Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 (Fee Required) For the fiscal year ended December 31, 1995,
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 (No Fee Required) 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 30067
Marietta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (770) 423-4500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Common Stock Purchase Rights
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 [ ].
As of March 11, 1996, there were 34,662,602 shares of Common Stock outstanding,
and the aggregate market value of the Common Stock of the Registrant held by
non-affiliates was approximately $ 297,451,046 based upon the closing sale
price of such stock on that date.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement/Prospectus from Registration
Statement No. 333-00781 on Form S-4 filed February 7, 1996 and Registrant's Form
8-K/A, dated March 29, 1996, are incorporated by reference into Parts I, III,
and IV.
2
MATRIA HEALTHCARE, INC.
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I........................................................................................................
Item 1. Business............................................................................. 3
Item 2. Properties........................................................................... 10
Item 3. Legal Proceedings.................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders.................................. 11
PART II.......................................................................................................
Item 5. Market for the Company's Common Equity
and Related Stockholder Matters.................................................... 12
Item 6. Selected Financial Data............................................................. 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................................... 14
Item 8. Financial Statements and Supplementary Data......................................... 20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................................. 20
PART III......................................................................................................
Item 10. Directors and Executive Officers ................................................... 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.................................................................................................... 27
2
3
PART I.
ITEM 1. BUSINESS.
INTRODUCTION. 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 ("Matria Common Stock"), 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.
Matria is a leading provider of specialized obstetrical home healthcare
services which assist physicians in the management of high risk pregnancies. In
addition, Matria provides home healthcare services for the management of other
complicated obstetrical and gynecological conditions, such as pregnancy induced
hypertension. Matria's services are designed to achieve improved medical
outcomes at significant cost savings through the reduction of patient
hospitalization. Services offered by Matria include screening to assist in the
identification of women who may be at risk of complications during pregnancy;
maternal risk assessment and prenatal education for asymptomatic patients;
daily management and education of high risk patients; administration and
supervision of a range of home infusion therapies for obstetrical and
gynecological conditions; and specialty obstetrical and gynecological nursing.
As the successor to Tokos, Matria has the exclusive marketing rights in
the United States and Canada to a proprietary immunoassay for fetal fibronectin
developed and patented by Adeza Biomedical Corporation, a California
corporation ("Adeza"), and approved by the United States Food and Drug
Administration ("FDA") as a reliable marker for preterm delivery in symptomatic
patients.
SERVICES. The Company offers a comprehensive range of specialized home
healthcare and risk assessment services designed to assist physicians in
managing high risk pregnancies and numerous other obstetrical and gynecological
conditions more cost effectively. Substantially all of the Company's revenues
are derived from these services.
High Risk Pregnancy Management. The Company offers multiple levels of
high risk pregnancy management services to assist physicians in the early
detection of preterm labor and the management of complicated pregnancies. These
levels are designed to meet various patient acuity levels and range from low
intensity surveillance to comprehensive obstetrical home care. Each level
includes one or more of the following: the identification of women who may be
at risk for complications during pregnancy; the development of a program of
care for each patient; the education of the patient as to symptoms associated
with preterm labor; skilled perinatal nursing assessments of the patient's
condition; and the use of perinatal nurses and pharmacists specializing in
obstetrics to administer and manage various therapies.
3
4
A physician who chooses to utilize the Company's preterm labor
management services will prescribe the level of service offered by the Company
that the physician believes is appropriate for the patient's acuity level. The
patient is assigned to a perinatal nurse located in one of the Company's
patient service centers. This nurse is generally the patient's primary contact
for the duration of her treatment plan which typically lasts four to seven
weeks depending on the level of service prescribed and the time period until
delivery. At the time of the assignment, the nurse contacts the patient to
discuss the physician's treatment plan and instruct her in the use of any
device if one has been prescribed by her physician. The nurse will educate the
patient with regard to symptoms associated with preterm labor, the methods to
detect such symptoms, and proper methods of care to minimize complications
during pregnancy. The nurse contacts the patient on an as needed or daily basis
depending on the program prescribed to assess her condition, including any
symptoms of preterm labor, to provide emotional support and counseling, and to
encourage compliance with the physician's treatment plans. Through the daily
contact with the patient and the frequent assessment of symptoms associated
with preterm labor, the Matria nurse obtains information that assists the
prescribing physician in the early detection and treatment of preterm labor.
Physicians may also prescribe labor inhibiting drugs known as
tocolytics for patients that are symptomatic and in need of some form of
intervention. The Company provides supervision including pharmaceutical
support, and administration of this therapy regime to patients as an
alternative to hospitalization. Frequently, this therapy involves delivery of
the drugs by micro infusion pump. The Company monitors the patient's reactions
to the therapy on an on-going basis. Nurses report any change in patient status
to the patient's physician, as well as provide the physician with periodic
reports during the course of the therapy.
Other Obstetrical and Gynecological Services. The Company provides a
comprehensive range of skilled nursing, infusion therapy and patient management
services on a home care basis for a variety of obstetrical and gynecological
conditions, including pregnancy induced hypertension and gestational diabetes.
Such conditions may be treated with on- going nursing assessment and focused
education at various levels of frequency and intensity, other patient
management and diagnostic services, and blood and urine testing.
Maternal Risk Assessment and Prenatal Education Services. The Company,
through its comprehensive MaternaLinkTM Program, offers a comprehensive risk
assessment and patient education program designed to reduce maternity related
costs by providing expectant mothers with focused education and psychological
support and identifying pregnancies that may be high risk. The Company sells
the program to employers, managed care organizations, health plans and other
third-party payors or administrators who make it available to their respective
employees, insureds or members who are pregnant. Through interviews with the
expectant mother, the Company collects data about the woman, her family/medical
history and other circumstances that might affect her pregnancy. Based on this
information, the nurse provides the woman with education regarding her specific
risks, if any, and recommends appropriate behavior modifications that may
facilitate a healthy outcome. Relevant information collected by the Company is
summarized in reports and provided to the participant's healthcare provider and
case manager. Results of program utilization and effect are summarized for the
client in periodic reports. Both Tokos and Healthdyne, working in conjunction
with HMO's and other managed care organizations, reported improved patient
outcomes and documented cost savings prior to the Merger from their respective
BabyLinks(R) and BabySteps(R) Programs which serve as the foundation for
MaternaLinkTM.
4
5
Other Managed Care Services. The Company is developing service
offerings designed to meet the needs of managed care organizations and provider
networks who render care for such organizations. Managed care organizations
have grown substantially in terms of the percentage of the population that is
covered by such plans, and in terms of their influence over decisions regarding
the utilization of healthcare services. The Company is developing managed care
services that support patients throughout the entire maternal-newborn episode
of care. It also offers data and outcome analysis and other consulting services
to assist managed care organizations to better understand how their resources
are allocated and where savings can be realized.
PATIENT CARE INFORMATION SYSTEMS. Due to the acute nature of high risk
pregnancies, physicians, pharmacists and perinatal nurses must have prompt
access to a patient's medical history, current clinical status and treatment
plan. Tokos and Healthdyne, Matria's predecessor companies, made substantial
investments in the development of information systems to support healthcare
professionals in detecting obstetrical complications, as well as in developing
and implementing individualized treatment plans for their patients. In
addition, they created systems to track patient outcomes and summarize data
regarding patient care. Matria intends to integrate and enhance these systems.
In addition to monitoring devices to access the patient's daily
condition, Matria has a data information system designed to assist managed care
organizations and physician groups in tracking outcomes and summarize data
regarding maternity-related care. This system consists of proprietary software
and processes that collect information about maternity related access, care,
utilization and satisfaction. Methodologies for analyzing data and presenting
information include the use of varied collection data tools, implementation of
a relational data base design and customization of reports to meet client
requirements.
SERVICE LOCATIONS. As of the effective date of the Merger, Tokos and
Healthdyne had approximately 83 service centers throughout the United States
and a number of additional sites of service. Matria is presently in the process
of consolidating a number of the centers in order to avoid duplication in a
given geographic area and to benefit form the synergies created through the
Merger. Matria expects to reduce the number of service centers to approximately
37 plus a number of additional sites of service during the year and to add new
centers only on an as needed basis. All of the patient service centers operate
in accordance with policies, procedures and objectives established by Matria.
