand beyond
maternity management. As a result, in the third quarter of 1998, the
Company determined that Healthdyne's estimated future undiscounted cash
flows were below the carrying value of its long-lived assets and related
goodwill. Accordingly, the Company adjusted the carrying value of
Healthdyne's long-lived assets and goodwill to their estimated fair
value. The estimated fair value was based on anticipated net cash flows
discounted at a rate commensurate with the risk involved. The operations
of Tokos and Healthdyne are included in the Women's Health operating
segment (see note 15).
As a result of the inability of National Reproductive Medical Center,
Inc. ("NRMC") to achieve improvements specified in the 1997 Business
Assessment Plan, as well as continued operational issues, including the
termination of the employment of the founding physician in July 1998,
NRMC's net revenue declined approximately 17% in 1998, and an operating
loss was incurred. As a result, in the fourth quarter of 1998, the
Company determined that NRMC's estimated future cash flows were below the
carrying value of its long-lived assets and related goodwill.
Accordingly, the Company adjusted the carrying value of NRMC's long-lived
assets and goodwill, to their estimated fair value by recording an $8,389
asset impairment charge. The estimated fair value was based on
anticipated net cash flows discounted at a rate commensurate with the
risk involved. The operations of NRMC are included in Other Segments (see
note 15). See further discussion of the disposition of NRMC in note 16.
(4) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
------- -------
<S> <C> <C>
Medical equipment ............................ $26,266 25,923
Machinery, equipment and fixtures ............ 17,580 18,488
Leasehold improvements ....................... 1,875 2,692
------- -------
45,721 47,103
Less accumulated depreciation and amortization 27,303 30,238
------- -------
$18,418 16,865
======= =======
</TABLE>
F-13
<PAGE> 43
(5) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Secured term loan, variable interest at the LIBOR rate plus 3%;
payable in quarterly installments; maturing in March 2004 ........... $ 59,000 --
Secured revolving line of credit, variable interest at the LIBOR
rate plus 3%; outstanding principal balance plus all accrued
but unpaid interest payable March 2004 .............................. 27,000 --
Secured revolving line of credit, interest at the LIBOR rate plus 2.75%;
outstanding principal balance plus all accrued
but unpaid interest paid in January 1999 (see below) ................ -- 16,659
Acquisition note, interest at 8% payable quarterly; interest at
4% payable annually; payable in annual installments
beginning in 2003 and maturing in 2005 .............................. 13,000 --
Convertible subordinated debentures (net of discount of $35 and $60 at
December 31, 1999 and 1998, respectively); interest at 8% payable
annually; maturing on December 31, 2001; convertible into the
Company's common stock at
$4.90 per share; redeemable by the Company at face value ............ 1,187 1,249
Unsecured, noninterest-bearing obligations incurred in
connection with buyout of physician-owned companies;
payable at various dates through June 1999 .......................... -- 111
Capital lease obligations; interest ranging from approximately
7% to 13% with various monthly payments and maturing at
various dates through December 2003 (note 12) ....................... 754 998
Other debt; interest at rates ranging from approximately 6% to
9%; payable in monthly installments through May 2002 ................ 511 86
-------- --------
Total long-term debt ......................................... 101,452 19,103
Less current installments .............................................. 10,362 718
-------- --------
Long-term debt, excluding current installments ............... $ 91,090 18,385
======== ========
</TABLE>
In September 1997, the Company entered into a secured revolving line of
credit with a commercial lender. Under the terms of this credit facility,
the Company could borrow up to $25,000 based upon the value of eligible
collateral as defined in the credit agreement. Borrowings under this
agreement bore interest, at the Company's option, of (i) the reference
rate of the Bank plus 0.5% or (ii) the LIBOR rate plus 2.75% (8.25% at
December 31, 1998). Borrowings outstanding under this agreement at
December 31, 1998 totaled $16,659.
The secured revolving line of credit agreement was terminated in January
1999 in connection with the acquisitions of Gainor Medical and DMS (see
note 2). The Company replaced that arrangement with a $125,000 five-year
bank credit facility. The new facility consisted of an $80,000 term loan
facility and a $45,000 revolving credit facility. The 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 December 31, 1999, interest rates under this
agreement ranged from 9.0000% to 9.1875%. The facility
F-14
<PAGE> 44
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 December 31, 1999, the Company was in
compliance with these requirements.
Approximate aggregate minimum annual payments due on long-term debt for
the five years subsequent to December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 ...... $ 10,362
2001 ...... 12,743
2002 ...... 12,811
2003 ...... 20,302
2004 ...... 40,900
Thereafter 4,334
--------
$101,452
========
</TABLE>
(6) ACCRUED LIABILITIES
Accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
------- -------
<S> <C> <C>
Accrued salaries, wages and incentives ............... $ 2,960 1,750
Accrued liabilities of business dispositions (note 16) 2,751 --
Accrued interest ..................................... 1,893 33
Accrued restructuring costs (note 11) ................ 1,369 500
Accrued preferred stock dividends .................... 800 --
Deferred revenue ..................................... 76 4,374
Accrued severance .................................... 300 1,036
Other ................................................ 2,200 1,843
------- -------
$12,349 9,536
======= =======
</TABLE>
(7) INCOME TAXES
The provision for income taxes includes income taxes currently payable
and those deferred because of temporary differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future and any increase or decrease
in the valuation allowance for deferred income tax assets. The Company's
income tax benefit for 1999 is $4,000, all of which is a deferred
benefit. The Company had no income tax benefit or expense for 1998 or
1997.
