VIVRA INC, 424B4, 1995-02-10

VIVRA INC
424B4, 1995-02-10
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<PAGE> 1

1,800,000 SHARES

[LOGO]

COMMON STOCK
------------------

Of the 1,800,000 shares of Common Stock offered hereby, 1,725,000 shares
are being sold by VIVRA Incorporated ("Vivra" or the "Company") and 75,000
shares are being sold by the Selling Stockholder. See "Selling Stockholder." The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholder. The Company's Common Stock is listed on the New York Stock
Exchange under the symbol V. On February 9, 1995, the last reported sale price
for the Common Stock was $31 5/8 per share. See "Price Range of Common Stock."

------------------

SEE "INVESTMENT CONSIDERATIONS" REGARDING MATTERS WHICH SHOULD BE CAREFULLY
CONSIDERED BY INVESTORS.
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDER
- ------------------------------------------------------------------------------------------------
Per Share............... $31.625 $1.59 $30.035 $30.035
- ------------------------------------------------------------------------------------------------
Total(2)................ $56,925,000 $2,862,000 $51,810,375 $2,252,625
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>

(1) Before deducting expenses of the offering estimated at $210,000.

(2) The Company has granted the Underwriters a 30-day option to purchase up to
270,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $65,463,750,
$3,291,300 and $59,919,825, respectively. See "Underwriting."

-----------------------

The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about February
16, 1995.

ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.

MONTGOMERY SECURITIES

THE DATE OF THIS PROSPECTUS IS FEBRUARY 9, 1995

<PAGE> 2

VIVRA'S OPERATIONS

[INSERT MAP]

Dialysis Centers
Asthma and Allergy Practices
Diabetes Management Centers
Pharmacies
Rehabilitation Contract Sites
Physician Practice Management
Ambulatory Surgery Centers

------------------------

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed with the Securities and Exchange Commission
(the "Commission") are incorporated by reference in this Prospectus as of their
respective dates:

(1) Annual Report of the Company on Form 10-K (File No. 1-10261) for the
fiscal year ended November 30, 1994.

(2) The description of the Company's Common Stock contained in the
Registration Statement on Form S-1 filed on April 19, 1990,
Registration No. 33-34438, including any amendments and reports filed
for the purpose of updating such description.

All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 and prior to the
termination of the offering of the shares of Common Stock covered by this
Registration Statement shall be deemed to be incorporated by reference in this
Registration Statement and to be part hereof from the date of filing of such
documents.

Any person to whom a copy of this Prospectus is delivered may obtain
without charge, upon written or oral request, a copy of any of the documents or
information incorporated by reference herein, except for certain exhibits to
such documents. Requests should be directed to William H. Malkmus, Treasurer and
Secretary, VIVRA Incorporated, 400 Primrose, Suite 200, Burlingame, CA 94010
(Telephone: (415) 348-8200).

------------------------

The Company's principal executive offices are located at 400 Primrose,
Suite 200, Burlingame, California 94010, and its telephone number is (415)
348-8200.
------------------------

Any statement contained herein, or in a document incorporated by reference
herein, shall be deemed to be modified or superseded for purposes of this
Prospectus and the Registration Statement of which it is a part to the extent
that a statement contained herein or in any other subsequently filed document
which also is incorporated herein modifies or replaces such statement. Any
statement so modified or superseded shall not be deemed, in its unmodified form,
to constitute a part of this Prospectus or such Registration Statement.

------------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Except as otherwise
specified, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. See "Underwriting." As used herein, a
"fiscal" year means a year ending November 30.
THE COMPANY

Vivra is a provider of specialty health care services, principally the
delivery of dialysis services. The Company is the second largest provider of
dialysis services in the United States and treats approximately 9,000 patients
through 150 centers in 24 states and the District of Columbia. In addition,
through its Chronic Services segment, it provides diabetes management services,
asthma allergy care and specialty pharmacy services. Vivra also provides
rehabilitation therapy, ambulatory surgery services and physician practice
management through its Other Services segment. Vivra's business strategy is to
identify healthcare market segments in which it can partner with physicians to
design, market and deliver services that are differentiated in terms of both
clinical outcomes and overall costs.

INVESTMENT CONSIDERATIONS

See "Investment Considerations" regarding matters which should be carefully
considered by investors.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company..................... 1,725,000 shares
Common Stock offered by the Selling Stockholder......... 75,000 shares
Common Stock to be outstanding after the offering....... 22,611,000 shares(1)
Use of proceeds......................................... For general corporate purposes,
including acquisitions and working
capital.
New York Stock Exchange symbol.......................... V
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------
1990 1991 1992 1993 1994
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenues..................... $98,345 $122,170 $162,255 $216,760 $284,649
Operating costs........................ 68,116 83,507 111,722 148,046 188,529
General and administrative............. 9,646 10,884 14,113 20,722 37,495
Depreciation........................... 3,351 3,878 4,864 7,196 9,552
Interest............................... 654 700 872 912 523
Earnings from continuing operations
before income taxes................. 16,642 24,649 32,182 41,105 50,410
Net earnings from continuing
operations.......................... 9,769 14,789 18,987 23,842 29,742
Net earnings........................... 10,170 15,048 19,139 24,396 30,439
Earnings per share from continuing
operations.......................... $ .62 $ .81 $ .97 $ 1.19 $ 1.45
Weighted average shares outstanding.... 15,801 18,420 19,542 20,073 20,556
</TABLE>

<TABLE>
<CAPTION>
NOVEMBER 30, 1994
---------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 97,244 $148,844
Total assets..................................................... 276,007 327,607
Long-term obligations............................................ 4,938 4,938
Stockholders' equity............................................. 211,854 263,454
</TABLE>

- ---------------

(1) Excludes 2,136,692 shares issuable upon exercise of options outstanding
under the Company's stock option plans as of November 30, 1994.

(2) Adjusted to reflect the sale of shares offered hereby and the receipt of the
net proceeds therefrom and excludes the $1,112,250 payable to the Company
upon the Selling Stockholder's exercise of options to purchase 75,000 shares
of Common Stock in connection with this offering. See "Use of Proceeds."

3
<PAGE> 4

INVESTMENT CONSIDERATIONS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.

Medicare and Medicaid Dialysis Reimbursement. The Company estimates that
approximately 70% of its dialysis revenues, including revenues for the
reimbursement of the administration of the drug erythropoietin ("EPO"), for each
of the fiscal years 1991, 1992 and 1993, and 66% for fiscal year 1994, were
reimbursements from Medicare and Medicaid under the End-Stage Renal Disease
("ESRD") program administered by the Health Care Financing Administration
("HCFA"). Numerous Congressional actions have resulted in changes in the average
Medicare reimbursement rate from a fixed fee of $138 per treatment in 1983, to a
low of $125 per treatment in 1986. After a $1 per treatment increase in 1991,
the average rate has remained at $126. The Medicaid programs are also subject to
statutory and regulatory changes that could affect the rate of Medicaid
reimbursement. The Company is not able to predict whether and to what extent
changes to Medicare and Medicaid reimbursement rates will be made in the future.
Any reduction in these reimbursement rates would have a material adverse effect
on the Company's revenues and net earnings. See "Business -- Chronic
Services -- Dialysis Services."

Erythropoietin Reimbursement and Supply. Since June 1, 1989, Medicare and
Medicaid have provided reimbursement for the administration of EPO to dialysis
patients for the treatment of anemia. During fiscal 1993 and 1994, approximately
80% and 82%, respectively, of the Company's dialysis patients received EPO. The
Company's revenues from the administration of EPO were approximately $33.8
million and $42.0 million, respectively, or 17% of dialysis revenues, for those
periods. Effective January 1, 1994, Medicare and Medicaid reimbursement for the
administration of EPO was reduced from $11.00 to $10.00 per 1,000 units. Any
further reduction in the reimbursement rate for the administration of EPO would
have an adverse effect on the Company's revenues and net earnings. In addition,
EPO is produced by a single manufacturer and any interruption of supply could
adversely affect the Company's revenues and net earnings.

Intradialytic Parenteral Nutrition Therapy Reimbursement. Intradialytic
parenteral nutrition ("IDPN") therapy is a nutritional supplement administered
during dialysis to patients suffering from nutritional deficiencies. The Company
is reimbursed by the Medicare program for the administration of IDPN therapy
through two pharmacies which provide IDPN prescriptions and support services to
certain of its dialysis patients and other third-party patients. Beginning in
1993, HCFA designated four durable medical equipment regional carriers (the
"DMERCs") to process reimbursement claims for IDPN therapy. The DMERCs have
established stringent medical policies for reimbursement of IDPN therapy, and
most of the Company's claims for new patients have been denied or delayed. Where
appropriate, the Company intends to appeal denials. In addition, the DMERCs are
reportedly reviewing the existing IDPN medical policies. The final outcome of
appeals and the anticipated review is uncertain and may ultimately reduce the
number of patients eligible to receive reimbursement for IDPN therapy. Patients
receiving IDPN therapy prior to the designation of the DMERCs are
"grandfathered" under the prior local carrier's medical policies until March 1,
1995 or until the national policy for IDPN therapy is clarified. To the degree
that there is a significant reduction in the number of patients eligible to
receive reimbursement for IDPN therapy or a reduction in the amount of Medicare
reimbursement, the Company's revenues and net earnings would be reduced.

Other Sources of Dialysis Reimbursement. The Company estimates that
approximately 30% and 34% of its dialysis revenues for the fiscal years ended
1993 and 1994, respectively, were derived from sources other than Medicare and
Medicaid. Of these revenues, the largest portion came from private insurance for
chronic dialysis treatments. Reimbursement from hospitals for acute dialysis
treatments was also significant. In general, private insurance reimbursement and
reimbursement for treatments performed at hospitals are at rates significantly
in excess of Medicare and Medicaid rates. The Company believes that private
payers may be required in the future to assume a greater percentage of the costs
of dialysis care as the existing ESRD program is reviewed by the United States
Congress, and as a result, private payers will focus on reducing dialysis
payments as their overall dialysis costs increase. In addition, as health
maintenance organizations ("HMOs") and other managed care providers expand, they
will have a strong incentive to further reduce the costs of specialty care and
will aggressively seek to reduce amounts paid for dialysis. The Company is
unable

4
<PAGE> 5

to predict whether and to what extent changes in these reimbursement rates will
be made in the future. Any reduction in the ability of the Company to charge
rates that are in excess of those paid by Medicare and Medicaid would have a
significant negative effect on the Company's revenues and net earnings.

Operating Margins. There can be no assurance that the Company will be able
to maintain its historical operating margins in its dialysis business. The
Company's costs are subject to continuing increases as a result of rising labor
and supply costs, opening and start-up expenses for new dialysis centers, the
development of new managed care products and general inflation. At the same
time, Medicare and Medicaid reimbursement rates for dialysis treatments depend
on a number of factors and may remain fixed or be reduced. In addition, private
payors may seek to reduce the amount which they pay for dialysis treatments. The
Company is seeking to improve operating margins through increased productivity
and various cost containment programs; however, there can be no assurance that
its operating margins will not decline in the future.

Growth of Dialysis Business. The Company is attempting to increase its rate
of acquisition and development of new dialysis centers. Accordingly, the Company
has increased its development staff and budget. The dialysis industry is highly
competitive with respect to acquisitions of existing dialysis facilities and
recruiting Medical Directors for new centers. Certain of the Company's
competitors have substantially greater financial resources than the Company and
compete with the Company for the acquisition of facilities. Competition for
acquisitions has increased significantly in recent years and, as a result, the
cost of acquiring existing dialysis facilities has also increased. To the extent
that the Company is unable to acquire existing dialysis facilities economically,
to develop facilities profitably or to recruit Medical Directors to operate its
facilities, its ability to expand its dialysis business would be reduced
significantly. See "Business -- Business Strategy" and "-- Competition."

Growth of New Business. The Company has acquired and expects to acquire
additional healthcare service businesses outside of the dialysis area. The
development or acquisition of new businesses could require a significant capital
commitment. Such new businesses or new facilities of existing businesses may
incur significant losses and experience delays in attaining profitability and
may never become financially viable. Further, they may not provide the Company
with revenue as predictable as historically provided by the Company's dialysis
business. In addition, certain companies, some of which have longer operating
histories and greater financial resources than those of the Company, are
providing specialty healthcare and physician practice management services
similar to those that the Company provides or may provide. The Company may be
forced to compete with these entities for the acquisition of the assets of
specialty medical clinics, contracts to manage such clinics and, in some cases,
the employment of clinic physicians. There can be no assurance that the Company
will be able to compete effectively with such competitors, that additional
competitors will not enter the Company's markets, or that competition will not
make it more difficult to expand in such markets on terms profitable to the
Company. In addition, the Company intends to expand its existing businesses by
contracting with managed care payers on a capitated or at-risk basis. Under
capitated or at-risk contracts, the health care provider agrees to provide care
for a fixed rate based on the number of health care plan members, regardless of
the amount of care required. As a result, the service provider bears the risk of
excess utilization. To the extent that a health care plan member requires more
care than anticipated, the capitation rate paid to the health care provider may
be insufficient to cover the costs associated with provided services. If the
aggregate costs associated with providing medical services exceed the aggregate
of the capitation rates, the Company could, directly or indirectly, be forced to
absorb some of these costs which could have a negative effect on the Company's
revenues and net earnings. See "Business -- Business Strategy" and
"-- Competition."

Government Regulation. The Company is subject to extensive federal and
state regulation regarding, among other things, fraud and abuse, health and
safety, environmental compliance and toxic waste disposal. In particular, the
illegal remuneration provisions of the Social Security Act and similar state
laws impose civil and criminal sanctions. These sanctions include
disqualification from participation in the Medicare and Medicaid programs for
persons who solicit, offer, receive or pay any remuneration, directly or
indirectly, for referring a patient for treatment which is paid for in whole or
in part by Medicare and Medicaid or for otherwise generating revenues reimbursed
by either of these programs. In July 1991 and in November 1992,

5
<PAGE> 6

the federal government published final regulations that provide exceptions or
"safe harbors" from the illegal remuneration prohibitions for certain business
transactions. Transactions that satisfy the criteria under the applicable safe
harbors are deemed not to violate the illegal remuneration provisions. The
Company seeks to comply with the safe harbors in those instances where possible.
Due to the breadth of the statutory provisions and the absence in certain
instances of regulations or court decisions addressing many of the specific
arrangements by which the Company conducts its business, it is possible that the
Company's practices might be challenged under these laws. The Office of
Inspector General (the "OIG") of the Department of Health and Human Services
("HHS") has within the past 18 months published warnings that it believes two
practices common in the dialysis services industry may violate certain statutory
provisions. The Company believes that it has a reasonable basis for continuing
practices which the OIG may regard as within the scope of the OIG's warnings and
that, if challenged by the OIG, it could defend these practices. However, there
can be no assurance that the Company will not be required to change one or more
of these practices or be subject to sanctions. The Company's revenues and net
earnings would be adversely affected as a result of any such change or
sanctions. The Company has never been challenged under these statutes, however,
and believes it complies in all material respects with these and all other
applicable laws and regulations.

