Back to GetFilings.com
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 0-20619
MATRIA HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-2205984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 Parkway Place
Marietta, Georgia 30067
(Address of principal executive offices)
(Zip Code)
(770) 767-4500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---------- ----------
The number of shares outstanding of the issuer's only class of common stock,
$.01 par value, together with associated common stock purchase rights, as of
November 1, 2002 was 10,051,463.
MATRIA HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 2002
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements................................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
Item 4. Controls and Procedures................................ 30
PART II--OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.............. 31
Item 4. Submission of Matters to a Vote of Security Holders.... 31
Item 6. Exhibits and Reports on Form 8-K....................... 32
SIGNATURES ............................................. 33
CERTIFICATIONS ............................................. 34
Part I--Financial Information
Item 1. Financial Statements
Matria Healthcare, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(Amounts in thousands, except per share amounts)
(Unaudited)
ASSETS September 30, December 31,
- ------ 2002 2001
------------------- ----------------
Current assets:
Cash and cash equivalents $ 5,418 1,983
Short-term investments 83 116
Trade accounts receivable, less allowances of $8,711 and
$7,025 at September 30, 2002 and December 31, 2001, respectively 50,732 52,054
Inventories 24,219 21,306
Prepaid expenses and other current assets 15,639 14,040
------ ------
Total current assets 96,091 89,499
Property and equipment, less accumulated depreciation of $31,602 and
$26,518 at September 30, 2002 and December 31, 2001, respectively 27,422 18,722
Intangible assets, less accumulated amortization of $29,970 and
$29,211 at September 30, 2002 and December 31, 2001, respectively 133,017 109,634
Deferred income taxes 26,913 24,715
Other assets 19,554 18,053
------- ------
$ 302,997 260,623
========= =======
See accompanying notes to consolidated condensed financial statements.
Matria Healthcare, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(Amounts in thousands, except per share amounts)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY September 30, December 31,
- ------------------------------------ 2002 2001
----------------- -----------------
Current liabilities:
Current installments of long-term debt $ 1,162 615
Accounts payable, principally trade 28,135 22,651
Accrued liabilities 17,914 9,619
------- ------
Total current liabilities 47,211 32,885
Long-term debt, excluding current installments 118,051 114,575
Other long-term liabilities 8,088 8,266
------- -------
Total liabilities 173,350 155,726
------- -------
Common shareholders' equity:
Common stock, $.01 par value. Authorized 25,000 shares:
issued and outstanding -- 10,051 and 8,927 shares
at September 30, 2002 and December 31, 2001, respectively 101 89
Additional paid-in capital 311,102 290,070
Accumulated deficit (181,385) (181,035)
Accumulated other comprehensive loss (171) (692)
Notes receivable and accrued interest from shareholder -- (3,535)
--------- -------
Total common shareholders' equity 129,647 104,897
-------- -------
$ 302,997 260,623
========= =======
See accompanying notes to consolidated condensed financial statements.
Matria Healthcare, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
(Amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
2002 2001 2002 2001
------------- ------------ ------------ ------------
Revenues $ 71,352 68,097 205,943 194,303
Cost of revenues 42,926 37,420 120,736 105,895
Selling and administrative expenses 20,972 18,690 65,576 55,296
Provision for doubtful accounts 4,032 1,991 7,960 5,764
Amortization of intangible assets 140 2,457 420 7,370
----------- --------- --------- ---------
Operating earnings from continuing operations 3,282 7,539 11,251 19,978
Interest expense, net (3,494) (3,453) (9,995) (6,678)
Other income (expense), net (613) 13 (584) (725)
----------- ---------- --------- ---------
Earnings (loss) from continuing operations before income taxes (825) 4,099 672 12,575
Income tax expense (benefit) (260) 1,650 340 5,050
---------- ---------- ---------- ---------
Earnings (loss) from continuing operations (565) 2,449 332 7,525
Loss from discontinued operations, net of income taxes (682) (210) (682) (210)
----------- ---------- --------- ---------
Net earnings (loss) (1,247) 2,239 (350) 7,315
Preferred stock dividend requirements -- (42) -- (1,638)
Accretion of preferred stock -- (7) -- (225)
Gain (loss) on repurchases of preferred stock -- (1,400) -- 739
---------- --------- --------- ---------
Net earnings (loss) available to common shareholders $ (1,247) 790 (350) 6,191
========= ========== ========== =========
Net earnings (loss) per common share:
Basic:
Continuing operations $ (0.06) 0.11 0.04 0.73
Discontinued operations (0.08) (0.02) ( 0.08) ( 0.02)
---------- --------- --------- --------
$ (0.14) 0.09 (0.04) 0.71
======== ========= ========= =========
Diluted:
Continuing operations $ (0.06) 0.11 0.04 0.72
Discontinued operations (0.08) (0.02) ( 0.08) (0.02)
----------- ---------- --------- --------
$ (0.14) 0.09 (0.04) 0.70
========== =========== ========= =========
Weighted average shares outstanding:
Basic 9,161 8,736 9,062 8,735
========== ========== ========= ========
Diluted 9,161 8,905 9,062 8,924
========== ========== ========= ========
See accompanying notes to consolidated condensed financial statements.
Matria Healthcare, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------------------
2002 2001
-------------- ------------
Cash Flows from Operating Activities:
Net earnings (loss) $ (350) 7,315
Less, loss from discontinued operations, net of income taxes (682) (210)
----- -----
Earnings from continuing operations 332 7,525
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation and amortization 5,419 11,229
Amortization of debt discount and expenses 1,648 586
Provision for doubtful accounts 7,960 5,764
Deferred tax expense (benefit) (1,253) 5,050
Non-cash loss on settlement of note receivable from shareholder 2,508 --
Proceeds from termination of interest rate swap agreement 3,053 --
Changes in assets and liabilities:
Trade accounts receivable (5,723) (16,408)
Inventories (2,770) (1,099)
Prepaid expenses and other current assets (2,795) (3,664)
Noncurrent assets (2,770) (2,390)
Accounts payable 5,284 717
Accrued and other liabilities 4,979 1,308
----- -----
Net cash provided by continuing operations 15,872 8,618
Net cash provided by discontinued operations 517 2,409
------ ------
Net cash provided by operating activities 16,389 11,027
------ ------
Cash Flows from Investing Activities:
Purchases of property and equipment (12,669) (6,389)
Purchases of property and equipment related to discontinued operations -- (17)
Acquisition of businesses, net of cash acquired (3,476) --
Proceeds from disposition of business -- 18,076
--------- ------
Net cash provided by (used in) investing activities (16,145) 11,670
--------- ------
Cash Flows from Financing Activities:
Borrowings under credit agreement 8,500 36,000
Proceeds from issuance of debt 1,462 1,013
Proceeds from issuance of senior notes -- 112,042
Principal repayments of long-term debt (9,660) (126,500)
Proceeds from issuance of common stock 1,858 609
Repurchases of common stock and warrants -- (4,346)
Repurchase of preferred stock -- (40,931)
Preferred stock dividend payments -- (2,438)
------- -------
Net cash provided by (used in) financing activities 2,160 (24,551)
------- --------
Effect of exchange rate changes on cash and cash equivalents 1,031 (143)
------ -------
Net increase (decrease) in cash and cash equivalents 3,435 (1,997)
Cash and cash equivalents at beginning of year 1,983 3,915
------ -------
Cash and cash equivalents at end of period $ 5,418 1,918
======= =======
Supplemental disclosures of cash paid for:
Interest $ 5,624 5,400
======= =====
Income taxes $ 657 725
======= =====
Supplemental disclosure of noncash investing and financing activities:
Equipment acquired under capital lease obligations $ 131 --
===== =======
See accompanying notes to consolidated condensed financial statements.
Notes to Consolidated Condensed Financial Statements
(Amounts in thousands, except share and per share amounts)
(Unaudited)
1. General
The consolidated condensed financial statements as of September 30, 2002
and for the three and nine months ended September 30, 2002 and 2001 are
unaudited. In the opinion of management, all adjustments, consisting of normal
recurring accruals, necessary for fair presentation of the consolidated
financial position and results of operations for the periods presented have been
included. The consolidated condensed balance sheet for December 31, 2001 was
derived from audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States. The
results for the three-month and nine-month periods ended September 30, 2002 are
not necessarily indicative of the results for the full year ending December 31,
2002.
The consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Annual Report on Form 10-K of Matria Healthcare, Inc. ("Matria"
or the "Company") for the year ended December 31, 2001.
2. Comprehensive Earnings
Comprehensive earnings generally include all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. For the Company, comprehensive earnings consist of net earnings, foreign
currency translation adjustments (net of income taxes) and changes in unrealized
appreciation on available-for-sale securities (net of income taxes).
Comprehensive earnings (loss) for the three-month and nine-month periods ended
September 30, 2002 were $(1,247) and $171, respectively, and for the
corresponding periods in 2001 were $2,455 and $7,115, respectively.
3. Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
September 30, 2002
---------------------------
Carrying Fair
Amount Value
------------- -------------
Senior notes, net of unamortized discount $ 115,069 98,820
The estimated fair value of the above financial instruments is based upon
the quoted market price of the senior notes. The Company's other financial
instruments approximate fair value due to the short-term nature of those assets
and liabilities.
4. Business Segment Information
The Company's reportable business segments are the strategic business
units that offer different products and services. They are managed separately,
and the Company evaluates performance based on operating earnings of the
respective business unit.
The Company's operations are classified into two reportable business
segments: Health Enhancement and Women's Health. The Health Enhancement segment
includes disease management and medical product design and manufacturing.
Disease management involves identification, stratification, assessment,
education, clinical interventions and products for the management of specified
diseases and associated co-morbidities. The Company currently offers disease
management services for diabetes, respiratory disease, cardiac disease and
cancer. 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, case and disease
management; home uterine contraction monitoring; infusion therapy; gestational
diabetes and hypertension management; and other monitoring and clinical services
as prescribed by the patient's physician.
The accounting policies of the segments are the same as those for the
consolidated entity. Operating earnings of the Health Enhancement and Women's
Health segments were reduced by amortization of goodwill of $6,527 and $423,
respectively, for the nine months ended September 30, 2001. As discussed in note
5, no amortization of goodwill was recorded for the nine months ended September
30, 2002. Severance and related costs of $1,392 and $391 were incurred in the
Health Enhancement and Women's Health segments, respectively, during the nine
months ended September 30, 2002. Operating earnings by business segment exclude
interest income and interest expense. An allocation of corporate expenses for
shared services has been charged to the segments.
Summarized financial information as of and for the three-month and
nine-month periods ended September 30, 2002 and 2001 by business segment
follows:
Earnings (loss) before
Revenues income taxes
------------------------------- -------------------------
Three Months Ended September 30, 2002 2001 2002 2001
-------------------------------- --------------- -------------- ----------- -----------
Health Enhancement $47,005 41,724 2,761 4,804
Women's Health 24,370 26,373 3,148 4,293
Intersegment sales (23) -- -- --
-------- ------- ------- ------
Total segments 71,352 68,097 5,909 9,097
General corporate -- -- (2,627) (1,558)
Interest expense, net -- -- (3,494) (3,453)
Other income, net -- -- (613) 13
-------- ------- -------- -------
Consolidated revenues and earnings
(loss) before income taxes $71,352 68,097 (825) 4,099
========= ======== ======== =======
Earnings before income
Revenues taxes
------------------------------- ------------------------
Nine Months Ended September 30, 2002 2001 2002 2001
------------------------------- --------------- -------------- ----------- -----------
Health Enhancement $131,788 115,666 10,112 12,303
Women's Health 74,189 78,760 10,661 13,169
Intersegment sales (34) (123) -- --
-------- -------- -------- -------
Total segments 205,943 194,303 20,773 25,472
General corporate -- -- (9,522) (5,494)
Interest expense, net -- -- (9,995) (6,678)
Other income, net -- -- (584) (725)
-------- -------- -------- -------
Consolidated revenues and earnings
before income taxes $205,943 194,303 672 12,575
======== ======== ======== =======
Identifiable assets
---------------------------------
September 30, December 31,
2002 2001
----------------- --------------
Health Enhancement $212,773 169,818
Women's Health 32,172 36,081
General corporate 58,052 54,724
-------- -------
Consolidated assets $302,997 260,623
======== =======
The Company's revenues from operations outside the U.S. were approximately
17% and 16% of total revenues for the three-month periods ended September 30,
2002 and 2001, respectively; and 17% and 16% of total revenues for the
nine-month periods ended September 30, 2002 and 2001, respectively. No single
customer accounted for 10% of consolidated net revenue of the Company in any of
these periods.
5. Implementation of Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141") and Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets ("SFAS 142"). SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated or
completed after June 30, 2001 and specifies criteria intangible assets acquired
in a purchase method business combination must meet to be recognized and
reported apart from goodwill. SFAS 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of
SFAS 142. SFAS 142 also requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("SFAS 121").
The Company adopted the provisions of SFAS 141 in 2001 and SFAS 142
effective January 1, 2002. SFAS 141 required, upon adoption of SFAS 142, that
the Company evaluate its existing goodwill and intangible assets that were
acquired in prior purchase business combinations and make any necessary
reclassifications in order to conform with the new criteria in SFAS 141 for
recognition apart from goodwill. Upon adoption of SFAS 142, the Company also was
required to reassess the useful lives and residual values of all intangible
assets acquired, and to make any necessary amortization period adjustments.
During the first quarter of 2002, the Company evaluated the fair values of
the business segments identified under the provisions of SFAS 141 and SFAS 142
and concluded that no impairment of recorded goodwill exists. The carrying
values of goodwill as of September 30, 2002 and December 31, 2001 were as
follows:
Health Women's
Enhancement Health Total
----------------- ------------- -----------
Carrying value at December 31, 2001 $ 104,832 2,682 107,514
Additional goodwill from acquisitions (note 7) 24,142 -- 24,142
Tax benefit of additional deductible goodwill (339) -- (339)
--------- ------------- -----------
Carrying value at September 30, 2002 $ 128,635 2,682 131,317
========= ===== =======
In connection with the adoption of SFAS 142, the Company also
reassessed the useful lives, residual values and classification of its
identifiable intangible assets and determined that they continue to be
appropriate. The components of identifiable intangible assets were as follows:
September 30, December 31,
2002 2001
-------------------- -----------------
Gross carrying amounts:
Patient lists $3,300 3,300
Non-compete agreement 500 500
------- -------
3,800 3,800
Accumulated amortization (2,100) (1,680)
------- -------
$1,700 2,120
====== =======
Amortization expense for the nine months ended September 30, 2002 was
$420 and is estimated to be $560 for the year ended December 31, 2002. Estimated
amortization expense for the five succeeding years is as follows:
2003 $ 560
2004 200
2005 200
2006 200
2007 200
The reconciliation of reported net earnings (loss) adjusted for the
adoption of SFAS 142 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------
2002 2001 2002 2001
------------- ----------- ------------------------
Net earnings (loss) available to common shareholders
As reported $ (1,247) 790 (350) 6,191
Add back: Goodwill amortization, net of tax -- 1,384 -- 4,159
---------- ------- ------- ------
Adjusted net earnings (loss) available to common shareholders $ (1,247) 2,174 (350) 10,350
========== ======= ======== ======
Net earnings (loss) per common share
Basic:
As reported $ (0.14) 0.09 (0.04) 0.71
Add back: Goodwill amortization, net of tax -- 0.16 -- 0.48
--------- ---- ----- ------
Adjusted net earnings (loss) per common share $ (0.14) 0.25 (0.04) 1.19
========= ==== ======= ======
Diluted:
As reported $ (0.14) 0.09 (0.04) 0.70
Add back: Goodwill amortization, net of tax -- 0.16 -- 0.47
------- ---- ---- -----
Adjusted net earnings (loss) per common share $ (0.14) 0.25 (0.04) 1.17
======== ==== ====== ======
In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections ("SFAS 145"). SFAS 145 rescinds
FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of that Statement, FASB Statement No. 64, Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements. It also rescinds FASB Statement
No. 44, Accounting for Intangible Assets of Motor Carriers. SFAS 145 amends FASB
Statement No. 13, Accounting for Leases, to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. It also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed conditions. SFAS 145 had
no impact on the Company's financial statements.
