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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, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ----------- to ----------------
Commission File No. 0-20619
MATRIA HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-2205984
(State or other jurisdiction of (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. [ ]
As of March 9, 2001, there were 8,832,330 shares of Common Stock outstanding.
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates was approximately $112,480,415 based upon the closing sale price
on March 9, 2001.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for the 2001 Annual
Meeting of Shareholders are incorporated by reference into Part III.
MATRIA HEALTHCARE, INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business............................................3
Item 2. Properties..........................................8
Item 3. Legal Proceedings...................................9
Item 4. Submission of Matters to a Vote of Security Holders.9
Special Item Executive Officers of the Company...................9
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 7a. Quantitative and Qualitative Disclosures About
Market Risk.......................................19
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 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 ..................................................... 27
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. Matria's headquarters is
located in Marietta, Georgia.
Matria is a leading provider of comprehensive, integrated disease
management services to patients, physicians, health plans and employers. The
Company's disease management programs focus on four of the five most costly
chronic diseases and acute conditions: high-risk pregnancy and other women's
health conditions, diabetes, and select respiratory and cardiac conditions.
Matria's telemedicine and fulfillment services complement its disease management
programs and emphasize pro-active management of health conditions through
prevention, early detection, patient education, care coordination and self-care.
Business Segments and Geographic Areas. In 2000, the Company's operations
consisted of two reportable business segments: Women's Health and Diabetes
Supplies and Services. Information regarding net sales, operating income, and
total assets of each of the business segments in which the Company operated in
fiscal years 1998 through 2000, as well as information regarding revenues of the
Company attributed to the geographic areas in which the Company operated during
those years, is in note 15 of Notes to Consolidated Financial Statements on
pages F-20 through F-21 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 monitoring, infusion therapy, gestational diabetes management and
other monitoring and clinical services as prescribed by the patient's physician.
The Women's Health segment is headquartered in Marietta, Georgia and has 42
sites of service throughout the United States, 15 of which are monitoring
centers. All of the 42 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.
Diabetes Supplies and Services. The Company purchased the Diabetes Supplies
and Services segment business effective January 1, 1999. The segment has two
components: diabetes disease management and fulfillment services, and medical
device design, development and manufacturing services.
The diabetes disease management and fulfillment component sells insulin,
insulin pumps, syringes, microsampling products and other prescription and
non-prescription drugs used by diabetics. The majority of this business's
fulfillment sales are made on a mail-order basis. In addition, this business
provides diabetes screening, patient education and other self-management
supplies and services. This business serves patients in the United States
through its facilities in Roanoke, Virginia and Irvine, California and in
Germany through its facilities in Neumunster and Dresden, Germany. Approximately
44% and 47% of this business component's revenues were derived from its German
operations in 2000 and 1999, respectively.
This segment's medical devices component is the leading global supplier of
microsampling products, which are products used to obtain and test small samples
of blood. Recently, this component of the business changed its name to Facet
Technologies, LLC ("Facet"). Facet has a significant presence in each of the
three major products of the microsampling market: standard lancets, lancing
devices and safety lancets. Facet 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.
Facet 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 24% and 21% of this business component's
revenues were derived from sales outside of the United States in 2000 and 1999,
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.
Discontinued Operations. The Company's former Cardiovascular segment was
acquired in July 1998 and was operated through the Company's wholly-owned
subsidiary, Quality Diagnostic Services, Inc. ("QDS"). QDS provided cardiac
event monitoring services, holter monitoring services and pacemaker follow-up to
patients throughout the United States from its headquarters in Marietta,
Georgia. Effective February 1, 2001, the Company sold the business and assets of
QDS, excluding accounts receivable. Through the divestiture of QDS, the Company
has discontinued its service offerings related to cardiac diagnostics and will
pursue the addition of coronary artery disease and congestive heart failure
programs to its disease management offerings.
Other. In 2000, the Company had two components that were below the
quantitative threshold for reporting: respiratory disease management and
clinical patient record software. The respiratory disease management business
(Respiratory Management Services - "RMS"), which began in July 1998, 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 Medical and Research Center ("National
Jewish"), located in Denver, Colorado. The clinical patient record software
business (Clinical-Management Systems, Inc. - "CMS") marketed a proprietary
automated patient record for obstetricians and gynecologists. The Company exited
from the clinical patient record software business in the second quarter of
2000.
Customers, Suppliers and Third-Party Payors. In 2000, the Company's
revenues from continuing operations (excluding QDS) were derived from the
following types of customers: approximately 49% from private third-party payors,
25% from original equipment manufacturers, 11% from domestic government payors,
11% from foreign healthcare systems and 4% 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 2000. Of the
Diabetes Supplies and Services segment revenues in 2000, approximately 48% were
obtained from original equipment manufacturers, 22% were from foreign healthcare
systems, 16% were from domestic government payors, 8% were from employers and 6%
were from private third-party payors.
The Company markets its women's health services, diabetes disease
management services, and respiratory disease management services and, until
February 1, 2001, marketed its cardiovascular services to patients, physicians,
other healthcare providers and third-party payors, primarily through its
employee sales force. 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.
Facet 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 Facet's total sales in 2000. 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 two 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 Facet's business, as would any
interruption in the supply of products from Nissho Corporation, whatever the
cause.
The Company marketed its clinical patient record software to physicians
using a sales force employed by CMS.
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 activity monitor that has received pre-market approval from the Food and
Drug Administration ("FDA") for home use on patients with a history of previous
preterm birth. The Company's rights to the monitors had been a material
competitive advantage in marketing the Company's uterine activity monitoring
services. In 2001, the FDA reclassified the monitors from Class III into Class
II devices, which will make substantially equivalent devices available to the
Company's competitors, without their having to receive pre-market approval. As
part of the reclassification, the FDA has imposed special controls on the use of
such devices. It is not clear what impact these developments will have on the
Company's home uterine activity monitoring business.
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 Facet 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 the Women's Health segment is a leading provider in its market,
with a market share of approximately 85%, the Women's Health business 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 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 Facet's
products. The microsampling industry is highly fragmented, with numerous
competitors of all sizes. The quality of Facet'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. Facet 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 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.
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 is 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 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. Certain recent FDA actions with respect to home uterine activity monitors
were discussed above in this Item 1 under "Trademarks, Licenses and Patents." In
addition, some of the Company's services involve the use of drugs that are
regulated by the FDA under the FDC Act. Although medical devices and drugs used
by the Company 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
and medical devices for such "off-label" indications under the "practice of
medicine" doctrine. Nevertheless, 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, and any future adverse publicity or increased
FDA scrutiny surrounding off-label use of any drugs and devices utilized in the
Company's business may have a further adverse impact on the Company'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 899
full-time employees and over 70 regular part-time employees. In addition, the
Company employs an additional 895 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 statements that express
expectations and projections with respect to future matters, including, without
limitation, statements relating to growth, new lines of business and general
optimism about future operating results, are 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 laws or regulations applicable to the
Company or failure to comply with existing laws and 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; (xii) changes in
company-wide or business unit strategies; (xiii) the effectiveness of the
Company's advertising, marketing and promotional programs; (xiv) market
acceptance of the Company's disease management products; and (xv) 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 Securities and Exchange Commission (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 107,609 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 5,200 square feet of space with
an average of approximately 2,200 square feet. Total square footage for these
facilities is approximately 88,000 square feet. These facilities are leased for
various terms through 2004.
Facet's current headquarters facility consists of approximately 48,000
square feet of office and warehouse space in McDonough, Georgia. Effective May
1, 2001, its headquarters will relocate to another facility in McDonough,
Georgia, which will consist of approximately 70,000 square feet of office and
warehouse space. The lease term on this new facility will expire in 2008.
Effective April 2001, Facet will occupy approximately 9,000 square feet of space
in the Matria headquarters building. This lease expires on February 28, 2003.
Facet 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 July 2001 with automatic annual renewals
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 2005. The former Van Nuys, California operation of this
business moved 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 is a month to month tenancy and the Dresden lease expires
in 2005.
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) 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.
A special meeting of stockholders of the Company was held December 5, 2000.
The only matter voted upon at the meeting was the approval of an amendment to
the Company's Certificate of Incorporation to effect a reverse stock split
whereby the Company would issue one new share of Common Stock in exchange for
not less than three nor more than five shares of outstanding Common Stock to
reduce proportionately the number of authorized shares of Common Stock. The
stockholders approved the reserve stock split as follows:
Affirmative Votes Negative Votes Abstentions
28,371,336 3,401,990 51,905
Following such approval, the Company effected a one-for-four reverse stock
split on December 5, 2000.