JCAHO Accreditation. Both Tokos and Healthdyne sought to have their
service centers accredited by the Joint Commission on Accreditation of Health
Care Organizations ("JCAHO") and had substantially completed the process at the
time of the Merger. Matria intends to continue the procedure and is currently
in the process of requesting either the transfer of the existing accreditation
or the reaccreditation of the centers in Matria's name. Matria hopes to have
the process substantially completed by year end.
MARKETING AND SALES. Matria markets its services through a dedicated
direct sales force to physicians, other healthcare providers, management
service organizations and third-party payors. Matria also maintains a group of
clinical support specialists and a dedicated team of managed care account
managers to support and assist the direct sales force in these efforts. In its
patient services business, Matria stresses the clinical experience of its
5
6
personnel, the quality of its clinical services, and the cost and clinically
effective nature of its therapies when compared to hospitalization.
Matria has a number of contractual and other arrangements with medical
professionals, institutions and third- party payors. These arrangements include
agreements with prepaid health plans under which Matria provides services to
members of the organization at discounted prices, and agreements with medical
professionals and institutions under which Matria provides certain services,
including reimbursement management and billing and collection services.
REIMBURSEMENT. A significant portion of the Company's revenues are
affected directly by the reimbursement policies of third-party payors, such as
private insurance programs and state Medicaid programs. Matria attempts to
focus its marketing efforts on developing private pay accounts. In general,
these accounts pay at a higher rate than government payment programs. Changes
in the funding available from either third party or government payors or in
their reimbursement policies could have an adverse impact on the Company's
business.
Private insurance companies, including HMO's, are the primary source of
reimbursement for Matria, which assumed a substantial number of formal and
informal contractual relationships previously held by Tokos and Healthdyne with
these entities. During 1995, government payors accounted for approximately 6%
of Healthdyne's and 5% of Tokos' revenues. Reimbursement for uterine activity
monitoring is presently available from approximately one-half of the 50 state
Medicaid programs.
Matria assists its patients in obtaining reimbursement from their
insurance companies or other third-party payors. Generally, Matria contacts the
patient's insurance company or other third-party payors before the commencement
of services in order to determine the patient's coverage and the percentage of
charges that the payor will reimburse. Matria's reimbursement specialists then
evaluate the patient's insurance to determine the proper procedures for
submissions of reimbursable claims. Matria typically obtains an assignment of
benefits from the patient that enables Matria to file claims for its services
with the third-party payor. In most cases, third-party payors pay Matria
directly for the reimbursable portions of its charges.
REGULATION. Participants in the healthcare industry, including
providers of services such as those offered by Matria, are subject to extensive
federal, state and local regulation relating to, among other things, licensure,
conduct of operations and the addition of facilities and services, and there
can be no assurance that future regulatory changes will not have a material
adverse effect on the results of operations or financial condition of the
Company. As a provider of services to patients under various government
programs, including certain state Medicaid programs, Matria is subject to the
federal fraud and abuse laws. These laws prohibit any bribe, kickback, rebate,
or payment of other remuneration of any sort in return for the referral of
Medicare or Medicaid patients, and the submission of false claims. Violations
of these provisions may result in civil and criminal penalties and exclusion
from participation in the Medicare and Medicaid programs.
The broad language of the anti-kickback provisions of the fraud and
abuse laws has been interpreted by certain courts and governmental enforcement
agencies in a manner which could impose liability on healthcare providers for
engaging in a wide variety of
6
7
business transactions. Limited "safe harbor" regulations exempt certain
practices from enforcement action under the prohibitions. However, these safe
harbors are only available to transactions which fall entirely within the
narrowly defined guidelines.
Recently, the federal government implemented a policy to increase
significantly the resources allocated to enforce the fraud and abuse laws. The
Office of the Inspector General, in cooperation with other federal agencies,
has announced its intention to scrutinize the activities of home health
agencies, durable medical equipment suppliers and skilled nursing facilities in
California, Florida, Illinois, New York and Texas, states in which Matria has
significant operations. Private insurers and various state enforcement agencies
also have increased their scrutiny of healthcare claims in an effort to
identify and prosecute fraudulent and abusive practices. Matria maintains an
internal regulatory compliance review program and from time to time retains
special counsel to provide advice on compliance with such laws and regulations.
However, no assurance can be given that the practices of Matria, if reviewed,
would be found to be in compliance with such laws, as such laws ultimately may
be interpreted.
In 1993, Congress enacted the so-called "Stark Law," which imposes
civil penalties and exclusions for referrals by physicians to certain entities
with which they have a financial relationship (subject to specified
exceptions). In addition, several states in which Matria operates have laws
that prohibit certain direct or indirect payments or fee- splitting
arrangements between healthcare providers if such arrangements are designed to
induce or encourage the referral of patients to a particular provider. Other
states have enacted or are considering legislation that either prohibits
"physician self-referral" arrangements or requires physicians to disclose any
financial interest they may have with a healthcare provider that such
physicians recommend to their patient. Possible sanctions for a violation of
these restrictions include loss of licensure and civil and criminal penalties.
Such statutes and proposed legislation vary from state to state and seldom have
been interpreted by the courts or regulatory agencies. Strict enforcement of
these regulations is likely. Matria has certain financial relationships with
physicians who may refer, or be in a position to refer, patients for services.
Although Matria believes that these financial relationships meet applicable
exceptions permitting referrals by such physicians, if the laws are
subsequently interpreted to prohibit these relationships, Matria may be
required to further modify these arrangements or to discontinue accepting
referrals from such physicians.
The federal budget reconciliation legislation, which was vetoed by the
President, would have established new fraud and abuse sanctions and penalties
but would have made the Stark prohibitions on physician self-referrals less
restrictive in certain respects. It is not clear whether similar legislation
will become law, or if enacted, what impact such legislation would have on the
services that are offered by Matria, but the elimination of certain
self-referral restrictions could create additional competitive pressures on the
operations of providers of home healthcare, including Matria.
Matria's obstetrical management services utilizing its home uterine
activity monitors account for a substantial portion of its revenues. These
monitors are classified as medical devices under the Federal Food, Drug and
Cosmetic Act (the "FDC Act") and are subject to regulation by the FDA.
Currently, Matria is the only home obstetrical care service provider with
uterine activity monitoring devices - Genesis(R), System 37(R) and CareFoneTM -
that have been approved by the FDA for use, in conjunction with standard high
risk care, for the daily at-home measurement of uterine activities in preterm
pregnancies for women with a previous
7
8
pre-term delivery. In addition, the Term Guard I(R) and Term Guard II(R)
devices obtained by Matria from Tokos are cleared by the FDA for use on
obtaining uterine activity data associated with the onset of full term labor
outside the hospital setting. As a part of the practice of medicine, physicians
may and do prescribe the devices for indications for which the devices are not
labeled, such as for use in detecting preterm labor in general. As a result,
any actions by the FDA which limit the use of such devices or otherwise require
Matria to change its business practices regarding the use of such devices could
have a material adverse effect on the results of operations or financial
condition of Matria.
In addition, some of the services that Matria offers involve the
provision of drugs that are regulated by the FDA under the FDC Act. While these
drugs are labeled for specific indications and cannot be promoted for any other
indications, physicians may and do prescribe the drugs for indications that
have not been approved by the FDA. For example, terbutaline is labeled for the
treatment of asthma but is frequently prescribed by obstetricians as a
tocolytic for the treatment of preterm labor. In May 1993, the FDA Fertility
and Maternal Health Drugs Advisory Committee met to discuss the safety and
efficacy of terbutaline for tocolysis. The Committee recommended that the
manufacturers of terbutaline apply for approval of the drug for the treatment
of preterm labor. Any action by the FDA that limits the ability of Matria to
offer a high risk pregnancy management service involving the administration of
drugs for indications for which the drugs have not been labeled could have a
material adverse effect on the results of operations or financial condition of
Matria.