Under both the Omnibus Budget Reconciliation Act of 1993 ("Stark II") and
certain state legislation, it is unlawful for a physician to refer patients for
certain designated health services to an entity with which the physician has a
financial relationship. The Company believes that the language and history of
Stark II indicate that Congress did not intend to include dialysis services and
certain services and items provided incident to dialysis services within the
legislative prohibition. However, certain services, including prescription
drugs, clinical laboratory services and parenteral and enteral nutrients,
equipment, and supplies, even when provided in conjunction with dialysis
services, could be construed as designated health services within the meaning of
Stark II. Due to the breadth of the statutory provisions and the absence of
regulations or court decisions addressing the specific arrangements by which the
Company conducts its business, it is possible that certain of the Company's
practices might be challenged under these laws which could result in civil
penalties, including exclusion or suspension of the Company from future
participation in Medicare and Medicaid programs, and substantial fines. Although
there can be no assurance, the Company believes that if Stark II is interpreted
to apply to the Company's operations, the Company will be able to bring its
financial relationships with referring physicians into material compliance under
the provisions of Stark II, including relevant exceptions. If Stark II is
broadly interpreted by HCFA to apply to the Company and the Company cannot
achieve material compliance, it could have a material adverse effect on the
Company's revenues and net earnings. See "Business -- Government Regulation."

National Health Care Reform. There is significant national concern today
about the availability and rising cost of health care in the United States. It
is anticipated that new federal and/or state legislation will be passed and
regulations adopted to attempt to provide broader and better health care and to
manage and contain its cost. The Company is unable to predict the content of any
legislation or what, if any, changes may occur in the method and rates of its
Medicare and Medicaid reimbursement or in other government regulations that may
affect its businesses, or, whether such changes, if made, will have a material
adverse effect on its revenues and net earnings.

Dependence on Physician Referrals. The Company's facilities depend upon
their Medical Directors and to a lesser extent other local nephrologists for
referrals of ESRD patients for treatment. As is generally true in the dialysis
industry, at each facility one or a few physicians account for all or a
significant portion of the patient referral base. The loss of one or more key
referring physicians at a particular facility could have a material adverse
effect on the operations of that facility, and the loss of a significant number
of referring physicians could adversely affect the Company's overall operations.

Advances in Medical Science. The development of new drugs or medical
treatments that prevent kidney disease or reduce the necessity for dialysis
treatments could have a material adverse effect on the Company's business. The
Company is not aware of any developments that would, within the near future,
prevent kidney disease, materially reduce or eliminate the need for dialysis
treatments or render its dialysis equipment obsolete.

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<PAGE> 7

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Common Stock offered
hereby will aggregate approximately $51.6 million (approximately $59.7 million
if the Underwriters' over-allotment option is exercised). The Company will not
receive any of the proceeds from the sale of Common Stock on behalf of the
Selling Stockholder. All of the net proceeds will be used for general corporate
purposes, including future acquisitions and working capital. During 1995 the
Company intends to continue to acquire and develop new dialysis facilities and
may acquire one or more primary care physician practices. The Company is also
continually evaluating acquisition and development opportunities in specialty
health care areas and may use a portion of the net proceeds from this offering
to make investments in such businesses. The Company is currently in negotiations
with respect to a number of acquisitions and asset dispositions, none of which
is material. Initially, all of the proceeds will be invested in short-term
investment grade or U.S. government securities.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "V." The following table sets forth, for the periods
indicated, high and low reported last sale prices for the Company's Common Stock
on the NYSE Composite Tape, giving effect to a 3-for-2 stock split on November
10, 1993.

<TABLE>
<CAPTION>
COMMON STOCK PRICE
------------------
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED NOVEMBER 30, 1993:
First quarter............................................... $19 7/8 $15 1/8
Second quarter.............................................. 18 2/3 14 7/8
Third quarter............................................... 23 1/4 18
Fourth quarter.............................................. 23 2/3 18 7/8
YEAR ENDED NOVEMBER 30, 1994:
First quarter............................................... $26 $19 5/8
Second quarter.............................................. 26 5/8 22 3/4
Third quarter............................................... 25 5/8 22 3/4
Fourth quarter.............................................. 29 1/2 25 1/2
YEAR ENDED NOVEMBER 30, 1995:
First quarter (through February 9, 1995).................... $32 3/8 $26 5/8
</TABLE>

On February 9, 1995, the reported last sale price of the Company's Common
Stock on the New York Stock Exchange was $31 5/8 per share. As of February 8,
1995 there were 1,986 holders of record of the Company's Common Stock.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends. The Board of
Directors does not presently intend to pay regular cash dividends on the Common
Stock. The payment of future dividends will be dependent upon the earnings,
capital requirements and financial condition of the Company and such other
business and economic factors as the Board of Directors considers relevant.

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<PAGE> 8

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
November 30, 1994, and as adjusted to reflect the receipt of net proceeds from
the sale by the Company of 1,725,000 shares of Common Stock pursuant to this
offering at a public offering price of $31 5/8 per share, after deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company.

<TABLE>
<CAPTION>
NOVEMBER 30, 1994
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current maturities............................... $ 4,938 $ 4,938
Stockholders' equity:
Common Stock:
$.01 par value, 80,000,000 shares authorized, 20,811,000 shares
issued actual and 22,611,000 shares issued as adjusted........... 208 225
Additional paid-in capital(1)....................................... 54,891 106,474
Retained earnings................................................... 156,755 156,755
-------- -----------
Total stockholders' equity..................................... 211,854 263,454
-------- -----------
Total capitalization........................................ $216,792 $ 268,392
======== =========
</TABLE>

- ---------------

(1) Excludes $1,615,000 of proceeds and tax benefits to be recorded upon the
exercise by the Selling Stockholder of options to purchase 75,000 shares of
Common Stock in connection with this offering.

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<PAGE> 9

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The selected consolidated financial information set forth below as of and
for the years ended November 30, 1990, 1991, 1992, 1993 and 1994 has been
derived from the Consolidated Financial Statements audited by Ernst & Young LLP.
This selected consolidated financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's audited Consolidated Financial Statements and
footnotes which are included herein.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------
1990 1991 1992 1993 1994
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenues:
Chronic services....................... $98,345 $122,170 $160,152 $210,533 $257,441
Other services......................... 2,103 6,227 27,208
------- -------- -------- -------- --------
Total operating revenues................. 98,345 122,170 162,255 216,760 284,649
Costs and expenses:
Operating costs........................ 68,116 83,507 111,722 148,046 188,529
General and administrative............. 9,646 10,884 14,113 20,722 37,495
Depreciation........................... 3,351 3,878 4,864 7,196 9,552
Interest............................... 654 700 872 912 523
------- -------- -------- -------- --------
Total costs and expenses................. 81,767 98,969 131,571 176,876 236,099
Earnings from continuing operations
before income taxes.................... 16,642 24,649 32,182 41,105 50,410
Income taxes............................. 6,873 9,860 13,195 17,263 20,668
------- -------- -------- -------- --------
Net earnings from continuing
operations............................. 9,769 14,789 18,987 23,842 29,742
Earnings from discontinued operations,
less applicable taxes.................. 401 259 152 554
Gain on sale of discontinued operations,
less applicable taxes.................. 697
------- -------- -------- -------- --------
Net earnings............................. $10,170 $ 15,048 $ 19,139 $ 24,396 $ 30,439
======= ======== ======== ======== ========
Earnings per share from continuing
operations............................. $ .62 $ .81 $ .97 $ 1.19 $ 1.45
Weighted average shares
outstanding............................ 15,801 18,420 19,542 20,073 20,556
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------
1990 1991 1992 1993 1994
------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $30,581 $ 75,756 $ 72,104 $ 88,334 $ 97,244
Total assets........................... 86,742 140,670 170,175 207,478 276,007
Long-term obligations.................. 7,227 7,174 7,457 4,179 4,938
Stockholders' equity................... 68,296 118,235 140,875 172,267 211,854
</TABLE>

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<PAGE> 10

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following is a comparative discussion of Vivra's financial condition
and operating results by fiscal year, for the three years ended November 30,
1994. It should be read in conjunction with the selected financial information
on the preceding page and Vivra's Consolidated Financial Statements and related
notes thereto.

On December 1, 1993, the Company sold its home healthcare nursing business,
Personal Care Health Services. Accordingly, the results of operations for this
business are shown separately under discontinued operations for prior years in
the Consolidated Statement of Earnings, restated for comparative purposes.

The Company has two principal business segments, Chronic Services and Other
Services. Chronic Services consists of the dialysis, diabetes management and
specialty pharmacy services businesses and, effective November 30, 1994, the
asthma allergy care business. Other Services consists of the rehabilitation
therapy, ambulatory surgery and physician practice management businesses. The
asthma allergy business was acquired on November 30, 1994, and accordingly, the
results of its operations are not included in the following operating
comparisons.

1994 COMPARED WITH 1993

For fiscal 1994 as compared to fiscal 1993, revenues increased $68.5
million, or 31.4%; costs and expenses $59.2 million, or 33.5%; earnings from
continuing operations before taxes $9.3 million, or 22.6%, and net earnings from
continuing operations $5.9 million, or 24.8%. In addition, during the year the
Company recorded a gain of $697,000, after applicable taxes, on the sale of its
home healthcare nursing business and in the prior year recorded $554,000 in
earnings from discontinued operations, net of applicable taxes. In total, net
earnings for the year increased $6.0 million to $30.4 million, or 24.8% compared
to 1993. The increase in revenues and earnings resulted primarily from the
continued growth of the dialysis business.

Of the $67.9 million increase in operating revenues, revenues from Chronic
Services, 94.4% of which was from dialysis services, increased $46.9 million to
$257.4 million, or 22.3%. Revenues from Other Services increased $21.0 million
to $27.2 million, a 336.9% increase. The increase in Chronic Services revenues
was attributable primarily to a 15.5% increase in the number of treatments from
1,087,385 to 1,256,397 as a result of the addition of 12 new centers and
improved patient census. An improvement in the payer mix, revenues from the
administration of the drug Erythropoietin ("EPO"), prescribed for dialysis
patients suffering from anemia, and other ancillary services also contributed to
increase in dialysis revenues. For 1994, revenues from EPO were $42.0 million,
compared to $33.8 million in the prior year, a 24.3% increase, due to an
increase in the number of patients receiving EPO and in the average size of
dosages. As of November 30, 1994, approximately 82% of the Company's dialysis
patients were receiving EPO, compared to 80% in 1993. The balance of Chronic
Services revenues, 5.6% of the total, was attributable to the growth of
specialty pharmacy services, principally for IDPN therapy, and diabetes
management. These businesses experienced growth primarily due to an increased
volume in services provided. The increase in Other Services revenues primarily
reflects the acquisition and growth of the rehabilitation therapy business and
the addition of new ambulatory surgery centers. Other income, from interest
earned on short-term investments, increased $649,000 to $1.9 million, or 53.2%,
as a result of increased cash balances.

Of the increase in costs and expenses, operating costs increased $40.5
million, or 27.3%, to $188.5 million in 1994. Chronic Services operating costs,
of which dialysis represented 95.5%, increased $24.4 million to $169.4 million,
or 16.8%, while operating costs of Other Services increased $16.1 million to
$19.1 million, or 522.3%. Dialysis operating costs increased due to increased
volume of business, expenses associated with the operation of new dialysis
centers, the cost of the administration of EPO and higher labor and supply
costs. The balance of Chronic Services operating costs, 4.5% of the total costs,
was from the growth in specialty pharmacy services and diabetes management,
which increased $3.0 million to $7.6 million, or 64.4%. Operating costs of Other
Services increased as a result of the acquisition and growth of the
rehabilitation therapy business, the addition of new ambulatory surgery centers
and the start-up of the physician practice management business. General and
administrative expenses increased $16.8 million to $37.5 million, or 80.9%, as a
result of an increased volume of business, the addition of the rehabilitation
therapy business, increased goodwill incurred as a result of acquisitions made
during the past year, costs associated with the development of the ambulatory
surgery and specialty pharmacy service businesses, the development of new
managed care

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<PAGE> 11

products and increased incentive compensation expense. Depreciation increased
$2.4 million, or 32.7%, to $9.6 million, due to an increase in depreciable
assets of the dialysis and the ambulatory surgery businesses.

As a result of revenues increasing less rapidly than costs and expenses,
earnings from continuing operations before taxes as a percentage of revenues
decreased to 17.6%, compared to 18.9% in 1993. Overall, net earnings from
continuing operations increased $5.9 million, or 24.7%, as a result of increased
revenues, despite a slight decline in before-tax earnings margins.

1993 COMPARED WITH 1992

For fiscal 1993 as compared to fiscal 1992, revenues from continuing
operations increased $54.2 million, or 33.1%; costs and expenses increased $45.3
million, or 34.4%; earnings before taxes increased $8.9 million, or 27.7%; and
net earnings increased $4.9 million, or 25.6%. The increase in operating
revenues in 1993 was driven primarily by the continued growth of the dialysis
business, and while operating profit margins declined slightly, the overall
result was an increase in net earnings.

Of the increase in revenues from continuing operations, revenues from
Chronic Services, of which dialysis services represented 95.2%, increased $50.4
million to $210.5 million, or 31.5%. Other Services increased $4.1 million to
$6.2 million, or 196.1%. The increase in Chronic Services revenues was due to a
22.6% increase in the number of treatments from 886,979 to 1,087,385 as a result
of the addition of 10 new centers and improved patient census. Revenues from the
reimbursement for the administration of EPO and other ancillary services also
contributed to the increase in dialysis revenues. For 1993, revenues from EPO
were $33.8 million compared to $24.2 million in the prior year period, a 39.4%
increase, as a result of increases in the number of patients receiving EPO and
in the average size of dosages. As of November 30, 1993, approximately 80% of
the Company's dialysis patients were receiving EPO, the same as a year earlier.
The balance of Chronic Services revenues, 4.8% of the total, was attributable to
the growth of specialty pharmacy services, principally for IDPN therapy, and
diabetes management. The increase in Other Services revenues reflects a full
year of operation in 1993 of the two ambulatory surgery centers acquired during
1992. Other income, from interest earned on short-term investments, decreased
$277,000 to $1.2 million, or 18.5%, as a result of lower interest rates.