F-15
<PAGE> 45
Below is a reconciliation of the expected income tax expense (benefit) -
(based on the U.S. federal statutory income tax rate) to the actual
income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Computed expected income tax expense (benefit) ......... $ 10,202 (35,540) (7,316)
Increase (decrease) resulting from:
State and local income taxes, net of federal benefit 1,188 -- --
Nondeductible expenses ............................. 1,194 39,563 7,428
Losses in excess of allowable carrybacks ........... -- 796 132
Nontaxable municipal interest income ............... -- (83) (244)
Change in effective tax rate ....................... (3,886) -- --
Tax benefits realized as a result of acquisitions .. 25,015 -- --
Benefit of deductions attributable to stock options
credited to additional paid-in capital ......... 7,710 -- --
Reduction in valuation allowance ................... (45,339) (4,624) --
Other, net ......................................... (84) (112) --
-------- -------- --------
Income tax expense (benefit) ........................... $ (4,000) -- --
======== ======== ========
</TABLE>
At December 31, 1999 and 1998, the Company had deferred tax assets of
approximately $36,725 and $45,339, respectively, before valuation
allowances. The valuation allowance is based on an assessment of the
likelihood of whether the deferred tax asset will be realized. The
decrease in the valuation allowance of $45,339 during 1999 was
attributable to the following items: (1) current year benefit of $12,500
resulting from utilization of net operating losses; (2) an increase in
the deferred income taxes to include the state income tax benefits of
$(3,886); (3) a reduction of $25,015 based upon an assessment of future
operating earnings of the combined businesses in conjunction with the
acquisition of Gainor Medical (see note 2); (4) a $7,710 credit to
additional paid-in capital related to the operating loss carryforward
generated by the exercise of stock options; and (5) a $4,000 credit to
income tax benefit on the consolidated statement of operations as the
Company believes it now more likely than not that it will realize the
related deferred income tax assets.
At December 31, 1999 and 1998, deferred income taxes consist of future
tax benefits attributable to:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts ................... $ 171 1,062
Accruals and reserves not deducted for tax purposes 1,725 3,167
Depreciation and amortization ..................... 6,215 6,943
Net operating loss carryforwards .................. 26,826 31,715
Credit carryforwards .............................. 1,824 1,923
Contribution carryforward ......................... -- 445
Other ............................................. (36) 84
-------- --------
Total ........................................ 36,725 45,339
Less valuation allowance .......................... -- 45,339
-------- --------
Net deferred income tax asset ................ $ 36,725 --
======== ========
</TABLE>
F-16
<PAGE> 46
At December 31, 1999, the Company had the following estimated credit and
operating loss carryforwards available for federal income tax reporting
purposes to be applied against future taxable income and tax liabilities:
<TABLE>
<CAPTION>
GENERAL NET
YEAR OF BUSINESS OPERATING
EXPIRATION CREDITS LOSS
---------- ------- ---------
<S> <C> <C>
2000 .............. $ 79 --
2001 .............. 97 --
2002 .............. 43 --
2003 .............. 61 --
2004 .............. 151 --
2005 .............. -- 6,771
2007 .............. -- 4,475
2008 .............. -- 7,266
2009 .............. -- 15,241
2010 .............. -- 7,182
2011 .............. -- 29,015
2012 .............. -- 1,649
2018 .............. -- 3,228
------- ------
$ 431 74,827
======= ======
</TABLE>
A portion of the net operating loss ($15,600) is limited, by the Internal
Revenue Code Section 382, to an annual utilization of $2,300. The total
net operating loss is limited to an annual utilization of approximately
$17,000. The Company also has available alternative minimum tax ("AMT")
credit carryforwards of approximately $1,392 available to offset regular
income tax, if any, in future years. The AMT credit carryforwards do not
expire. The AMT net operating loss carryforward is approximately $63,187.
(8) COMMON SHAREHOLDERS' EQUITY
STOCK OPTION PLANS
Prior to the Merger, Tokos maintained a stock option plan for the benefit
of key employees and directors under which options granted expired ten
years from the date of grant. In connection with the Merger, the Company
assumed options outstanding under the Tokos and Healthdyne option plans.
Both Tokos' options and Healthdyne's options outstanding on the date of
the Merger became fully vested. All other terms and conditions of the
options remained the same as they were prior to the Merger. As of the
date of the Merger, the Company adopted two stock option plans for the
benefit of key employees and nonemployee directors. A total of 1,250,000
shares of the Company's common stock have been authorized for issuance
under these plans. Stock options granted under these plans are
exercisable in equal amounts over three years and expire in ten years.
F-17
<PAGE> 47
During 1997, the Board of Directors of the Company adopted the 1997 Stock
Option Plan for key employees, officers, independent contractors, and
consultants of the Company. The 1997 Stock Option Plan has three
components: a stock option component, a stock bonus/stock purchase
component, and a Stock Appreciation Right component. A total of 1,800,000
shares of the Company's common stock have been authorized for issuance
under this Plan. The Stock Option Committee shall determine the term of
each option granted under the Plan, provided, however, that the term does
not exceed ten years. These options are exercisable based upon
established performance goals, provided, however, that they are not
exercisable in less than two years or more than four years and expire
after ten years. In addition, during 1997, the Board of Directors of the
Company granted nonplan options to purchase 479,150 shares of common
stock to certain nonexecutive employees.