A variety of regulatory actions are available to the FDA in order to
ensure that regulated firms comply with the provisions of the FDC Act. Although
Matria does not anticipate any enforcement action against it, the commencement
of any such action against Matria which limits the manner in which Matria
conducts its business could have an adverse impact on Matria.
In certain states, the provision of infusion services and other nursing
services to patients in their homes is subject to state home healthcare
licensing and/or certificate of need ("CON") requirements. Matria provides
these types of services. The Company is engaged in an ongoing effort to obtain
information from state regulatory agencies on the application of new and
existing licensing and CON provisions applicable to its business activities.
When applicable, Matria may be required either to obtain a license or other
regulatory approval before it renders these services directly in the home or to
affiliate with other licensed agencies in connection with the delivery of the
nursing services. Although generally a routine aspect of conducting a
healthcare business, compliance with these requirements in certain instances
can be both burdensome and costly. Violation of these state statutes can result
in substantial fines and other penalties. The Company believes that it has
obtained or is in the process of obtaining licenses or consents to the transfer
of licenses from Tokos or Healthdyne, for each facility for which licensing is
required. This is an area of increasing legislative activity, and there can be
no assurance that the Company will not become subject to regulatory and
licensing statutes in other states in which it operates.
In addition, Matria is subject to laws and regulations which relate to
business corporations in general, including antitrust laws, occupational health
and safety laws and environmental laws. None of these laws and regulations has
had a material adverse effect
8
9
on the Company's business or competitive position or required material capital
expenditures on the part of the Company.
Failure to comply with these regulations or laws could adversely affect
Matria's ability to continue to provide, or to receive reimbursement for, its
products and services and could also subject Matria and its officers to
penalties. Changes in these laws or interpretations of existing regulations or
laws could have a material adverse effect on permissible activities of Matria,
the relative costs of doing business and the amount of reimbursement by
government and other third-party payors. In addition, laws and regulations
often are adopted to regulate new products, services and industries. There can
be no assurance that either the states or the federal government will not
impose additional regulations upon the Company's activities which might
adversely affect its results of operations or financial condition.
Matria is unable to predict what legislation, if any, may be enacted in
the future relating to the Company's business or the healthcare industry,
including third-party reimbursement, or what effect any such legislation may
have on Matria.
COMPETITION. The home obstetrical care services market in which Matria
competes is a relatively new market with a growing number of local, regional
and national companies providing these home obstetrical care services. As a
result of the Merger, Matria believes that it is the largest of these companies
whose services are devoted exclusively to home obstetrical care, but
competition exists in substantially all of the metropolitan areas in which
Matria maintains centers.
The principal competitive factors for Matria are the therapies offered,
the expertise of its clinical employees, the ability to provide prompt and
reliable service, the price at which the services are offered, and the
regulatory requirements of the FDA. The Company believes that it generally
competes favorably with respect to these factors.
RECENT CONTROVERSIES. The operations of Tokos and Healthdyne were and
Matria's operations may be affected by several controversies surrounding the
home obstetrical care business. There has been, and continues to be, debate
within the medical community about how to decrease the incidence of
prematurity, which is a major cause of the high U.S. infant mortality rate.
Matria believes that increased surveillance of women at risk of developing
preterm labor can assist the physician in early diagnosis of preterm labor and
help improve the medical outcomes of complicated pregnancies. Matria provides a
comprehensive range of services to assist the physician in this surveillance,
including perinatal nursing, obstetrical pharmacy services and tocolytic
therapy. A significant portion of these services includes the use of home
uterine activity monitoring devices. In September 1992, an eight member
committee of the American College of Obstetricians and Gynecologists ("ACOG")
published an opinion stating, among other things, that the use of home uterine
activity monitoring devices has not been shown to prevent prematurity; while
the committee opinion represented a more recent review of existing literature,
there was essentially no change from its 1989 opinion regarding the independent
benefit of home uterine activity monitoring. Since that time, the FDA has
approved the uterine activity monitors utilized by Matria as safe and effective
for the prediction of the onset of preterm labor in women with a history of a
previous preterm delivery. While Matria does not believe that either home
uterine activity monitoring or any other diagnostic device can in and of itself
improve therapeutic outcomes (e.g., a mammogram cannot prevent breast cancer),
it does believe that monitoring can assist the physician in the early detection
of preterm labor.
9
10
RESEARCH AND DEVELOPMENT. Both Tokos and Healthdyne reduced their
research and development activities in recent years. However, both companies
initiated and funded certain independent clinical research studies concerning
preterm labor.
Matria's research and development strategy is to continue the
development efforts of Tokos and Healthdyne to develop new and more
cost-effective devices and service procedures for providing obstetrical care to
patients in the home environment.
EMPLOYEES. As of the effective date of the Merger, Matria had
approximately 1,431 full-time and regularly scheduled part-time employees, of
which 398 were registered nurses or pharmacists. As part of the consolidation
efforts arising out of the Merger, Matria is currently in the process of
reducing its employees by the equivalent of approximately 400 full time
employees and expects the process to be substantially completed by the
beginning of the third quarter of 1996.
PATENTS, TRADEMARKS AND LICENSES. Matria intends to utilize a number of
the trademarks previously registered by Tokos and Healthdyne, including,
without limitation, System 37(R), Term Guard(R) and Genesis(R), as well as a
number of trademarks and service marks of its own, including Matria(TM) and
MaternaLink(TM), and considers the same to be important to the marketing and
promotion of its services. Matria does not believe that it possesses any
patents which are material to its business. Matria's business does depend and
will likely continue to depend on trade secret protection to strengthen its
proprietary position. Matria requires and its predecessors required their
employees to execute appropriate confidentiality agreements in connection with
their employment. There can be no assurance that these agreements will not be
breached or that Matria will have adequate remedies for such breach.
Furthermore, no assurance can be given that competitors will not independently
develop substantially equivalent proprietary information or that Matria can
meaningfully protect its rights in unpatented proprietary technology.
Litigation may be necessary to protect trade secrets or "know-how" owned by
Matria, which could result in substantial costs to, and might have a material
adverse effect on, Matria.
ITEM 2. PROPERTIES.
Matria's principal executive and administrative offices are located at
1850 Parkway Place, Marietta, Georgia, and total approximately 94,700 square
feet. The facility is leased through February 28, 1997. The lease provides for
annual rental payments of $2,063,000.
Additional properties, including the former corporate headquarters of
Tokos in Santa Ana, California, also are leased for the other operations of
Matria. These facilities, which total approximately 337,820 square feet of
space, are leased for various terms through 1999 at aggregate annual rentals of
$3,540,000. Matria'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 2,500 square feet. Lease terms are typically three
years or less.
Matria intends to relinquish or sublet a number of these facilities as
a part of the consolidation of the business operations of Tokos and Healthdyne.
Matria believes that it has adequate facilities for the foreseeable future.
10
11
ITEM 3. LEGAL PROCEEDINGS
In July 1995, Tokos reached a $10 million settlement with the
plaintiffs in a class action securities suit entitled In re Tokos Medical
Corporation Securities Litigation filed in the United States District Court for
Central District of California. The settlement resolved actions against Tokos
and certain of its officers and directors brought in November 1992 and March
1993. The plaintiffs alleged that Tokos made false and misleading statements
about its business and results of operations in violation of federal securities
laws and common law fraud and negligent misrepresentation standards. Tokos'
cost of the settlement was $5.75 million in cash and stock, which is net of
insurance proceeds. Tokos paid $750,000 in cash prior to the Merger, with the
remaining $5.0 million to be paid in cash or by the issuance of Tokos Common
Stock. In the settlement, Tokos denied any wrongdoing or liability. The terms
of the settlement must be approved by the court before the settlement is
effective.
A complaint was filed on February 1, 1995 by The Lindner Fund, Inc. in
the Eastern District of Missouri against Healthdyne and its former subsidiary,
Home Nutritional Services, Inc. ("HNS"), alleging that The Lindner Fund would
not have sold its investment in HNS on February 8, 1994 had Healthdyne and HNS
disclosed the potential sale of HNS. Damages have been requested in the amount
of $1,050,900, representing the aggregate difference between the price received
upon the sale of such stock by The Lindner Fund and the $7.85 per share price
paid by W.R. Grace & Co. on April 6, 1994 for HNS. Healthdyne denied the
allegations set forth in the complaint and Matria is currently defending the
matter vigorously.