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, Accounting for Costs Associated with Exit or Disposal
Activities ("SFAS 146"). SFAS 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring) ("Issue 94-3"). The principal difference
between SFAS 146 and Issue 94-3 relates to its requirements for recognition of a
liability for a cost associated with an exit or disposal activity. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. Under Issue
94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at
the date of an entity's commitment to an exit plan. A fundamental conclusion
reached by the FASB in SFAS 146 is that an entity's commitment to a plan, by
itself, does not create a present obligation to others that meets the definition
of a liability. Therefore, SFAS 146 eliminates the definition and requirements
for recognition of exit costs in Issue 94-3. It also establishes that fair value
is the objective for initial measurement of the liability. The provisions of
SFAS 146 are effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged.
6. Supplemental Guarantor/Non-Guarantor Financial Information
Supplemental financial information is being provided in connection with
the Company's senior notes. The senior notes are unconditionally guaranteed by
the Company and its domestic subsidiaries. All guarantees are joint and several.
Each of the domestic and foreign subsidiaries is 100% owned by the Company.
The following financial information presents the consolidating
condensed balance sheets, statements of operations and cash flows of the
Company, the guarantor domestic subsidiaries on a combined basis and the
non-guarantor foreign subsidiaries on a combined basis.
Consolidating Condensed Balance Sheets
September 30, 2002
(Unaudited)
Matria Guarantor Non-Guarantor
Healthcare, Domestic Foreign
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------ -------------- -------------- ------------ ------------
ASSETS
Cash, cash equivalents and short-term investments $ 1,125 2,860 1,516 -- 5,501
Trade accounts receivable, net 19,742 25,345 5,645 -- 50,732
Inventories 1,767 15,477 6,975 -- 24,219
Other current assets 6,519 8,422 698 -- 15,639
---------- --------- ---------- ---------- ---------
Total current assets 29,153 52,104 14,834 -- 96,091
Property and equipment, net 10,037 16,798 587 -- 27,422
Intangible assets, net 2,682 125,457 4,878 -- 133,017
Investment in subsidiaries 130,335 -- -- (130,335) --
Deferred income taxes 26,913 -- -- -- 26,913
Other long-term assets 19,430 124 -- -- 19,554
---------- ---------- ---------- ---------- --------
$ 218,550 194,483 20,299 (130,335) 302,997
========== ======== ========== ========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current installments of long-term debt $ 1,123 39 -- -- 1,162
Other current liabilities 15,555 23,617 6,877 -- 46,049
---------- --------- ----------- -------- --------
Total current liabilities 16,678 23,656 6,877 -- 47,211
Long-term debt, excluding current installments 112,595 6 5,450 -- 118,051
Intercompany 129 18,047 (18,176) -- --
Other long-term liabilities 7,209 756 123 -- 8,088
---------- --------- ---------- -------- --------
Total liabilities 136,611 42,465 (5,726) -- 173,350
---------- -------- ----------- -------- ---------
Common shareholders' equity
Common stock 101 -- -- -- 101
Additional paid-in capital 311,102 125,457 4,878 (130,335) 311,102
Accumulated earnings (deficit) (232,963) 34,743 16,835 -- (181,385)
Other 3,699 (8,182) 4,312 -- (171)
----------- --------- --------- ---------- ---------
Total common shareholders' equity 81,939 152,018 26,025 (130,335) 129,647
----------- --------- --------- ---------- ---------
$ 218,550 194,483 20,299 (130,335) 302,997
=========== ========= ========= ========= =========
Consolidating Condensed Balance Sheets
December 31, 2001
(Unaudited)
Matria Guarantor Non-Guarantor
Healthcare, Domestic Foreign
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------ ------------ ------------ ------------
ASSETS
Cash, cash equivalents and short-term
investments $ 1,435 535 129 -- 2,099
Trade accounts receivable, net 22,939 23,740 5,375 -- 52,054
Inventories 2,151 13,155 6,000 -- 21,306
Other current assets 5,885 7,119 1,036 -- 14,040
------- ---------- -------- ---------- --------
Total current assets 32,410 44,549 12,540 -- 89,499
Property and equipment, net 11,254 6,985 483 -- 18,722
Intangible assets, net 2,682 101,974 4,978 -- 109,634
Investment in subsidiaries 106,952 -- -- (106,952) --
Deferred income taxes 24,715 -- -- -- 24,715
Other long-term assets 17,879 174 -- -- 18,053
------- --------- -------- ---------- --------
$195,892 153,682 18,001 (106,952) 260,623
========= ========= ======== ========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current installments of long-term debt $ 484 131 -- -- 615
Other current liabilities 9,942 16,612 5,716 -- 32,270
------- -------- -------- ---------- -------
Total current liabilities 10,426 16,743 5,716 -- 32,885
Long-term debt,excluding current installments 108,015 21 6,539 -- 114,575
Intercompany (2,053) 18,499 (16,446) -- --
Other long-term liabilities 7,757 467 42 -- 8,266
------- --------- --------- ----------- -------
Total liabilities 124,145 35,730 (4,149) -- 155,726
-------- --------- ---------- ----------- -------
Common shareholders' equity
Common stock 89 -- -- -- 89
Additional paid-in capital 290,070 101,974 4,978 (106,952) 290,070
Accumulated earnings (deficit) (218,916) 24,150 13,731 -- (181,035)
Other 504 (8,172) 3,441 -- (4,227)
---------- -------- --------- ---------- -------
Total common shareholders' equity 71,747 117,952 22,150 (106,952) 104,897
---------- -------- --------- ---------- -------
$ 195,892 153,682 18,001 (106,952) 260,623
=========== ======== ========== ========== =======
Consolidating Condensed Statements of Operations
For the Nine Months Ended September 30, 2002
(Unaudited)
Matria Guarantor Non-Guarantor
Healthcare, Domestic Foreign
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------- ------------ ------------
Revenues $ 74,189 97,570 34,218 (34) 205,943
Cost of revenues 31,946 61,776 27,048 (34) 120,736
Selling and administrative expenses 41,643 20,318 3,615 -- 65,576
Provision for doubtful accounts 4,026 3,934 -- -- 7,960
Amortization of intangible assets -- 270 150 -- 420
-------- ------- ------- -------- -------
Operating earnings (loss) from
continuing operations (3,426) 11,272 3,405 -- 11,251
Interest expense, net (9,684) (1) (310) -- (9,995)
Other income (expense), net (603) 6 13 -- (584)
--------- -------- ------- -------- --------
Earnings (loss) from continuing
operations before income taxes (13,713) 11,277 3,108 -- 672
Income tax expense 335 -- 5 -- 340
---------- --------- ------- --------- --------
Earnings (loss) from continuing
operations (14,048) 11,277 3,103 -- 332
Loss from discontinued operations -- (682) -- -- (682)
---------- --------- ------- --------- ---------
Net earnings (loss) $ (14,048) 10,595 3,103 -- (350)
========== ========= ======= ========== ==========
Consolidating Condensed Statements of Operations
For the Nine Months Ended September 30, 2001
(Unaudited)
Matria Guarantor Non-Guarantor
Healthcare, Domestic Foreign
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------ -------------- ------------ ------------
Revenues $ 80,632 87,628 26,530 (487) 194,303
Cost of revenues 32,849 52,771 20,762 (487) 105,895
Selling and administrative expenses 38,426 13,654 3,216 -- 55,296
Provision for doubtful accounts 4,162 1,601 1 -- 5,764
Amortization of intangible assets 423 6,574 373 -- 7,370
----------- ----------- ---------- -------- --------
Operating earnings from
continuing operations 4,772 13,028 2,178 -- 19,978
Interest income (expense), net (6,384) 6 (300) -- (6,678)
Other income (expense), net (744) 5 14 -- (725)
------------ ----------- ---------- -------- --------
Earnings (loss) from continuing
operations before income taxes (2,356) 13,039 1,892 -- 12,575
Income tax expense 5,045 -- 5 -- 5,050
------------ ----------- ---------- -------- ---------
Earnings (loss) from continuing
operations (7,401) 13,039 1,887 -- 7,525
Loss from discontinued operations -- (210) -- (210)
------------ ----------- ---------- -------- ---------
Net earnings (loss) $ (7,401) 12,829 1,887 -- 7,315
============ =========== ========== ========= ========
Consolidating Condensed Statements of Cash Flows
For the Nine Months Ended September 30, 2002
(Unaudited)
Non-
Matria Guarantor Guarantor
Healthcare, Domestic Foreign
Inc. Subsidiaries Subsidiaries Consolidated
------------ ------------- ------------ -------------
Cash Flows from Operating Activities:
Net cash provided by (used in) continuing operations $ (730) 12,947 3,655 15,872
Net cash provided by discontinued operations -- 517 -- 517
---------- -------- --------- -------