The Company has elected to adopt the disclosure-only provisions of SFAS
123 which require presentation of pro forma net earnings (loss) and pro
forma earnings (loss) per share as if the Company had accounted for its
employee stock options under the fair value method. For purposes of pro
forma disclosure, the estimated fair value of the options is amortized to
expense over the vesting period. Under the fair value method, the
Company's net earnings (loss) and basic earnings (loss) per share would
have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
Pro forma net earnings (loss) available to common shareholders:
- Basic ................................................ $ 28,629 (102,479) (22,530)
========= ======== =======
- Diluted .............................................. $ 29,010 (102,479) (22,530)
========= ======== =======
Pro forma earnings (loss) per common share:
- Basic ................................................ $ 0.78 (2.80) (0.62)
========= ======== =======
- Diluted .............................................. $ 0.72 (2.80) (0.62)
========= ======== =======
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, and the options generally have a three-year vesting
period, the pro forma effect was not fully reflected until 1998.
The weighted average fair value of the individual options granted during
1999, 1998 and 1997 is estimated at $2.38, $2.48 and $3.22, respectively,
on the date of grant. The fair values for those years were determined
using the Black-Scholes option-pricing model with the following
assumptions.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Dividend yield ........ None None None
Volatility ............ 58% 50% 46%
Risk-free interest rate 5.54% 5.15% 6.25%
Expected life ......... 5 Years 5 Years 5 Years
</TABLE>
F-18
<PAGE> 48
A summary of stock option transactions under these plans is shown
below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year ..................... 3,225,120 $5.91 2,905,383 $6.23 3,088,501 $6.00
Granted ................... 786,300 4.30 931,518 5.01 974,150 6.51
Exercised ................. (158,345) 2.17 (121,472) 2.25 (500,261) 2.95
Canceled .................. (314,281) 5.12 (490,309) 6.71 (657,007) 8.03
---------- ----- ---------- ----- ---------- -----
Outstanding at end of year 3,538,794 $5.79 3,225,120 $5.91 2,905,383 $6.23
========== ===== ========== ===== ========== =====
Exercisable at end of year 1,996,310 $6.33 1,985,068 $5.99 1,638,263 $5.61
========== ===== ========== ===== ========== =====
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------- ----------- ---------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.88 - $ 5.00 ..... 968,873 7.49 $ 4.04 331,656 $ 4.01
$ 5.00 - $ 10.00 ..... 2,559,034 6.67 6.40 1,653,767 6.73
$ 10.00 - $ 20.00 ..... 7,587 0.19 11.46 7,587 11.46
$ 20.00 - $ 31.50 ..... 3,300 2.66 27.95 3,300 27.95
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company maintains an Employee Stock Purchase Plan (the "Purchase
Plan") to encourage ownership of its common stock by employees. The
Purchase Plan provides for the purchase of up to 500,000 shares of the
Company's common stock by eligible employees of the Company and its
subsidiaries. Under the Purchase Plan, the Company may conduct an
offering each fiscal quarter of its common stock to eligible employees.
The participants in the Purchase Plan can elect to purchase common stock
at the lower of 85% of the fair market value per share on either the
first or last business day of the quarter, limited to a maximum of either
10% of the employee's compensation or 1,000 shares of common stock per
quarter. A participant immediately ceases to be a participant in the
Purchase Plan upon termination of his or her employment for any reason.
During 1999, 1998 and 1997, respectively, 193,877, 120,532 and 110,967
shares of common stock were issued under the Purchase Plan. Compensation
costs related to this plan determined under SFAS 123 were insignificant
to the Company's consolidated statements of operations for the three
years ended December 31, 1999.
SHAREHOLDER RIGHTS PLAN
In connection with the Merger, Matria established a Shareholders' Rights
Agreement. If a person or group acquires beneficial ownership of 15% or
more of the Company's outstanding common stock or announces a tender
offer or exchange that would result in the acquisition of a beneficial
ownership of 20% or more of the Company's outstanding common stock, the
rights detach from the common stock and are distributed to shareholders
as separate securities. Each right entitles its holder to purchase one
one-hundredth of a share (a unit) of common stock, at a purchase price of
$61 per unit. The rights,
F-19
<PAGE> 49
which do not have voting power, expire on March 9, 2006 unless previously
distributed and may be redeemed by the Company in whole at a price of
$.01 per right any time before and within 10 days after their
distribution. If the Company is acquired in a merger or other business
combination transaction, or 50% of its assets or earnings power are sold
at any time after the rights become exercisable, the rights entitle a
holder to buy a number of common shares of the acquiring company having a
market value of twice the exercise price of the right. If a person
acquires 20% of the Company's common stock or if a 15% or larger holder
merges with the Company and the common stock is not changed or exchanged
in such merger, or engages in self-dealing transactions with the Company,
each right not owned by such holder becomes exercisable for the number of
common shares of the Company having a market value of twice the exercise
price of the right.