In addition to the foregoing, Matria is subject, and in certain
instances is a party to, various legal claims and actions incidental to the
businesses of Tokos and Healthdyne and their respective subsidiaries, including
product liability claims and to a lesser extent professional liability claims.
Matria maintains, as did Tokos and Healthdyne, insurance, including insurance
covering professional and product liability claims, with customary deductible
amounts, and has been indemnified by Healthdyne Technologies, Inc., a former
subsidiary of Healthdyne ("Healthdyne Technologies"), with respect to any claim
relating to equipment manufactured and sold by Healthdyne Technologies,
regardless of the date of manufacture of the equipment in question or whether
the claim arises before or after the May 22, 1995 spin-off of Healthdyne
Technologies. There can be no assurance, however, that (i) additional suits
will not be filed in the future against Matria, (ii) the prior experience of
Tokos and Healthdyne 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 in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
11
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 the effective date of the Merger was
3,734.
Trading in Matria Common Stock did not take place prior to the
effective date of the Merger except for the initial purchase of a limited
number of shares by Tokos and Healthdyne as part of the Company's
incorporation.
Neither Matria nor its predecessors, Tokos and Healthdyne, paid any
cash dividends with respect to their respective common stocks. 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 high and low sales price of Matria Common Stock from March 11, 1996
(the first day of trading after the effective date of the Merger) through March
22, 1996 was $ 9 and $ 7 7/16, respectively. The high and low sales prices for
Healthdyne Common Stock and Tokos Common Stock, respectively, for the last two
fiscal years is hereby incorporated by reference to the Company's Registration
Statement on Form S-4 (Registration No. 333-00781) filed in connection with the
Merger (the "Matria Form S-4").
12
13
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information represents for the periods
indicated the financial performance of Tokos (deemed for accounting purposes to
be the acquiror of Healthdyne in the Merger) and is derived from, and should be
read in conjunction with, the historical consolidated financial statements of
Tokos and the related notes thereto incorporated by reference into this
Form-10-K. 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.
Year Ended December 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ------
(In thousands, except per share data)
Consolidated statements of income:
----------------------------------
Net patient service revenues $ 87,502 $100,696 $120,837 $159,887 $125,147
Operating expenses 87,478 99,014 117,647 128,395 98,085
Provision for doubtful accounts 5,251 7,042 13,656 17,056 13,288
Settlement of litigation 4,300 -0- -0- -0- -0-
Restructuring, severance and other charges
2,456 -0- 14,000 -0- -0-
Transaction expenses -0- -0- -0- 2,982 955
Purchased marketing rights -0- -0- -0- -0- 8,000
-------- -------- -------- -------- --------
99,485 106,056 145,303 148,433 120,328
-------- -------- -------- -------- --------
Income (loss) from operations (11,983) (5,360) (24,466) 11,454 4,819
Interest income (expense), net 339 51 39 39 134
-------- -------- -------- -------- --------
Income (loss) before taxes (11,644) (5,309) (24,427) 11,493 4,953
Income taxes 150 550 1,956 5,030 2,505
-------- -------- -------- -------- --------
Net Income (loss) $(11,794) $ (5,859) $(26,383) $ 6,463 $ 2,448
======== ======== ======== ======== ========
Earnings (loss) per common and common
equivalent share $ (0.68) $ (0.34) $ (1.53) $ 0.37 $ 0.14
======== ======== ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding
17,396 17,169 17,240 17,568 17,382
======== ======== ======== ======== ========
December 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
------ ---- ---- ---- ------
(In thousands)
Consolidated balance sheet data:
--------------------------------
Total assets $ 44,583 $ 58,390 $ 69,959 $ 99,886 $ 86,964
Long-term obligations, excluding current
maturities 2,124 2,593 3,348 5,182 5,035
Stockholders' equity 29,489 40,160 46,875 74,952 60,490
13
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF TOKOS.
GENERAL.
On March 8, 1996, Tokos Medical Corporation ("Tokos") and Healthdyne,
Inc. (Healthdyne") merged with and into Matria Healthcare, Inc., a Delaware
corporation ("Matria") created solely for the purpose of the Merger. Pursuant
to the terms of the Agreement and Plan of Merger, dated October 2, 1995, as
amended, among Tokos, Healthdyne and Matria, each share of common stock
outstanding on March 8, 1996 of Tokos and Healthdyne was exchanged for one
share of Matria Common Stock. Matria issued approximately 17,007,000 shares of
Common Stock to the former Healthdyne shareholders and approximately 17,655,000
shares to Tokos shareholders. The Merger will be accounted for using the
purchase method of accounting, and Tokos will be deemed to be the acquiror
since its shareholders received approximately 51% of the newly issued shares of
Matria Common Stock.
Matria's present operations and future prospects may be influenced by
several factors, including developments in the healthcare industry, third-party
reimbursement policies and practices, and changes in regulatory requirements or
the manner in which such requirements are enforced. As a result of the
increasing cost of health care in the United States and overall efforts to
reduce or control government and corporate spending, government and third-party
payors are becoming increasingly focused on promoting cost-effective healthcare
services, and payors, in particular, have become more involved in decisions
regarding diagnosis and treatment to ensure that care is delivered in a
cost-effective manner.
Substantially all of Matria's current revenues are derived directly
from third-party payors for services rendered to patients by Matria. The
financial performance of all healthcare companies, including Matria, could be
adversely affected by the financial condition of certain governmental and
private payors and by their continuing efforts to reduce healthcare costs by
lowering reimbursement rates, increasing medical reviews of invoices for
services and negotiating for reduced contract rates. Matria and its predecessor
companies have responded to these developments by attempting to emphasize
cost-effective therapies and procedures, pre-qualifying insurance coverage
prior to the delivery of services and educating third-party payors on the
benefits of Matria's home therapies. Although reduction in the reimbursement
rates that Matria receives for services rendered could have an adverse impact
on Matria, Matria is hopeful that the overall cost-effective nature of
treatment in the home (as compared to hospitalization), coupled with the
potential benefits to be derived from prenatal care, will be recognized and
encouraged by any new healthcare initiatives.
The trend within the healthcare industry to deliver quality healthcare
services in a more cost-effective manner has had an impact on Matria's
predecessor companies and is expected to continue to have an impact on Matria.
Driven by employers and third-party payors, as well as by legislation and
regulation, prices for services provided to patients, in general, are being
reduced, cost-effective preventative health care is being stressed and
vertically integrated networks of care providers (some of whom are accepting
the insurance risk of providing care through capitation contracts with
third-party payors) are being
14
15
established. Matria anticipates that this trend will continue and is attempting
to focus its efforts on services, some of which are offered in conjunction with
third-party payors, which it believes can benefit from this new environment.
There can be no assurance, however, that either additional changes or presently
unforeseen consequences from this trend may not develop.
The following discussion of the results of operations and financial
condition of Tokos, as the acquiror in the Merger, should be read in
conjunction with consolidated financial statements and related notes of Tokos
and Healthdyne incorporated into this Annual Report on Form 10-K for the year
ended December 31, 1995 as filed with the Securities and Exchange Commission
(the "Commission"). Since neither the results of Healthdyne are reflected in
the following discussion, nor the synergies expected to be achieved from the
Merger, the historical results of operations and financial condition of Tokos
are not necessarily indicative of the results that will be achieved by Matria
during future periods.
RESULTS OF OPERATIONS.
For the Year Ended December 31, 1995
For the year ended December 31, 1995, Tokos had net revenues of $87.5
million and a net loss of $11.8 million ($.68 per share), compared with net
revenues of $100.7 million and a net loss of $5.9 million ($.34 per share) for
the preceding year.