Of the increase in costs and expenses from continuing operations, operating
costs increased $36.3 million, or 32.5%, to $148.0 million in 1993. Chronic
Services operating costs, of which dialysis represented 96.8%, increased $34.4
million to $145.0 million, or 31.2%, while operating costs of Other Services
increased $1.9 million to $3.1 million, or 158.9%, over the prior fiscal year.
Dialysis costs increased due to increased volume of business, expenses
associated with the operation of new dialysis centers, the cost of the
administration of EPO and higher labor and supply costs. The balance of Chronic
Services operating costs, 3.2% of the total, was attributable to growth in
specialty pharmacy services and diabetes management, which increased $2.5
million to $4.6 million, or 118%. The increase in operating costs of Other
Services was from growth of the surgery center business and a full year's
operation in 1993 of the two surgery centers acquired in the third quarter of
1992. General and administrative expenses increased $6.6 million to $20.7
million, or 46.8%, as a result of an increased volume of business, costs
associated with the development of the ambulatory surgery and specialty pharmacy
services businesses, increased goodwill incurred as a result of acquisitions
made in 1992, and increased incentive compensation expense. Depreciation
increased $2.3 million, or 47.9%, to $7.2 million due to an increase in
depreciable assets of the dialysis business and a full year's operation in 1993
of the ambulatory surgery business.

As a result of revenues from continuing operations increasing less rapidly
than costs and expenses, earnings before taxes as a percentage of revenues
decreased to 18.9%, compared to 19.7% in 1992. Income taxes were 42.0% of
earnings before taxes, compared to 41.0% in 1992. The increase in the tax rate
was the result of an increase in the federal corporate tax rate, from 34% to
35%, retroactive to January 1, 1993, as mandated by the Omnibus Budget
Reconciliation Act of 1993. The impact was an increase in taxes in 1993 of
approximately $410,000. Overall, net earnings from continuing operations
increased $4.9 million, or 25.6%, as a result of increased revenues, despite a
slight decline in before-tax earnings margins.

Net income from discontinued operations increased $402,000 to $554,000 in
1993 as a result of a consolidation of the business and reduction of costs.
Operating revenues were $17.7 million, a decrease of $908,000 from 1992. In
total, net earnings from continuing and discontinued operations increased $5.3
million to $24.4 million, or 27.5%, in 1993.

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<PAGE> 12

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital primarily for the acquisition and development
of dialysis facilities, including the purchase of property, plant and equipment,
as well as the acquisition and development of other businesses. Capital and
acquisition expenditures were $31.1 million, consisting of cash and 442,500
shares of the Company's Common Stock issued in connection with acquisitions, and
$36.9 million, consisting of cash and 257,213 shares of the Company's Common
Stock issued in connection with acquisitions, for the fiscal years ended
November 30, 1993 and 1994, respectively. These capital and acquisition
expenditures were funded primarily by the Company's cash flow from operations.

The Company's primary source of cash flow has been, and is expected to
continue to be, from operations. Cash flow from operations was $28.5 million and
$43.2 million for the years ended November 30, 1993 and 1994, respectively. The
Company's working capital increased by $8.9 million to $97.2 million at November
30, 1994, from $88.3 million at November 30, 1993.

In fiscal 1995, the Company intends to continue to acquire and develop new
dialysis facilities and may acquire one or more primary care physician
practices. The Company is also evaluating acquisition and development
opportunities in other sectors of specialty health care services. The Company
expects that its capital and acquisition expenditures in fiscal 1995 will exceed
expenditures for fiscal 1994. To the extent the Company is able to identify
significant attractive investment opportunities, such expenditures could exceed
$50.0 million. The Company believes that cash generated from operations together
with available cash and the proceeds from this public Common Stock offering will
be adequate to meet the Company's planned expenditure, acquisition and
development and liquidity needs for fiscal 1995.

INFLATION AND PRICE CHANGES

Approximately 70% and 66% of the Company's dialysis revenues were funded by
Medicare and Medicaid, at fixed rates per dialysis treatment, before charges for
ancillary services in 1993 and 1994, respectively. Despite significant
inflation, the reimbursement rate remained constant from 1973 to 1983, was
reduced by $11 per treatment in 1983 by an additional $2 per treatment in 1986
and was further reduced in 1989 and 1990 as a result of budget deficit reduction
measures. Until 1988, the Company was able to offset most of these reductions by
greater economies. From 1988 through 1990, however, the Company's earnings were
adversely affected by increases in labor and supply costs without a compensating
increase in reimbursement. Effective January 1, 1991, the Medicare and Medicaid
reimbursement rate was increased $1 per treatment to an average of $126 per
treatment and the budget deficit reductions from such rates were eliminated.
This increase has helped moderate inflationary cost pressures. The Company is
unable to predict what, if any, future changes may occur in the Medicare and
Medicaid reimbursement rates and, if made, whether such changes will help
alleviate or increase inflationary pressures on the Company's costs.

The balance of dialysis revenues, other than Medicare and Medicaid,
increased to 34% in 1994, compared to 30% in 1993. This change in payer mix was
a result of the Omnibus Budget Reconciliation Act of 1993 which shifted payer
responsibility from the Medicare program to private insurance plans. In general,
non-government revenues are at rates significantly in excess of Medicare and
Medicaid rates. Any restriction or reduction of the Company's ability to charge
rates in excess of those paid by Medicare and Medicaid would have a significant
negative effect on the Company's revenues and earnings. It is expected that the
growth of health maintenance organizations and other managed care organizations
will create a more competitive environment which will require the Company over
time to reduce prices for some of its services. The Company is investing in the
development of managed care products which are intended to offset the negative
impact of such reduced prices. If the new products are not successful, any
reduction in prices will result in significantly lower operating margins for the
dialysis business.

RECENT DEVELOPMENTS

Since the end of the fiscal 1994, the Company has acquired four dialysis
facilities, opened three new facilities and closed two facilities, and as a
result currently operates 155 facilities.

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<PAGE> 13

BUSINESS

BUSINESS STRATEGY

Healthcare payers are making increasingly proactive and informed decisions
in procuring the services of healthcare providers on behalf of their
beneficiaries with particular attention to the chronically ill. Increasingly,
payers are selecting providers who demonstrate expertise in the management of
chronic conditions, including a capability to reduce clinical complications
leading to hospitalization and avoidable medical procedures. Physicians involved
in the delivery of primary as well as specialty care are seeking to reform and
restructure their practices to more effectively meet the needs of these payers.
Vivra's business strategy is to identify those sectors of healthcare services in
which it can enable physicians to market and provide services that are
differentiated both in terms of outcomes and costs on a sustained basis.

Vivra continues to expand its already significant presence in the dialysis
services market through acquisition and development to further realize economies
of scale. Although the Company currently derives nearly all of its revenues and
earnings from dialysis services, predominantly in a fixed fee-for-service
environment, it is placing strong emphasis on the development of managed care
products in both Chronic Services and Other Services segments. The Company
believes its recent acquisitions in the area of asthma allergy care and
physician practice management offer opportunities for the Company to develop and
market innovative services in a managed care environment. The Company intends to
continue to explore potential new markets where it can apply its expertise in
chronic disease and where it can be a low cost, high quality provider of
healthcare services. See "-- Competition."

Vivra currently participates in the following major markets:

Dialysis. Vivra provides dialysis treatment and ancillary services to
patients suffering from chronic kidney failure, or ESRD. As of November 30,
1994, the Company operated 150 outpatient dialysis facilities in 24 states and
the District of Columbia and treated approximately 9,000 patients. The Company
also provides inpatient dialysis services for acute patients at general
hospitals. Currently it is estimated that the six largest providers constitute
approximately one-third of the estimated $4 billion outpatient dialysis
treatment market and consolidation in the dialysis services market is expected
to accelerate.

Diabetes Management. Vivra is the second largest operator of diabetes
management centers in the United States. The Company, working with primary care
physicians and hospital staffs, attempts to improve the management of patients'
chronic conditions to achieve a reduction in clinical complications, lengthy
hospitalizations and avoidable medical procedures.

Asthma Allergy Care Services. The Company recently acquired a national
provider of care to asthma and allergy sufferers. The Company believes that with
this acquisition it is the only national provider in the asthma allergy care
market segment. The Company estimates that total expenditures related to asthma
and allergy treatment are approximately $6 billion in the United States. Through
the application of standardized practice management guidelines, including
preventive care, the Company's goal is to provide payers with cost savings
through improved patient health as well as reduced hospital visits. The Company
recently entered into its first capitation agreement with a managed care
provider covering 300,000 lives. The agreement is scheduled to take effect in
the first half of fiscal 1995.

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<PAGE> 14

Physician Practice Management. Vivra has also recently entered the
business of managing practices of primary care providers, which it believes
presents significant opportunities for growth. Although a recent entrant to the
market, Vivra's management has acquired experience in dialysis and other
businesses working in partnership with physicians.

CHRONIC SERVICES

DIALYSIS SERVICES

The Company is the second largest provider of dialysis services in the
United States. The Company believes that its 150 established treatment
facilities and the economies of scale inherent in the operations of a
multi-facility business provide a significant base for expansion. The Company
intends to develop and acquire facilities primarily in existing and contiguous
geographic markets and to increase the number of physicians and other sources of
patient referrals.

End-Stage Renal Disease. ESRD is the state of advanced renal impairment
that is irreversible and fatal without treatment. According to HCFA, the number
of patients who require chronic dialysis grew from approximately 66,000 in 1982
to approximately 170,000 in 1993, representing a compound annual growth rate of
9%. The Company attributes the continuing growth in the number of ESRD patients
principally to the aging of the general population, demographic trends and
medical advances resulting in increased life expectancy of patients with
hypertension, diabetes and other illnesses that lead to ESRD. Moreover, improved
technology has enabled older patients and those who previously could not
tolerate dialysis due to other illnesses to benefit from this life-prolonging
treatment. Qualified patients with ESRD have been entitled since 1973 to
Medicare benefits regardless of age or financial circumstances.

Treatment Options for End-Stage Renal Disease. Treatment options for ESRD
include hemodialysis, peritoneal dialysis and kidney transplant surgery. HCFA
estimates that, as of December 31, 1993, 82% of the ESRD patients in the United
States were receiving hemodialysis treatment in outpatient facilities. The
remaining 18% were treated in the home or in the hospital as inpatients.
Patients treated in the home are monitored by a designated outpatient facility
or qualified physician's office.

Hemodialysis uses an artificial kidney called a dialyzer to remove certain
toxins, fluid and salt from the patient's blood, and a machine to control
external blood flow and to monitor certain vital signs of the patient. Typically
dialysis for the chronic patient is performed three times per week, for
approximately four hours per treatment, and continues for the patient's
lifetime.

Peritoneal dialysis is generally performed by the patient at home. The most
common methods are continuous ambulatory peritoneal dialysis ("CAPD") and
continuous cycling peritoneal dialysis ("CCPD"). CAPD offers patients an
improved lifestyle, but is limited in application by a higher incidence of
infection. CAPD uses the patient's peritoneal (abdominal) cavity to eliminate
fluid and toxins from the patient. CCPD uses a mechanical device to cycle
dialysis solution while a patient is sleeping.

An alternative treatment not provided by the Company is kidney
transplantation. While this option, when successful, is the most desirable form
of therapeutic intervention, the shortage of suitable donors limits the
availability of this surgical procedure as a treatment option. In addition,
attempts are being made to develop new drugs or medical treatments that prevent
or reduce the necessity for dialysis. The Company is not aware of any medical
advances that would, within the near future, materially reduce or eliminate the
need for dialysis treatments or render its dialysis equipment obsolete.

Location, Capacity and Operation of Facilities. As of November 30, 1994,
the Company owned and operated 150 facilities of which 123 are located in leased
premises and 27 are located in buildings owned by the Company. The facilities
range in size from 6 to 41 stations; the average size is 15 stations. The
facilities are located as follows: California (29); Florida (20); Georgia and
Texas (14 each); Pennsylvania (12); Alabama and Virginia (10 each); South
Carolina (9); Louisiana and North Carolina (4 each); District of Columbia,
Maryland, Missouri and Tennessee (3 each); New Mexico (2); and Arizona,
Arkansas, Colorado, Connecticut, Kansas, Illinois, Michigan, Oklahoma, Oregon
and West Virginia (1 each). The Company believes that due to its large size it
has economies of scale in areas such as purchasing, billing and collections and
data

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<PAGE> 15

processing not available to smaller dialysis providers. As an investment, the
Company owns 49% of a clinical laboratory which provides many of the Company's
dialysis testing services.

The number of the Company's facilities has increased during the past four
years; during that period, the Company acquired 23 existing facilities,
developed 32 new facilities and closed 9 facilities. Treatments provided by the
Company have increased by 95.5% during this period through an increase in the
number of patients at existing centers as well as an increase in the number of
centers. During fiscal 1994, Vivra's "same store" patient growth was 7.9%. There
can be no assurance that the Company will continue to experience similar growth.

<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF TREATMENTS
FISCAL YEAR END FACILITIES PROVIDED
- --------------- --------- ----------
<S> <C> <C>
1990 104 642,567
1991 112 745,987
1992 128 886,979
1993 138 1,087,385
1994 150 1,256,397
</TABLE>

The above table includes total CAPD and CCPD treatments of 48,164, 64,463,
83,579, 114,340 and 136,092 in fiscal 1990 through 1994, respectively.

As required by Medicare regulations, each of the Company's facilities is
supervised by a Medical Director. The Company's Medical Directors are licensed
physicians in private practice who are directly responsible for assuring the
quality of patient care. A Unit Administrator, who is generally a registered
nurse, supervises the day-to-day operation of each facility and the staff. The
staff consists of registered nurses, medical technicians, nurses aides, a unit
clerk, and certain part-time employees, including a social worker, a registered
dietician and a machine repair technician. Each facility is staffed in a manner
that allows the number of personnel to be adjusted efficiently according to the
number of patients receiving treatment. The Company engages in organized and
systematic efforts to measure, maintain and improve the quality of services it
delivers. Each of the Company's facilities collects and analyzes quality
assurance data which is reviewed regularly by regional and corporate management
to continually monitor and improve the standard of care being provided.

Sources of Dialysis Revenues. The Company estimates that approximately 70%
of its dialysis revenues, including revenues for the reimbursement of the
administration of EPO, for each of the fiscal years 1991, 1992 and 1993 and 66%
for fiscal year 1994, were reimbursements from Medicare and Medicaid under ESRD
administered by HCFA and the states. Numerous congressional actions have
resulted in changes in the average Medicare reimbursement rate from a fixed fee
of $138 per treatment in 1983, to a low of $125 per treatment in 1986. After a
$1 per treatment increase in 1991, the average rate has remained at $126. The
Medicaid programs are also subject to statutory and regulatory changes that
could affect the rate of Medicaid reimbursement. The Company is not able to
predict whether and to what extent changes to Medicare and Medicaid
reimbursement rates will be made in the future. Any reduction in these
reimbursement rates would have material adverse effects on the Company's
revenues and net earnings.