(9) REDEEMABLE PREFERRED STOCK
In connection with the purchase of the Gainor Medical business (see note
2), the Company designated 16,500 shares and issued 10,000 shares of 4%
Series A convertible redeemable preferred stock ("Series A CRPS"), and
designated 60,000 shares and issued 35,000 shares of 8% Series B
redeemable preferred stock ("Series B RPS") with attached warrants to
purchase 4,000,000 shares of the Company's common stock at $3.00 per
share.
The Series A CRPS is convertible at any time into 2,222,222 shares of
common stock. At its option, the Company may redeem the Series A CRPS, at
any time beginning two years after the acquisition date, after the 30-day
moving average of the closing price of the Company's stock has exceeded
$5.40 per share, at a redemption price of $1,222 per share. The Series A
CRPS has a mandatory redemption feature which requires the Company to
redeem one-third of the shares issued on each of the eighth, ninth and
tenth anniversary dates of the original issuance date at the redemption
price of $1,000 per share. Redemption may occur at the holder's request,
in the event there is a change of control of the Company, as defined in
the applicable shareholder agreement. Dividends are payable quarterly, in
arrears, in cash or additional shares of Series A CRPS, or a combination
thereof, at the option of the Company. The Series A CRPS has been
recorded at the mandatory redemption value.
At its option, the Company may redeem the Series B RPS in whole or in
part at any time at the redemption price of $1,000 per share. The Series
B RPS has a mandatory redemption feature which requires the Company to
redeem one-third of the shares issued on each of the eighth, ninth and
tenth anniversary dates of the original issuance date, at the redemption
price of $1,000 per share. At issuance date, the Company allocated $4,415
of the $35,000 total redemption value of Series B RPS to the fair value
of the warrants issued, using a Black-Scholes option pricing model. This
amount was recorded as a credit to additional paid-in capital and is
being accreted over the term of the Series B RPS.
In the event of liquidation, holders of Series A CRPS and Series B RPS
are entitled to receive, from the assets available for distribution to
the shareholders, an amount in cash or property at fair market value,
equal to $1,000 per share plus unpaid dividends. The Company is
restricted from paying dividends on the Company's common stock until all
unpaid dividends on the Series A CRPS and Series B RPS are paid.
F-20
<PAGE> 50
(10) EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) defined contribution plan for the benefit
of its employees. The Company's obligation for contributions under the
401(k) plan is limited to each participant's contribution but not more
than 3% of the participant's compensation. Discretionary Company
contributions are allowed under the plan. Contributions to the plan for
the years ended December 31, 1999, 1998 and 1997 were approximately $833,
$814 and $607, respectively.
During 1996, the Company established a nonqualified defined benefit
pension plan for the benefit of a certain select group of senior
management. The benefits are based on the employee's compensation during
the three calendar years in which the individual's base salary is the
highest and actual years of service. During 1997, the Company terminated
this nonqualified defined benefit pension plan and allowed existing
participants to either receive a lump-sum payment or roll over their
investment into a split-dollar life insurance contract whereby the
participants or their beneficiaries are entitled to the greater of the
contract's cash surrender value or the contract's death benefit, less
insurance premiums paid by the Company. The participants who chose the
lump-sum payout were paid approximately $1,328 on January 2, 1998.
During 1998, the Company entered into split-dollar life insurance
contracts with additional members of senior management. These contracts
operate in the same manner as the contracts entered into in 1997.
On the earlier date that occurs of: (i) the date the employee reaches age
65; (ii) the date of the employee's death; or (iii) the date of
termination of the employee prior to the completion of ten years of
service, the Company has the right to be repaid an amount, up to the
amount of premiums paid, by which the cash surrender value of the policy
exceeds the employee's vested life insurance plan benefit.
During 1999 and 1998, the Company paid $2,754 and $2,640, respectively,
in insurance premiums related to these split-dollar life insurance
contracts. At December 31, 1999 and 1998, respectively, the cash
surrender value of life insurance policies was $10,803 and $4,425 and the
related liability was $8,030 and $4,705. There was no insurance premium
expense in 1999 since the increase in cash surrender value of the life
insurance policies was greater than the increase in the net present value
of future benefit payments. Insurance premium expense was $521 in 1998.
(11) RESTRUCTURING
During the third quarter of 1999, the Company began an assessment of the
cost structure of its Women's Health segment and decided that the number
of its monitoring centers could be significantly reduced without
compromising patient care or reducing services provided to patients,
physicians or payors. These cost-savings initiatives continued into the
fourth quarter of 1999 and resulted in total restructuring charges of
$4,241 in 1999. Of these costs, $3,201 relates to future lease payments
and other related costs of closed facilities, $668 relates to involuntary
severance of employees and $372 relates to the write-down of capital
equipment. Accrued restructuring expenses at December 31, 1999 were
$3,369, including $2,000 reflected in other long-term liabilities.