Of the $11.8 million loss for 1995, $4.3 million ($.25 per share)
resulted from a settlement with the plaintiffs in the class action securities
suit entitled In re Tokos Medical Corporation Securities Litigation. The charge
to income of $4.3 million during the quarter ended June 30, 1995 is in addition
to an aggregate amount of $1.45 million which had been charged to general and
administrative expenses in 1994. Tokos agreed to settle the securities class
action lawsuit to avoid further dilution of corporate resources, including
management time and focus, as well as to avoid further legal costs and
uncertainties associated with taking the case to trial.
The $13.2 million decrease in net revenues, or 13.1%, for 1995 from
1994 primarily resulted from a decrease in preterm labor management patient
service days. The decrease in preterm labor management patient service days
resulted from reduced physician referrals and shorter average days on service
per patient. Due to the increasing role of managed care entities in clinical
decision-making, Tokos redirected its sales efforts in order to assist in a
transition from a specialty homecare provider to a broader maternal-newborn
managed care organization. The redirected sales efforts included more resources
being focused on third-party payor customers and initiatives and less on the
physician-driven business. For example, as positions were vacated they were
filled by individuals with more managed care experience. Other individuals
were recruited to focus chiefly on leads for risk products, shared risk
arrangements and multi-product sales. Other employees were cross-trained and
moved from a physician focus to managed care. With the Merger, Matria believes
that it is important to continue efforts to develop new managed care
initiatives, but also to continue the type of physician sales force efforts
that have been successful for Healthdyne.
15
16
Revenues at Matria will increase in 1996 as a result of the addition of
Healthdyne's revenues to the revenues of Tokos (Healthdyne's 1995 revenues were
$69.6 million). Additional revenues are expected in 1996 from the marketing of
a new product, the fetal fibronectin immunoassay, an in vitro diagnostic device
used as an aid in assessing the risk of preterm delivery within 7 to 14 days
from the time of sample collection in women with symptoms of preterm labor.
Through a marketing agreement entered into by Tokos in 1991 Matria has
exclusive rights to market this product in the United States and Canada. In
September 1995, the FDA approved a Pre-Market Approval Application for this
product. Matria expects to begin marketing the product during the second
quarter of 1996.
Cost of patient services at Tokos increased to 79.8% of net revenues
for 1995 compared with 76.7% of net revenues for 1994. Although a decrease in
absolute dollars was achieved through further consolidation of service sites
and other cost reduction activities, revenue levels continued to decline at a
faster rate than expenses.
General and administrative expenses decreased $3.0 million to $17.1
million (19.6 % of net revenues) for 1995 compared with $20.2 million (20.0% of
net revenues) for 1994. The decrease in absolute dollars primarily relates to
expense reductions implemented by Tokos due to the decline in its net revenues,
in addition to a reduction in legal fees related to the settlement of the
shareholder lawsuit.
Excluding the amortization of the additional goodwill and other
intangibles associated with the Merger (approximately $30 million per year for
five years), Matria expects to achieve annualized cost savings from the
combined costs of Tokos and Healthdyne of approximately $30 million by 1997
primarily as a result of reductions of patient services center expenses in
overlapping geographic locations, elimination of duplicate facilities including
corporate headquarters, and synergies in staff and functional areas. However,
no assurance can be given that difficulties will not be encountered in
integrating the operations of Tokos and Healthdyne or that the full benefits
and attendant cost savings expected from such the integration will be realized
or achieved in the expected time frame.
As a result of the Merger, a large percentage of the assets reflected
on Matria's balance sheet will be intangible assets or goodwill (as opposed to
tangible assets such as cash, accounts receivable, inventory and equipment). At
December 31, 1995, on a pro forma basis reflecting consummation of the Merger
on that date, Matria's total assets would have been approximately $263.7
million, on which approximately $153.6 million, or 58.2% of total assets, would
have been goodwill. In addition, the amortization or any future write-down of
such goodwill by Matria could have a material adverse effect on the results of
operations of Matria.
Tokos provided and Matria will provide for estimated uncollectable
accounts as revenues are recognized. The provision for doubtful account as a
percentage of net revenues was 6.0% for 1995 compared with 7.0% for 1994. 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.
Research and development expenses at Tokos were $513,000 for 1995
compared to $1.6 million for 1994. This decrease primarily resulted from
decisions to eliminate equipment development activities, and to significantly
reduce its clinical research and systems development activities.
16
17
During 1995, as Tokos' revenues continued to decline, specific
decisions were made and communicated by management related to cost reduction
efforts. The cost reduction plan consisted of reductions in the workforce of
approximately 105 employees, comprised of personnel within information systems,
reimbursement, administrative support and to a lesser extent clinical service,
and termination of several facility leases. In connection with these cost
reduction activities, Tokos incurred in 1995, $2.5 million in expenses. $1.8
million related to involuntary severance costs of affected employees, $332,000
related to the consolidation of facilities and $290,000 in other related costs.
Tokos recorded income tax expenses of $150,000 related to state
franchise taxes in 1995. Tokos recorded no federal and state income tax
benefits in 1994 and 1995. The operating loss will be available to offset
future taxable income, if any.
For the Year Ended December 31, 1994
Net revenues at Tokos decreased 16.7% to $100.7 million in 1994
compared with $120.8 million in 1993. The decrease in net revenues primarily
resulted from a decline in preterm labor management patient service days and a
shift in patient service mix. The decline in patient service days was primarily
the result of reduced physician referrals and shorter average days on service
per patient. A shift in service mix to patients receiving less intensive
preterm labor management services and other homecare services, which generate
less revenue per patient day than higher intensive infusion therapies, also
contributed to the revenue decline.
Cost of patient services at Tokos remained relatively constant as a
percentage of net revenues at 76.7% in 1994 compared with 76.5% in 1993. The
cost of patient services decreased $15.2 million during 1994 in response to
lower revenue levels.
General and administrative expenses at Tokos increased as a percentage
of net revenue to 20.0% in 1994 compared with 18.9% in 1993. General and
administrative expenses decreased $2.7 million during 1994 in response to
expense reductions due to the decline in net revenues; however, since net
revenues declined at a faster rate than expenses during 1994 and became a
higher percentage of net revenues. Certain costs such as corporate facilities
and essential administrative personnel, insurance and depreciation are
relatively fixed by their nature and could not be reduced as quickly as revenue
decreased.
Tokos provided, and Matria will provide, for estimated uncollectable
accounts as revenues are recognized. The provisions for doubtful accounts as a
percentage of net revenues was reduced to 7.0% in 1994 compared with 11.3% in
1993. The percentage provision decreased in 1994 compared to 1993 primarily as
a result of improved collections on revenues generated under contractual
agreements and as a result of improved insurance clearance and billing
processes. The percentages of net revenue generated under contractual
arrangements were 80% in 1993 and 85% in 1994. The provision rate was adjusted
periodically based upon Tokos' 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.
Research and development expenses were $1.6 million in 1994 compared
with $2.4 million in 1993. This decrease primarily resulted from Tokos'
decision to eliminate all
17
18
equipment development activities and reduce ongoing clinical research and
systems development activities.
During the second and fourth quarters of 1993, Tokos' Board of
Directors approved plans to restructure operations in response to significant
declines in revenue and the uncertainties surrounding the changing healthcare
environments affecting the business. Tokos recorded restructuring charges
totaling $14.0 million in 1993 related to those decisions to restructure its
operations by, among other things, reducing the number of its monitoring
centers, centralizing patient intake and claims administration, reducing
in-house manufacturing and product development activities, and changing its
strategy regarding support of certain patient service equipment and patient
monitoring devices. The restructuring charges included $10.6 million in cash
expenses, of which $5.7 million related to involuntary severance costs of more
than 360 full and part-time employees, $3.5 million related to costs associated
with the consolidation of certain administrative functions and 22 monitoring
sites, as well as reduction of manufacturing activities, and $1.4 million
related to other restructuring costs. Actual cash expenditures during 1993
totaled $4.5 million, with the remaining $6.1 million paid in 1994.
During 1994, $5.5 million in restructuring charges were expended with a
remaining accrual at December 31, 1994 of $628,000. The amounts expended
include $3.3 million related to involuntary severance costs and $2.2 million
related to costs associated with the consolidation of certain administrative
functions and monitoring sites. Certain reclassifications of those amounts have
been made within the restructuring categories from those previously reported,
none of which are significant. The impact of restructuring activities
implemented during 1993 resulted in reductions of operating costs of
approximately $18.0 million in 1994 compared with 1993.