New dialysis patients must wait 90 days after commencement of dialysis
treatments to qualify under the Medicare ESRD reimbursement program. Often
patients do not have the means or insurance to pay for treatment during this
90-day waiting period. If new patients do have private insurance, or belong to
an employer group insurance plan, regulations require such insurance to pay for
up to the first 21 months of dialysis treatment before Medicare reimbursement
begins. If a secondary carrier such as Medicaid or a private insurer cannot be
found, the Company may not be reimbursed for the initial waiting period or the
20% copayment of the ESRD rate which is not paid by Medicare. The Company seeks
to assist patients who may not initially have adequate sources of reimbursement
or insurance to obtain coverage, if possible.

Since June 1, 1989, Medicare and Medicaid have provided reimbursement for
the administration of EPO to dialysis patients for the treatment of anemia.
During fiscal 1993 and 1994, approximately 80% and 82%, respectively, of the
Company's dialysis patients received EPO. Revenues from the administration of
EPO were

15
<PAGE> 16

approximately $33.8 million and $42.0 million, respectively, or 17% of dialysis
revenues, for those periods. Effective January 1, 1994, Medicare and Medicaid
reimbursement for the administration of EPO was reduced from $11 to $10 per
1,000 units. Any further reduction in the reimbursement rate for the
administration of EPO would have a negative impact on the Company's revenues and
net earnings. In addition, EPO is produced by a single manufacturer, and any
interruption of supply could adversely affect the Company's revenues and net
earnings.

The Company estimates that approximately 30% of its dialysis revenues for
the fiscal year ended 1993 and 34% for 1994, were derived from sources other
than Medicare and Medicaid. Of these revenues, the largest portion came from
private insurance for chronic dialysis treatments. In general, private insurance
reimbursement and reimbursement for treatments performed at acute care hospitals
are at rates significantly in excess of Medicare and Medicaid rates. The Company
believes that private payers may be required in the future to assume a greater
percentage of the costs of dialysis care as the existing federal ESRD program is
reviewed by the United States Congress, and as a result, private payers will
focus on reducing dialysis payments as their overall dialysis costs increase. In
addition, as HMOs and other managed care providers expand, they will have a
strong incentive to further reduce the costs of specialty care and will
aggressively seek to reduce amounts paid for dialysis. The Company is unable to
predict whether and to what extent changes in these reimbursement rates will be
made in the future. Any reduction in the ability of the Company to charge rates
that are in excess of those paid by Medicare and Medicaid would have a
significant negative effect on the Company's revenues and net earnings.

DIABETES MANAGEMENT

Diabetes mellitus is a chronic metabolic disease caused by the inability to
metabolize carbohydrates, fats and proteins, and is the third leading cause of
death by disease in the United States. Over 14 million patients in the United
States are estimated to have the disease, of whom only half have been diagnosed.
The Company estimates that each year more than 725,000 new cases are diagnosed.
Incidence of the disease increases dramatically with age.

In March 1992, the Company acquired Health Advantage Inc. ("HAI"), a
provider of diabetes management services to hospitals. HAI was founded in 1987
and, as of November 30, 1994, had contracts to provide services in 20 hospitals
in 9 states. Through its diabetes management centers, HAI provides comprehensive
diabetes management and training services to primary care physicians and
hospital staff. The goal of the centers is to enhance the ability of providers
to assist the patients and their families in understanding, controlling and
adapting to the disease. The emphasis is on increasing patient education and
aggressive medical management in cooperation with the attending physicians and
hospital staff to help patients prevent complications, reduce the risk of
hospitalization and achieve a reasonably satisfactory lifestyle.

Services at the centers are provided on an inpatient basis pursuant to
medically approved admission and discharge protocols. Such services are provided
on an outpatient basis by physician referral. Quality assurance and utilization
review procedures have been developed on the basis of the American Diabetes
Association's national standards of care. The Company works closely with each
hospital's quality assurance coordinators and utilization review committees to
tailor these procedures to the requirements of each hospital. The Company plans
to expand its diabetes management services into additional markets.

ASTHMA ALLERGY CARE SERVICES

On November 30, 1994, the Company acquired what it believes is currently
the only national company providing focused medical care for acute and chronic
asthmatics and other allergy sufferers. As a result, the Company currently
manages 17 asthma allergy care practices in 11 states. Asthma is a chronic
disease with periodic acute episodes that range from mildly inconvenient to
life-threatening. Over the past decade, the asthma allergy care market has grown
and the Company estimates that currently over $6.0 billion is spent annually in
the United States on the treatment of these chronic diseases. Over half of this
cost is in hospitalizations and emergency room visits. Studies have shown that
the vast majority of these hospitalizations and emergency room visits can be
avoided by proper management of the patient's care.

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<PAGE> 17

The Company believes that the U.S. asthma population will continue to grow
and intends to expand its asthma allergy care services. The Company's strategy
is to acquire well-regarded allergists who will be included in its existing
practice management organization and to create organized networks to contract
for and manage the delivery of high quality, cost effective care. Its practices
and networks will provide healthcare payers the ability to access geographically
dispersed allergists and standardized treatment management guidelines. The goal
is to improve health and reduce costly hospital admissions. The Company recently
entered into a capitated agreement with a managed care provider covering 300,000
lives under which it will receive a bonus in the event it reduces hospital
stays. The agreement is scheduled to take effect in the first half of fiscal
1995.

SPECIALTY PHARMACY SERVICES

As a part of its strategy of providing a variety of ancillary services, in
September 1991, the Company established Associated Health Services ("AHS") to
provide IDPN pharmacy and support services to its dialysis patients. In 1992,
AHS opened pharmacies in Southern California and Atlanta, Georgia and also began
providing IDPN therapy services to dialysis patients in facilities owned by
third parties, in addition to its own patients. In 1993, the Company initiated
mail order delivery of oral medications for dialysis and transplant patients.

IDPN therapy is a nutritional supplement administered during dialysis to
patients suffering from nutritional deficiencies. The Company is reimbursed by
the Medicare program for the administration of IDPN therapy through two
pharmacies which provide IDPN prescriptions and support services to certain of
its dialysis patients and other third-party patients. Beginning in 1993, HCFA
designated four DMERCs to process reimbursement claims for IDPN therapy. The
DMERCs have established stringent medical policies for reimbursement of IDPN
therapy, and most of the Company's claims for new patients have been denied or
delayed. Where appropriate, the Company intends to appeal denials. In addition,
the DMERCs are reportedly reviewing the existing IDPN medical policies. The
final outcome of appeals and the anticipated review is uncertain and may
ultimately reduce the number of patients eligible to receive reimbursement for
IDPN therapy. Patients receiving IDPN therapy prior to the designation of the
DMERCs are "grandfathered" under the prior local carrier's medical policies
until March 1, 1995 or until clarification in the national policy for IDPN
therapy. To the degree that there is a significant reduction in the number of
patients eligible to receive reimbursement for IDPN therapy or the amount of
Medicare reimbursement is reduced, the Company's revenues and net earnings would
be reduced.

OTHER SERVICES

REHABILITATION THERAPY SERVICES

In January 1994, the Company acquired a 60% ownership interest in South
Coast Rehabilitation Services ("SCRS"), a medical rehabilitation services
provider. SCRS provides occupational, speech and physical therapy services on a
contract basis to patients in 77 skilled nursing facilities located in
California, Indiana, Missouri, Ohio, Texas and Wisconsin. As part of its
rehabilitation services, it has developed a proprietary software system that
monitors the progress of patient therapy on a real-time basis. SCRS uses this
proprietary software system internally and also licenses the system to third
parties.

SCRS's largest customer, a national nursing home provider, has announced
that it intends to reduce materially its use of contract providers, over time,
and to provide therapy services internally. SCRS has recently focused its
marketing efforts on other prospective customers and has been able to reduce its
dependence on this one customer. In addition, HCFA is currently reviewing the
method and rates of reimbursement for speech and occupational therapy
rehabilitation services. The Company is unable to predict what, if any, changes
may occur in such reimbursement policies, or whether such changes, if made, will
have a material adverse effect on its revenues and net earnings.

AMBULATORY SURGERY CENTERS

Outpatient surgery is suitable for less-invasive and traumatic procedures
for which the anesthesia used is typically short-acting and the recovery period
relatively low-risk, allowing the patient to recuperate at home as opposed to
the more traditional and expensive hospital recovery. Many physicians prefer to
use ambulatory surgery centers rather than more traditional hospital facilities
due to more flexible scheduling and efficient

17
<PAGE> 18

operations. Government agencies, including HCFA, other third-party payers and
patients have increasingly accepted outpatient surgery because it offers high
quality care at a lower cost.

As of November 30, 1994, the Company operated a total of five ambulatory
surgery centers, two each in California and Washington and one in Louisiana. It
is expected that additional ambulatory surgery centers will be acquired or
established in support of the Company's physician practice management or
specialty care businesses.

PHYSICIAN PRACTICE MANAGEMENT

In April 1994, the Company established Vivra Physician Services ("VPS") to
acquire and manage primary care physician practices. During the year, VPS
acquired a physician practice management company in Louisville, Kentucky, which
manages the practices of 13 independent physicians. It also acquired the assets
of, and a contract to manage, a 15-physician, primary care-oriented
multi-specialty group in Colorado Springs, Colorado.

The growth of managed care organizations is causing physicians to assume
the risk of capitated arrangements to remain competitive. The physicians must
organize into efficient groups which can achieve clinical competencies, focus on
prevention, reduce intervention and, most importantly, achieve successful
clinical outcomes. The Company believes that to achieve these goals the
physicians will need a business partner which can provide both capital and
management. Accordingly, VPS is developing the support and systems to assist
physicians in developing competitive group practices.

COMPETITION

The dialysis business is highly fragmented, with a number of operators with
25 or fewer centers and a small number of larger, multi-center chains. It is
estimated that the six largest providers constitute approximately one-third of
the estimated $4 billion outpatient dialysis treatment market. The balance of
the market is still fragmented into hospital-based centers and facilities owned
by individual nephrologists. Industry consolidation is expected to accelerate as
large providers continue to make acquisitions. As a result, the Company faces
competition for the acquisition and development of new centers as well as
competition for qualified physicians to act as Medical Directors.

A primary consideration in the selection of a dialysis facility is
convenience of location for the patient. Some of the Company's facilities in
California, Florida, Texas, Pennsylvania and Georgia are in urban areas where
there are many competing facilities in close proximity. Most of the Company's
other facilities are in less densely populated areas with few competing
facilities nearby. Other competitive factors include quality of care and
service. Due to its large size relative to most other dialysis operators, the
Company believes it has economies of scale not available to many of its
competitors in areas such as purchasing, billing and collections, and data
processing. While it occurs infrequently, the Company has experienced
competition from the establishment of a facility by a former Medical Director.

Certain companies, some of whom have longer operating histories and greater
financial resources than those of the Company, are providing specialty
healthcare services and physician practice management similar to those that the
Company is providing or pursuing. The Company may be forced to compete with
these entities for the acquisition of the assets of specialty medical clinics,
contracts to manage such clinics and, in some cases, the employment of clinic
physicians. There can be no assurance that the Company will be able to compete
effectively with such competitors, that additional competitors will not enter
the Company's markets, or that such competition will not make it more difficult
to expand in such markets on terms beneficial to the Company. All of the
Company's businesses face significant competition, often from larger companies
with greater financial resources and more operating experience.

GOVERNMENT REGULATION

General. The Company's dialysis operations are subject to extensive
governmental regulation at the federal, state and local levels. These
regulations require the Company to meet various standards relating to,

18
<PAGE> 19

among other things, the management of facilities, personnel, maintenance of
proper records, equipment and quality assurance programs. The dialysis
facilities are subject to periodic inspection by state agencies and other
governmental authorities to determine if the premises, equipment, personnel and
patient care meet applicable standards. To receive Medicare reimbursement, the
Company's dialysis facilities must be certified by HCFA.

Any loss by the Company of its various federal certifications, its
authorization to participate in the Medicare or Medicaid programs or its
licenses under the laws of any state or other governmental authority from which
a substantial portion of its revenues is derived or a change resulting from
healthcare reform reducing dialysis reimbursement or reducing or eliminating
coverage for dialysis services would have a material adverse effect on the
Company's business. To date, the Company has not had any difficulty in
maintaining its licenses or its Medicare and Medicaid authorizations. The
healthcare services industry will continue to be subject to intense regulation
at the federal and state levels, the scope and effect of which cannot be
predicted. No assurance can be given that the activities of the Company will not
be reviewed and challenged or that healthcare reform will not result in a
material adverse change to the Company.

Fraud and Abuse. The Company's dialysis operations are subject to the
illegal remuneration provisions of the Social Security Act (sometimes referred
to as the "anti-kickback" statute) and similar state laws that impose criminal
and civil sanctions on persons who knowingly and willfully solicit, offer,
receive or pay any remuneration, whether directly or indirectly, in return for,
or to induce, the referral of a patient for treatment, or, among other things,
the ordering, purchasing, or leasing, of items or services that are paid for in
whole or in part by Medicare, Medicaid or similar state programs. Violations of
the federal anti-kickback statute are punishable by criminal penalties,
including imprisonment, fines and exclusion of the provider from future
participation in the Medicare and Medicaid programs. Federal enforcement
officials also may attempt to impose civil false claims liability with respect
to claims resulting from an anti-kickback violation. If successful, civil
penalties could be imposed, including assessments of $2,000 per improper claim
for payment plus twice the amount of such claim and suspension from future
participation in Medicare and Medicaid programs. Civil suspension for
anti-kickback violations also can be imposed through an administrative process,
without the imposition of civil monetary penalties. Some state statutes also
include criminal penalties. While the federal anti-kickback statute expressly
prohibits transactions that have traditionally had criminal implications, such
as kickbacks, rebates or bribes for patient referrals, its language has been
construed broadly and has not been limited to such obviously wrongful
transactions. Court decisions state that, under certain circumstances, the
statute is also violated when one purpose (as opposed to the "primary" or a
"material" purpose) of a payment is to induce referrals. Congress has frequently
considered federal legislation that would expand the federal anti-kickback
statute to include the same broad prohibitions regardless of payer source.