F-21
<PAGE> 51
(12) COMMITMENTS
The Company is committed under noncancelable lease agreements for
facilities and equipment. Future minimum operating lease payments and the
present value of the future minimum capital lease payments as of December
31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEARS ENDING DECEMBER 31, LEASES LEASES
------------------------- --------- --------
<S> <C> <C>
2000 $ 6,150 449
2001 4,979 334
2002 4,512 25
2003 1,842 25
2004 678 --
Thereafter 823 --
--------- -------
$ 18,984 833
=========
Less interest 79
-------
Present value of future minimum capital lease payments $ 754
=======
</TABLE>
Amortization of leased assets is included in depreciation expense. Rental
expense for cancelable and noncancelable leases was approximately $7,460,
$6,500 and $6,100 for the years ended December 31, 1999, 1998 and 1997,
respectively.
(13) CONTINGENCIES
The Company and its subsidiaries are involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, based in part on the advice of counsel, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's consolidated balance sheet, results of operations or
liquidity.
In March 1997, Adeza Biomedical Corporation ("Adeza") initiated
litigation against the Company alleging that the Company breached the
Exclusive Marketing Agreement, dated as of December 31, 1991, as amended
(the "Agreement") between the Company and Adeza under which the Company
was granted the exclusive marketing rights to Adeza's fetal fibronectin
immunoassay test ("fFN"). On March 3, 1998, the Company settled its
dispute with Adeza. Under the terms of the settlement, the Company agreed
to relinquish its rights under the Agreement and its equity interest in
Adeza in exchange for a right to recoup a portion of its investment in
Adeza and the product, based on future sales of fFN. The Company
continued to distribute fFN during a transition period which ended on
August 31, 1998.
F-22
<PAGE> 52
(14) QUARTERLY FINANCIAL INFORMATION - UNAUDITED
Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------------------
FOURTH THIRD SECOND FIRST
-------- ------- ------- -------
<S> <C> <C> <C> <C>
1999:
Revenues ............................ $ 61,775 63,899 62,302 59,359
Net earnings ........................ 20,560 7,737 4,038 1,671
Net earnings per diluted common share 0.49 0.17 0.08 0.03
1998:
Revenues ............................ $ 34,817 34,107 33,473 32,818
Net loss ............................ (6,443) (84,156) (5,295) (5,648)
Net loss per diluted common share ... (.18) (2.31) (.14) (.15)
</TABLE>
(15) 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.
As a result of the acquisitions in the last half of 1998 and the first
quarter of 1999, the Company's operations have been 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 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 units that are below the quantitative threshold for
disclosure: respiratory disease management, infertility practice
management services, and clinical records software and services.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. There are no
intersegment sales, and operating earnings (loss) by business segment
excludes interest income, interest expense and corporate expenses.
F-23
<PAGE> 53
Summarized financial information by business segment follows:
<TABLE>
<CAPTION>
REVENUES OPERATING EARNINGS (LOSS)
------------------------------------ --------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Women's Health .................. $109,986 115,147 128,489 15,566 (8,584) (12,924)
Diabetes Supplies and Services .. 110,529 -- -- 11,402 39 --
Cardiovascular .................. 15,596 6,644 -- 2,640 (1,136) --
Other Segments .................. 11,224 13,424 16,044 (2,409) (4,956) (3,871)
-------- -------- -------- -------- -------- --------
Total segments ......... 247,335 135,215 144,533 27,199 (14,637) (16,795)
General corporate ............... -- -- -- (5,651) (3,860) (4,505)
Asset impairment charges (note 3) -- -- -- -- (82,885) --
Interest income (expense), net .. -- -- -- (7,711) (608) 483
Other income (expense), net ..... -- -- -- 16,169 448 (85)
-------- -------- -------- -------- -------- --------
$247,335 135,215 144,533 30,006 (101,542) (20,902)
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS DEPRECIATION AND AMORTIZATION
------------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Women's Health ............... $ 39,575 57,011 150,627 3,380 29,150 38,151
Diabetes Supplies and Services 153,772 39 -- 9,610 -- --
Cardiovascular ............... 21,906 14,383 -- 2,754 1,054 --
Other Segments ............... 2,462 6,543 17,084 571 3,041 3,664
General corporate ............ 67,998 19,058 23,421 425 100 129
-------- -------- -------- -------- -------- --------
$285,713 97,034 191,132 16,740 33,345 41,944
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES
------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Women's Health ................... $2,933 2,828 1,460
Diabetes Supplies and Services ... 787 -- --
Cardiovascular ................... 2,468 1,912 --
Other Segments ................... 541 406 298
General corporate ................ 632 796 771
------ ------ ------
$7,361 5,942 2,529
====== ====== ======
</TABLE>
The Company's revenues from sales shipped to customers from outside the
U.S. were 15% of total revenues in 1999 and less than 1% of total
revenues in 1998 and 1997. No single customer accounted for 10% of
consolidated net revenues in 1999, 1998 or 1997.
F-24
<PAGE> 54
(16) DISPOSITION OF ASSETS
In 1999, the Company determined that its infertility business, NRMC, no
longer fit the Company's diversified disease management strategy. During
the third and fourth quarters of 1999, the Company sold the assets of
these clinics, with no gain or loss recognized on the sale of these
assets. The Company realized cash proceeds of $1,257 from this
disposition. The Company received notes from the buyers of NRMC totaling
$1,079, which are reflected in current assets and other long-term assets
at December 31, 1999. Liabilities for future patient refunds and other
costs totaling $2,751 are reflected in accrued liabilities.