Special Item. Executive Officers of the Company.
The following sets forth certain information with respect to the executive
officers of the Company:
Name Age Position with the Company
Parker H. Petit 61 Chairman of the Board, President and
Chief Executive Officer
Jeffrey D. Koepsell 54 Executive Vice President and Chief
Operating Officer
Frank D. Powers 52 President - Population Health
Management
James P. Reichmann 44 President - Women's Health Division
George W. Dunaway 40 Vice President - Finance and Chief
Financial Officer
Yvonne V. Scoggins 51 Vice President - Financial Planning
and Analysis
Roberta L. McCaw 45 Vice President - Legal, General
Counsel and Secretary
Thornton A. Kuntz, Jr. 47 Vice President - Administration
The executive officers of the Company are elected annually and serve
at the pleasure of the Board of Directors.
Mr. Petit has served as Chairman of the Board since the Merger and as
President and Chief Executive Officer since October 5, 2000. In addition,
he served as a member of the three-person Office of the president in 1997.
Mr. Petit was the founder of Healthdyne and served as its Chairman of the
Board of Directors and Chief Executive Officer from 1970 until the Merger.
Mr. Petit is also Chairman of the Board of Directors of Healthcare.com
Corporation and a director of Intelligent Systems Corp. and Logility, Inc.
Mr. Koepsell has served as a director of the Company and as Executive
Vice President and Chief Operating Officer since May 17, 2000. From 1992 to
1998, he was President and Chief Executive Officer of CardioLogic Systems,
Inc., a venture capital-backed company in the cardiopulmonary market
segment formed in cooperation with Johns Hopkins University and Medical
Center. Prior thereto, he served as President and Chief Executive Officer
of Physiologic Diagnostic Services, Inc., a women's health service provider
acquired by Tokos in 1992. Mr. Koepsell is also a former executive of
Healthdyne.
Mr. Powers has been President - Population Health Management since May
17, 2000. The Population Health Management division includes domestic
diabetes disease management and fulfillment services and RMS. Mr. Powers
was previously Executive Vice President and Chief Operating Officer of the
Company from October 20, 1997 to May 17, 2000 and Executive Vice President
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. 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, from February 1992 to March 1996.
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.
Ms. Scoggins has been Vice President - Financial Planning and Analysis
since February 28, 2001 and previously was Vice President, Treasurer and
Chief Accounting Officer of the Company from December 15, 1997 to February
28, 2001 and also Vice President and Controller from March 8, 1996 to
December 15, 1997. Prior thereto, she 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.
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.
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.
PART II
Item 5. Market Price of and Dividends on the 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 stockholders as of March 9, 2001 was 1,900 record holders
and 8,500 street holders.
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.
The following table sets forth, for the calendar quarters indicated, the
high and low sales prices of Matria common stock as quoted on NASDAQ from
January 1, 1999 through December 31, 2000:
Quarter Low High
1999
First $ 9.50 $ 17.75
Second 10.75 25.50
Third 21.00 30.00
Fourth 12.00 23.50
2000
First $16.24 $ 26.24
Second 11.75 21.00
Third 13.00 18.24
Fourth 7.25 14.24
Share prices prior to December 5, 2000 have been adjusted to reflect a
one-for-four reverse stock split which took effect on December 5, 2000.
Item 6. Selected Financial Data
The following sets forth selected consolidated financial data with respect
to the Company's operations. The data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and related notes thereto.
The statement of operations data for the five years ended December 31, 2000 and
the related balance sheet data have been derived from the audited consolidated
financial statements of the Company.
Years Ended December 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ----------- ------------ ----------- -------------
(In thousands, except per share data)
Consolidated statements of operations data:
Revenues $ 225,767 231,739 128,572 144,533 130,806
Earnings (loss) from continuing operations 13,694 31,366 (100,406) (20,902) (51,121)
Net earnings (loss) from continuing operations
per common share:
Basic $ 1.10 3.05 (10.98) (2.29) (6.33)
Diluted 1.05 2.82 (10.98) (2.29) (6.33)
December 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ----------- ------------ ----------- -------------
(In thousands)
Consolidated balance sheets data:
Total assets $ 268,293 285,713 97,304 191,132 223,188
Long-term debt, excluding current installments 76,996 91,090 18,385 1,712 2,499
Redeemable preferred stock 41,446 41,005 - - -
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
During 1998 and early 1999, the Company implemented 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.
In connection with the above acquisitions, the Company acquired intangible
assets that are being amortized over various useful lives from 5 to 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.
The Company continues to refine its diversified disease management
strategy. During the third and fourth quarters of 1999, the Company determined
that its infertility practice management business, National Reproductive Medical
Centers, Inc. ("NRMC"), no longer fit its strategy, and the assets of the NRMC
clinics were sold. During the second quarter of 2000, the Company decided to
exit its clinical patient record software business, Clinical-Management Systems,
Inc. ("CMS") and, as a result, suspended its sales efforts and fully reserved
the value of any remaining assets. Additionally, in February 2001, the Company
sold the business and certain assets of QDS.
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 a market leader in disease management and that these strategies will
result in revenue growth in 2001 and beyond.
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, 2000 as filed with the
Securities and Exchange Commission (the "Commission"). The Company's
consolidated financial statements have been restated to reflect the
Cardiovascular segment, QDS, as a discontinued operation for 2000, 1999 and
1998. The historical results of operations are not necessarily indicative of the
results that will be achieved by the Company during future periods.
Results of Operations
Revenues decreased $6.0 million or 2.6% in 2000 compared to 1999. Excluding
$10.4 million of 1999 revenues generated by NRMC, which was divested during the
second half of 1999, revenues increased by $4.4 million or 2.0%. Revenues of the
Diabetes Supplies and Services segment increased by $4.2 million, or 3.8%,
primarily as a result of strong growth in the domestic diabetes supply
fulfillment business.
Revenues increased $103.2 million or 80.2% 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. Revenues for the Diabetes Supplies and Services segment were
$110.5 million in 1999. The increase in revenues for this segment in 1999 was
partly offset by a $5.2 million or 4.5% decrease in revenues in the Women's
Health segment in 1999, as well as a $2.2 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.
Cost of revenues as a percentage of revenues remained relatively constant
at 51.5% and 51.1% for 2000 and 1999, respectively, and increased from 39.9% in
1998. The 1999 increase resulted from the acquisitions of the Gainor Medical and
DMS businesses, whose cost percentages were 65.8% and 66.0% in 2000 and 1999,
respectively.
Selling and administrative expenses as a percentage of revenues decreased
to 30.3% for 2000 compared to 31.8% in 1999 due to economies of scale achieved
from the 1999 restructuring efforts within the Women's Health segment and due to
declines in the Other segments resulting from the sale of the assets of NRMC and
from the exiting of the clinical patient record software business. These
decreases are partially offset by increased corporate expenses resulting from a
$1.2 million severance payment to a former senior executive of the Company.
Selling and administrative expenses as a percentage of revenues decreased to
31.8% for 1999 from 47.1% for 1998 due to economies of scale achieved as a
result of the Company's acquisitions of Gainor Medical and DMS.
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 segment was approximately 5% in 2000, 1999 and 1998. The
provision for doubtful accounts as a percentage of revenues in the Diabetes
Supplies and Services segment was 1% for 2000 and 1999. The provision is
adjusted periodically based upon the Company's quarterly evaluation of
historical collection experience, recoveries of amounts previously provided,
industry reimbursement trends and other relevant factors.
Amortization of intangible assets increased by $364,000 in 2000 compared to
1999 due to additional amortization resulting from recording $13.7 million of
incremental goodwill related to the contingent consideration for the Gainor
Medical acquisition. Amortization of intangible assets decreased in 1999
compared to 1998 due to the write-offs of intangible assets recorded in 1998
(discussed below). 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.
During the second quarter of 2000, the Company recorded restructuring
expenses of $1.6 million related to its decision to exit its clinical patient
record software business, CMS. Of these costs, $568,000 related to customer
contract fulfillment costs, $518,000 related to remaining software development
costs, $312,000 related to payroll costs and related involuntary severance of
employees and $201,000 related to other costs and expenses for the shutdown of
the business. Restructuring expenses of $4.2 million in 1999 resulted from the
implementation of a consolidation plan for the Women's Health segment to reduce
the number of monitoring centers from 38 to 15.