In July 1991 and in November 1992, the Secretary of HHS published
regulations that create exceptions or "safe harbors" for certain business
transactions. Transactions that satisfy the criteria under the applicable safe
harbors will be deemed not to violate the federal anti-kickback statute.
Transactions that do not satisfy all elements of a relevant safe harbor do not
necessarily violate the statute, although such transactions would be subject to
scrutiny by enforcement agencies. The Company seeks to structure its various
business arrangements to satisfy as many safe harbor elements as possible under
the circumstances, although not all of the Company's arrangements satisfy all of
the elements of the relevant safe harbor. Although the Company has never been
challenged under the anti-kickback statute and believes it complies in all
material respects with this statute and all other applicable related laws and
regulations, there can be no assurance that the Company will not be required to
change its practices or experience a material adverse effect as a result of any
such challenge or any sanction which might be imposed.

On July 21, 1994, the Secretary of HHS proposed a rule that would modify
the original set of safe harbor provisions to give greater clarity to the
rulemaking's original intent. The proposed rule would make changes to the safe
harbors on personal services and management contracts, small entity investment
interests and space rentals, among others. The Company does not believe that the
application of these safe harbors to its current arrangements, as set forth
above, would change if the proposed rule were adopted in the form proposed.
However, the Company cannot predict the outcome of the rulemaking process or
whether changes in the safe harbors rule will affect the Company's position with
respect to the anti-kickback statute.

19
<PAGE> 20

Medical Director Relationships. The conditions for coverage under the
Medicare ESRD program mandate that treatment at a dialysis facility be under the
general supervision of a Medical Director who is a physician. Generally, the
Medical Director must be board eligible or board certified in internal medicine
or pediatrics and have had at least 12 months of experience or training in the
care of patients at ESRD facilities. The Company has engaged Medical Directors
at each of its facilities. The compensation of the Medical Directors and other
physicians under contract is separately negotiated and generally depends upon
competitive factors in the local market, the physician's professional
qualifications and responsibilities and the size and utilization of the facility
or relevant program. The aggregate compensation of the Medical Directors and
other physicians under contract is generally fixed in advance for periods of one
year or more by written agreement and is set to reflect the fair market value of
the services rendered. Because in all cases the Company's Medical Directors and
the other physicians under contract refer patients to the Company's facilities,
the federal anti-kickback statute could apply. However, the Company believes its
contractual arrangements with these physicians are in material compliance with
the anti-kickback statute. Among the safe harbors promulgated by the Secretary
of HHS is one relevant to the Company's arrangements with its Medical Directors
and the other physicians under contract. The Company endeavors to enter into
agreements with its Medical Directors and other physicians under contracts which
satisfy the requirements of the personal services and management contract safe
harbor. Moreover, the Company believes that the anti-kickback statute's
prohibitions are primarily directed at abusive practices which increase the
utilization and cost of services covered by governmentally funded programs. The
dialysis services provided by the Company generally cannot, by their very
nature, be over-utilized since dialysis treatments are not elective and cannot
be prescribed unless there is kidney failure or malfunction.

Other Relationships. Within the last eighteen months the OIG has published
warnings to the dialysis services industry generally that it believes that the
industry-wide practices of obtaining discounts on certain laboratory charges and
the payment of remuneration for services provided for IDPN therapy at dialysis
centers violate the anti-kickback statute in many, if not most, circumstances.
The Company believes that it has a reasonable basis for continuing practices
which the OIG may regard as within the scope of the warnings and that, if
challenged by the OIG, it could defend these practices. However, there can be no
assurance that the Company will not be challenged under the statutes or that,
whether or not challenged and subject to sanctions, the Company will not be
required to change its current practices. Any such change or challenge,
including any sanctions, would have an adverse effect on the Company's revenues
and net earnings, as well as its competitors that engage in similar practices.

Certain of the Company's other operations also receive Medicare and
Medicaid reimbursement. While the Company believes that its other operations
comply in all material respects with applicable law, there can be no assurance
that the Company's other operations will not be subject to challenge or
sanctions. Any such challenge or sanctions could have a material adverse effect
on the Company's revenues and net earnings.

Stark II. Stark II restricts physician referrals for certain designated
health services to entities with which a physician or an immediate family member
has a "financial relationship." The entity is prohibited from claiming payment
under the Medicare or Medicaid programs for services rendered pursuant to a
prohibited referral and is liable for the refund of amounts received pursuant to
prohibited claims. The entity also can receive civil penalties of up to $15,000
per improper claim and can be excluded from participation in the Medicare and
Medicaid programs. Comparable provisions applicable to clinical laboratory
services became effective in 1992. Stark II provisions which may be relevant to
the Company became effective on January 1, 1995.

A "financial relationship" under Stark II is defined as an ownership or
investment interest in, or a compensation arrangement between, the physician and
the entity. The Company has entered into compensation agreements with its
Medical Directors and other referring physicians; some Medical Directors own
stock in the Company. The Company is not aware of any family relationship
between a Medical Director and staff at its dialysis facilities.

Stark II includes certain exceptions for compensation arrangements and
ownership that satisfy certain criteria. With respect to compensation
arrangements, remuneration from an entity pursuant to a personal

20
<PAGE> 21

services compensation arrangement is excepted from Stark II prohibitions if: (i)
the arrangement is set out in writing, signed by the parties, and specifies the
services covered by the arrangement; (ii) the arrangement covers all of the
services to be provided by the physician (or an immediate family member of such
physician) to the entity; (iii) the aggregate services contracted for do not
exceed those that are reasonable and necessary for the legitimate business
purposes of the arrangement; (iv) the term of the arrangement is for at least
one year; (v) the compensation to be paid over the term of the arrangement is
set in advance, does not exceed fair market value, and is not determined in a
manner that takes into account the volume or value of any referrals or other
business generated between the parties; (vi) the services to be performed do not
involve the counseling or promotion or a business arrangement or other activity
that violates any state or federal law; and (vii) the arrangement meets such
other requirements that may be imposed pursuant to regulations promulgated by
HHS.

Another Stark II exception for compensation arrangements applies to bona
fide employment relationships. This exception can apply to amounts paid by an
employer to a physician-employee if: (i) the employment is for identifiable
services; (ii) the amount of remuneration is consistent with the fair market
value of services and is not determined in a manner that takes into account,
directly or indirectly, the volume or value of any referrals by the referring
physician; (iii) the remuneration is provided pursuant to an agreement which
would be commercially reasonable even if no referrals were made to the employer;
and (iv) the employment meets such other standards that HHS may impose to
protect against program or patient abuse. In addition, this exception would
permit certain types of productivity bonuses based on personal services
performed by the physician or an immediate family member.

Stark II also includes an exception for a physician's ownership or
investment interest in shares in an Investment Company or securities listed on
an exchange or quoted on NASDAQ which, in either case, meets certain financial
criteria.

Because of its broad language, Stark II may be interpreted by HHS to apply
to the Company's operations. Consequently, Stark II may require the Company to
restructure certain existing compensation agreements with its Medical Directors
or, in the alternative, to refuse to accept referrals for designated health
services from such physicians. Although there can be no assurance, the Company
believes that if Stark II is interpreted to apply to the Company's operations,
the Company will be able to bring its financial relationships with referring
physicians into material compliance with the provisions of Stark II, including
relevant exceptions. If the Company cannot achieve such material compliance, and
Stark II is broadly interpreted by HHS to apply to the Company, such application
of Stark II could have a material adverse effect on the Company. A broad
interpretation of Stark II to include dialysis services and items provided
incident to dialysis services would apply to the Company's competitors as well.

For purposes of Stark II, "designated health services" include, among other
things: clinical laboratory services; parenteral and enteral nutrients, certain
equipment and supplies; prosthetics; orthotics; prosthetic devices; physical and
occupational therapy services; outpatient prescription drugs; and inpatient and
outpatient hospital services. Dialysis is not a designated health service, and
the Company believes that the language and legislative history of Stark II
indicate that Congress may not have intended to include the services and items
provided incident to dialysis services within the Stark II prohibitions.
However, the Company's provision of, or arrangement and assumption of financial
responsibility for, outpatient prescription drugs, including EPO and IDPN,
clinical laboratory services, facility dialysis services and supplies, home
dialysis supplies and equipment, and services to hospital inpatients and
outpatients, include services and items which could be construed as designated
health services within the meaning of Stark II. Although the Company does not
bill Medicare or Medicaid for hospital inpatient and outpatient services, the
Company's Medical Directors may request or establish a plan of care that
includes dialysis services for hospital inpatients and outpatients that may be
considered a referral to the Company within the meaning of Stark II.

State Referral Regulations. A California statute, which became effective
January 1, 1995, makes it unlawful for a physician who has, or a member of whose
immediate family has, a financial interest with or in an entity to refer a
person to that entity for laboratory, diagnostic nuclear medicine, radiation
oncology,

21
<PAGE> 22

physical therapy, physical rehabilitation, psychometric testing, home infusion
therapy, or diagnostic imaging goods or services. Under the statute, "financial
interest" includes, among other things, any type of ownership interest, debt,
loan, lease, compensation, remuneration, discount, rebate, refund, dividend,
distribution, subsidy or other form of direct or indirect payment, whether in
money or otherwise, between a physician and the entity to which the physician
makes a referral for the items described above. The statute also prohibits the
entity to which the referral was made from presenting a claim for payment to any
payor for a service furnished pursuant to a prohibited referral, and prohibits a
payor from paying for such a service. Violation of the statute by a physician is
a misdemeanor, and will subject the physician to civil fines. Violation of the
prohibition on submitting a claim in violation of the statute is a public
offense, subjecting the offender to a fine of up to $15,000 for each violation
and possible action against licensure. Some of the Company's facilities perform
laboratory services incidental to dialysis services pursuant to the orders of
referring physicians. Additionally, certain laboratory services, which are
performed by laboratories independent of the Company for all outpatient dialysis
patients, are identified as included among the services for which the Company is
financially responsible under the composite rate under Medicare and under other
payment arrangements. Therefore, although the Company does not believe that the
statute is intended to apply to laboratory services that are provided incident
to dialysis services, it is possible that the statute could be interpreted to
apply to such laboratory services. The statute includes certain exemptions from
its prohibitions; however, the California statute includes no explicit exemption
for Medical Director services or other services for which the Company contracts
with and compensates referring physicians in California. Thus, if the California
statute is interpreted to apply to laboratory services that are provided
incident to dialysis services, the Company could be subject to sanctions and
would be required to restructure some or all of its relationships with the
referring physicians with whom it contracts for Medical Director and similar
services. The consequences of such restructuring, if any, cannot be predicted.
The Company believes that other states in which the Company does business have
or are considering similar legislation.

State Laws Regarding Provision of Medicine and Insurance. The laws of many
states prohibit physicians from splitting fees with non-physicians and prohibit
non-physician entities from practicing medicine. These laws vary from state to
state and are enforced by the courts and by regulatory authorities with broad
discretion. Although the Company believes its operations as currently conducted
are in material compliance with existing applicable laws, many aspects of the
Company's business operations, including the unique structure of the
relationship between the Company and physicians, have not been the subject of
state or federal regulatory interpretation. There can be no assurance that
review of the Company's business by courts or regulatory authorities will not
result in determinations that could adversely affect the operations of the
Company or that the health care regulatory environment will not change so as to
restrict the Company's existing operations or their expansion. In addition,
expansion of the operations of the Company to certain jurisdictions may require
structural and organizational modifications of the Company's form of
relationships with physician groups, which could have an adverse effect on the
Company.

Most states have laws regulating insurance companies and HMOs. The Company
is not qualified in any state to engage in the insurance or HMO businesses. As
the managed care business evolves, state regulators may begin to scrutinize the
practices of, and relationships between, third-party payers, medical service
providers and entities providing management and other services to medical
service providers with respect to the application of insurance and HMO laws and
regulations. The Company does not believe that its practices, which are
consistent with those of other health care companies, would subject it to such
laws and regulations. However, given the limited regulatory history with respect
to such practices, there can be no assurance that states will not attempt to
assert jurisdiction. The Company may be subject to prosecution by state
regulatory agencies, and accordingly may be required to change or discontinue
certain practices which could have a material adverse effect on the Company.

Medicare and Healthcare Reform. Because the Medicare program represents a
substantial portion of the federal budget, Congress takes action in almost every
legislative session to modify the Medicare program for the purpose of reducing
the amounts otherwise payable by the program to health care providers in order
to achieve deficit reduction targets, among other reasons. Legislation or
regulations may be enacted in the future that may significantly modify the ESRD
program or substantially reduce the amount paid for the Company's

22
<PAGE> 23

services. Further, statutes or regulations may be adopted which impose
additional requirements in order for the Company to be eligible to participate
in the federal and state payment programs. Such new legislation or regulations
may adversely affect the Company's business operations.

Other Regulations. The Company's operations are subject to various state
hazardous waste disposal laws. Those laws as currently in effect do not classify
most of the waste produced during the provision of dialysis services to be
hazardous, although disposal of non-hazardous medical waste is also subject to
regulation. OSHA regulations require employers of workers who are occupationally
subject to blood or other potentially infectious materials to provide those
workers with certain prescribed protections against bloodborne pathogens. The
regulatory requirements apply to all healthcare facilities, including dialysis
facilities, and require employers to make a determination as to which employees
may be exposed to blood or other potentially infectious materials and to have in
effect a written exposure control plan. In addition, employers are required to
provide hepatitis B vaccinations, personal protective equipment, infection
control training, post-exposure evaluation and follow-up, waste disposal
techniques and procedures, and engineering and work practice controls. Employers
are also required to comply with certain record-keeping requirements. The
Company believes it is in material compliance with the foregoing laws and
regulations.

Some states have established certificate of need ("CON") programs
regulating the establishment or expansion of health care facilities, including
dialysis facilities. The CON laws formerly applicable to freestanding dialysis
facilities in seven of the eight states in which the Company operates dialysis
facilities (Arizona, California, Florida, Louisiana, New Mexico, Texas and
Virginia) have been repealed or have lapsed and have not been re-enacted.

The Company believes it is in material compliance with current applicable
laws and regulations. No assurance can be made that in the future the Company's
business arrangements, past or present, will not be the subject of an
investigation or prosecution by a federal or state governmental authority. Such
investigation could result in any, or any combination, of the penalties
discussed above depending upon the agency involved in such investigation and
prosecution. None of the Company's business arrangements with physicians,
vendors, patients or others have been the subject of investigation by any
governmental authority. No assurance can be given that the Company's activities
will not be reviewed or challenged by regulatory authorities. The Company
monitors legislative developments and would seek to restructure a business
arrangement if the Company determined that one or more of its business
relationships placed it in material noncompliance with such a statute. The
health care service industry will continue to be subject to substantial
regulation at the federal and state levels, the scope and effect of which cannot
be predicted by the Company. Any loss by the Company of its various federal
certifications, its authorization to participate in the Medicare and Medicaid
programs or its licenses under the laws of any state or other governmental
authority from which a substantial portion of its revenues are derived would
have a material adverse effect on its business.