Tokos incurred $550,000 of income tax expense in 1994 compared with
$2.0 million in 1993. Income tax expense recorded in 1994 resulted from
provisions for state franchise taxes and for potential settlement of the
examination by the Internal Revenue Service ("IRS") for the 1991, 1990, and
1989 tax years. During 1994, Tokos recorded no federal and state income tax
benefits.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31,1995 Tokos had cash and short-term investments of
$8.0 million and Healthdyne had cash and short-term investments of $35.8
million.
Net cash provided by operating activities at Tokos was $4.7 million for
1995, compared with $6.8 million for 1994. Operating cash flow at Tokos
decreased in 1995 compared with 1994 primarily due to the increase in the net
loss for the year. Net cash used by Tokos in investing activities declined to
$2.5 million in 1995 from $2.6 million in 1994. During 1995, Tokos purchased
approximately 56% of the physician-owned companies for which it originally
provided services for an aggregate purchase price of $2.6 million consisting of
cash of $1.1 million and notes payable of $1.5 million. During late 1994 and
1995 Tokos completed the purchase of approximately 96% of those entities. The
notes issued in connection with these acquisitions aggregate $3.1 million and
have a balance outstanding of $2.2 million at December 31, 1995. The remaining
balances are to be paid at various times over the next one to four years.
18
19
In July 1995, Tokos reached a $10.0 million settlement with the
plaintiffs in a class action securities suit. Tokos has accrued an aggregate
liability, net of insurance proceeds, of $5.75 million for its portion of the
settlement. Tokos has paid $750,000 cash with the remaining $5.0 million
payable by Matria in cash or by the issuance of Matria Common Stock in 1996.
Tokos made capital expenditures of approximately $2.0 million during
1995 primarily for the purchases of computer and general office equipment used
in its corporate offices and clinical sites of service. Such capital
expenditures consisted of agreements to purchase equipment under capital lease
obligations of $604,000 and cash purchases of $1.4 million. At December 31,
1995 Tokos had no material commitments for capital expenditures and with the
Merger with Healthdyne in 1996, Matria does not expect to have significant
additions of capital expenditures in future periods.
Payments of long term debt of $7.1 million in 1995 were primarily
payment of debt related to the acquisition of the physician-owned companies,
payment of amounts due to Adeza Biomedical Corporation ("Adeza"), and payments
of capital leases. In 1991, Tokos acquired from Adeza the exclusive rights to
market Adeza's fetal fibronectin immunoassay in the United States and Canada
pursuant to a Marketing Agreement. In January 1995, Adeza received notification
from the FDA that its Pre-Market approval ("PMA") application for fetal
fibronectin immunoassay was accepted for filing and Tokos paid Adeza $2.5
million of the remaining $4.0 million outstanding obligation. In October 1995,
Adeza received final approval of its PMA application and the remaining $1.5
million was paid. Matria and Adeza are currently engaged in discussions to
effect modification to their Marketing Agreement. Adeza and Matria have
discussed a number of proposals that would resolve the outstanding contractual
disagreements, but to date, the parties have not reached agreement on any of
these proposals. Further, there can be no assurance that the negotiations
currently underway will result in an agreement that satisfactorily resolves the
outstanding issues between the Matria and Adeza. Moreover, failure to reach an
agreement with Adeza could have an adverse effect on the timing of the
introduction by Matria of fetal fibronectin into the market and Matria's
ability to derive revenues from sales of this product.
Matria will incur substantial costs in connection with the Merger.
These costs include (i) restructuring costs to be incurred by Tokos of
approximately $14.1 million, consisting of $4.1 million relating to severance
costs of terminated employees, $2.5 million of lease termination costs for
duplicate facilities $5.3 million for the write-off of computer equipment and
$2.2 million for other Merger-related expenses, (ii) additional liabilities to
be incurred by Healthdyne as a result of the Merger of approximately $9.4
million, consisting of $9.2 million relating to severance costs of terminated
employees and $200,000 for patient service centers specifically identified to
be closed; and (iii) transaction costs of approximately $3.8 million,
consisting of $2.3 million for investment banking fees, $1.0 million for legal
and accounting fees and $490,000 for other costs such as document printing and
mailing and filing fees.
Additionally, Matria may be required to make additional severance
payments of approximately $7.9 million in accordance with employment agreements
with certain officers of Tokos and Healthdyne, and may be required to place in
trust approximately $3.2 million under a retirement benefit awards program for
such officers.
Matria believes that its current cash balances, including those
acquired from Healthdyne, and expected cash flows from operations and investing
activities, along with
19
20
amounts available under the $10.0 million line of credit assumed from Tokos
will be sufficient to finance its current operations for at least the next
twelve months.
This Management's Discussion and Analysis contains forward-looking
statements including statements concerning expected increases in revenues
arising from the Merger, expected increased revenues arising from the marketing
of fetal fibronectin immunoassay, expected synergies arising from the Merger,
the effect of goodwill on the Company's results of operations, capital
expenditures to be made in the future and the adequacy of Matria's sources of
cash to finance its current and future operations. These forward-looking
statements involve a number of risks and uncertainties. In addition to the
factors discussed above, among other factors that could cause actual results to
differ materially are the following: business conditions and growth in the home
healthcare industry and the general economy; competitive factors, such as the
possible entry of large diversified healthcare companies into the obstetrical
home healthcare business, new technologies and pricing pressures; changes in
third-party reimbursement policies and practices and regulatory requirements
applicable to the Company's business; management decisions to pursue new
product lines or lines of business which involve additional costs, risks or
capital expenditures; and the risk factors listed from time to time in the
Company's SEC reports, including but not limited to, this Annual Report on Form
10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
At December 31, 1995, Matria had no material assets or operations.
Accordingly, and because Tokos was deemed the acquiror in the Merger, the
financial statements of Tokos and its subsidiaries and the independent
auditor's report thereon are incorporated herein by reference to the Report on
Form 8-K, dated March 7, 1996, filed by the Company on March 22, 1996 and
amended by Form 8-K/A, dated March 29, 1996 (the "Form 8-K").
In addition, reference is made to the financial statements of
Healthdyne (deemed the acquired company in the Merger) which are incorporated
herein by reference to the Form 8-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
20
21
PART III
ITEMS 10-13.
The information required to be provided by Items 10 through 13 of Form
10-K is set forth under the following captions of the Matria Form S-4 and is
hereby incorporated herein by reference: "Description of Tokos - Executive
Compensation" and "Certain Transactions"; "Description of Healthdyne -
Executive Compensation" and "Certain Transactions"; "The Merger Agreement -
Treatment of Stock Options and Convertible Securities"; "The Merger-Interests
of Certain Persons in the Merger"; and, "Operation, Management and Business of
Newco After the Merger-Management of Newco" and "Newco Principal Stockholders."
Matria provided no compensation to any director or executive officer on
1995. Matria has assumed, however, and is responsible for all outstanding
obligations of either Tokos and Healthdyne to their respective directors and
executive officers, including those who are directors and executive officers of
Matria. These include the assumption of all outstanding stock options under the
predecessors' stock option plans, severance agreements, and retirement awards,
all as described in the information incorporated herein by reference.
In addition to reimbursement for their out-of-pocket expenses,
non-employee directors of Matria receive a quarterly retainer of $3,000, or
$12,000 per annum, plus $1,000 for each meeting of the Board of Directors or
any meeting of a Committee of the Board of Director held on a date separate
from a meeting date of the Board. Non-employee directors of the Company are
eligible to participate in the Company's 1996 Director Non-Qualified Stock
Option Plan, which provides for the annual grants to each non-employee director
of options to purchase 5,000 shares of Matria Common Stock. Options under this
plan are outstanding for a period of ten years and vest in equal monthly
installments over a twelve month period from the date of grant.