In 1998, the Company recorded an $82.9 million asset impairment charge to
reflect management's revised expectations of revenue and earnings growth and the
strategic plan to expand beyond maternity management. Most of the charge was
related to the write-down of goodwill and intangible assets, which resulted from
the 1996 merger of Tokos and Healthdyne. Based on projections of future revenue
growth of its preterm labor management business, the Company determined that
estimated future undiscounted cash flows of the Women's Health segment were
below the carrying value of its long-lived assets and goodwill. Accordingly, the
Company reduced the carrying value of these assets by $74.5 million to their
estimated fair value. Likewise, the Company determined that NRMC's estimated
future undiscounted cash flows were below the carrying value of its long-lived
assets due to continued operational issues, including the termination of the
employment of the founding physician in July 1998. As a result, the Company
adjusted the carrying value of NRMC's long-lived assets, primarily goodwill, to
their estimated fair value by recording an $8.4 million asset impairment charge.
The estimated fair value in each case was based on anticipated cash flows
discounted at a rate commensurate with the risk involved.
Interest expense increased by $415,000 in 2000 compared to 1999 primarily
due to an increase in the number of days the Gainor Medical acquisition debt was
outstanding and due to higher interest rates. Interest expense increased by $7.1
million in 1999 compared to 1998 due to a significant increase in borrowings
related to business acquisitions.
Other income for 2000 includes gains of $6.1 million from $7.3 million in
proceeds from sales of the Company's investment in WebMD Corporation ("WebMD").
Additionally, the Company recognized gains of $1.7 million from the 1999 sale of
assets of NRMC. At December 31, 1999, the Company's balance sheet reflected
notes receivable from the purchasers of NRMC totaling $1.1 million and
liabilities for patient refunds and reserves for potentially uncollectible notes
receivable and facility lease obligations totaling $2.8 million; no gain or loss
was recognized. In June 2000, the Company received $750,000 in full settlement
of notes receivable from one purchaser. The recognized gain reflects the
realization of most of the proceeds and a re-assessment of remaining patient
refunds and other obligations. Other income for 1999 includes gains of $17.3
million from $20.7 million in proceeds from sales of shares of WebMD. See
"Liquidity and Capital Resources" below where the use of these proceeds is
discussed.
In 1998, the Company did not record a federal or state income tax expense
due to the Company's net loss. In 1999, the Company recorded a $4.0 million
income tax benefit resulting from a reduction in the deferred tax asset
valuation allowance based on current and expected future net earnings. As of
December 31, 1999, the deferred tax asset valuation allowance was eliminated and
the full amount of deferred income tax assets, totaling $36.7 million, was
reflected on the consolidated balance sheet. In 2000, the Company recognized a
$9.1 million tax provision. Cash outflows for income taxes totaled $2.2 million,
being comprised of federal alternative minimum taxes, state and foreign taxes.
As of December 31, 2000, the Company's remaining net operating losses of $54.1
million, the tax effect of which is reflected in the deferred tax asset, will be
available to offset future tax liabilities.
In December 2000, the Company formalized its decision to divest its
Cardiovascular segment, QDS. Accordingly, its operating results, net of tax,
have been reported as discontinued operations. In February 2001, the Company
completed the sale of the business and certain assets for approximately $18.0
million in cash. See "Liquidity and Capital Resources" below where the use of
these proceeds is discussed.
Liquidity and Capital Resources
As of December 31, 2000, the Company had cash and short-term investments of
$4.0 million. Net cash provided by continuing operations increased to $20.1
million in 2000 compared to $12.5 million in 1999. Contributing to this cash
flow improvement was an increase in operating earnings and a net increase in
accounts payable, offset by an increase in inventories. Net cash provided by
continuing operations was $3.0 million in 1998.
The Company's accounts receivable days' sales outstanding were 64 days as
of December 31, 2000 compared to 65 days as of December 31, 1999. Accounts
receivable days' sales outstanding in the Women's Health segment decreased from
90 days' sales as of December 31, 1999 to 87 days' sales as of December 31,
2000. Days' sales outstanding for the Diabetes Sales and Services division
remained constant at 41 days for both periods.
Net cash used in investing activities was $3.6 million in 2000, $78.2
million in 1999, and $18.9 million in 1998. Capital expenditures of $7.4 million
in 2000, $5.1 million in 1999 and $3.9 million in 1998 relate primarily to the
upgrade and expansion of computer information systems as the Company positioned
itself for expansion into new markets. In 1999, $93.0 million was expended on
the purchases of the Gainor Medical business and DMS. In 1998, expenditures of
$19.9 million were made related to the acquisitions of QDS and DMS.
In connection with the acquisition of QDS, the Company invested $2.0
million in 1998 in preferred stock of WebMD and received options and warrants to
purchase additional shares of WebMD for $2.7 million, which were exercised in
1999. During the first and second quarters of 2000 and the fourth quarter of
1999, the Company sold 203,393 shares and 561,030 shares, respectively, of
WebMD, resulting in proceeds of $7.3 million and $20.7 million, respectively. At
December 31, 2000, the Company had a remaining investment in WebMD of 16,423
shares.
As discussed above, total proceeds of $28.0 million were received in 1999
and 2000 from sales of WebMD. Of this amount, $2.7 million was used in 1999 to
exercise the options and warrants to purchase additional shares and $21.6
million was used to repay the Company's term loan facility ($15.0 million in
1999 and $6.6 million in 2000).
In January 1999, in connection with the acquisitions of Gainor Medical and
DMS, the Company entered into a $125.0 million, five-year secured credit
facility. The credit facility consists of an $80.0 million term loan facility
and a $45.0 million revolving credit facility. In January 1999, the Company
borrowed $105.0 million under the facility, using $90.3 million for the
purchases of Gainor Medical and DMS and $14.7 million to repay existing debt.
The facility is collateralized by accounts receivable, inventories and certain
other 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, 2000, the
Company was in compliance with these requirements. At December 31, 2000, $43.7
million of the term loan and $29.0 million under the revolving credit facility
were outstanding.
Also, in connection with the acquisitions of Gainor Medical and DMS, the
Company issued $45.0 million of redeemable preferred stock to the former owners
of Gainor Medical, consisting of $10.0 million of 4% convertible redeemable
preferred stock and $35.0 million of 8% redeemable preferred stock with attached
warrants to purchase one 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 provided for an
additional contingent purchase price adjustment based on 1999 financial
performance of the Gainor Medical business. In the second and third quarters of
2000, an additional $13.7 million of purchase price was paid by the issuance of
subordinated notes to the sellers. These notes bear an interest rate of 12% per
annum, and principal payments will be made in the amount of one-third of the
respective note amounts on the third, fourth and fifth anniversaries of the
notes.
In February 2001, the Company completed the sale of the business and
certain assets of its Cardiovascular segment, QDS, for approximately $18.0
million in cash. The sale excluded existing accounts receivable of $8.8 million
at December 31, 2000. The proceeds from the sale were used to repay the term
loan facility in February 2001. QDS's net cash flows provided by (used in)
operating activities were $(623,000), $710,000 and $1.9 million in 2000, 1999
and 1998, respectively. Capital expenditures incurred by QDS were $3.5 million,
$2.2 million and $2.0 million in 2000, 1999 and 1998, respectively, relating
primarily to purchases of patient equipment.
At a special meeting on December 5, 2000, the Company's shareholders
approved a reverse stock split of the Company's common stock, whereby one new
share of common stock was issued in exchange for four shares of outstanding
common stock. Also, the number of authorized shares of common stock was reduced
to 25 million. Accordingly, all references to share amounts and per share
amounts have been adjusted to reflect the split on a retroactive basis.
In September 2000, the Board of Directors of the Company approved the
repurchase and retirement of $3.0 million of the Company's outstanding common
stock. On October 31, 2000, The Company completed this repurchase program,
having purchased approximately 297,000 shares of common stock (in terms of
post-reverse stock split shares). In November 2000, the Board of Directors
approved a continuation of the share repurchase program and authorized the
repurchase of an additional $3.0 million of common stock. As of December 31,
2000, the Company had purchased a total of approximately 460,000 shares of
common stock at a cost of approximately $4.7 million. At March 27, 2001,
approximately 68,500 additional shares have been repurchased in the first
quarter of 2001 at a cost of approximately $800,000.
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. Also, in December 1999, the
Commission staff released Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements ("SAB No. 101"). SAB No. 101 provides detailed guidance
on the recognition of revenue and is effective for 2000 through the issuance of
SAB 101B, Second Amendment: Revenue Recognition in Financial Statements. The
Company had no derivative or hedge transactions during 2000 or at January 1,
2001 that will require recognition or adjustment under SFAS 133, and the
Company's revenue recognition policy was not impacted by SAB No. 101.