INSURANCE

The Company carries insurance for property damage, public liability and
malpractice covering all of its businesses. The public liability and malpractice
coverage limits are $40 million for each loss occurrence. The all risk property
insurance coverage limits are $10 million based on replacement cost for each
loss occurrence. The loss occurrence limit includes separate annual aggregate
sublimits for earthquake and flood damage of $5 million each for California and
$5 million each for all other states. The Company believes that its insurance
coverage is adequate.

EMPLOYEES

As of November 30, 1994, the Company had approximately 3,490 employees.
Employees at one of the Company's dialysis facilities (representing less than 1%
of total employees) are covered by a union agreement. The Company considers its
labor relations to be satisfactory.

23
<PAGE> 24

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors, executive officers and key personnel of the Company and
their ages are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Kent J. Thiry........................ 39 President and Chief Executive Officer and Director
Michael W. Castaldi.................. 51 Senior Vice President, National Dialysis Operations
David P. Barry....................... 36 Vice President, Dialysis Services
Ernest A. Blackwelder................ 35 Vice President, Specialty Partners
William H. Malkmus................... 60 Secretary and Treasurer
Sheri L. Medina...................... 33 President, South Coast Rehabilitation Services
John H. Morse........................ 52 Vice President, Physician Practice Management
Robert A. Prosek..................... 51 Vice President, Asthma Allergy Care Services
Ronald G. Perkins.................... 42 Vice President, Diabetes Management Services
LeAnne M. Zumwalt.................... 36 Vice President, Finance and Director
David G. Connor, M.D................. 54 Director
Richard B. Fontaine.................. 51 Director
John M. Nehra........................ 46... Director
Stephen G. Pagliuca.................. 39 Director
</TABLE>

Mr. Thiry was appointed as President and Chief Executive Officer in
September 1992. From April through August 1992, he was President and Co-Chief
Executive Officer; and from September 1991 through March 1992, President and
Chief Operating Officer. From 1983 through 1991, he was a Senior Consultant,
then Vice President, Director of U.S. Health Care Consulting, Bain & Company,
Inc., San Francisco, California.

Mr. Castaldi was appointed as Senior Vice President, National Dialysis
Operations in June 1989. In December 1989, he was appointed President of
Community Dialysis Centers, a subsidiary of the Company. From 1985 through 1989,
he was Vice President, then Senior Vice President, Community Psychiatric
Centers, and was responsible for dialysis operations. During 1995, Mr. Castaldi
intends to relocate to Philadelphia and reduce his responsibility for the
day-to-day operations of the dialysis business. The Company anticipates that Mr.
Castaldi's future responsibilities will focus on corporate development.

Mr. Barry was appointed as Vice President of Vivra in May 1992. In December
1993, he became President, Nephrology Services, responsible for specialty
dialysis services. From May 1992 through November 1993, he was President,
Personal Care Health Services, and was responsible for operations of the home
health care business. From 1984 through 1992, he was employed by Homedco, an
infusion therapy company, and became District Manager for California in 1990.

Mr. Blackwelder was appointed President of Specialty Partners of America in
August 1994 and Vice President of Vivra in November 1994, in charge of the
ambulatory surgery business. From 1991 to 1994, he was District Manager and
Assistant to the President of BMC West Corporation, a building supply company,
and prior to that, from 1988 to 1991, was a consultant with Bain & Company,
specializing in the health care industry.

Mr. Malkmus has been Secretary and Treasurer since August 1989. From 1988
through 1989, he was Principal, Malkmus & Associates, financial consultants.
From 1986 through 1987, he was Vice President at Swergold, Chefitz & Sinsabaugh,
investment bankers, San Francisco, California.

Ms. Medina is president of South Coast Rehabilitation Services, which she
founded in 1988. Prior to founding SCRS she was an independent speech
pathologist.

Mr. Morse was appointed Vice President of Vivra and President of Vivra
Physician Services in April 1994. Previously, he had been a senior executive
with Humana, Inc. for 22 years.

24
<PAGE> 25

Mr. Perkins was appointed as Vice President of Vivra and President of
Health Advantage, Inc., in May 1992, responsible for diabetes management
services business. From 1987 through 1992, he was founder and President of
Health Advantage, Inc., Nashville, Tennessee.

Mr. Prosek was appointed Vice President of Vivra in December 1994 and
President of Asthma and Allergy CareAmerica. He was previously President of
AllergyClinics of America during 1994, and from 1991 to 1993 was President of
Care Partners, a homecare company. From 1989 to 1991, he was President of
PSICOR, provider of contract clinical services for cardiac surgery.

Ms. Zumwalt joined Vivra in 1991 and was appointed Vice President, Finance
in November 1993 and a Director in November 1994. Prior thereto, she was a
senior audit manager with Ernst & Young.

Dr. Connor, M.D. has been a physician in private practice in Daly City,
California since 1973, specializing in nephrology and internal medicine. He has
been Medical Director of the Company's dialysis center in Daly City, California,
since 1977. From 1986-1988, he was President of the Medical Staff of Seton
Medical Center, a general hospital in Daly City, California.

Mr. Fontaine has been an independent health care consultant since 1992.
From 1988 through 1992, he was Senior Vice President of CR&R Incorporated, a
waste management company. From 1984 through 1989, he was Vice President,
Business Development, of Caremark, Inc., a health care company.

Mr. Nehra has been Managing General Partner of Catalyst Ventures L.P., a
venture capital partnership, since 1989. From 1983 through 1989, he was Managing
Director of Alex. Brown & Sons, Incorporated, an investment banking firm, and
was responsible for its Capital Markets Group, including health care corporate
finance.

Mr. Pagliuca has been Managing General Partner of Information Partners, a
venture capital firm, since 1989. From 1986 through 1989, he was Vice President
of Bain & Company.

COMPENSATION OF EXECUTIVE OFFICERS

The following table shows the cash compensation paid during fiscal 1994 by
the Company to its five most highly compensated current executive officers:

<TABLE>
<CAPTION>
ANNUAL CASH COMPENSATION
-------------------------
NAME AND PRINCIPAL POSITIONS SALARY BONUS
----------------------------------------------------------- -------- --------
<S> <C> <C>
Kent J. Thiry.............................................. $225,000 $200,000(1)
President and Chief Executive Officer
Michael W. Castaldi........................................ $178,000 $160,000
Senior Vice President
David P. Barry............................................. $115,000 $121,000
Vice President
Ronald G. Perkins.......................................... $140,500 $ 33,000
Vice President
LeAnne M. Zumwalt.......................................... $108,000 $ 60,000
Vice President
</TABLE>

- ---------------
(1) Mr. Thiry also received contingent cash bonuses of $100,000 and $200,000 for
fiscal years 1992 and 1993, respectively, which will be paid after November
30, 1996, if the Company's earnings per share as of that date represent a
17.5% compound annual growth rate over earnings per share reported for
fiscal 1992.

25
<PAGE> 26

STOCK OWNERSHIP OF EXECUTIVE OFFICERS

The following table shows the stock ownership and options held by the five
most highly compensated current executive officers:

<TABLE>
<CAPTION>
SHARES OWNED VESTED OPTIONS TOTAL OPTIONS EXERCISE PRICE RANGE
------------ -------------- ------------- --------------------
<S> <C> <C> <C> <C>
Kent J. Thiry.................... -- 323,000 633,000 $ 14.83-$27.75
Michael W. Castaldi.............. -- 122,400 219,000 $ 15.83-$17.75
David P. Barry................... -- 35,500 93,250 $ 15.83-$27.75
Ronald G. Perkins................ 10,478 39,375 52,500 $18.67
LeAnne M. Zumwalt................ 751 19,075 49,500 $ 16.67-$27.75
</TABLE>

SELLING STOCKHOLDER

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock and options to purchase the Company's
Common Stock as of November 30, 1994 and as adjusted to reflect the sale of
shares offered hereby by the Selling Stockholder:

<TABLE>
<CAPTION>
SHARES
OFFERED
----------
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING OFFERING
------------------------ ------------------------
NAME AND PRINCIPAL POSITIONS NUMBER PERCENT(1) NUMBER PERCENT(1)
- ----------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Kent J. Thiry...................... 323,000 1.5% 75,000 248,000 1.1%
President and Chief Executive
Officer
</TABLE>

- ---------------

(1) The number of shares of Common Stock deemed outstanding prior to this
offering includes 21,134,000 shares of Common Stock outstanding as of
November 30, 1994. The number of shares of Common Stock deemed outstanding
after this offering includes an additional 1,725,000 shares of Common Stock
which are being offered for sale by the Company in this offering.

26
<PAGE> 27

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Dean Witter Reynolds Inc. and Montgomery
Securities, have severally agreed to purchase from the Company and the Selling
Stockholder the following respective numbers of shares of Common Stock at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated................................................... 500,000
Dean Witter Reynolds Inc.......................................................... 500,000
Montgomery Securities............................................................. 500,000
Dain Bosworth Incorporated........................................................ 75,000
C.L. King & Associates, Inc....................................................... 75,000
Smith Barney Inc.................................................................. 75,000
Volpe, Welty & Company............................................................ 75,000
---------
Total........................................................................... 1,800,000
========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.

The Company and the Selling Stockholder have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $.92 per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $.10 per share to certain
other dealers. After the public offering, the offering price and other selling
terms may be changed by the Representatives of the Underwriters.

The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 270,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 1,800,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 1,800,000 shares are being offered.

The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.

Officers and directors of the Company have agreed not to offer, sell or
otherwise dispose of any such Common Stock for a period of 90 days after the
date of this Prospectus without the prior consent of Alex. Brown & Sons
Incorporated.

27
<PAGE> 28

LEGAL MATTERS

Certain matters with respect to the legality of the securities offered
hereby will be passed upon for the Company by Pillsbury Madison & Sutro, Menlo
Park, California. Certain legal matters in connection with the securities
offered hereby are being passed upon for the Underwriters by Latham & Watkins,
Costa Mesa, California.

EXPERTS

The consolidated financial statements of the Company appearing in this
Prospectus for the three years ended November 30, 1994 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included herein. Such consolidated financial statements have been included in
reliance on the authority of their report as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed a Registration Statement on Form S-3 (of which this
Prospectus is a part) with respect to the shares of Common Stock offered hereby
(the "Shares") under the Securities Act of 1933, as amended, with the
Commission. This Prospectus does not contain all of the information in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For information about the Shares
and the Company, reference is made to the Registration Statement, including the
financial statement schedules and exhibits incorporated by reference therein and
filed as part thereof. Information omitted from this Prospectus but contained in
the Registration Statement may be obtained from the Commission in the manner
described below.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the Commission's regional offices located at 75 Park
Place, 14th Floor, New York, New York 10007 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60621, and at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, on which exchange the
Company's Common Stock is listed. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.

28
<PAGE> 29

VIVRA INCORPORATED AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2

Financial Statements:
Consolidated Statement of Earnings.................................................. F-3
Consolidated Balance Sheet.......................................................... F-4
Consolidated Statement of Stockholders' Equity...................................... F-5
Consolidated Statement of Cash Flow................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>

F-1
<PAGE> 30

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Vivra Incorporated

We have audited the accompanying consolidated balance sheets of Vivra
Incorporated and subsidiaries as of November 30, 1994 and 1993 and the related
consolidated statements of earnings, stockholders' equity, and cash flow for
each of the three years in the period ended November 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Vivra
Incorporated and subsidiaries at November 30, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 1994, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

January 23, 1995
Los Angeles, California

F-2
<PAGE> 31

VIVRA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
REVENUES
Operating revenues......................................... $284,649 $216,760 $162,255
Other income............................................... 1,870 1,221 1,498
-------- -------- --------
286,519 217,981 163,753
COSTS AND EXPENSES
Operating.................................................. 188,529 148,046 111,722
General and administrative (Note 9)........................ 37,495 20,722 14,113
Depreciation............................................... 9,552 7,196 4,864
Interest (principally on long-term debt)................... 523 912 872
-------- -------- --------
Total costs and expenses......................... 236,099 176,876 131,571
-------- -------- --------
Earnings from continuing operations before income taxes and
Minority interest........................................ 50,420 41,105 32,182
Minority interest.......................................... (10)
-------- -------- --------
Earnings from continuing operations before income taxes.... 50,410 41,105 32,182
Income taxes (Note 6)...................................... 20,668 17,263 13,195
-------- -------- --------
Net earnings from continuing operations.................... 29,742 23,842 18,987
Earnings from discontinued operations, less applicable
taxes (Note 4)........................................... 554 152
Gain on sale of discontinued operations, less applicable
taxes (Note 4)........................................... 697
-------- -------- --------
Net earnings............................................... $ 30,439 $ 24,396 $ 19,139
======== ======== ========
Earnings per share:
Continuing operations.................................... $1.45 $1.19 $.97
Discontinued operations.................................. $ .03 $.01
Gain on sale of discontinued operations.................. $ .03
----- ----- ----
Net earnings............................................... $1.48 $1.22 $.98
Fully diluted:
Continuing operations.................................... $1.45 $1.19 $.97
Discontinued operations.................................. $ .03 $.01
Gain on sale of discontinued operations.................. $ .03
----- ----- ----
Net earnings............................................... $1.48 $1.22 $.98
Average number of shares:
Primary.................................................. 20,556 20,050 19,526
Fully diluted............................................ 20,556 20,073 19,542
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 32

VIVRA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
ASSETS 1994 1993
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Current assets
Cash and cash equivalents............................................ $ 79,509 $ 52,535
Accounts receivable, less allowance for doubtful accounts
(1994 -- $10,321 and 1993 -- $7,527).............................. 51,353 45,089
Prepaid expenses and other current assets............................ 7,348 5,809
Deferred income taxes (Note 6)....................................... 10,674 6,002
Assets held for sale (Note 4)........................................ 3,727
-------- --------
Total current assets......................................... 148,884 113,162
Property, buildings and equipment -- at cost, less allowances for
depreciation (Notes 5 and 7)......................................... 65,972 54,444
Other assets........................................................... 5,335 2,131
Goodwill............................................................... 55,816 37,741
-------- --------
$276,007 $207,478
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable..................................................... $ 9,833 $ 4,184
Accrued payroll and related benefits................................. 23,073 14,954
Other accrued expenses............................................... 10,466 2,481
Income taxes (Note 6)................................................ 1,769 605
Current maturities of long-term debt (Note 7)........................ 6,499 2,604
-------- --------
Total current liabilities.................................... 51,640 24,828
Long-term debt -- exclusive of current maturities (Note 7)............ 4,938 4,179
Deferred income taxes (Note 6)......................................... 6,184 5,886
Minority interest...................................................... 1,391 318
Stockholders' equity (Note 8):
Common Stock, par value $.01 per share; authorized 80,000,000 shares;
issued 20,811,000 shares in 1994 and 19,995,000 in 1993........... 208 200
Additional paid-in capital........................................... 54,891 45,782
Retained earnings.................................................... 156,755 126,285
-------- --------
211,854 172,267
-------- --------
$276,007 $207,478
======== ========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 33