Net cash provided by (used in)operating activities (730) 13,464 3,655 16,389
---------- -------- --------- -------
Cash Flows from Investing Activities:
Purchases of property and equipment (2,710) (9,699) (260) (12,669)
Acquisition of business, net of cash acquired -- (3,476) -- (3,476)
--------- -------- --------- --------
Net cash used in investing activities (2,710) (13,173) (260) (16,145)
--------- -------- --------- --------
Cash Flows from Financing Activities:
Borrowings under credit agreement 8,500 -- -- 8,500
Proceeds from issuance of debt 1,462 -- -- 1,462
Principal repayments of long-term debt (8,448) (123) (1,089) (9,660)
Proceeds from issuance of common stock 1,858 -- -- 1,858
--------- -------- --------- --------
Net cash provided by (used in)financing 3,372 (123) (1,089) 2,160
activities --------- -------- --------- --------
Effect of exchange rate changes on cash and cash -- -- 1,031 1,031
equivalents
Net change in intercompany balances (126) 2,076 (1,950) --
--------- -------- --------- -------
Net increase (decrease) in cash and cash
equivalents (194) 2,242 1,387 3,435
Cash and cash equivalents at beginning of year 1,319 535 129 1,983
--------- -------- --------- -------
Cash and cash equivalents at end of period $ 1,125 2,777 1,516 5,418
========= ======== ========= =======
Consolidating Condensed Statements of Cash Flows
For the Nine Months Ended September 30, 2001
(Unaudited)
Matria Guarantor Non-Guarantor
Healthcare, Domestic Foreign
Inc. Subsidiaries Subsidiaries Consolidated
---------------------------------------------------------------
Cash Flows from Operating Activities:
Net cash provided by (used in) continuing operations $ 1,126 9,026 (1,534) 8,618
Net cash provided by discontinued operations -- 2,409 -- 2,409
--------- ---------- --------- --------
Net cash provided by (used in) operating 1,126 13,435 (1,534) 11,027
activities ---------- ---------- --------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment (3,556) (2,788) (62) (6,406)
Proceeds from disposition of business -- 18,076 -- 18,076
---------- ---------- --------- --------
Net cash provided by (used in)investing activities (3,556) 15,288 (62) 11,670
---------- ---------- --------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of senior notes 112,042 -- -- 112,042
Borrowings under credit agreement 36,000 -- -- 36,000
Proceeds from issuance of debt 1,013 -- -- 1,013
Principal repayments of long-term debt (126,425) (75) -- (126,500)
Proceeds from issuance of common stock 609 -- -- 609
Repurchases of common stock (4,346) -- -- (4,346)
Repurchases of preferred stock (40,931) -- -- (40,931)
Preferred stock dividend payments (2,438) -- -- (2,438)
----------- ---------- ---------- --------
Net cash used in financing activities (24,476) (75) -- (24,551)
----------- ----------- ----------- --------
Effect of exchange rate changes on cash and cash -- -- (143) (143)
equivalents
Net change in intercompany balances 26,461 (27,467) 1,006 --
----------- ----------- ----------- --------
Net decrease in cash and cash equivalents (445) (819) (733) (1,997)
Cash and cash equivalents at beginning of year 1,524 1,045 1,346 3,915
----------- ----------- ----------- --------
Cash and cash equivalents at end of period $ 1,079 226 613 1,918
=========== =========== =========== ========
7. Acquisitions
On September 30, 2002, the Company completed its acquisition of all of the
issued and outstanding stock of Quality Oncology, Inc. ("QO"), a national
provider of cancer disease management services, from LifeMetrix, Inc. for
consideration valued for financial statement purposes at approximately $20,000.
This acquisition broadens the Company's capability to offer health plans and
employers a single source for multiple disease management services among the
five most costly chronic diseases and episodic conditions. In this acquisition,
the Company also acquired from LifeMetrix its Integrated Care Management System
and its rights in Cancerpage.com(tm) and other assets related to its cancer
disease management business. Under the terms of the agreement, the Company paid
$3,000 (less previously paid advances and deposits of $2,000) in cash and issued
approximately 890,000 shares of common stock. The common stock is reflected on
the Company's balance sheet at September 30, 2002 at a price of $18.818 per
share. The price is the 5-day average of the closing stock prices between June 3
and June 7, 2002, based on a measurement date of June 5, which was the date that
the closing stock price fell below the $19.148 minimum price in the purchase and
sale agreement and the number of shares became fixed.
Additional financial consideration will be paid in 2004 based upon 2003
operating results. Management currently estimates that the additional
consideration could be between $20,000 and $30,000, although the amount could be
more or less depending on 2003 performance. The additional consideration will be
payable, at the Company's option, in cash, shares of common stock or a
combination thereof, provided that the lesser of 20% of the payment or $10,000
must be paid in cash.
The Company's September 30, 2002 balance sheet reflects the assets acquired
and liabilities assumed in this transaction, including additional goodwill of
$20,855. However, at this time, the Company has not completed its final
assessment of the allocation of the purchase price in order to determine whether
a portion of the purchase price may be allocated to identifiable intangible
assets or deferred tax assets. The recorded goodwill is expected to be fully
deductible for federal tax purposes.
Results of operations of QO will be reflected in the consolidated
statement of operations of the Company effective October 1, 2002. The following
unaudited pro forma combined condensed statements of operations are presented to
give effect to the acquisition as if it had been completed as of the beginning
of the period being reported upon. The pro forma information presents the
combined results of operations for the three and nine months ended September 30,
2002 and 2001 and was prepared based on the historical financial statements and
related notes of Matria and QO. Pro forma adjustments reflect the income tax
effect of QO's net loss. Incremental shares of Matria common stock
resulting from the acquisition are reflected in the calculation of pro forma
earnings per share.
The unaudited pro forma combined condensed statements of operations
were prepared in accordance with rules and regulations established by the
Securities and Exchange Commission and are not necessarily reflective of the
actual or future results of operations or the financial position of Matria.
Matria Healthcare, Inc. and Quality Oncology, Inc.
Pro Forma Combined Condensed Statement of Operations
For the Three Months Ended September 30, 2002
(Unaudited)
Historical
----------------------------
Quality Pro Forma Pro Forma
Matria Oncology Adjustments Combined
Revenues $ 71,352 2,890 74,242
Operating Expenses 68,070 3,020 71,090
--------- ----- ------
Operating earnings (loss) 3,282 (130) 3,152
Interest expense, net (3,494) 4 (15) (A) (3,505)
Other income (expense), net (613) 0 (613)
--------- ------ --------- -------
Earnings (loss) before income taxes (825) (126) (15) (966)
Income tax expense (benefit) (260) 0 (56) (B) (316)
--------- ------ --------- -------
Earnings (loss) from continuing operations $ (565) (126) 41 (650)
========= ====== ========= =======
Net earnings per common share from continuing
operations:
Basic $ (0.06) (0.06)
========= ======
Diluted $ (0.06) (0.06)
========= ======
Weighted average shares outstanding:
Basic 9,161 890 (C) 10,051
====== ==== ======
Diluted 9,161 890 (C) 10,051
====== ==== ======
Matria Healthcare, Inc. and Quality Oncology, Inc.
Pro Forma Combined Condensed Statement of Operations
For the Nine Months Ended September 30, 2002
(Unaudited)
Historical
----------------------------
Quality Pro Forma Pro Forma
Matria Oncology Adjustments Combined
Revenues $ 205,943 6,775 212,718
Operating Expenses 194,692 8,379 203,071
---------- ------ -------
Operating earnings (loss) 11,251 (1,604) 9,647
Interest expense, net (9,995) 16 (45) (A) (10,024)
Other income (expense), net (584) 0 (584)
----------- ------ --------- -------
Earnings (loss) before income taxes 672 (1,588) (45) (961)
Income tax expense (benefit) 340 0 (653) (B) (313)
----------- ------ --------- --------
Earnings (loss) from continuing operations $ 332 (1,588) 608 (648)
=========== ====== ========= ========
Net earnings per common share from continuing
operations:
Basic $0.04 (0.07)
====== ======
Diluted $0.04 (0.07)
====== ======
Weighted average shares outstanding:
Basic 9,062 890 (C) 9,952
====== ==== =====
Diluted 9,062 890 (C) 9,952
====== ==== =====
Matria Healthcare, Inc. and Quality Oncology, Inc.