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 statements that express expectations and
projections with respect to future matters, including, without limitation,
statements relating to growth, new lines of business and general optimism about
future operating results, are 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
laws or regulations applicable to the Company or failure to comply with existing
laws and 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;
(xii) changes in company-wide or business unit strategies; (xiii) the
effectiveness of the Company's advertising, marketing and promotional programs;
(xiv) market acceptance of the Company's disease management products; (xv)
increases in interest rates, and (xvi) 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, 2000. 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 interest rates on
long-term debt and foreign exchange rates.
The Company's primary interest rate risk relates to its variable rate bank
credit facility, which is based on LIBOR and prime rates. At December 31, 2000,
the Company's variable rate long-term debt obligation totaled $72.7 million. A
hypothetical 10% change in the interest rates applied to the December 31, 2000
balance of variable rate debt obligations for a duration of one year would
result in additional interest expense of approximately $680,000.
The Company's non-U.S. operations with sales denominated in other than U.S.
dollars (primarily in Germany) generated approximately 12% of total revenues in
2000. In the normal course of business, these operations are exposed to
fluctuations in currency values. Management does not consider the impact of
currency fluctuations to represent a significant risk, and as such, has chosen
not to hedge its foreign currency exposure. A 10% change in the dollar exchange
rate of the German mark would impact net earnings by approximately $214,000.
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, 2000 and 1999 F-2
Consolidated Statements of Operations - Years Ended
December 31, 2000, 1999 and 1998 F-3
Consolidated Statements of Common Shareholders' Equity and
Comprehensive Earnings - Years Ended December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Cash Flows - Years Ended
December 31, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Items 10-13.
The information contained under the heading "Management of the Company" in
the Company's definitive proxy materials for its 2001 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, 2000, all officers, directors and greater than ten
percent beneficial owners complied with the Section 16(a) filing requirements of
the Act in all instances with the exception of late filings with respect to the
dispositions of common stock in two instances by Frederick P. Zuspan by gift and
open market sale.
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, 2000 and 1999 F-2
Consolidated Statements of Operations - Years Ended
December 31, 2000, 1999 and 1998 F-3
Consolidated Statements of Common Shareholders' Equity and
Comprehensive Earnings - Years Ended December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Cash Flows - Years Ended
December 31, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
(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:
PAGE
Independent Auditors' Report F-1
Schedule II - Valuation and Qualifying Accounts 29
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).
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, Commission File No. 20619).
3.3 Amended and Restated Bylaws (incorporated by reference to Exhibit
3 to the Matria Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000).
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, Commission File No. 20619).
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 to Exhibit
4 to the Matria Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999).
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 banks and other financial institutions from time to time
party thereto, and First Union National Bank as Administrative Agent
(incorporated by reference to Exhibit 4.7 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999).
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 party thereto,
and First Union National Bank as Administrative Agent (incorporated by
reference to Exhibit 4.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999).
4.9 Non-Negotiable Subordinated Promissory Note, dated June 9, 2000
(incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).
*10.1 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).
*10.2 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).
*10.3 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).
*10.4 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).
*10.5 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).
*10.6 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).
*10.7 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).
*10.8 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).
*10.9 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).
*10.10 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).
*10.11 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).
10.12 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).
*10.13 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).
*10.14 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).
*10.15 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).
*10.16 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).
*10.17 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).
*10.18 1997 Stock Incentive Plan incorporated by reference to Exhibit A to
Matria's Definitive Proxy Statement filed with the Commission on April
16, 1998.
10.19 2000 Stock Incentive Plan (incorporated by reference to Exhibit A to
Matria's Definitive Proxy Statement filed with the Commission on April
14, 2000).
10.20 2000 Director's Non-Qualified Stock Option Plan (incorporated by
reference to Matria's Definitive proxy Statement filed with the
Commission on April 14, 2000).
*10.21 Employment Letter Agreement between the Company and Jeffrey D.
Koepsell, dated May 16, 2000 (incorporated by reference to the
Company's Quarterly Report on From 10-Q for the quarter ended June 30,
2000).
*10.22 Amendment to Employment Letter Agreement between the Company and
Jeffrey D. Koepsell, dated May 18, 2000 (incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 2000).
The following exhibits are filed as part of this Report:
2.5 Asset Purchase Agreement, dated January 8, 2001, for the sale of
assets of Quality Diagnostic Services, Inc. ("QDS") among Card Guard
Technologies, Inc., Matria Healthcare, Inc., and QDS.
2.6 Amendment to Asset Purchase Agreement, dated February 1, 2001, for the
sale of assets of QDS among Card Guard Technologies, Inc., Matria
Healthcare, Inc., and QDS.
3.4 Certificate of Amendment of Restated Certificate of Incorporation of
Matria dated December 5, 2000.
4.10 Non-Negotiable Subordinated Promissory Note, dated August 22, 2000.
4.11 Third Amendment to Credit Agreement, dated March 17, 2000, among
Matria, the Required Lenders and First Union Bank as Administrative
Agent.
10.23 Amendment to the 1996 Directors' Non-Qualified Stock Option Plan
approved by the Company's stockholders on May 18, 1998.
*10.24 Change in Control Severance Compensation and Restrictive Covenant
Agreement between the Company and Parker H. Petit, dated October 4,
2000.
*10.25 Promissory Note, dated October 12, 2000.
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 filed a Current Report on Form 8-K on December 14, 2000, which
reported under Item 9 Regulation FD Disclosure related to Matria's 2000 Investor
Conference conducted December 14, 2000.
*Management contract or compensatory plan or arrangement
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 30, 2001 By:/s/ Parker H. Petit
--------------------------------------
Parker H. Petit
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ George W. Dunaway
--------------------------------------
George W. Dunaway, Vice President--
Finance and Chief Financial Officer
(Principal Financial Officer)
/s/ Larry N. Brownlee
--------------------------------------
Larry N. Brownlee
Corporate Controller
(Principal Accounting Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Parker H. Petit 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 30, 2001
- ------------------------------------ President and Chief
Parker H. Petit Executive Officer
/s/ Jeffrey D. Koepsell Director, Executive March 30, 2001
- ------------------------------------ Vice President and
Jeffrey D. Koepsell Chief Operating Officer
/s/ Mark J. Gainor Director March 27, 2001
- ------------------------------------
Mark J. Gainor
/s/ Richard F. Levy Director March 30, 2001
- ------------------------------------
Richard F. Levy
/s/ Guy W. Millner Director March 26, 2001
- ------------------------------------
Guy W. Millner
/s/ Carl E. Sanders Director March 26, 2001
- ------------------------------------
Carl E. Sanders
/s/ Thomas S. Stribling Director March 26, 2001
- ------------------------------------
Thomas S. Stribling
/s/ Jackie M. Ward Director March 25, 2001
- ------------------------------------
Jackie M. Ward
/s/ Donald W. Weber Director March 26, 2001
- ------------------------------------
Donald W. Weber
/s/ Morris S. Weeden Director March 26, 2001
- ------------------------------------
Morris S. Weeden
/s/ Frederick P. Zuspan, M.D. Director March 28, 2001
- -----------------------------
Frederick P. Zuspan, M.D.
Matria Healthcare, Inc. and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
(Amounts in thousands)
Additions
------------------------------------
Balance at Charges to
beginning Costs and Charges to Balance at
Description of period Expenses other accounts Deductions end of period
----------- --------- -------- -------------- ---------- -------------
December 31, 1998
Allowance for doubtful accounts $ 22,651 6,342 - 11,988 17,005
December 31, 1999
Allowance for doubtful accounts $ 17,005 7,193 2,089(1) 14,324 11,963
December 31, 2000
Allowance for doubtful accounts $ 11,963 7,043 - 12,069 6,937
- ---------------------------------
(1)Represents beginning balances in allowance for doubtful accounts of acquired companies.