VIVRA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
TREASURY STOCK
COMMON ADDITIONAL RETAINED ------------------
STOCK PAID-IN CAPITAL EARNINGS SHARES AMOUNT
------ --------------- -------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 1, 1991........... $123 $34,897 $ 83,215
Exercise of employees' stock options,
net of treasury stock transactions
(Note 8)............................ 2 283 42 $(1,198)
Income tax benefits derived from
employee stock option
transactions........................ 1,778
Stock issued in connection with
acquisitions (Note 3)............... 2 3,632 (998)
Net earnings for year................. 19,139
------ --------------- -------- ------ -------
Balance at November 30, 1992.......... 127 40,590 101,356 42 (1,198)
Common Stock split effected by
three-for-two distribution (Note
8).................................. 64 (103) 21
Cash paid in lieu of issuance of
fractional shares................... (12)
Exercise of employees' stock options,
net of treasury stock transactions
(Note 8)............................ 5 2,522 (63) 1,198
Income tax benefits derived from
employee stock option
transactions........................ 2,776
Stock issued in connection with
acquisitions (Note 3)............... 4 9 533
Net earnings for year................. 24,396
------ --------------- -------- ------ -------
Balance at November 30, 1993.......... 200 45,782 126,285
Exercise of employees' stock options,
net of treasury stock transactions
(Note 8)............................ 6 4,163
Income tax benefits derived from
employee stock option
transactions........................ 3,514
Stock issued in connection with
acquisition (Note 3)................ 2 1,432 31
Net earnings for year................. 30,439
------ --------------- -------- ------ -------
Balance at November 30, 1994.......... $208 $54,891 $156,755
====== =========== ======== ===== =======
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 34

VIVRA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings............................................... $ 30,439 $ 24,396 $ 19,139
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................ 11,473 8,400 5,990
Assets held for sale..................................... (3,261)
Gain on sale of discontinued operations.................. (1,229)
Loss on sale of property and investments................. 1,061 1 671
Other.................................................... (3,626) (81) 936
Changes in assets and liabilities:
Accounts receivable................................... (1,428) (3,610) 529
Prepaid expenses and other current assets............. (942) (57) (1,948)
Deferred income taxes................................. (4,039) (2,094) (568)
Accounts payable...................................... (818) (44) (511)
Accrued payroll and related benefits.................. 6,430 3,416 5,367
Other accrued expenses................................ 4,761 1,071 532
Income taxes.......................................... 1,129 380 (853)
-------- -------- --------
Net cash flow from operations.................... 43,211 28,517 29,284

FINANCING ACTIVITIES
Payments on long-term debt................................. (3,632) (1,494) (847)
Proceeds from long-term borrowing.......................... 2,838
Proceeds from exercise of stock options and related
transactions............................................. 7,683 6,451 857
-------- -------- --------
Net cash flow from financing..................... 6,889 4,957 10

INVESTING ACTIVITIES
Purchase of property, buildings and equipment.............. (20,524) (12,055) (9,377)
Purchase of marketable securities.......................... (485)
Proceeds from sale of property, buildings and equipment.... 193 14 364
Proceeds from sale of discontinued operations.............. 6,238
Proceeds from investments in partnerships.................. 1,627 1,097
Proceeds from sale of marketable securities................ 1,645
Minority interest investment............................... (1,500)
Payment for business acquisitions, net of cash acquired.... (9,160) (9,885) (23,911)
-------- -------- --------
Net cash flow used in investing.................. (23,126) (20,829) (31,764)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 26,974 12,645 (2,470)
Beginning cash and cash equivalents........................ 52,535 39,890 42,360
-------- -------- --------
Ending cash and cash equivalents........................... $ 79,509 $ 52,535 $ 39,890
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 35

VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiaries. In December 1993, the Company sold its home healthcare
nursing business, Personal Care Health Services, and accordingly, its assets and
liabilities as of November 30, 1993 are shown as net assets held for sale. The
related gain on the sale is shown separately in 1994 under discontinued
operations. The 1993 and 1992 results of operations for the home healthcare
nursing business are shown separately under discontinued operations, with the
Consolidated Statement of Earnings restated for comparative purposes. All
significant intercompany transactions have been eliminated in the accompanying
consolidated financial statements.

Goodwill

Goodwill resulting from acquisitions is being amortized on a straight-line
basis over 30-40 years.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Financial Instruments

Financial instruments that potentially subject the Company to significant
concentrations of credit or valuation risk consist of cash investments, accounts
receivable and long-term debt.

The Company's cash is invested primarily in a tax-free municipal money
market fund which consists of a diversified portfolio of short-term investment
grade bonds. Management believes there is limited credit risk associated with
this investment due to the diversity and liquidity of this fund.

The Company's accounts receivable are due primarily from the Medicare and
Medicaid programs; as such, management does not believe they present any
significant credit risk.

The carrying amount reported in the balance sheet for cash and cash
equivalents represents fair value.

Property, Buildings and Equipment

Depreciation is computed on the straight-line method based on the estimated
useful lives of buildings or items of equipment.

Preopening Costs

Costs incurred prior to the opening of new facilities are deferred and
amortized on a straight-line basis over a three-year period.

Operating Revenues

Operating revenues include amounts for services reimbursable by Medicare,
Medicaid, certain Blue Cross and other third-party payers under reimbursement
formulas in effect. Operating revenues are recorded net of any related
contractual allowances. Medicare and Medicaid provided approximately 61% of the
Company's operating revenues in fiscal year 1994, of which 60% was for dialysis
and related pharmacy services and 1% was for ambulatory surgery services. The
balance of revenues, approximately 39%, was from insurance, private and other
third-party payers.

Stock Options

Proceeds from the exercise of stock options are credited to Common Stock to
the extent of par value, and the balance to additional paid-in capital. No
charges or credits are made to earnings with respect to options granted or
exercised. Income tax benefits derived from the exercise of non-incentive stock
options and from

F-7
<PAGE> 36

VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994

sales of stock obtained from incentive stock options before the minimum holding
period are credited to additional paid-in capital.

Earnings Per Share

Earnings per share have been computed based upon the weighted average
number of shares of Common Stock outstanding during each year after adjusting
for stock splits and giving effect for Common Stock equivalents arising from
stock options.

2. MARKETABLE SECURITIES

Other income includes net realized losses of $496,000 on security
transactions for the year ended November 30, 1992.

3. ACQUISITIONS

During 1994, the Company acquired five dialysis centers, four in Louisiana
and one in Florida. Total consideration paid was $4,285,000, consisting of cash
of $763,000 and 170,518 shares of the Company's Common Stock, which exceeded the
fair value of assets acquired by approximately $1,810,000.

Also during 1994, the Company acquired eight physician practice and related
businesses. Total consideration paid was $8,759,000, consisting of cash of
$6,559,000 and 86,695 shares of the Company's Common Stock, which exceeded the
fair value of assets acquired by approximately $6,218,000.

In January 1994, the Company purchased a 60% interest in South Coast
Rehabilitation Services, a contract provider of occupational, speech and
physical therapies for skilled nursing and sub-acute facilities, for $3,620,000
in cash, which exceeded the fair value of assets acquired by $3,864,000. The
purchase agreement entitles the selling shareholders to receive further
consideration based upon meeting predetermined earnings targets in the years
1994 through 1997. The 1994 earnings target was not met, therefore, no earnout
payment was made.

In November 1994, the Company purchased certain assets and liabilities of
Allergy Clinics of America, Inc., a provider of outpatient asthma allergy care.
Total consideration paid was $4,750,000, consisting of cash of $1,258,000 and
140,401 shares of the Company's Common Stock, which exceeded the fair value of
assets acquired by approximately $2,088,000. The purchase agreement entitles the
selling shareholders to receive further consideration based upon meeting
predetermined earnings targets in the years 1995 through 1998.

During 1993, the Company acquired six dialysis centers, four in California
and two in Texas. Total consideration paid was $17,900,000, consisting of cash
of $9,900,000 and 442,500 shares of the Company's Common Stock, which exceeded
the fair value of assets acquired by approximately $9,200,000.

During 1992, the Company acquired 11 dialysis centers, five in California,
two in North Carolina, and one each in Connecticut, Georgia, Maryland and
Washington, D.C. Total consideration paid was $16,387,000, consisting of cash of
$14,755,000 and 83,892 shares of the Company's Common Stock, which exceeded the
fair value of assets acquired by approximately $14,689,000.

Effective April 1992, the Company acquired 100% of the outstanding capital
stock of Health Advantage, Inc., a diabetes management company, in exchange for
224,073 shares of the Company's Common Stock with an aggregate market value of
approximately $4,400,000.

In June 1992, the Company acquired all of the outstanding capital stock of
a surgery center located in Auburn, Washington, for 66,453 shares of the
Company's Common Stock with an aggregate market value of approximately
$1,329,000.

F-8
<PAGE> 37

VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994

In July 1992, the Company purchased all of the net assets, including land
and buildings, of a surgery center located in Bakersfield, California, for
approximately $9,150,000, which exceeded the fair value of assets acquired by
approximately $5,860,000.

The acquisitions of three dialysis centers in 1994, in addition to one
physician practice, two dialysis centers in 1993, in addition to Health
Advantage, Inc., and the Auburn Washington, surgery center in 1992 have been
accounted for as poolings of interest. Consolidated Financial Statements for the
periods prior to the exchanges have not been restated as the effect of the
poolings were not material to the Company.

The acquisitions of the remaining two dialysis centers, seven physician
practice businesses, the rehabilitation therapy and asthma allergy businesses in
1994, the four dialysis centers in 1993, all the dialysis centers acquired in
1992, and the surgery center in Bakersfield, California, in 1992 have all been
accounted for as purchases and, accordingly, have been included in the statement
of earnings since their dates of acquisition. For the 1994 acquisitions,
including the poolings of interest, the results of operations prior to the dates
of acquisition were not material to the Consolidated Financial Statements.

4. DISCONTINUED OPERATIONS

In December 1993, the Company sold its home healthcare nursing business,
Personal Care Health Services, to National Medical Care, a wholly-owned
subsidiary of W.R. Grace & Co. The cash proceeds net of retained assets,
liabilities and taxes were approximately $5,900,000. Accordingly, the home
healthcare nursing business has been classified as a discontinued operation in
the accompanying Consolidated Statement of Earnings.

Net assets held for sale in the accompanying Consolidated Balance Sheet are
composed of $3,225.000 net current assets and $502,000 of net noncurrent assets
as of November 30, 1993. These amounts consist primarily of accounts receivable,
furniture and equipment and related liabilities.

The sale of home healthcare nursing business resulted in a gain on the sale
of discontinued operations in the accompanying Consolidated Statement of
Earnings of $697,000, net of applicable income tax of $505,000, in 1994.

Revenues applicable to discontinued operations were $17,716,000 and
$18,624,000 in 1993 and 1992, respectively. Earnings from discontinued
operations in the accompanying Consolidated Statement of Earnings were $554,000
and $152,000, net of applicable income tax of $402,000 and $107,000, in 1993 and
1992, respectively.

F-9
<PAGE> 38

VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994

5. PROPERTY, BUILDINGS AND EQUIPMENT

Property, buildings and equipment are summarized as follows:

<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land................................................... $ 6,450 $ 5,976
Buildings and improvements............................. 38,290 34,619
Furniture, fixtures and equipment...................... 63,499 47,287
Construction in progress (estimated costs to complete
at November 1994 -- $2,185,000)...................... 1,006 587
-------- --------
109,245 88,469
Less accumulated depreciation.......................... (43,273) (34,025)
-------- --------
$ 65,972 $ 54,444
======== ========
</TABLE>

6. INCOME TAXES

Effective December 1, 1993, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 109, Accounting for Income Taxes, which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets. There was no cumulative effect of the change in the
method of accounting for income taxes.

The following deferred tax assets and liabilities included deferred
liabilities totaling $250,000 which were acquired as part of the Company's 1994
acquisitions. Significant components of the Company's deferred tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>
NOVEMBER 30,
------------------
1994 1993
------- ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................... $ 4,434 $2,453
Accrued compensation.................................... 2,250 1,132
Accrued workers compensation insurance.................. 1,633 535
Accrued healthcare costs................................ 1,062 932
Other assets............................................ 1,295 950
------- ------
Total deferred tax assets................................. 10,674 6,002
Deferred tax liabilities:
Amortization of intangibles............................. 3,241 3,569
Depreciation............................................ 2,086 2,144
Other liabilities....................................... 857 173
------- ------
Total deferred tax liabilities............................ 6,184 5,886
------- ------
Net deferred tax assets................................... $ 4,490 $ 116
======= ======
</TABLE>

F-10
<PAGE> 39

VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994

Income tax expense from continuing operations consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................... $19,920 $14,114 $10,280
State....................................... 5,372 3,753 2,657
Deferred (credit)............................. (4,624) (604) 258
------- ------- -------
$20,668 $17,263 $13,195
======= ======= =======
</TABLE>

Deferred income taxes result from timing differences in the recognition of
certain revenues and expenses for tax and financial statement purposes. The tax
effects of these differences are:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Amortization of intangibles................... $ 606 $ 1,297 $ 929
Provision for doubtful accounts in excess of
amounts written off......................... (1,537)
Accrued compensation.......................... (1,118)
Accrued workers compensation insurance........ (1,098)
Health insurance reserves in excess of claims
paid........................................ (129) (912)
Other......................................... (1,348) (989) (671)
------- ------- -------
$(4,624) $ (604) $ 258
======= ======= =======
</TABLE>

The differences between federal income taxes computed at the statutory rate
and the total provision are:

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rate........ $17,643 $14,387 $10,942
State taxes on income, net of federal tax
benefit..................................... 2,937 2,328 1,754
Miscellaneous items........................... 88 548 499
------- ------- -------
$20,668 $17,263 $13,195
======= ======= =======
</TABLE>

The Company made income tax payments, net of refunds received, of
$20,629,000, $14,523,000 and $11,727,000 in 1994, 1993 and 1992, respectively.