Executive officers of the Company are eligible to participate in the
Company's 1996 Stock Incentive Plan and the Company's Employee Stock Purchase
Plan. Options under the 1996 Stock Incentive Plan may be incentive options or
non- qualified options with or without stock appreciation rights, are granted
at the discretion, of and on such terms as are approved by, the Stock Option
Committee of the Board of Directors; provided, however, that all options must
be granted at the fair market value of the underlying Matria Common Stock on
the date of grant. Shares of Matria Common Stock may be purchased by employees
through a payroll deduction plan of up to ten percent (10%) of the employees
base salary under the 1996 Employee Stock Purchase Plan at a price equal to
eighty-five percent (85%) of the lower of the price of Matria Common Stock on
the first or last day of the calendar quarter.
Section 16(a) of the Securities Exchange Act of 1934 as amended (the
"Act") requires the Company's directors, executive officers and persons who own
more than ten percent of a registered class of the Company's equity securities
file with the SEC regarding beneficial ownership of Matria Common Stock and
other equity securities of Matria. To the Company's knowledge, based solely on
a review of copies of such reports furnished to the Company, all officers,
directors and greater than ten percent beneficial owners complied with the
Section 16 (a) filing requirements of the Act during 1995.
21
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A)(1) The financial statements of Tokos and Healthdyne and their
respective subsidiaries and the respective reports of independent auditors
thereon are incorporated by reference herein from the Report on Form 8-K, dated
March 8, 1996 and filed on March 22, 1996, as amended by Form 8-K/A, dated
March 29, 1996. A copy of such financial statements are filed herewith as
Exhibits 99.0 and 99.1.
(A)(2) The following supporting financial statement schedule is
included as part of this Annual Report on Form 10-K:
Schedule II - Valuation and Qualifying Accounts - Tokos Medical
Corporation (Delaware).
All other Schedules are omitted because the required information is
inapplicable or the 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 DESCRIPTION
NUMBER
2 Agreement and Plan of Merger, dated October 2, 1995, as amended, between Healthdyne,
Tokos and Registrant (included as 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") and incorporated
herein by reference).
3.1 Amended and Restated Certificate of Incorporation (included as Appendix D to the Joint
Proxy Statement/Prospectus filed as a part of the Company's Form S-4 and incorporated
herein by reference).
3.2 Bylaws (included as Appendix E to the Joint Proxy Statement/Prospectus filed as part
of the Company's Form S-4 and incorporated herein by reference).
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
(filed as Exhibit (4)(b) to the Healthdyne Annual Report on Form 10-K for the year
ended December 31, 1986 and incorporated herein by reference).
4.2 Form of Supplemental Indenture between Registrant and SouthTrust Estate & Trust
Company of Georgia, N.A., Trustee, to Debenture, dated as of December 1, 1986, for 8%
Convertible Subordinated Indentures due December 31, 2001 (filed as Exhibit 4.2 to the
Company's Form S-4 and incorporated herein by reference).
22
23
10.1 Form of Rights Agreement between Registrant and SunTrust Bank, Atlanta (filed as
Exhibit 10.1 to the Company's Form S-4 and incorporated herein by reference).
10.2 1996 Stock Incentive Plan (included as Appendix F-I to the Joint Proxy
Statement/Prospectus filed as a part of the Company's Form S-4 and incorporated herein
by reference).
10.3 1996 Directors' Non-Qualified Stock Option Plan (included as Appendix F-II to the
Joint Proxy Statement/Prospectus filed as a part of the Company's Form S-4 and
incorporated herein by reference).
10.4 1996 Employee Stock Purchase Plan (included as Appendix F-III to the Joint Proxy
Statement/Prospectus filed as a part of the Company's Form S-4 and incorporated herein
by reference).
10.5 Distribution Agreement, dated as of April 21, 1995, between Healthdyne and Healthdyne
Technologies (filed as Exhibit 10.18 to the Healthdyne Technologies Current Report on
Form 8-K, dated May 1, 1995 (the "Technologies Form 8-K"), and incorporated herein by
reference).
10.6 Amendment to Distribution Agreement, dated as of May 4, 1995, between Healthdyne and
Healthdyne Technologies (filed as Exhibit (10)(xx) to the Healthdyne Quarterly Report
on Form 10-Q for the period ended March 31, 1995 and incorporated herein by
reference).
10.7 Corporate Services Agreement, dated as of April 21, 1995, between Healthdyne and
Healthdyne Technologies (filed as Exhibit 10.21 to the Technologies Form 8-K and
incorporated herein by reference).
10.8 Tax Indemnification Agreement, dated as of April 21, 1995, between Healthdyne and
Healthdyne Technologies (filed as Exhibit 10.20 to the Technologies Form 8-K and
incorporated herein by reference).
10.9 Tax Sharing Agreement, dated as of March 31, 1993, between Healthdyne and Healthdyne
Technologies (filed as an Exhibit to the Registration Statement on Form S-1 of
Healthdyne Technologies (Registration No. 33-60708), dated April 6, 1993, and
incorporated herein by reference).
10.10 Agreement Concerning Taxes, dated as of April 21, 1995, between Healthdyne, Healthdyne
Technologies and Health Scan Products, Inc. (filed as an exhibit to the Technologies
Form 8-K, and incorporated herein by reference).
10.11 Trademark License Agreement, dated as of April 21, 1995, between Healthdyne and
Healthdyne Technologies (filed as Exhibit 10.23 to the Technologies Form 8-K and
incorporated herein by reference).
10.12 OEM Design and Manufacturing Agreement, dated as of April 21, 1995, between Healthdyne
and Healthdyne Technologies (filed as Exhibit 10.22 to the Technologies Form 8-K and
incorporated herein by reference).
10.13 Management and Transition Agreement, dated as of July, 1, 1995, between Healthdyne and
Healthdyne Technologies (filed as Exhibit 10.25 to the Technologies Quarterly Report
on Form 10-Q, dated June 30, 1995 and incorporated herein by reference).
23
24
10.14 Distribution Agreement, dated as of October 20, 1995, between Healthdyne and
Healthdyne Information Enterprises, Inc. ("HIE") (filed as Exhibit 2.1 to Amendment
No. 1 to the Registration Statement on Form S-1 of HIE (Registration No. 33-96478)
dated October 24, 1995 (the "HIE Form S-1"), and incorporated herein by reference).
10.15 Tax Indemnity Agreement, dated as of October 20, 1995, between Healthdyne and HIE
(filed as Exhibit 10.2 to Amendment No. 1 to the HIE Form S-1 and incorporated herein
by reference).
10.16 Tax Disaffiliation Agreement, dated as of October 20, 1995, between Healthdyne and HIE
(filed as Exhibit 10.3 to Amendment No. 1 to the HIE Form S-1 and incorporated herein
by reference).
10.17 Corporate Services Agreement, dated as of October 20, 1995, between Healthdyne and HIE
(filed as Exhibit 10.1 to Amendment No. 1 to the HIE Form S-1 and incorporated herein
by reference).
10.18 License Agreement, dated October 20, 1995, between Healthdyne and HIE (filed as
Exhibit 10.4 to Amendment No. 1 to the HIE Form S-1 and incorporated herein by
reference).
10.19 Secured Note Collateral Agreement, Restricted Stock Purchase Agreement and Secured
Promissory Note, each dated as of July 1, 1981, between Healthdyne and Parker H. Petit
(filed as exhibits to Registration Statement No. 2-74494 and incorporated herein by
reference).
10.20 Amendment to Secured Promissory Note, dated as of July 1, 1981, between Healthdyne and
Parker H. Petit (filed as Exhibit (10)(g) to the Healthdyne Annual Report on 10-K for
the year ended December 31, 1985 and incorporated herein by reference).
10.21 Amendments to Secured Promissory Note and Secured Note Collateral Agreement, dated as
of July 1, 1981, between Healthdyne and Parker H. Petit (filed as exhibits to the
Healthdyne Annual Report on 10-K for the year ended December 31, 1986 and incorporated
herein by reference).
10.22 Severance Compensation and Restrictive Covenant Agreement, dated October 2, 1995,
between Healthdyne and Frank D. Powers (filed as Exhibit 10.22 to the Company's Form
S-4 and incorporated herein by reference).