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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. 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 15, 2001
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except per share amounts)
December 31, December 31
----------------------------------
ASSETS 2000 1999
------ --------------- ---------------
Current assets:
Cash and cash equivalents $ 3,915 9,548
Short-term investments (notes 2 and 17) 130 8,243
Trade accounts receivable, less allowances of $6,937 and
$11,963 at December 31, 2000 and 1999, respectively (note 5) 39,969 41,651
Other receivables (note 16) 27,608 7,312
Assets of discontinued operations (note 16) - 15,831
Inventories (note 5) 17,035 10,310
Deferred income taxes (note 7) 3,182 5,122
Prepaid expenses 2,011 1,924
--------------- ---------------
Total current assets 93,850 99,941
Property and equipment, net (notes 4 and 5) 15,644 13,418
Intangible assets, net (notes 1 and 2) 119,486 128,724
Deferred income taxes (note 7) 27,315 31,603
Cash surrender value of life insurance (note 10) 10,813 10,803
Other assets 1,185 1,224
--------------- ---------------
$ 268,293 285,713
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (notes 5 and 12) $ 11,815 10,362
Accounts payable, principally trade 21,734 18,826
Accrued liabilities (notes 6, 11 and 16) 8,698 12,349
--------------- ---------------
Total current liabilities 42,247 41,537
Long-term debt, excluding current installments (notes 2, 5 and 12) 76,996 91,090
Accrued benefit costs (note 10) 5,052 8,030
Other long-term liabilities (note 11) 3,702 4,807
--------------- ---------------
Total liabilities 127,997 145,464
--------------- ---------------
Redeemable preferred stock, $.01 par value. Authorized 50,000 shares (note 9):
Series A convertible: issued and outstanding-- 10 shares at
December 31, 2000 and 1999; redemption value of $10,000 10,000 10,000
Series B: issued and outstanding-- 35 shares at December 31, 2000
and 1999; redemption value of $35,000 31,446 31,005
--------------- ---------------
Total redeemable preferred stock 41,446 41,005
--------------- ---------------
Common shareholders' equity (note 8):
Common stock, $.01 par value. Authorized 25,000 shares; issued and
outstanding-- 8,777 and 9,193 at December 31, 2000 and 1999, respectively 88 92
Additional paid-in capital 288,900 293,486
Accumulated deficit (186,082) (196,576)
Accumulated other comprehensive earnings (loss), net of income taxes (521) 5,777
Notes receivable and accrued interest from shareholder (3,535) (3,535)
--------------- --------------
Total common shareholders' equity 98,850 99,244
--------------- --------------
Commitments and contingencies (notes 10, 12 and 13)
$ 268,293 285,713
============== ==============
See accompanying notes to consolidated financial statements.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
Years ended December 31,
-----------------------------------------
2000 1999 1998
------------ ------------- ------------
Revenues $225,767 231,739 128,572
Cost of revenues 116,179 118,305 51,278
Selling and administrative expenses 68,468 73,653 60,613
Provision for doubtful accounts 7,043 7,193 6,342
Amortization of intangible assets 9,803 9,439 27,700
Restructuring charges (note 11) 1,599 4,241 -
Asset impairment charges (note 3) - - 82,885
------------ ------------- ------------
Operating earnings (loss) from continuing operations 22,675 18,908 (100,246)
Interest income 444 474 475
Interest expense (8,600) (8,185) (1,083)
Other income, net (note 17) 8,275 16,169 448
------------ ------------- ------------
Earnings (loss) from continuing operations before income taxes 22,794 27,366 (100,406)
Income tax benefit (expense) (note 7) (9,100) 4,000 -
------------ ------------- ------------
Earnings (loss) from continuing operations 13,694 31,366 (100,406)
Earnings (loss) from discontinued operations, net of income taxes (note 16) - 2,640 (1,136)
------------ ------------- ------------
Net earnings (loss) 13,694 34,006 (101,542)
Redeemable preferred stock dividends (3,200) (3,049) -
Accretion of Series B redeemable preferred stock (441) (420) -
------------ ------------- ------------
Net earnings (loss) available to common shareholders $10,053 30,537 (101,542)
============ ============= ============
Net earnings (loss) per common share (note 1):
Basic:
Continuing operations $ 1.10 3.05 (10.98)
Discontinued operations - 0.29 (0.12)
------------ ------------- ------------
$ 1.10 3.34 (11.10)
============ ============= ============
Diluted:
Continuing operations $ 1.05 2.82 (10.98)
Discontinued operations - 0.26 (0.12)
------------ ------------- ------------
$ 1.05 3.08 (11.10)
============ ============= ============
Weighted average shares outstanding:
Basic 9,139 9,151 9,145
============ ============= ============
Diluted 9,946 10,036 9,145
============ ============= ============
See accompanying notes to consolidated financial statements.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Common Shareholders' Equity
and Comprehensive Earnings
(Amounts and shares in thousands)
Additional
Common Stock paid-in Accumulated
Shares Amount capital deficit
--------- ---------- ----------- ------------
Balance, December 31, 1997 9,198 $ 92 282,603 (125,991)
Issuance of common stock:
Exercise of options 30 - 273 -
Employee stock purchase plan 30 - 365 -
Conversion of subordinated debentures 1 - 13 -
Purchase of treasury stock (156) (1) (2,396) -
Net loss - - - (101,542)
-----------------------------------------------
Balance, December 31, 1998 9,103 91 280,858 (227,533)
Issuance of common stock:
Exercise of options 37 - 309 -
Employee stock purchase plan 49 1 527 -
Conversion of subordinated debentures 4 - 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 9,193 92 293,486 (196,576)
Issuance of common stock:
Exercise of options 5 - 65 -
Employee stock purchase plan 40 1 558 -
Conversion of subordinated debentures - - 5 -
Repurchase of common stock (460) (5) (4,728) -
Fractional shares retired after reverse stock split (1) - (45) -
Accretion on Series B redeemable preferred stock - - (441) -
Dividends on redeemable preferred stock - - - (3,200)
Net earnings - - - 13,694
Change in foreign currency translation adjustment, net of
income taxes - - - -
Change in unrealized appreciation on available-for-sale
securities, net of income taxes - - - -
-----------------------------------------------
Balance, December 31, 2000 8,777 $ 88 288,900 (186,082)
======= ======== ======= =========
Notes
Accumulated receivable Total
other and accrued common Comprehensive
comprehensive interest from shareholders' earnings
earnings (loss) shareholder equity (loss)
-------------- --------------- -------------- -------------
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 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
========
Issuance of common stock:
Exercise of options - - 65
Employee stock purchase plan - - 559
Conversion of subordinated debentures - - 5
Repurchase of common stock - - (4,733)
Fractional shares retired after reverse stock split - - (45)
Accretion on Series B redeemable preferred stock - - (441)
Dividends on redeemable preferred stock - - (3,200)
Net earnings - - 13,694 13,694
Change in foreign currency translation adjustment, net of
income taxes (25) - (25) (25)
Change in unrealized appreciation on available-for-sale
securities, net of income taxes (6,273) - (6,273) (6,273)
------------------------------------------------------------
Balance, December 31, 2000 (521) (3,535) 98,850 7,396
========== ======= ======== ========
See accompanying notes to consolidated financial statements
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
Years ended December 31,
---------------------------------------
2000 1999 1998
---------------------------------------
Cash Flows from Operating Activities:
Net earnings (loss) $ 13,694 34,006 (101,542)
Less, earnings (loss) from discontinued operations, net of income taxes - 2,640 (1,136)
-------- -------- --------
Earnings (loss) from continuing operations 13,694 31,366 (100,406)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation and amortization 13,984 13,987 32,292
Provision for doubtful accounts 7,043 7,193 6,342
Deferred tax expense (benefit) 9,100 (4,000) -
Gains on sales of investments (6,077) (17,349) -
Asset impairment charges - - 82,885
Other, net - - 146
Changes in assets and liabilities, net of effect of acquisitions:
Trade accounts receivable (5,583) (5,319) (5,151)
Inventories (6,735) (191) (559)
Other current assets 347 419 (827)
Intangible and other noncurrent assets (4,818) (3,503) (2,398)
Accounts payable 3,713 (5,667) 1,839
Accrued and other liabilities (4,550) (4,458) (11,143)
-------- -------- ---------
Net cash provided by continuing operations 20,118 12,478 3,020
Net cash provided by (used in) discontinued operations (623) 710 1,911
-------- -------- ---------
Net cash provided by operating activities 19,495 13,188 4,931
-------- -------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment (7,395) (5,128) (3,941)
Purchases of property and equipment related to discontinued operations (3,492) (2,233) (2,001)
Acquisition of businesses, net of cash acquired - (93,022) (19,947)
Proceeds from sales of short-term investments 7,298 23,579 8,997
Investment in an affiliated company - (2,680) (2,010)
Proceeds from disposal of property and equipment - 1,257 -
-------- ------- -------
Net cash used in investing activities (3,589) (78,227) (18,902)
-------- ------- -------
Cash Flows from Financing Activities:
Borrowings under credit agreement 23,000 108,000 16,659
Proceeds from issuance of debt 891 979 781
Principal repayments of long-term debt (37,650) (41,552) (1,627)
Proceeds from issuance of common stock 579 837 638
Repurchases of common stock (4,733) - (2,397)
Preferred stock dividend payments (3,200) (2,249) -
Other, net - - (60)
-------- ------ -------
Net cash provided by (used in) financing activities (21,113) 66,015 13,994
-------- ------ --------
Effect of exchange rate changes on cash and cash equivalents (426) (537) -
-------- ------- --------
Net increase (decrease) in cash and cash equivalents (5,633) 439 23
Cash and cash equivalents at beginning of year 9,548 9,109 9,086
-------- ------ --------
Cash and cash equivalents at end of year $ 3,915 9,548 9,109
======== ======= ========
Supplemental disclosures of cash paid for:
Interest $ 8,596 6,325 1,161
======== ======= ========
Income taxes $ 2,167 457 10
======== ======= ========
Supplemental disclosure of noncash investing and financing activities:
Equipment acquired under capital lease obligations $ 266 526 707
======== ======= ========
See accompanying notes to consolidated financial statements.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
(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
acquisitions, 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
and note 16 for a summary of dispositions of businesses, including
the sale of QDS in February 2001.