F-11
<PAGE> 40

VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994

7. LONG-TERM DEBT

Long-term debt at November 30, 1994, consists of the following:

<TABLE>
<CAPTION>
PRINCIPAL DUE INSTALLMENTS DUE
WITHIN ONE YEAR AFTER ONE YEAR
--------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
8 1/2% Subordinated Guaranteed Debenture due
1995........................................... $ 4,138
Physician notes payable, collateralized by deeds
of trust on physician practice assets with a
cost of approximately $5,055,000, interest
ranging from 5 1/2% to 8%, due through 2000.... 2,063 $2,154
Notes payable, collateralized by deeds of trust
on land, buildings and equipment with a cost of
approximately $3,200,000, interest ranging from
7 1/4% to 13 1/2%, due through 2004............ 298 2,784
------- -------
$ 6,499 $4,938
============ ============
</TABLE>

Interest paid was $433,000, $820,000 and $681,000 in 1994, 1993 and 1992,
respectively.

The approximate annual maturities of long-term debt at November 30, 1994,
are as follows:

<TABLE>
<CAPTION>
YEAR ENDING NOVEMBER 30, (IN THOUSANDS)
<S> <C>
1995................. $6,499
1996................. 915
1997................. 1,039
1998................. 713
1999................. 537
</TABLE>

8. CAPITAL STOCK AND STOCK OPTIONS

The Company declared a three-for-two stock split for shareholders of record
on November 10, 1993, with shares distributed on November 29, 1993. The number
of shares and the earnings per share shown in the Consolidated Financial
Statements, as well as information in this Note and Note 12, have been restated
to reflect the stock split.

The Company has three stock option plans under which stock options may be
granted.

The Company's 1989 Stock Incentive Plan provides for the granting of
options to purchase Common Stock to officers and other employees. Options may be
granted at not less than 100% of fair market value at the date of grant and are
exercisable at various dates and expire no more than 10 years after the date of
grant. Options may be paid for in cash or by the return of previously acquired
shares of Common Stock. Shares acquired by the Company through option exercises
were 77,378 in 1994, 61,347 in 1993 and 199,380 in 1992. These shares were
included in treasury stock and were valued at market at the date of exercise.
Treasury shares issued in lieu of Common Stock to effect stock option exercises
were 77,378 in 1994, 124,685 in 1993 and 136,042 in 1992.

As of November 30, 1994, 3,464,156 options had been granted, of which
1,014,241 are exercisable and 192,329 remain available for grant.

F-12
<PAGE> 41

VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994

A summary of activity under the plan during 1992, 1993 and 1994 is as
follows:

<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF SHARES PER SHARE OPTION PRICE
--------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Options outstanding at December 1, 1991....... 1,837,762 $ 5.57-17.60 $ 17,862
Options granted............................. 533,625 $16.67-20.00 10,074
Options cancelled and expired............... (15,295) $ 6.00-17.92 (155)
Common Stock issued on exercise............. (389,250) $ 5.57-10.78 (2,927)
--------- ------------ ------------
Options outstanding at November 30, 1992...... 1,966,842 $ 5.57-20.00 24,854
Options granted............................. 484,875 $15.83-23.25 8,387
Options cancelled and expired............... (22,580) $ 5.57-19.33 (377)
Common Stock issued on exercise............. (550,627) $ 5.57-18.67 (4,764)
--------- ------------ ------------
Options outstanding at November 30, 1993...... 1,878,510 $ 6.00-23.25 28,100
Options granted............................. 455,475 $20.00-28.38 11,790
Options cancelled and expired............... (11,340) $ 6.00-17.58 (182)
Common Stock issued on exercise............. (450,353) $ 7.30-20.00 (4,384)
--------- ------------ ------------
Options outstanding at November 30, 1994...... 1,872,292 $ 6.81-28.38 $ 35,324
======== =========== =========
</TABLE>

The market value of the Company's Common Stock at the date the options were
exercised was $19.63-$28.75 for 1994, $15.33-$23.67 for 1993 and $16.84-$25.77
for 1992.

The Company adopted the Transition Consultants Stock Option Plan in
connection with its spin-off from Community Psychiatric Centers on August 31,
1989. On that date options were granted to purchase 877,500 shares of the
Company's Common Stock to four employees of Community Psychiatric Centers at
$8.73, which was the fair market value at that date. As of November 30, 1994,
339,400 shares remain available for exercise, all of which are exercisable.

A summary of activity under the plan during 1992, 1993 and 1994 is as
follows:

<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF SHARES PER SHARE OPTION PRICE
--------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Options outstanding at December 1, 1991 and 1992... 559,875 $8.73 $ 4,888
Common Stock issued on exercise.................. (34,875) $8.73 (305)
--------- --------- ------------
Options outstanding at November 30, 1993........... 525,000 $8.73 $ 4,583
Common Stock issued on exercise.................. (185,600) $8,73 (1,620)
--------- --------- ------------
Options outstanding at November 30, 1994........... 339,400 $8.73 $ 2,963
======== ======= =========
</TABLE>

The market value of the Company's Common Stock at the date the options were
exercised was $18.33-$21.83 for 1993 and $22.00-$29.00 for 1994.

During 1992, the Company established the Surgical Partners of America,
Inc., 1992 Stock Option Plan. The plan provides for the granting of options to
purchase common stock of the Company's subsidiary, Surgical Partners of America,
Inc., to officers and other employees. Options may be granted at not less than
100% of the fair market value at the date of grant and are exercisable at
various dates and expire no more than 10 years after the date of grant. Options
may be paid for in cash or by the return of previously acquired shares of common
stock. Upon exercise, the optionee is entitled at specific junctures to put
shares received under the plan to the Company. The put price shall be the fair
market value on the date of the put.

F-13
<PAGE> 42

VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994

As of November 30, 1994, 384,228 options had been granted, of which 225,772
are exercisable, and 455,772 remain available for grant.

A summary of activity under the plan during 1992, 1993 and 1994 is as
follows:

<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF SHARES PER SHARE OPTION PRICE
--------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Options granted on May 18, 1992.................... 238,430 $ .10 $ 24
Options granted.................................. 145,798 $.50-1.65 174
--------- --------- ------
Options outstanding at November 30, 1992........... 384,228 $.10-1.65 198
Options cancelled and expired.................... (73,442) $.50-1.65 (63)
--------- --------- ------
Options outstanding at November 30, 1993........... 310,786 $.10-1.65 135
Options cancelled and expired.................... (36,232) $.10-1.65 (14)
--------- --------- ------
Options outstanding at November 30, 1994........... 274,554 $.10-1.65 $121
======= ======== =========
</TABLE>

9. PROFIT SHARING AND 401(K) PLAN

The Company's Profit Sharing Plan ("the Plan") is a noncontributory,
trusteed profit sharing plan. All regular non-union employees in the United
States (union employees are eligible if the collective bargaining agreement so
specifies) with at least 1,000 hours of service per annum, over 21 years of age,
and employed at fiscal year-end are eligible for participation in the Plan after
one year of employment. Contributions to the Plan are discretionary and are
determined annually by the Board of Directors. Effective February 1, 1993, the
Plan was amended to add a 401(k) provision. Employees may make voluntary
contributions of up to 10% of their before tax compensation under the 401(k)
provision of the Plan and may also contribute up to an additional 10% of their
after tax compensation in accordance with the original Plan provisions.

Contributions to the Plan by the Company were $3,134,000, $1,574,000 and
$1,021,000 for 1994, 1993 and 1992, respectively.

10. BUSINESS SEGMENT INFORMATION

The Company is engaged in two principal business segments, Chronic Services
and Other Services. Chronic Services consists of the dialysis, diabetes
management, asthma allergy care and specialty pharmacy services businesses.
Other Services consists of the rehabilitation therapy, ambulatory surgery and
physician practice management businesses.

F-14
<PAGE> 43

VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994

The following tables have been prepared in accordance with the requirements
of FASB Statement No. 14. This information has been derived from the Company's
accounting records and represents the Company's estimates as to proper
allocation of certain expenses.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues:
Chronic Services......................................... $257,441 $210,533 $160,152
Other Services........................................... 27,208 6,227 2,103
-------- -------- --------
Total operating revenues.............................. $284,649 $216,760 $162,255
======== ======== ========
Operating profit:
Chronic Services......................................... $ 54,616 $ 44,500 $ 35,179
Other Services........................................... (790) 199 (663)
-------- -------- --------
Total operating profit................................ $ 53,826 $ 44,699 $ 34,516
Other income............................................... 1,870 1,221 1,498
Corporate expenses......................................... (4,753) (3,903) (2,960)
Interest expense........................................... (523) (912) (872)
-------- -------- --------
Earnings from continuing operations before income
taxes and minority interest......................... $ 50,420 $ 41,105 $ 32,182
======== ======== ========
Identifiable assets:
Chronic Services......................................... $158,783 $135,390 $109,714
Other Services........................................... 26,044 12,278 10,751
Assets held for sale/Home Nursing Services............... 3,727 6,207
Corporate................................................ 91,180 56,083 43,503
-------- -------- --------
$276,007 $207,478 $170,175
======== ======== ========
</TABLE>

<TABLE>
<S> <C> <C> <C>
Depreciation expense:
Chronic Services......................................... $ 8,710 $ 6,746 $ 4,649
Other Services........................................... 717 337 127
Corporate................................................ 125 113 88
-------- -------- --------
$ 9,552 $ 7,196 $ 4,864
======== ======== ========
Capitalized expenditures for property, buildings and
equipment(1):
Chronic Services......................................... $ 14,949 $ 10,258 $ 9,095
Other Services........................................... 5,519 1,663 136
Home Nursing Services.................................... 107
Corporate................................................ 56 134 39
-------- -------- --------
$ 20,524 $ 12,055 $ 9,377
======== ======== ========
</TABLE>

- ---------------

(1) Excludes assets acquired in business acquisitions of $2,107,000, $1,540,000
and $6,165,000 in 1994, 1993 and 1992, respectively.

F-15
<PAGE> 44

VIVRA INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994

11. COMMITMENTS AND CONTINGENCIES

Commitments

The Company rents office facilities under lease agreements which are
classified for financial statement purposes as operating leases. The future
minimum rental commitments under noncancellable operating leases at November 30,
1994, are summarized below:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1995........................... $ 9,149
1996........................... 7,862
1997........................... 5,902
1998........................... 4,472
1999........................... 3,260
</TABLE>

Total rental expenses amounted to $8,041,000, $6,252,000 and $4,669,000 in
1994, 1993 and 1992, respectively.

Contingencies

On May 20, 1992, in the Pennsylvania Court of Common Pleas in Delaware
County, a complaint was filed against the Company's subsidiary, Community
Dialysis Centers (CDC). In September 1993, the court determined that the suit
could proceed as a class action on behalf of 93 patients, subsequently reduced
to 74, who were treated at one of the CDC facilities, some of whom are alleged
to have died from or have been injured during the course of treatment.
Unspecified compensatory and punitive damages are being claimed. Since May 20,
1992, four other individual actions have been filed asserting similar claims.

The Company's insurer has assumed defense of these actions, and the merit
of the claims and the extent of the damages are still under investigation. As
the investigation is not complete, management is unable to make an informed
judgment as to the ultimate resolution of such proceedings and their impact on
the results of operations; however, it believes insurance coverage is sufficient
to cover any losses likely to result from these actions and therefore any such
claims should not have a material adverse effect on the Company's financial
condition.

The Company is also subject to other claims and suits in the ordinary
course of business. Management believes that insurance is adequate to cover any
such claims and the outcome of such claims should not have a material adverse
effect on the Company's results of operations or financial condition.

F-16
<PAGE> 45

VIVRA INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994

12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a tabulation of the unaudited quarterly data for the three
years ended November 30, 1994.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
FEBRUARY 28/29 MAY 31 AUGUST 31 NOVEMBER 30
-------------- ------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND PRICE DATA)
<S> <C> <C> <C> <C>
1994
Total revenues.................................. $ 63,536 $69,602 $73,887 $77,624
Earnings from continuing operations............. 6,840 7,403 7,678 7,821
Gain on sale of discontinued operations......... 697
-------------- ------- --------- -----------
Net earnings.................................... 7,537 7,403 7,678 7,821
Earnings per share:
Primary:
Continuing operations......................... .34 .36 .37 .38
Gain on sale of discontinued operations....... .03
-------------- ------- --------- -----------
Net earnings.................................. .37 .36 .37 .38
Fully diluted:
Continuing operations......................... .34 .36 .37 .38
Gain on sale of discontinued operations....... .03
-------------- ------- --------- -----------
Net earnings.................................. .37 .36 .37 .38
Stock prices:
High.......................................... 26 26 5/8 25 5/8 29 1/2
Low........................................... 19 5/8 22 3/4 22 3/4 25 1/2
1993
Total revenues.................................. $ 48,693 $52,377 $56,115 $59,575
Earnings from continuing operations............. 5,293 5,862 6,361 6,326
Earnings from discontinued operations........... 84 163 151 156
-------------- ------- --------- -----------
Net earnings.................................... 5,377 6,025 6,512 6,482
Earnings per share:
Primary:
Continuing operations......................... .28 .30 .31(1) .31
Discontinued operations....................... .01 .01 .01
-------------- ------- --------- -----------
Net earnings.................................. .28 .31 .32 .32
Fully diluted:
Continuing operations......................... .28 .30 .31(1) .31
Discontinued operations....................... .01 .01 .01
-------------- ------- --------- -----------
Net earnings.................................... .28 .31 .32 .32
Stock prices:
High.......................................... 19 7/8 18 2/3 23 1/4 23 2/3
Low........................................... 15 1/8 14 7/8 18 18 7/8
</TABLE>

F-17
<PAGE> 46

VIVRA INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994

- ---------------

(1) As a result of rounding and the restatement of earnings from continuing
operations in 1993, year to date third quarter earnings per share from
continuing operations was $.88 rather than $.89.

(2) Earnings related to discontinued operations for 1992 totaled $.01; however,
no individual quarter exceeded $.005.

F-18
<PAGE> 47

- ------------------------------------------------------
- ------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference................................ 2
Prospectus Summary......................... 3
Investment Considerations.................. 4
Use of Proceeds............................ 7
Price Range of Common Stock................ 7
Dividend Policy............................ 7
Capitalization............................. 8
Selected Consolidated Financial
Information.............................. 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 10
Business................................... 13
Management................................. 24
Selling Stockholder........................ 26
Underwriting............................... 27
Legal Matters.............................. 28
Experts.................................... 28
Available Information...................... 28
Index to Consolidated Financial Statements... F-1
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------

1,800,000 SHARES

[LOGO]

COMMON STOCK

-------------------

PROSPECTUS

-------------------

ALEX. BROWN & SONS
INCORPORATED

DEAN WITTER REYNOLDS INC.

MONTGOMERY SECURITIES

February 9, 1995

- ------------------------------------------------------
- ------------------------------------------------------