10.23 Form of Healthdyne Executive Non-qualified Retirement Plan and Trust (filed as Exhibit
(10) (qq) to the Healthdyne Annual Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by reference).
10.24 Amendment No. 1 to Employment Agreement, dated as of October 2, 1995, between Tokos
and Robert F. Byrnes (filed as Exhibit 10.24 to the Company's Form S-4 and
incorporated herein by reference).
24
25
10.25 Amendment No. 1 to Employment Agreement, dated as of October 2, 1995, between Tokos
and Nicholas A. Mione (filed as Exhibit 10.25 to the Company's Form S-4 and
incorporated herein by reference).
10.26 Amendment No. 1 to Employment Agreement, dated as of October 2, 1995, between Tokos
and Terry Bayer (filed as Exhibit 10.26 to the Company's Form S-4 and incorporated
herein by reference).
10.27 Memorandum of Understanding, dated July 31, 1995, between Tokos, Tokos Medical
Corporation (California), Robert F. Byrnes, Craig T. Davenport and Nicholas A. Mione,
and plaintiffs in the Tokos Medical Corporation Securities Litigation (filed as
Exhibit 10.27 to the Company's Form S-4 and incorporated herein by reference).
10.28 Exclusive Marketing Agreement, dated December 31, 1991, between Tokos and Adeza
Biomedical Corporation (filed as an Exhibit to the Tokos Annual Report on Form 10-K
dated March 27, 1992 with those portions omitted for confidentiality reasons filed
separately with the Commission and incorporated herein by reference).
10.29 Form of Tokos Executive Non-qualified Retirement Plan and Trust (filed as Exhibit
10.29 to the Company's Form S-4 and incorporated herein by reference).
10.30 Employment Agreement, dated as of June 1, 1995, between Tokos and Nicholas A. Mione
(filed as Exhibit 10.30 to the Company's Form S-4 and incorporated herein by
reference).
10.31 Employment Agreement, dated as of May 1, 1995, between Tokos and Robert F. Byrnes
(filed as Exhibit 10.31 to the Company's Form S-4 incorporated herein by reference).
10.32 Employment Agreement, dated as of January 1, 1995, between Tokos and Terry P. Bayer
(filed as Exhibit to the Company's Form S-4 and incorporated herein by reference).
10.33 Amended and Restated Severance Compensation and Restrictive Covenant Agreement, dated
October 2, 1995, between Healthdyne and Parker H. Petit (filed as Exhibit (10)(ggg) to
the Healthdyne Quarterly Report on Form 10-Q for the period ended September 30, 1995
and incorporated herein by reference).
10.34 Amended and Restated Severance Compensation and Restrictive Covenant Agreement, dated
October 2, 1995, between Healthdyne and J. Brent Burkey (filed as Exhibit (10)(ddd) to
the Healthdyne Quarterly Report on Form 10-Q for the period ended September 30, 1995
and incorporated herein by reference).
10.35 Amended and Restated Severance Compensation and Restrictive Covenant Agreement, dated
October 2, 1995, between Healthdyne and Donald R. Millard (filed as Exhibit (10)(fff)
to the Healthdyne Quarterly Report on Form 10-Q for the period ended September 30,
1995 and incorporated herein by reference).
10.36 Form of Promissory Note with Tokos officers and related Security Agreement (filed as
an Exhibit to the Tokos Registration Statement on Form S-1 (Registration No. 33-33340)
and incorporated herein by reference).
25
26
10.37 Amended and Restated Severance Compensation and Restrictive Covenant Agreement, dated
October 2, 1995, between Healthdyne and J. Terry Dewberry (filed as Exhibit (10)(eee)
to the Healthdyne Quarterly Report on Form 10-Q for the period ended September 30,
1995 and incorporated herein by reference).
10.38 Amended and Restated Severance Compensation and Restrictive Covenant Agreement dated
October 2, 1995, between Healthdyne and J. Paul Yokubinas (filed as Exhibit (10)(hhh)
to the Healthdyne Quarterly Report on Form 10-Q for the period ended September 30,
1995 and incorporated herein by reference).
The following exhibits are filed as a part of this Report:
3.1 Restated Certificate of Incorporation.
4.3 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.
21.0 List of Subsidiaries.
27 Financial Data Schedule (for SEC use only).
99.0 Financial Statements of Tokos Medical Corporation (Delaware) (filed as part of of the
Company's Form 8-K dated March 8, 1996, as amended by the Company's Form 8-K/A dated
March 29, 1996 and incorporated herein by reference).
99.1 Financial Statements of Healthdyne, Inc. (filed as part of the Company's 8-K dated
March 8, 1996, as amended by the Company's Form 8-K/A dated March 29, 1996 and
incorporated herein by reference).
99.2 Copies of sections of the Joint Proxy Statement/Prospectus included as part of the
Company's Form S-4 incorporated by reference into this Annual Report on Form 10-K.
(b.) Reports on Form 8-K.
None. A report on Form 8-K concerning the acquisition by Matria of Tokos and
Healthdyne was filed on March 22, 1996 and amended by Form 8-KA dated March 29, 1996.
26
27
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 28, 1996 By:/s/ Parker H. Petit
--------------------------------
Parker H. Petit, Chairman of the
Board
March 28, 1996 By:/s/ Robert F. Byrnes
--------------------------------
Robert F. Byrnes, President
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Parker H. Petit and Robert F.
Byrnes, and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, 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 l0-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 attorneys-in-fact and
agents 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 attorneys-in-fact and agents, or
their 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
- ------------------- and Director March 28, 1996
Parker H. Petit
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Robert F. Byrnes and Director March 28, 1996
- --------------------
Robert F. Byrnes
27
28
Signature Title Date
--------- ----- ----
Senior Vice President-Finance,
Chief Financial Officer
and Treasurer (Principal
Financial and Accounting
/s/ Donald R. Millard Officer) March 28, 1996
- ---------------------
Donald R. Millard
/s/ Craig T. Davenport Director March 28, 1996
- ----------------------
Craig T. Davenport
/s/ Thomas W. Erickson Director March 28,1996
- ----------------------
Thomas W. Erickson
/s/ David L. Goldsmith Director March 28, 1996
- ----------------------
David L. Goldsmith
/s/ Gene P. Guselli Director March 28, 1996
- -------------------
Gene P. Guselli
/s/ Carl E. Sanders Director March 28, 1996
- -------------------
Carl E. Sanders
/s/ Jacquelyn M. Ward Director March 28, 1996
- ---------------------
Jacquelyn M. Ward
/s/ Morris S. Weeden Director March 28, 1996
- --------------------
Morris S. Weeden
/s/ Frederick P. Zuspan, M.D. Director March 28, 1996
- -----------------------------
Frederick P. Zuspan, M.D.
28
29
TOKOS MEDICAL CORPORATION (DELAWARE)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charges to Balance at
beginning of Charges to costs and Net end of
Description period revenue expenses Deductions(1) period
- ----------- ----------- ---------- ---------- ------------- ----------
December 31, 1993
Allowance for contractual
adjustments and doubtful
accounts 17,400,000 3,084,000 13,656,000 19,040,000 15,100,000
December 31, 1994
Allowance for contractual
adjustments and doubtful
accounts 15,100,000 -0- 7,042,000 9,242,000 12,900,000
December 31, 1995
Allowance for contractual
adjustments and doubtful
accounts 12,900,000 -0- 5,251,000 10,551,000 7,600,000
December 31, 1993
Reserves for patient service
equipment and supplies -0- -0- 1,178,000 -0- 1,178,000
December 31, 1994
Reserves for patient service
equipment and supplies 1,178,000 -0- 852,000 -0- 2,030,000
December 31, 1995
Reserves for patient service
equipment and supplies 2,030,000 -0- -0- -0- 2,030,000
December 31, 1993
Reserves for patient
monitoring devices -0- -0- 2,200,000 -0- 2,200,000
December 31, 1994
Reserves for patient
monitoring devices 2,200,000 -0- -0- -0- 2,200,000
December 31, 1995
Reserves for patient
monitoring devices 2,200,000 -0- -0- -0- 2,200,000
- ----------------
(1) Contractual adjustments and doubtful accounts written off, net of
recoveries.
29