(b) Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States. 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 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.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
(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. 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, 2000, 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 $41 and $6,314 are
included in common shareholders' equity in the consolidated
balance sheets at December 31, 2000 and 1999.
(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.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
(i) Intangible Assets
A summary of intangible assets follows:
December 31,
---------------------------
2000 1999
----------- -----------
Goodwill $ 135,045 134,326
Other intangible assets 3,825 3,978
----------- -----------
138,870 138,304
Less accumulated amortization 19,384 9,580
----------- -----------
$ 119,486 128,724
=========== ===========
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 8 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, purchased
software, covenants not to compete and patents. These costs are
being amortized on a straight-line basis over periods ranging from
four to ten 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 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).
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
(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 tax
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 net earnings (loss) per common share are based on the
weighted average number of common shares outstanding. Diluted net
earnings (loss) per common share are based on the weighted average
number of common shares outstanding and dilutive potential common
shares, such as dilutive stock options and warrants, determined
using the treasury stock method, and dilutive convertible
preferred shares, determined using the if-converted method. In
1998, the computation of diluted net earnings (loss) per common
share was antidilutive; therefore, the amounts reported for basic
and diluted net earnings (loss) per common share are the same.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
The computations for basic and diluted net earnings (loss) per
common share are as follows:
Years ended December 31,
-----------------------------------------------
2000 1999 1998
------------ ------------ ------------
Basic
Earnings (loss) from continuing operations $ 13,694 31,366 (100,406)
Earnings (loss) from discontinued operations, net of income
taxes - 2,640 (1,136)
----------- ---------- ---------
13,694 34,006 (101,542)
Redeemable preferred stock dividends (3,200) (3,049) -
Accretion on Series B redeemable preferred stock (441) (420) -
----------- ---------- ---------
Net earnings (loss) available to common shareholders $ 10,053 30,537 (101,542)
=========== ========== =========
Weighted average number of common shares outstanding 9,139 9,151 9,145
=========== ========== =========
Net earnings (loss) per common share:
Continuing operations $ 1.10 3.05 (10.98)
Discontinued operations - 0.29 (0.12)
----------- ---------- ---------
$ 1.10 3.34 (11.10)
=========== ========== =========
Diluted
Net earnings (loss) available to common shareholders $ 10,053 30,537 (101,542)
Dividends on convertible preferred shares 400 381 -
----------- ---------- ----------
Net earnings (loss) for diluted calculation $ 10,453 30,918 (101,542)
=========== ========== ==========
Shares:
Weighted average number of common shares outstanding 9,139 9,151 9,145
Shares issuable from assumed exercise of options and warrants 251 356 -
Convertible preferred stock 556 529 -
----------- ---------- ----------
9,946 10,036 9,145
=========== ========== ==========
Net earnings (loss) per common share:
Continuing operations $ 1.05 2.82 (10.98)
Discontinued operations - 0.26 (0.12)
----------- ---------- ----------
$ 1.05 3.08 (11.10)
=========== ========== ==========
All basic and diluted net earnings (loss) per common share amounts
reflected for all periods in the accompanying consolidated
financial statements and these notes thereto have been restated to
reflect the reverse stock split (see note 8).
(n) Comprehensive Earnings
Comprehensive earnings generally include 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 2000 and 1999, comprehensive earnings consists of net
earnings, foreign currency translation adjustments and changes in
unrealized appreciation on available-for-sale securities.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
(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 nature 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 1999 and 1998 consolidated financial
statements have been reclassified to conform to presentations
adopted in 2000.
(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 ten 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 carryforwards to be realized in the
future as a result of the acquisition (see note 7).
The acquisition agreement also provided for an additional contingent
purchase price adjustment based on 1999 financial performance of the
Gainor Medical business. In 2000, an additional $13,719 of purchase price
was paid by the issuance of subordinated notes. These notes bear an
interest rate of 12% per annum and principal payments will be made in the
amount of one-third of the respective note amounts on the third, fourth
and fifth anniversaries of the notes.
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. 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.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
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 Corporation)
("WebMD") for $17,000 in cash. The acquisition agreement also provided
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 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 (amortized over
five years), customer lists and trade names (amortized over 15 years),
and goodwill of $8,254 (amortized over 15 years). In connection with the
acquisition, the Company made a $2,010 preferred stock investment in
WebMD, 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. At
December 31, 2000, the Company's remaining investment in WebMD is
reflected in short-term investments. In December 2000, the Company
formalized its decision to sell the QDS business and accordingly reported
all results of operations as discontinued operations. See note 17 for a
summary of gains from sales of shares of WebMD and note 16 for a
discussion about the disposition of this business.
The following is a summary of the fair value of assets acquired and
consideration paid in connection with these acquisitions:
Gainor QDS DMS
------------ ----------- ----------
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 13,719 - -
Cash paid for acquisition costs 5,337 370 -
----------- ----------- ----------
Fair value of assets acquired, including goodwill $ 145,826 17,370 8,492
=========== =========== ==========
(3) Asset Impairment Charges
In 1998, the Company recorded an $82,885 asset impairment charge to reflect
management's revised expectations of revenue and earnings growth and the
strategic plan to expand beyond maternity management. Most of the charge
was related to the write-down of goodwill and intangible assets, which
resulted from the 1996 merger ("Merger") of Tokos Medical Corporation
(Deleware) ("Tokos") and Healthdyne, Inc. ("Healthdyne"). Based on
projections of future revenue growth of its preterm labor management
business, the Company determined that estimated future undiscounted cash
flows of the Women's Health segment were below the carrying value of its
long-lived assets and goodwill. Accordingly, the Company reduced the
carrying value of these assets by $74,496 to their estimated fair value.
The operations of Tokos and Healthdyne are included in the Women's Health
operating segment (see note 15).
Likewise, the Company determined that the estimated future undiscounted
cash flows of National Reproductive Medical Center, Inc. ("NRMC") were
below the carrying value of its long-lived assets due to continued
operational issues, including the termination of the employment of the
founding physician in July 1998. As a result, the Company adjusted the
carrying value of NRMC's long-lived assets, primarily goodwill, to their
estimated fair value by recording an $8,389 asset impairment charge. The
operations of NRMC are included in Other Segments (see note 15). See
further discussion of the disposition of NRMC in note 16.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
The estimated fair value in each case was based on anticipated cash flows
discounted at a rate commensurate with the risk involved.
(4) Property and Equipment
Property and equipment are summarized as follows:
December 31,
------------------------
2000 1999
---------- ----------
Machinery, equipment and fixtures $ 20,278 17,116
Medical equipment 18,623 17,744
Leasehold improvements 2,124 1,801
--------- ---------
41,025 36,661
Less accumulated depreciation and amortization 25,381 23,243
--------- ---------
$ 15,644 13,418
========= =========
(5) Long-Term Debt
Long-term debt is summarized as follows:
December 31,
------------------------------
2000 1999
------------- ------------
Secured term loan, variable interest at the LIBOR rate plus 2.5%;
payable in quarterly installments; maturing in March 2004 $ 43,669 59,000
Secured revolving line of credit, variable interest at the LIBOR
rate plus 2.5%; outstanding principal balance plus all accrued
but unpaid interest payable March 2004 29,000 27,000
Subordinated acquisition note, interest at 8% payable
quarterly; interest at 4% payable annually; payable in annual
installments beginning in 2003 and maturing in 2005 13,963 13,000
Convertible subordinated debentures (net of discount of $87
and $35 at December 31, 2000 and 1999, respectively); interest at 8%
payable annually; maturing on December 31, 2001; convertible into the
Company's common stock at $19.60 per share; redeemable by the
Company at face value 1,146 1,187
Capital lease obligations; interest ranging from approximately
7% to 13% with various monthly payments and maturing at
various dates through December 2003 (note 12) 602 754
Other debt; interest at rates ranging from approximately 7.5%
to 9%; payable in monthly installments through May 2002 431 511
----------- ---------
Total long-term debt 88,811 101,452
Less current installments 11,815 10,362
----------- ---------
Long-term debt, excluding current installments $ 76,996 91,090
=========== =========
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
In connection with the acquisitions of Gainor Medical and DMS in January
1999 (see note 2), the Company entered into a $125,000 five-year bank
credit facility. This facility consisted of an $80,000 term loan facility
and a $45,000 revolving credit facility. The facility is collateralized
by accounts receivable, inventories, property and equipment, and certain
other 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, 2000,
interest rates under this agreement ranged from 9.1875% to 11.0%. The
weighted average interest rate on this facility for 2000 was 9.43%. 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, 2000, 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, 2000 are as follows:
2001 $ 11,815
2002 11,415
2003 18,819
2004 42,107
2005 4,655
Thereafter -
-------------
$ 88,811
=============
In February 2001, $18,000 of the term loan facility was repaid from the
proceeds of the sale of QDS (see note 16). All subsequent payments due on
the term loan facility will be proportionately reduced from the amounts
reflected in the table above.