Pro Forma Combined Condensed Statement of Operations
For the Three Months Ended September 30, 2001
(Unaudited)
Historical
---------------------------
Quality Pro Forma Pro Forma
Matria Oncology Adjustments Combined
Revenues $ 68,097 1,573 69,670
Operating Expenses 60,558 2,212 62,770
---------- ----- -------
Operating earnings (loss) 7,539 (639) 6,900
Interest expense, net (3,453) 11 (15) (A) (3,457)
Other income (expense), net 13 0 13
----------- ----- ----- ------
Earnings (loss) before income taxes 4,099 (628) (15) 3,456
Income tax expense (benefit) 1,650 0 (257) (B) 1,393
----------- ----- ----- ------
Earnings (loss) from continuing operations $ 2,449 (628) 242 2,063
----------- ----- ----- ------
Net earnings per common share from continuing
operations:
Basic $0.11 0.06
====== ====
Diluted $0.11 0.06
====== ====
Weighted average shares outstanding:
Basic 8,736 890 (C) 9,626
====== ==== =====
Diluted 8,905 890 (C) 9,795
====== ==== =====
Matria Healthcare, Inc. and Quality Oncology, Inc.
Pro Forma Combined Condensed Statement of Operations
For the Nine Months Ended September 30, 2001
(Unaudited)
Historical
--------------------------
Quality Pro Forma Pro Forma
Matria Oncology Adjustments Combined
Revenues $ 194,303 3,942 198,245
Operating Expenses 174,325 6,793 181,118
-------- ------ -------
Operating earnings (loss) 19,978 (2,851) 17,127
Interest expense, net (6,678) 77 (45) (A) (6,646)
Other income (expense), net (725) 0 (725)
-------- ----- ------ ------
Earnings (loss) before income taxes 12,575 (2,774) (45) 9,756
Income tax expense (benefit) 5,050 0 1,128) (B) 3,922
--------- ------- ------ ------
Earnings (loss) from continuing operations $ 7,525 (2,774) 1,083 5,834
=========
Net earnings per common share from continuing
operations:
Basic $0.73 0.49
====== ====
Diluted $0.72 0.48
====== ====
Weighted average shares outstanding:
Basic 8,735 890 (C) 9,625
===== ==== =====
Diluted 8,924 890 (C) 9,814
====== ==== =====
(A) To reflect the reduction in interest income resulting from the $3,000 cash
portion of the purchase price due to the unavailability of those funds for
investment. The interest rate assumed for investments is 2% for each
period.
(B) To reflect the income tax effect of the pre-tax loss of QO and
the income tax effect of the pro forma adjustments.
(C) To reflect the issuance of 890,144 shares of common stock.
Effective June 14, 2002, the Company acquired MarketRing.com
("MarketRing"), a healthcare information technology company. The purchase price
was paid by the issuance of approximately 296,000 shares of common stock valued
at $3,777 (based on the average closing price of the Company's common stock
during the three-day trading period ended June 14, 2002). In addition, the
Company may issue up to 21,500 shares of common stock upon the exercise of
MarketRing stock options assumed and a warrant issued by the Company in
connection with the acquisition. The Company recorded goodwill of $3,287 related
to this acquisition. However, at this time, the Company has not completed its
final assessment of the allocation of the purchase price in order to determine
whether a portion of the purchase price may be allocated to identifiable
intangible assets. The recorded goodwill is expected to be fully deductible for
federal tax purposes. The Company's financial statements include the operations
of MarketRing commencing on June 14, 2002.
The following is a summary of the fair value of assets acquired and
consideration paid in connection with the 2002 acquisitions:
Quality MarketRing and
Oncology Others
-------- -------------
Cash paid for assets acquired, net of cash acquired $ 3,202 274
Common stock issued for assets acquired 16,751 3,777
Liabilities assumed and transaction costs 3,034 668
----- -----
Fair value of assets acquired, including goodwill $ 22,987 4,719
======== =====
8. Long-Term Debt
In October 2002, the Company entered into a new revolving credit facility
with a borrowing capacity of the lesser of $35,000 or 80% of eligible accounts
receivable. The facility is collateralized by cash, accounts receivable,
inventories, intellectual property and certain other assets of the Company.
Borrowings under this agreement bear interest at the LIBOR rate plus 2.9% and
the facility requires a non-utilization fee of 0.5% of the unused borrowing
capacity. Interest and the commitment fee are payable monthly. The facility has
an initial two-year term. Thereafter, the term will be automatically extended
for annual successive periods unless either party provides notice not less than
60 days prior to the end of the period.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Matria Healthcare, Inc. ("the Company") is a leading provider of
comprehensive, integrated disease management services to patients, physicians,
health plans and employers. Matria's strategy is to provide cost-saving
solutions for the five most costly chronic diseases and episodic conditions in
the nation: diabetes, obstetrical conditions, respiratory disorders, cancer and
cardiovascular disease. The Company`s disease management programs seek to lower
healthcare costs and improve patient outcomes through a broad range of disease
management, mail-order supply and clinical services.
The Company has two reporting segments, Health Enhancement and Women's
Health. The Health Enhancement segment is comprised of the Company's diabetes
and respiratory disease management programs and the new cardiovascular and
cancer service offerings. The Women's Health segment includes the Company's
services in the area of assessment and management of obstetrical conditions.
In April 2002, the Company introduced its cardiovascular disease management
program, which includes the management of patients afflicted with Coronary
Artery Disease, Congestive Heart Failure and hypertensive disorders. Effective
June 14, 2002, the Company acquired MarketRing.com ("MarketRing"), a healthcare
information technology company. MarketRing has certain proprietary technology
that the Company had previously licensed and currently utilizes with its
TRAX(TM) disease management system. The Company intends to utilize this
technology to facilitate the development of sophisticated website portals for
patients, physicians, payors and employers under its current and future disease
management contracts. The Company's financial statements include the operations
of MarketRing commencing on June 14, 2002.
On September 30, 2002, the Company completed its acquisition of all of the
issued and outstanding stock of Quality Oncology, Inc. ("QO"), a national
provider of cancer disease management programs, from LifeMetrix, Inc. This
acquisition broadens the Company's capability to offer health plans and
employers a single source for multiple disease management services. In this
acquisition, the Company also acquired from LifeMetrix its Integrated Care
Management System and its rights in Cancerpage.com(TM) and other assets related
to its cancer disease management business. Results of operations of QO will be
reflected in the consolidated statement of operations of the Company effective
October 1, 2002.
In the fourth quarter of 2002, the Company will be consolidating and
expanding its disease management call center in Atlanta, Georgia. In addition to
capital costs for leasehold improvements, expenses are expected to be incurred
for personnel and other start-up costs in advance of the January 2003 expected
initiation of new disease management contracts.
In February 2001, the Company sold the business and certain assets of
Quality Diagnostic Services, Inc. ("QDS"), a cardiac event monitoring company.
The Company's consolidated financial statements reflect QDS as a discontinued
operation in 2001 and 2002.
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the consolidated
financial statements and related notes in the Company's Annual Report on Form
10-K for the year ended December 31, 2001, as filed with the Securities and
Exchange Commission. The historical results of operations are not necessarily
indicative of the results of operations for future periods.
Results of Operations
Revenues increased $3.3 million, or 4.8%, and $11.6 million, or 6.0%, for
the three-month and nine-month periods ended September 30, 2002 compared to the
same periods in 2001. This increase resulted from strong growth in the Health
Enhancement segment, where revenues increased $5.3 million, or 12.7%, and $16.1
million, or 13.9%, for the three-month and nine-month periods, respectively.
Revenues in the Women's Health segment decreased $2.0 million, or 7.6%, and $4.6
million, or 5.8%, for the three-month and nine-month periods, respectively, due
primarily to a decline in the patient census for preterm labor management
services.