(17) SALES OF SHORT-TERM INVESTMENTS
In connection with the acquisition of QDS (see note 2), the Company
invested $2,010 in 1998 in preferred stock of WebMD, Inc. and received
options and warrants to purchase additional shares of WebMD, Inc. for
$2,680, which were exercised in 1999. In November 1999, WebMD, Inc.
merged with Healtheon Corporation into Healtheon/WebMD Corporation.
Subsequent to the merger, the Company sold shares of Healtheon/WebMD
Corporation generating proceeds of $20,720 and a gain of $17,349, which
is reflected in "other income" in the consolidated statements of
operations. At December 31, 1999, the Company has a remaining investment
in Healtheon/WebMD of 219,816 shares.
F-25
<PAGE> 1
EXHIBIT 4.7
FIRST AMENDMENT TO CREDIT AGREEMENT
AND WAIVER
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER, dated as of the
15th day of November, 1999 (this "Amendment"), is made among MATRIA HEALTHCARE,
INC., a Delaware corporation (the "Borrower"), the Required Lenders (as defined
in the Credit Agreement referred to below), and FIRST UNION NATIONAL BANK, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent").
RECITALS
A. The Borrower, certain banks and other financial institutions, the
Administrative Agent, and Harris Trust and Savings Bank, as Co-Agent, are
parties to a Credit Agreement, dated as of January 19, 1999 (the "Credit
Agreement"), providing for the availability of certain credit facilities to the
Borrower upon the terms and conditions set forth therein. Capitalized terms used
herein without definition shall have the meanings given to them in the Credit
Agreement.
B. The Borrower and the Required Lenders have agreed to amend the
Credit Agreement, and the Required Lenders have agreed to waive certain
requirements contained therein, upon the terms and conditions set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
AMENDMENTS
1.1 Applicable Margin Percentages. The pricing matrix contained in the
definition of "Applicable Margin Percentage" set forth in SECTION 1.1 of the
Credit Agreement is hereby amended and restated in its entirety as follows:
<PAGE> 2
<TABLE>
<CAPTION>
Applicable Margin
Percentage for Foreign
Applicable Margin Currency Revolving
Percentage for Loans and
Leverage Ratio Base Rate Loans LIBOR Loans
-------------- ----------------- ----------------------
<S> <C> <C>
Greater than or equal to 3.0 to 1.0 . 2.250% 3.250%
Greater than or equal to 2.5 to 1.0 but
less than 3.0 to 1.0 2.000% 3.000%
Greater than or equal to 2.0 to 1.0 but
less than 2.5 to 1.0 1.750% 2.750%
Greater than or equal to 1.5 to 1.0 but
less than 2.0 to 1.0 1.500% 2.500%
Less than 1.5 to 1.0 1.250% 2.250%
</TABLE>
ARTICLE II
WAIVER
2.1 Interest Rate Protection. In consideration of the agreement by the
Borrower to the amendments set forth in SECTION 1.1, the Required Lenders hereby
agree to waive any Default or Event of Default arising from noncompliance by the
Borrower with SECTION 6.8 of the Credit Agreement (Interest Rate Protection).
The waiver of the Required Lenders set forth herein is limited as specified and
shall not constitute or be deemed to constitute an amendment, modification or
waiver of any provision of the Credit Agreement or a waiver of any Default or
Event of Default except as expressly set forth herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants as follows:
3.1 Representations and Warranties. Each of the representations and
warranties of the Borrower contained in the Credit Agreement and in the other
Credit Documents will be true and correct on and as of the Amendment Effective
Date (as hereinafter defined) and after giving effect to this Amendment with the
same effect as if made on and as of such date (except to the extent any such
representation or warranty is expressly stated to have been made as of a
specific date, in which case such representation or warranty is true and correct
as of such date).
2
<PAGE> 3
3.2 No Default. On and as of the Amendment Effective Date and after
giving effect to this Amendment, no Default or Event of Default will have
occurred and be continuing.
ARTICLE IV
MISCELLANEOUS
4.1 Effect of Amendment. From and after the effective date of the
amendments to the Credit Agreement set forth herein, all references to the
Credit Agreement set forth in any other Credit Document or other agreement or
instrument shall, unless otherwise specifically provided, be references to the
Credit Agreement as amended by this Amendment and as may be further amended,
modified, restated or supplemented from time to time. This Amendment is limited
as specified and shall not constitute or be deemed to constitute an amendment,
modification or waiver of any provision of the Credit Agreement except as
expressly set forth herein. Except as expressly amended hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.
4.2 Governing Law. This Amendment shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia (without regard to
the conflicts of law provisions thereof).
4.3 Severability. To the extent any provision of this Amendment is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in any such jurisdiction, without prohibiting or
invalidating such provision in any other jurisdiction or the remaining
provisions of this Amendment in any jurisdiction.
4.4 Successors and Assigns. This Amendment shall be binding upon, inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto.
4.5 Construction. The headings of the various sections and subsections of
this Amendment have been inserted for convenience only and shall not in any way
affect the meaning or construction of any of the provisions hereof.
4.6 Counterparts; Effectiveness. This Amendment may be executed in any
number of counterparts and by different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. This Amendment
shall become effective on the date (the "Amendment Effective Date") upon which
the Administrative Agent shall have received an executed counterpart hereof from
each of the Borrower and the Required Lenders.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the date first above written.