(6) Accrued Liabilities
Accrued liabilities are summarized as follows:
December 31,
-----------------------------
2000 1999
----------- ------------
Accrued salaries, wages and incentives $ 2,466 2,960
Accrued liabilities of business dispositions (note 16) 1,460 2,751
Accrued interest 1,431 1,893
Accrued preferred stock dividends 800 800
Accrued restructuring costs (note 11) 764 1,369
Other 1,777 2,576
----------- ------------
$ 8,698 12,349
=========== ============
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
(7) Income Taxes
The provision (benefit) for income taxes consisted of:
Years ended December 31,
---------------------------------------------
2000 1999 1998
------------ ------------ -------------
Current tax provision:
U.S. federal $ 768 87 10
State and local 692 162 -
Non-U.S. 707 208 -
------ ----- ------
Total current tax provision 2,167 457 10
------ -------- ------
Deferred tax provision:
U.S. federal 6,456 (4,087) (10)
State and local 509 (162) -
Non-U.S. (32) (208) -
------- -------- ------
Total deferred tax provision 6,933 (4,457) (10)
------- -------- ------
Total income tax expense (benefit) $ $9,100 (4,000) -
======= ======= ======
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:
Years ended December 31,
---------------------------------------------
2000 1999 1998
------------ ------------ -------------
Computed expected income tax expense (benefit) $ 7,978 10,202 (35,540)
Increase (decrease) resulting from:
State and local income taxes, net of federal benefit 781 1,188 -
Non-U.S. municipal taxes and tax rate differences 159 - -
Nondeductible expenses 182 1,194 39,563
Losses in excess of allowable carrybacks - - 796
Nontaxable municipal interest income - - (83)
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) $ 9,100 (4,000) -
============ ============ =============
At December 31, 1998, the Company had a deferred tax asset of
approximately $45,339 before an offsetting valuation allowance. The
valuation allowance was based on an assessment of the likelihood of
whether the deferred tax asset would be realized. The elimination of the
valuation allowance of $45,339 during 1999 was attributable to the
following items: (1) 1999 income which utilized $12,500 of net operating
losses; (2) an increase in 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 now, more likely than not, that it will realize
the related deferred income tax assets.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
At December 31, 2000 and 1999, the deferred income tax assets consist of
future tax benefits attributable to:
2000 1999
------------- -------------
Deferred income tax assets:
Current:
Allowance for doubtful accounts $ 2,432 3,017
Accruals and reserves not deducted for tax purposes 750 2,105
------------- -------------
3,182 5,122
------------- -------------
Non-current:
Accruals and reserves not deducted for tax purposes 1,287 1,764
Depreciation and amortization 1,959 2,608
Net operating loss carryforwards 21,045 25,766
Credit carryforwards 2,657 2,010
Other 367 (545)
------------- -------------
27,315 31,603
------------- -------------
Total deferred income tax assets $ 30,497 36,725
============= =============
At December 31, 2000, 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:
General Net
Year of business operating
Expiration credits loss
------------ ------------ -------------
2001 $ 34 -
2002 38 -
2003 89 -
2004 43 -
2005 61 -
2006 151 -
2007 - 29
2008 - 1,011
2009 - 4,599
2010 - 11,364
2011 - 34,070
2012 - 1,824
2018 - 414
2019 - 354
2020 - 436
------------ -------------
$ 416 54,101
============ =============
The Company also has available alternative minimum tax ("AMT") credit
carryforwards of approximately $2,241 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 $45,965.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
(8) Common Shareholders' Equity
Reverse Stock Split
In December 2000, the Company executed a one-for-four reverse stock split
under which every four shares of the Company's common stock were
converted into one new share of common stock. All amounts reflected for
common stock and additional paid-in capital, and all amounts of
authorized and outstanding common shares and per share amounts reflected
for all periods in the accompanying financial statements and these notes
thereto have been restated to reflect the reverse stock split.
Stock Option Plans
During 2000, the Board of Directors of the Company adopted the 2000 Stock
Incentive Plan for employees, officers, independent contractors and
consultants of the Company. The 2000 Stock Plan has three components: a
stock option component, a stock bonus/stock purchase component and a
stock appreciation rights component. Under the terms of this plan, a
total of 550,000 shares of common stock were reserved for issuance. The
Stock Option Committee shall determine the term of each option granted,
provided that the term shall not be for more than ten years. The options
are exercisable based on established performance goals, provided,
however, that they are exercisable in no less than two years and no more
than four years and expire after ten years.
Also during 2000, the Board of Directors of the Company adopted the 2000
Non-employee Director Stock Option Plan, which provides for the issuance
of non-qualified stock options to the Company's non-employee directors.
Under the terms of this plan, a total of 62,500 shares of common stock
were reserved for issuance. The options are granted with an exercise
price equal to the fair market value of the Company's common stock on the
date the option is granted and vest monthly over the 12 months from the
date of grant. The term of each option is ten years from the date of
grant.
During 1997, the Board of Directors of the Company adopted the 1997 Stock
Incentive 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 450,000
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.
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) from continuing operations and earnings
(loss) per common share from continuing operations would have been as
follows:
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
2000 1999 1998
---------- ----------- -------------
Pro forma net earnings (loss) from continuing
operations available to common shareholders $ 8,221 25,989 (101,343)
========= ========= =============
Pro forma basic net earnings (loss) per common share
from continuing operations $ 0.90 2.84 (11.08)
========= ========== =============
The weighted average fair value of the individual options granted during
2000, 1999 and 1998 is estimated at $10.67, $9.50 and $9.89,
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.
2000 1999 1998
----------- ----------- -----------
Dividend yield None None None
Volatility 57% 58% 50%
Risk-free interest rate 6.15% 5.54% 5.15%
Expected life 5 Years 5 Years 5 Years
A summary of stock option transactions under these plans is shown below:
2000 1999 1998
------------------------ ------------------------ -------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares Price Shares price
--------- ---------- ---------- ---------- ----------- ----------
Outstanding at beginning of 884,729 $ 23.16 806,280 $ 23.63 726,346 $ 24.92
year
Granted 234,105 19.16 196,605 17.20 232,880 20.04
Exercised (16,875) 14.62 (39,586) 8.68 (30,368) 9.00
Canceled (53,615) 22.73 (78,570) 20.48 (122,578) 26.84
--------- ---------- ---------- ---------- ----------- ----------
Outstanding at end of year 1,048,344 $ 22.41 884,729 $ 23.16 806,280 $ 23.63
========= ========== ========== ========== =========== ==========
Exercisable at end of year 634,478 $ 24.67 499,078 $ 25.32 496,267 $ 23.96
========= ========== ========== ========== =========== ==========
The following table summarizes information concerning outstanding and
exercisable options at December 31, 2000:
Options outstanding Options exercisable
---------------------------------------------------- -------------------------------
Weighted Weighted Weighted
Range of average average average
Exercise Shares remaining exercise Shares exercise
Price Outstanding contractual price exercisable price
life (years)
--------------------- -------------- ---------------- ------------ ------------ -------------
$ 7.50 - $ 10.00 5,250 9.3 $ 9.23 646 $ 7.50
$ 10.00 - $ 20.00 289,121 8.2 16.34 107,111 16.65
$ 20.00 - $ 30.00 681,762 6.5 23.77 454,510 24.95
$ 30.00 - $ 40.00 71,260 5.1 33.97 71,260 33.97
$ 40.00 - $126.00 951 1.5 106.56 951 106.56
---------- ---------
1,048,344 634,478
========== =========
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
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 125,000 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 2000, 1999 and 1998, respectively, 39,755, 48,469 and 30,133
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, 2000.