Cost of revenues as a percentage of revenues increased to 60.2% for the
three-month period ended September 30, 2002 from 55.0.% for the same period in
2001. For the nine-month period, the percentage increased to 58.6% in 2002 from
54.5% in 2001. The cost of revenues as a percentage of revenues in the Health
Enhancement segment increased due to inefficiencies experienced by Facet
Technologies prior to the installation of a new automated packaging line in July
and August 2002, and due to additional labor costs incurred during the
implementation phase of a new disease management contract. Facet Technologies
also experienced higher costs of revenues as a percentage of revenues due to
price concessions provided to customers that exceeded supplier cost reductions.
The cost of revenues as a percentage of revenues in the Women's Health segment
has increased due to a significant price increase in one of the primary drugs
used in its preterm labor management program, combined with a change in the
patient therapy mix. In September 2002, the Company signed a contract with its
supplier which will reduce the cost of this drug in the fourth quarter 2002.
Selling and administrative expenses as a percentage of revenues increased
to 29.4% from 27.4% for the three-month period ended September 30, 2002 compared
to the same period of 2001 primarily due to increases in direct-response
advertising expenses and costs related to customer service incurred to generate
and support higher revenue levels in the Health Enhancement segment. Selling and
administrative expenses for the nine-month period ended September 30, 2002
included a one-time, non-cash charge of $2.5 million related to the retirement
of a $3.5 million note receivable from a former executive acquired from a
predecessor organization. The note, which matured on June 30, 2002, stipulated
that the balance could be settled in full by surrender of collateral consisting
of 125,000 shares of the Company's common stock, generating a charge equal to
the difference between the book value of the note and the closing market value
on June 30, 2002 of the 125,000 shares. Selling and administrative expenses for
the nine-month period ended September 30, 2002 also included $2.0 million of
year-to-date severance costs. Excluding these items, selling and administrative
expenses as a percentage of revenues increased to 29.7% for the nine-month
period ended September 30, 2002 from 28.5% for the same period in 2001, also due
to increases in direct-response advertising and customer service costs. Selling
and administrative expenses as a percentage of revenue decreased in the Women's
Health segment during the three-month and nine-month periods ended September 30,
2002 compared to the same periods of the prior year due to consolidation of
patient service centers.
The Company provides for estimated uncollectible accounts as revenues are
recognized. The three-month period ended September 30, 2002 includes an
additional one-time accrual of reserves of $2.0 million, which increased the
provision for doubtful accounts for both segments. As a result, the provision
for doubtful accounts as a percentage of revenues in the Health Enhancement
segment was increased to approximately 5% for the three-month period ended
September 30, 2002 compared to 2% for the same period of 2001. For this segment,
the provision for doubtful accounts as a percentage of revenues was
approximately 3% for the nine-month period ended September 30, 2002 compared to
approximately 2% for the same period of 2001. The provision for doubtful
accounts as a percentage of revenues in the Women's Health segment was
approximately 6% for the three-month period ended September 20, 2002 compared to
5% for the same period of 2001. The provision for doubtful accounts as a
percentage of revenues for this segment was approximately 5% for the nine-month
periods of 2002 and 2001. The provision is adjusted periodically based upon the
Company's quarterly evaluation of historical collection experience, recoveries
of amounts previously provided, industry reimbursement trends, audit activity
and other relevant factors.
Amortization of intangible assets decreased in 2002 by $2.3 million for the
three-month period and $7.0 million for the nine-month period compared to 2001
due to the discontinuance of amortization of goodwill resulting from the
adoption of SFAS 142 in January 2002 (see "Recently Issued Accounting Standards"
below).
Net interest expense increased by $3.3 million, or 50%, for the nine-month
period ended September 30, 2002 compared to the same period in 2001 due to a
higher average outstanding debt balance and higher interest rates resulting from
the 11% senior notes issued on July 9, 2001. The proceeds from this offering
were used to repay all amounts outstanding under the Company's former bank
credit facility and to repurchase the subordinated acquisition notes, all shares
of preferred stock (and thereby eliminate their dividend requirements) and
common stock warrants. This increase is net of the benefit of $289,000 and $1.4
million, respectively, for the three-month and nine-month periods of 2002 and
$197,000 for the three-month and nine-month periods of 2001 from the interest
rate swap arrangements discussed below in "Liquidity and Capital Resources". The
weighted average interest rates (including amortization of debt discount and
expense and gains from terminated interest rate swap transactions) on
outstanding indebtedness for the nine-month periods ended September 30, 2002 and
2001 were 11.65% and 10.20%, respectively.
Other income (expense) for the three months ended September 30, 2002
includes a charge of $692,000 to write-off unamortized loan origination costs
associated with the cancellation of the Company's former bank credit agreement
(see "Liquidity and Capital Resources" below where the new facility is
discussed). Other income (expense) for the nine months ended September 30, 2001
included a $737,000 charge to reduce the carrying value amounts related to the
Company's split dollar life insurance program. This non-cash expense was the
result of declines in the stock market.
Loss from discontinued operations in the three-month and nine-month periods
ended September 30, 2002 and 2001, included charges (net of income taxes) of
$682,000 and $210,000, respectively, for the write-off and collections costs
related to the remaining accounts receivable from QDS.
Income tax (benefit) expense for the three-month and nine-month periods
ended September 30, 2002 reflect a lower benefit and a higher expense,
respectively, than the statutory tax rate due to various non-deductible
permanent differences.
Liquidity and Capital Resources
As of September 30, 2002, the Company had cash and short-term investments
of $5.5 million. Net cash provided by continuing operations was $15.9 million
for the nine months ended September 30, 2002 compared to $8.6 million for the
same period of 2001. This increase in cash flows from continuing operations
resulted from improved cash flows related to decreases in accounts receivable
and increases in accounts payable and from proceeds related to the terminations
of two interest rate swap agreements. The Company's total accounts receivable
days' sales outstanding were 64 days' sales as of September 30, 2002, consisting
of 59 days' sales for the Health Enhancement segment and 73 days' sales for the
Women's Health segment. Lower net earnings (adjusted to exclude non-cash
charges) negatively impacted cash flows from continuing operations.
Effective August 2001, the Company entered into an interest rate swap
transaction with a bank involving a notional amount of $60 million. In June
2002, the Company terminated this agreement and received proceeds from the
counter party bank of approximately $2.4 million. At the same time, the Company
entered into a new interest rate swap arrangement with this bank in the notional
amount of $60 million. In August 2002, the Company terminated the June 2002
interest rate swap arrangement and received proceeds from the counter party bank
of approximately $700,000. The cash proceeds of $3.1 million from the second and
third quarter 2002 terminations of the interest rate swap agreements will be
amortized into income as a reduction of interest expense over the remaining term
of the senior notes (through May 2008). The Company is no longer a party to any
interest rate swap agreement or other hedge against changes in the fair value of
the Company's fixed rate debt obligation.
Net cash provided by discontinued operations of QDS was $517,000 and $2.4
million for the nine months ended September 30, 2002 and 2001, respectively.
These amounts represent collections of accounts receivable, less payments of
salary costs of personnel retained to collect the accounts receivable and other
accrued liabilities. As of September 30, 2002, the Company's balance sheet
reflected approximately $308,000 of accounts receivable that remain to be
collected.
Net cash used in investing activities totaled $16.1 million for the nine
months ended September 30, 2002 compared to net cash provided of $11.7 million
for the same period of 2001. The 2001 amount included $18.1 million of proceeds
from the sale of the business and certain assets of QDS and capital expenditures
of $6.4 million. The 2002 amount included $3.5 million for the acquisition of
businesses described below and $12.7 million of capital expenditures. Capital
expenditures in 2001 and 2002 related primarily to the replacement and
enhancement of computer information systems. The Company expects to expend a
total of approximately $15 million for capital items in 2002.
In February 2002, the Company acquired substantially all of the assets of
ChoicePoint Health Systems, Inc. ("ChoicePoint") for $650,000 in cash. In June
2002, the Company received $143,000 from ChoicePoint under a guarantee of
collection of acquired accounts receivable. In June 2002, the Company acquired
MarketRing. The Company's Chief Executive Officer and four other directors of
the Company were stockholders of MarketRing. The terms of the MarketRing
acquisition were negotiated by an independent committee of the Company's Board
of Directors and approved by the vote of the Company's disinterested directors.