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
--------------------------------
Title: President and CEO
FIRST UNION NATIONAL BANK, as
Administrative Agent and as Lender
By: /s/ J. Matthew MacIver, Jr.
--------------------------------
Title: Vice President
HARRIS TRUST AND SAVINGS BANK,
as Co-Agent and as Lender
By: /s/ Stan C. Rosendahl
--------------------------------
Title: Vice President
BANKERS TRUST COMPANY
By: /s/ G. Andrew Keith
--------------------------------
Title: Principal
4
<PAGE> 1
EXHIBIT 4.8
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of the 19th day of
January, 2000 (this "Amendment"), is made among MATRIA HEALTHCARE, INC., a
Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit
Agreement referred to below), and FIRST UNION NATIONAL BANK, as administrative
agent for the Lenders (in such capacity, the "Administrative Agent").
RECITALS
A. The Borrower, certain banks and other financial institutions, the
Administrative Agent, and Harris Trust and Savings Bank, as Co-Agent, are
parties to a Credit Agreement, dated as of January 19, 1999 (as amended, the
"Credit Agreement"), providing for the availability of certain credit facilities
to the Borrower upon the terms and conditions set forth therein. Capitalized
terms used herein without definition shall have the meanings given to them in
the Credit Agreement.
B. The Borrower and the Lenders have agreed to amend the Credit
Agreement upon the terms and conditions set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Defined Terms. The definition of "Required Lenders" in Section 1.1 of
the Credit Agreement is hereby amended and restated in its entirety as follows
(provided that for purposes of Section 8 of this Amendment, the term "Required
Lenders" shall mean all of the Lenders):
"'Required Lenders' shall mean the Lenders holding outstanding Loans,
Letter of Credit Exposure, participations in outstanding Swingline Loans
and Unutilized Revolving Credit Commitments (or, after the termination of
the Revolving Credit Commitments, outstanding Loans, Letter of Credit
Exposure and participations in outstanding Swingline Loans) representing
greater than sixty-six and two-thirds percent (66-2/3%) of the aggregate
at such time of all outstanding Loans, Letter of Credit Exposure,
participations in outstanding Swingline Loans and Unutilized Revolving
Credit Commitments (or, after the termination of the Revolving Credit
Commitments, the aggregate at such time of all outstanding Loans, Letter
of Credit Exposure and participations in outstanding Swingline Loans);
provided that if at any time any one Lender would otherwise constitute
the "Required Lenders" as provided hereinabove, then "Required Lenders"
shall mean such Lender together with any one other Lender. For purposes
of any determination of the "Required Lenders," the aggregate
<PAGE> 2
outstanding Swingline Loans held by the Swingline Lender shall be
calculated net of participations therein purchased by the other Lenders
pursuant to the terms hereof."
2. Representations and Warranties. The Borrower hereby represents and
warrants as follows:
(a) Each of the representations and warranties contained in the Credit
Agreement and in the other Credit Documents will be true and correct on and as
of the Amendment Effective Date (as hereinafter defined) and after giving effect
to this Amendment with the same effect as if made on and as of such date (except
to the extent any such representation or warranty is expressly stated to have
been made as of a specific date, in which case such representation or warranty
is true and correct as of such date).
(b) On and as of the Amendment Effective Date and after giving effect
to this Amendment, no Default or Event of Default will have occurred and be
continuing.
3. Effect of Amendment. From and after the effective date of the
amendments to the Credit Agreement set forth herein, all references to the
Credit Agreement set forth in any other Credit Document or other agreement or
instrument shall, unless otherwise specifically provided, be references to the
Credit Agreement as amended by this Amendment and as may be further amended,
modified, restated or supplemented from time to time. This Amendment is limited
as specified and shall not constitute or be deemed to constitute an amendment,
modification or waiver of any provision of the Credit Agreement except as
expressly set forth herein. Except as expressly amended hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.
4. Governing Law. This Amendment shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia (without regard
to the conflicts of law provisions thereof).
5. Severability. To the extent any provision of this Amendment is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in any such jurisdiction, without prohibiting or
invalidating such provision in any other jurisdiction or the remaining
provisions of this Amendment in any jurisdiction.
6. Successors and Assigns. This Amendment shall be binding upon,
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
7. Construction. The headings of the various sections and subsections
of this Amendment have been inserted for convenience only and shall not in any
way affect the meaning or construction of any of the provisions hereof.
8. Counterparts; Effectiveness. This Amendment may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. This
Amendment shall become effective on the date (the "Amendment
2
<PAGE> 3
Effective Date'') upon which the Administrative Agent shall have received an
executed counterpart hereof from each of the Borrower and the Required Lenders.
IN WITNESS WHEREOF, the parties thereto have caused this Amendment to be
executed by their duly authorized officers as of the date first above written.
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
Title: President and CEO
FIRST UNION NATIONAL BANK,
as Administrative Agent and as Lender
By: /s/ J. Matthew MacIver, Jr.