Shareholders' 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
$244 per unit. The rights, 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 $0.01 per right any time before and within
ten 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 1,000,000 shares of the Company's common stock at $12.00 per
share.
The Series A CRPS is convertible at any time into 555,556 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
$21.60 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.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
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.
(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, 2000, 1999 and 1998 were approximately
$784, $833 and $814, 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 2000, 1999 and 1998, the Company paid $2,754, $2,754 and $2,640,
respectively, in insurance premiums related to these split-dollar life
insurance contracts. At December 31, 2000 and 1999, respectively, the
cash surrender value of life insurance policies was $10,813 and $10,803
and the related liability was $5,052 and $8,030.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
(11) Restructuring
During the second quarter of 2000, the Company incurred restructuring
expenses of $1,599 related to its decision to exit its clinical patient
record software business, Clinical-Management Systems, Inc. Of these
costs, $568 relates to customer contract fulfillment costs, $518 relates
to remaining software development costs, $312 relates to payroll costs
and related involuntary severance of employees and $201 relates to other
costs and expenses for the shutdown of the business.
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.
(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, 2000 are as follows:
Operating Capital
Years ending December 31, leases leases
------------------------- -------------- ------------
2001 $ 6,281 447
2002 5,368 125
2003 2,454 80
2004 971 -
2005 826 -
Thereafter 1,375 -
-------------- -----------
$ 17,275 652
==============
Less interest 50
-----------
Present value of future
minimum capital lease payments $ 602
===========
Amortization of leased assets is included in depreciation expense. Rental
expense for cancelable and noncancelable leases was approximately $6,673,
$7,460 and $6,500 for the years ended December 31, 2000, 1999 and 1998,
respectively.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
(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.
(14) Quarterly Financial Information - Unaudited
Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 2000 and 1999.
Quarter
--------------------------------------------------------------
Fourth Third Second First
------------ ----------- ------------- ------------
2000:
Revenues $ 56,390 57,434 58,197 53,746
Net earnings (loss)
Continuing operations 2,089 2,658 3,621 5,326
Discontinued operations (180) (195) (55) 430
-------- -------- -------- -------
Total 1,909 2,463 3,566 5,756
======== ======== ======== =======
Net earnings (loss) per diluted common share
Continuing operations 0.13 0.18 0.28 0.44
Discontinued operations (0.02) (0.01) (0.01) 0.04
--------- -------- -------- --------
Total 0.11 0.17 0.27 0.48
========= ======== ======== ========
1999:
Revenues $ 57,679 59,999 58,392 55,669
Net earnings
Continuing operations 19,961 7,189 3,327 889
Discontinued operations 599 548 711 782
-------- ------- ------- -------
Total 20,560 7,737 4,038 1,671
======== ======= ======= =======
Net earnings per diluted common share
Continuing operations 1.91 0.62 0.25 0.02
Discontinued operations 0.06 0.05 0.07 0.08
---- ---- ---- ----
Total 1.97 0.67 0.32 0.10
==== ==== ==== ====
The sum of the four quarterly net earnings (loss) per diluted common
share amounts may not equal the annual amount reflected on the
consolidated statements of operations due to rounding.
(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 each respective business unit.
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
As of December 31, 2000 the Company's operations have been classified
into two reportable business segments: Women's Health and Diabetes
Supplies and Services. 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 and fulfillment services, and medical device
design, development and manufacturing services. The Other Segments
include three business segments that are below the quantitative threshold
for disclosure: respiratory disease management, clinical records software
and services (business was exited in the second quarter of 2000) and
infertility practice management services (sold during the third and
fourth quarters of 1999). In December 2000, the Board of Directors of the
Company approved the sale of the business and certain assets of its
Cardiovascular segment, a business that provided cardiac event
monitoring, holter monitoring and pacemaker follow-up services (see note
16). The results of operations of this business segment are classified as
discontinued operations and are not included in the Company's segment
information, but are included in the reconciliations to consolidated
amounts.
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.
Summarized financial information as of and for the years ended December
31, 2000, 1999 and 1998 by business segment follows:
Revenues Operating earnings (loss)
-------------------------------- -----------------------------------
2000 1999 1998 2000 1999 1998
---------- --------- --------- ---------- ----------- ----------
Women's Health $ 109,716 109,986 115,147 24,292 15,566 (8,584)
Diabetes Supplies and Services 114,694 110,529 39 9,729 11,402 39
Other Segments 1,357 11,224 13,386 (3,601) (2,409) (4,956)
---------- --------- --------- ---------- ----------- ----------
Total segments 225,767 231,739 128,572 30,420 24,559 (13,501)
General corporate - - - (7,745) (5,651) (3,860)
Asset impairment charges (note 3) - - - - - (82,885)
Interest expense, net - - - (8,156) (7,711) (608)
Other income, net - - - 8,275 16,169 448
---------- --------- --------- ---------- ----------- ----------
$ 225,767 231,739 128,572 22,794 27,366 (100,406)
========== ========= ========= ========== =========== ==========
Identifiable assets Depreciation and amortization
-------------------------------- -----------------------------------
2000 1999 1998 2000 1999 1998
---------- --------- --------- ---------- ----------- ----------
Women's Health $ 38,343 39,575 57,088 2,381 3,380 29,150
Diabetes Supplies and Services 153,620 153,772 39 9,922 9,610 -
Other Segments 764 2,462 6,543 151 571 3,041
General corporate 75,566 74,073 16,916 1,530 426 101
Net assets of discontinued operations - 15,831 16,448 - - -
---------- --------- --------- ---------- ----------- ----------
$ 268,293 285,713 97,034 13,984 13,987 32,292
========== ========= ========= ========== =========== ==========
Capital expenditures
-----------------------------------
2000 1999 1998
--------- ----------- ----------
Women's Health $ 2,212 2,933 2,828
Diabetes Supplies and Services 3,558 787 -
Other Segments 25 541 406
General corporate 1,600 867 707
--------- ----------- ----------
$ 7,395 5,128 3,941
========= =========== ==========
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Amounts in thousands, except share and per share amounts)
The Company's revenues from operations outside the U.S. were
approximately 12% and 11% of total revenues in 2000 and 1999,
respectively, and less than 1% of total revenues in 1998. No single
customer accounted for 10% of consolidated net revenues in 2000, 1999 or
1998.
(16) Dispositions of Businesses
In February 2001, the Company sold the business and certain assets of QDS
and received cash proceeds totaling approximately $18,000. The accounts
receivable of QDS, totaling approximately $8,800 at December 31, 2000,
were excluded from the sale. The proceeds to be received and the accounts
receivable of QDS are reflected in "other receivables" on the
consolidated balance sheets at December 31, 2000. No gain or loss was
recognized on the sale of these assets. As of December 31, 2000, an
accrued liability totaling $1,217 was recorded for estimated future
salary and severance costs of personnel retained to collect the accounts
receivable and for net costs of operating activities through the sale
date. The accompanying consolidated financial statements have been
restated to reflect QDS as a discontinued operation for all periods
presented.
The operating results of discontinued operations are as follows:
2000 1999 1998
------------ ----------- -----------
Revenues $ 15,336 15,596 6,644
Earnings (loss) before income taxes $ - 2,640 (1,136)
Income tax expense - - -
---------- --------- -------
Net earnings (loss) from discontinued operations $ - 2,640 (1,136)
========== ========= =======
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 and realized cash proceeds of $1,257 and received notes
from the buyers of NRMC totaling $1,079. Due to the uncertainty of
collection of the notes and an accrual for future patient refunds, no
gain or loss was recognized on the sale of these assets in 1999. In 2000,
the Company received $750 in full settlement of notes receivable from one
purchaser and recognized a gain of $1,746 from the sale of these assets,
which reflected the realization of most of the proceeds and a
re-assessment of remaining obligations. As of December 31, 2000, an
accrual for future patient refunds and other costs totaling $243 was
reflected in accrued liabilities, and an additional $109 for long-term
commitments was reflected in other long-term 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 and received options
and warrants to purchase additional shares of WebMD for $2,680, which
were exercised in 1999. In 1999, the Company sold shares of WebMD
generating proceeds of $20,720 and a gain of $17,349, which was reflected
in "other income" in the consolidated statements of operations. In 2000,
additional shares were sold generating proceeds of $7,298 and gains of
$6,077. At December 31, 2000, the Company has a remaining investment in
WebMD of 16,423 shares.