The purchase price was paid by the issuance of approximately 296,000 shares of
common stock valued at approximately $3.8 million (based on the average closing
price of the Company's common stock during the three-day trading period ended
June 14, 2002). In addition, the Company may issue up to 21,500 shares of common
stock upon the exercise of MarketRing stock options assumed and a warrant issued
by the Company in connection with the acquisition. The Company recorded goodwill
of approximately $3.3 million related to this acquisition. However, at this
time, the Company has not completed its final assessment of the allocation of
the purchase price in order to determine whether a portion of the purchase price
may be allocated to identifiable intangible assets.
In April 2002, the Company entered into a purchase and sale agreement to
acquire QO for approximately $20 million. On September 30, 2002, the Company
completed the acquisition of QO and paid $3 million (less previously paid
advances and deposits of $2 million) in cash and issued approximately 890,000
shares of common stock. The common stock is reflected on the Company's balance
sheet at September 30, 2002 at a price of $18.818 per share. The price is the
5-day average of the closing stock prices between June 3 and June 7, 2002, based
on a measurement date of June 5, which was the date that the closing stock price
fell below the $19.148 minimum price in the purchase and sale agreement and the
number of shares became fixed. Additional consideration will be paid in 2004
based upon 2003 operating results. Management currently estimates that the
additional consideration could be between $20 million and $30 million, although
the amount could be more or less depending on 2003 performance. The additional
consideration will be payable, at the Company's option, in cash, common stock or
a combination thereof, provided that the lesser of 20% of the payment or $10
million must be paid in cash. At September 30, 2002, the Company recorded
additional goodwill of $20.9 million in connection with this transaction.
However, at this time, the Company has not completed its final assessment of the
allocation of the purchase price in order to determine whether a portion of the
purchase price may be allocated to identifiable intangible assets.
For the nine months ended September 30, 2002, proceeds of $1.9 million were
received from participants under the Company's stock purchase and stock option
plans.
In September 2002, the Company terminated its revolving bank credit
facility. In October 2002, the Company entered into a new revolving credit
facility with a borrowing capacity of the lesser of $35 million or 80% of
eligible accounts receivable. The facility is collateralized by cash, accounts
receivable, inventories, intellectual property and certain other assets of the
Company. Borrowings under this agreement bear interest at the LIBOR rate plus
2.9% and the facility requires a non-utilization fee of 0.5% of the unused
borrowing capacity. Interest and the commitment fee are payable monthly. The
facility has an initial two-year term. Thereafter, the term will be
automatically extended for annual successive periods unless either party
provides notice not less than 60 days prior to the end of the period.
The Company believes that its cash, other liquid assets, operating cash
flows and revolving credit facility, taken together, will provide adequate
resources to fund ongoing operating requirements and planned capital
expenditures.
Critical Accounting Estimates
A critical accounting estimate meets two criteria: (1) it requires
assumptions about highly uncertain matters; and (2) there would be a material
effect on the financial statements from either using a different, also
reasonable, amount within the range of the estimate in the current period or
from reasonably likely period-to-period changes in the estimate. The Company's
critical accounting estimates are as follows:
Revenue Recognition and Allowances for Uncollectible Accounts. Revenues for
the Women's Health segment 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 Health Enhancement segment provides services through its patient
service centers, provides supplies to patients primarily on a mail-order basis,
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 products are shipped (at
which point risk of ownership passes to the customer). Revenues from this
segment are recorded net of contractual and other discounts.
The Company's clinical services and supply business are reimbursed on a
fee-for-service or per item basis. Other aspects of disease management, however,
are paid for primarily on the basis of monthly fees for each member of a health
plan identified with a particular chronic disease or condition under contract or
enrolled in the Company's program or on a case-rate basis. Some of the contracts
for these services provide that a portion of the Company's fees is at risk,
subject to the Company's performance against financial cost savings and clinical
criteria. Fees earned under these contracts are determined through periodic
settlements with the customer based on the Company's performance against these
criteria. Actual performance under the terms of these contracts is assessed
monthly and revenue is recognized on an estimated basis in the period the
services are provided. Monthly estimates of revenues do not attempt to predict
future changes in performance levels under these contracts. Currently, less than
5% of the Company's revenues are at risk under these arrangements on a
historical and pro forma basis.
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, audit activity and other relevant factors which, in the
opinion of management, deserve recognition in estimating the allowance for
uncollectible accounts.
Goodwill and Other Intangible Assets. See "Recently Issued Accounting
Standards" below for a description of two new accounting pronouncements which
have significantly changed the Company's accounting for goodwill and other
intangible assets in 2002 and beyond. As of September 30, 2002, the Company had
unamortized goodwill of $131.3 million and unamortized intangible assets of $1.7
million, which represented 44% of total assets. Under the new accounting
standards, goodwill is no longer being amortized, but instead will be tested for
impairment at least annually. Other intangible assets continue to be amortized
over their respective estimated useful lives and will be reviewed periodically
for impairment.
In testing for impairment, the Company will evaluate the fair value of the
acquired companies to which the goodwill and other intangibles relate and
determine whether changed circumstances indicate that any portion of the
carrying value of the goodwill or other intangible assets may no longer be
recoverable.
Accounting for 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.
The tax expense for the nine months ended September 30, 2002 was $340,000.
Cash outflows in the first nine months of 2002 for income taxes totaled
$657,000, being comprised of state and foreign taxes for jurisdictions where
prior years' net operating losses were not available. As of December 31, 2001,
the Company's remaining net operating losses of $49.3 million, the tax effect of
which is reflected in the deferred tax asset, will be available to offset future
tax liabilities. The Company must continually assess the realizability of the
recorded deferred tax asset. If, based on the weight of available evidence, it
is more likely than not (a likelihood of more than 50%) that some portion or all
of the deferred tax asset will not be realized, then a valuation allowance would
have to be recorded to reduce the deferred tax asset to the amount that is more
likely than not to be realized.
The above listing is not intended to be a comprehensive list of all of the
Company's accounting policies and estimates. In many cases, the accounting
treatment of a particular transaction is specifically dictated by generally
accepted accounting principles, with no need for management's judgment in their
application. There are also areas in which management's judgment in selecting
any available alternative would not produce a materially different result.
Senior management periodically discusses the application and disclosure of these
critical accounting estimates with the audit committee of the board of
directors. See note 1 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001, which
contains additional accounting policies and other disclosures required by
generally accepted accounting principles.
Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141") and Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets ("SFAS 142"). SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 and specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of SFAS 142. SFAS 142 also
requires that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of ("SFAS 121").
The Company adopted the provisions of SFAS 141 in 2001 and SFAS 142
effective January 1, 2002. SFAS 141 required, upon adoption of SFAS 142, that
the Company evaluate its existing goodwill and intangible assets that were
acquired in prior purchase business combinations and make any necessary
reclassifications in order to conform with the new criteria in SFAS 141 for
recognition apart from goodwill. Upon adoption of SFAS 142, the Company also was
required to reassess the useful lives and residual values of all intangible
assets acquired and to make any necessary amortization period adjustments.
As of January 1, 2002, the date of adoption of SFAS 142, the Company
had unamortized goodwill of $107.5 million and unamortized identifiable
intangible assets of $2.1 million, all of which were subject to the transition
provisions of SFAS 141 and SFAS 142. During the first quarter of 2002, the
Company evaluated the fair values of the business segments identified under the
provisions of SFAS 141 and SFAS 142 and concluded that no impairment of recorded
goodwill exists. As a result, no amortization of goodwill was recorded for the
nine months ended September 30, 2002. Amortization expense related to goodwill
was $7.0 million for the nine months ended September 30, 2001. Also, the Company
reassessed the useful lives, residual values and classification of identifiable
intangible assets and determined that they continue to be appropriate.
Amortization expense related to identifiable intangible assets was $420,000 for
both the nine months ended September 30, 2002 and 2001.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections ("SFAS 145"). SFAS 145 rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an
amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements. It also rescinds FASB Statement No. 44,
Accounting for Intangible Assets of Motor Carriers. SFAS 145 amends FASB
Statement No. 13, Accounting for Leases, to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. It also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed conditions. SFAS 145 had
no impact on the Company's financial statements.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS
146"). SFAS 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring) ("Issue 94-3"). The principal difference between SFAS 146
and Issue 94-3 relates to its requirements for recognition of a liability for a
cost associated with an exit or disposal activity. This Statement requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under Issue 94-3, a liability for an
exit cost as defined in Issue 94-3 was recognized at the date of an entity's
commitment to an exit plan. A fundamental conclusion reached by the FASB in SFAS
146 is that an entity's commitment to a plan, by itself, does not create a
present obligation to others that meets the definition of a liability.