Title: Vice President
HARRIS TRUST AND SAVINGS BANK,
as Co-Agent and as Lender
By: /s/ Stan C. Rosendahl
Title: Vice President
BANKERS TRUST COMPANY
By: /s/ David Bell
Title: Principal
3
<PAGE> 1
EXHIBIT 11
Matria Healthcare, Inc. and Subsidiaries
Computation of Earnings (Loss) per Share
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC
Net earnings (loss) ..................................... $ 20,560 (6,443) 34,006 (101,542)
Accretion of preferred stock ............................ (113) -- (420) --
Preferred stock dividend requirements.................... (800) -- (3,049) --
-------- -------- -------- --------
Net earnings (loss) available to common shareholders .... $ 19,647 (6,443) 30,537 (101,542)
======== ======= ======== ========
Shares:
Weighted average number of common shares outstanding 36,765 36,381 36,603 36,580
======== ======== ======== ========
Net earnings (loss) per common share .................... $ 0.53 (0.18) 0.83 (2.78)
======== ======== ======== ========
DILUTED
Net earnings (loss) available to common shareholders .... $ 19,647 (6,443) 30,537 (101,542)
Interest on convertible preferred shares ................ 100 -- 381 --
-------- -------- -------- --------
Net earnings (loss) for diluted calculation ............. $ 19,747 (6,443) 30,918 (101,542)
======== ======= ======== ========
Shares:
Weighted average number of common shares outstanding 36,765 36,381 36,603 36,580
Shares issuable from assumed exercise of options and
warrants ........................................ 1,128 -- 1,424 --
Convertible preferred stock .......................... 2,222 -- 2,117 --
-------- -------- -------- -------
40,115 36,381 40,144 36,580
======== ======== ======== ========
Net earnings (loss) per common share .................... $ 0.49 (0.18) 0.77 (2.78)
======== ======== ======== ========
</TABLE>
<PAGE> 1
Exhibit 21
MATRIA HEALTHCARE, INC. SUBSIDIARIES
March 27, 2000
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ---- ---------------
<S> <C>
Clinical-Management Systems, Inc. Georgia
Diabetes Management Services, Inc. South Carolina
Diabetes Acquisition, Inc. Georgia
Gainor Medical Acquisition Company Georgia
Diabetes Management Solutions, Inc. Delaware
Diabetes Self Care, Inc. Virginia
Gainor Medical North America, L.L.C. Georgia
Gainor Medical Europe Limited United Kingdom
Gainor Medical International, L.L.C. Georgia
"David" Achtundsechzigste Beteiligungs und
Verwaltungsgesellschaft GmbH ("David 68") Germany (LLC)
Hans M.W. Spreth GmbH Germany (LLC)
EU Medical GmbH Germany (LLC)
"David" Einundsiebsechzigste Beteiligungs und
Verwaltungsgesellschaft GmbH ("David 71") Germany (LLC)
Dia Real Diabetesservice Kommanditgesellschaft Germany (LLC)
*Gainor Medical Direct, L.L.C. Georgia
**Matria Canada, Inc. New Brunswick
Matria of New York, Inc. New York
Matria Healthcare Puerto Rico, Inc. Puerto Rico
National Reproductive Medical Centers, Inc. Delaware
Infertility Management Services, Inc. Delaware
Pacific Fertility Centers of California, Inc. California
Pacific Fertility Parenting Center, Inc. California
Pacific Fertility Medical Group, Inc. California
*Perinatal Services Nederland B.V. Nederlands
Quality Diagnostic Services, Inc. Delaware
*Shared Care, Inc. Georgia
</TABLE>
*Inactive
**In process of withdrawal
Note: The above subsidiaries (except for Perinatal Services Nederland B.V. and
Matria Healthcare Puerto Rico, Inc., both in which Matria owns a 51% interest)
are directly or indirectly 100% owned by Matria Healthcare, Inc.
<PAGE> 1
EXHIBIT 23
ACCOUNTANTS' CONSENT
The Board of Directors and Shareholders
Matria Healthcare, Inc.:
We consent to incorporation by reference in the registration statement (Nos.
333-69347, 333-02283, 333-01883 and 333-01539) on Form S-8 of Matria Healthcare,
Inc. of our report dated February 14, 2000, relating to the consolidated balance
sheets of Matria Healthcare Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations, common
shareholders' equity and comprehensive earnings, and cash flows for each of the
years in the three-year period ended December 31, 1999, and the related
financial statement schedule, which report appears in the 1999 Annual Report on
Form 10-K of Matria Healthcare, Inc.
KPMG LLP
Atlanta, Georgia
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,548
<SECURITIES> 8,243
<RECEIVABLES> 61,806
<ALLOWANCES> (14,317)
<INVENTORY> 10,406
<CURRENT-ASSETS> 79,191
<PP&E> 45,721
<DEPRECIATION> (27,303)
<TOTAL-ASSETS> 285,713
<CURRENT-LIABILITIES> 41,537
<BONDS> 91,090
41,005
0
<COMMON> 368
<OTHER-SE> 98,876
<TOTAL-LIABILITY-AND-EQUITY> 285,713
<SALES> 54,927
<TOTAL-REVENUES> 247,335
<CGS> 34,645
<TOTAL-COSTS> 123,709
<OTHER-EXPENSES> 14,663
<LOSS-PROVISION> 7,983
<INTEREST-EXPENSE> 8,185
<INCOME-PRETAX> 30,006
<INCOME-TAX> (4,000)
<INCOME-CONTINUING> 34,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,006
<EPS-BASIC> .83
<EPS-DILUTED> .77
</TABLE>