Therefore, SFAS 146 eliminates the definition and requirements for recognition
of exit costs in Issue 94-3. It also establishes that fair value is the
objective for initial measurement of the liability. The provisions of SFAS 146
are effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged.
Forward-Looking Information
This Form 10-Q contains forward-looking statements and information that are
based on the Company's beliefs and assumptions, as well as information currently
available to the Company. From time to time, the Company and its officers,
directors or employees may make other oral or written statements (including
statements in press releases or other announcements) that contain
forward-looking statements and information. Without limiting the generality of
the foregoing, the words "believe", "anticipate", "estimate", "expect",
"intend", "plan", "seek" and similar expressions, when used in this Report and
in such other statements, are intended to identify forward-looking statements.
All 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 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 or failure to receive recurring orders from
customers of the mail-order supply business; (iii) termination of the Company's
exclusive supply agreement with Nipro 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, including the development of improved glucose
monitoring products that eliminate the need for consumable testing supplies;
(vii) the ability of the Company to effectively integrate new technologies, such
as those included in the systems infrastructure project and automated packing
systems of the Health Enhancement segment; (viii) technology failures causing
delayed, incomplete data or flawed data analysis; (ix) changes in laws or
regulations applicable to the Company or failure to comply with existing laws
and regulations; (x) future healthcare or budget legislation or other health
reform initiatives; (xi) increased exposure to professional negligence
liability; (xii) difficulties in successfully integrating recently acquired
businesses into the Company's operations and uncertainties related to the future
performance of such businesses; (xiii) losses due to foreign currency exchange
rate fluctuations or deterioration of economic or political conditions in
foreign markets; (xiv) changes in company-wide or business unit strategies; (xv)
the effectiveness of the Company's advertising, marketing and promotional
programs and changes in patient therapy mix; (xvi) market acceptance of the
Company's current and future disease management products; (xvii) inability to
successfully manage the Company's growth; (xviii) acquisitions that strain the
Company's financial and operational resources; (xix) inability to effect
estimated cost savings and clinical outcomes improvements or to reach agreement
with the Company's disease management customers with respect to the same; (xx)
inability to accurately forecast performance under the Company's disease
management contracts; (xxi) inability of the Company's disease management
customers to provide timely and accurate data that is essential to the operation
and measurement of the Company's performance under its disease management
contracts; (xxii) increases in interest rates and general economic conditions;
(xxiii) delays in or disruptions related to the Company's proposed call center
expansion in Atlanta, Georgia; (xxiv) failure to consummate or delays in the
consummation or implementation of new disease management contracts and (xxv) 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, 2001. Many of such factors are beyond the Company's ability to control or
predict, and readers are cautioned not to put undue reliance on such
forward-looking statements. The Company disclaims any obligation to update or
review any forward-looking statements contained in this Report or in any
statement referencing the risk factors and other cautionary statements set forth
in this Report, whether as a result of new information, future events or
otherwise, except as may be required by the Company's disclosure obligations in
filings it makes with the SEC under federal securities laws.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk from foreign exchange rates. The
Company's non-U.S. operations with sales denominated in other than U.S. dollars
(primarily in Germany) generated approximately 14% of total revenues in the nine
months ended September 30, 2002. 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 euro would impact annual pre-tax earnings by
approximately $375,000.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as such
term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within
90 days prior to the filing date of this quarterly report (the "Evaluation
Date"). Based on such evaluation, such officers have concluded that, as of
the Evaluation Date, the Company's disclosure controls and procedures are
effective in alerting them on a timely basis to material information
relating to the Company (including the Company's consolidated subsidiaries)
required to be included in the Company's reports filed or submitted under
the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have not been
any significant changes in the Company's internal controls or in other
factors that could significantly affect such controls.
PART II--OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On June 14, 2002, in connection with the acquisition of MarketRing, the
Company issued 295,787 shares of common stock and a warrant to purchase an
additional 107 shares of common stock. The common stock and the warrant were
issued to various MarketRing stockholders and a MarketRing warrant holder in
exchange for MarketRing stock and a MarketRing warrant. Approximately 28,363
shares out of the total number of shares issued in connection with the
acquisition of MarketRing are being held in escrow for a period of one year
after the closing as security for the indemnification obligations of MarketRing.
The exercise price of the warrant issued was set at $24.50 per share, which
price, as well as the total number of shares set forth therein, are subject to
adjustment under certain circumstances, including upon release of the escrowed
shares. The issuance of the common stock and the warrant was exempt from
registration under Rule 506 of Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act ("Regulation D"). The recipients of
the Company's common stock and the warrant were accredited investors as that
term is defined in Regulation D and are aware of the limitations on resale as
set forth in Rule 502(d) of Regulation D.
Item 4. Submission of Matters to a Vote of Security Holders
The directors of the Company are divided into three classes. The class
comprised of Jackie M. Ward and Frederick P. Zuspan, M.D. will continue to serve
until the 2003 annual meeting of stockholders and until their successors are
elected and qualified. The class comprised of Parker H. Petit, Jeffrey D.
Koepsell, Donald W. Weber and Morris S. Weeden will continue to serve until the
2004 annual meeting of stockholders and until their successors are elected and
qualified.
At the annual meeting of stockholders of the Company held September 26,
2002 ("the Meeting"), the following directors were elected, each of whom will
serve until the 2005 annual meeting of stockholders and until their successors
are elected and qualified:
Nominee Affirmative Votes Withheld Votes
------- ----------------- --------------
Guy W. Millner 8,027,939 653,165
Carl E. Sanders 7,151,499 1,523,605
Thomas S. Stribling 7,280,375 1,400,729
In addition, the following proposals were approved at the Meeting:
o Approve the issuance of shares of Matria common stock in connection with
the acquisition of assets from LifeMetrix, Inc., including all of the
issued and outstanding stock of Quality Oncology, Inc.
Affirmative Votes Negative Votes Abstentions
----------------- -------------- -----------
6,793,574 120,596 6,740
o Approval to adopt the Matria Healthcare, Inc. 2002 Stock Incentive Plan:
Affirmative Votes Negative Votes Abstentions
----------------- -------------- -----------
6,805,372 1,865,158 10,574
o Approval to adopt the Matria Healthcare, Inc. 2002 Stock Purchase Plan:
Affirmative Votes Negative Votes Abstentions
----------------- -------------- -----------
8,545,108 125,505 10,491
In September 2002, Jackie M. Ward resigned from the board of directors.
On October 22, 2002, Frederick E. Cooper was elected to the board of directors
to fill the vacancy created by Ms. Ward's resignation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4. Loan and Security Agreement, dated October 22, 2002, between the Company
and HFG Healthco-4, LLC.
10.1 Employment Letter Agreement, dated August 5, 2002, between the Company
and Stephen M. Mengert
10.2 NewMarket Building Lease Agreement, dated September 4, 2002, between
the Company and Trizec Realty, Inc.
10.3 One Parkway Center Lease Agreement, dated November 8, 2002, between
the Company and Atlanta Parkway Investment Group, Inc.
11. Computation of Earnings per Share
(b) Reports on Form 8-K
The Company filed Current Reports on Form 8-K on September 4, 2002
announcing the appointment of Stephen M. Mengert as Vice-President, Finance and
Chief Financial Officer and on October 8, 2002 announcing the completion of the
acquisition of Quality Oncology, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATRIA HEALTHCARE, INC.
November 13, 2002 By: /s/ Parker H. Petit
---------------------------------------------
Parker H. Petit
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ Stephen M. Mengert
---------------------------------------------
Stephen M. Mengert
Vice President--Finance and Chief
Financial Officer
(Principal Financial Officer)
CERTIFICATIONS
I, Parker H. Petit, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Matria
Healthcare, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 13, 2002 /s/ Parker H. Petit
--------------------------------------------
Parker H. Petit
Chairman of the Board,
President and
Chief Executive Officer
I, Stephen M. Mengert, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Matria
Healthcare, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 13, 2002 /s/ Stephen M. Mengert
--------------------------------------------
Stephen M. Mengert
Vice President--Finance and Chief
Financial Officer