<PAGE> 1
As filed with the Securities and Exchange Commission on March 15, 1995
Registration No. 33-85736
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
VIVRA INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 8092/8082
(State or other jurisdiction of Incorporation or organization) (Primary Standard Industrial Classification Number)
94-3096645 400 Primrose, Suite 200
(I.R.S. Employer Identification Number) Burlingame, California 94010
(415) 348-8200
(Address, including zip code, and telephone number,
including area code of registrant's principal
executive offices)
</TABLE>
KENT J. THIRY
Director, President and Chief Executive Officer
VIVRA INCORPORATED
400 Primrose, Suite 200, Burlingame, California 94010, (415) 348-8200
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
--------
Copy to:
SCOTT T. SMITH, ESQ.
CHARLES W. OTT, ESQ.
PILLSBURY MADISON & SUTRO
2700 Sand Hill Road
Menlo Park, CA 94025
(415) 233-4500
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Approximate date of commencement of proposed sale to the public:
On a continuous or delayed basis pursuant to Rule 415.
If any of the securities being registered on this Form are to be
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [ ]
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________________________________________________________________________________
<PAGE> 2
VIVRA INCORPORATED
CROSS REFERENCE SHEET
Between Items in Part I of the Registration Statement
(Form S-4) and Prospectus Pursuant to Item 501(b)
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<CAPTION>
Item of Form S-4 Location in Prospectus
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1. Forepart of Registration Statement and Outside Front Cover Page
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Page of Prospectus Inside Front and Outside Back Cover Pages;
Available Information; Incorporation by
Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges and Cover Page; The Company; Selected
Other Information Financial Data; Incorporation by
Reference; Investment Considerations*
4. Terms of the Transaction *
5. Pro Forma Financial Information *
6. Material Contracts with the Company Being Acquired *
7. Additional Information Required for Reoffering by Outstanding Securities Covered by this
Persons and Parties Deemed to be Underwriters Prospectus*
8. Interests of Named Experts and Counsel Experts; Legal Matters
9. Disclosure of Commission Position on Indemnification **
for Securities Act Liabilities
10. Information with Respect to S-3 Registrants The Company; Incorporation by Reference;
Investment Considerations
11. Incorporation of Certain Information by Reference Incorporation by Reference
12. Incorporation with Respect to S-2 or S-3 Registrants **
13. Incorporation of Certain Information by Reference **
14. Information with Respect to Registrants Other than S-3 **
or S-2 Registrants
</TABLE>
__________________
* Inapplicable (or partially inapplicable as indicated) upon filing of
this Registration Statement - may be included in subsequent amendments
under certain circumstances.
** Not applicable or answer is negative.
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<PAGE> 3
<TABLE>
<CAPTION>
Item of Form S-4 Location in Prospectus
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<S> <C> <C>
15. Information with Respect to S-3 Companies **
16. Information with Respect to S-2 or S-3 Companies **
17. Information with Respect to Companies Other than S-2 *
or S-3 Companies
18. Information if Proxies, Consents or Authorizations are *
to be Solicited or in an Exchange Offer
19. Information if Proxies, Consents or Authorizations are *
not to be Solicited or in an Exchange Offer
</TABLE>
__________________
* Inapplicable (or partially inapplicable as indicated) upon filing of
this Registration Statement - may be included in subsequent
amendments under certain circumstances.
** Not applicable or answer is negative.
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<PAGE> 4
2,000,000 SHARES
VIVRA
INCORPORATED
COMMON STOCK
--------
The Prospectus relates to 2,000,000 shares (the "Shares") of common
stock, $.01 par value per share, accompanied by Preferred Stock Purchase Rights
(the "Common Stock"), of Vivra Incorporated (the "Company") which may be
offered and issued by the Company from time to time in the acquisition of other
businesses or properties.
It is anticipated that such acquisitions will consist principally of
additional healthcare service providers and related operations, but on
occasion, an acquired business may be dissimilar to the business of the
Company. The consideration for acquisitions will consist of Shares, cash,
notes or other evidences of debt, assumption of liabilities or a combination
thereof, as determined from time to time by negotiations between the Company
and the owners or controlling persons of the businesses or properties to be
acquired. In addition, the Company may lease property from and enter into
management agreements and competitive and noncompetition agreements with the
former owners and key executive personnel of the businesses to be acquired.
The terms of an acquisition will be determined by negotiations between
the Company's representatives and the owners or controlling persons of the
business or properties to be acquired. Factors taken into account in
acquisitions may include the established quality and reputation of the business
and its management, earning power, cash flow, growth potential, real estate,
equipment, locations of the business to be acquired and the market value of the
Common Stock of the Company when pertinent. It is anticipated that Shares
issued in any such acquisition will be valued at a price reasonably related to
the current market value of the Shares, either at the time the terms of the
acquisition are tentatively agreed upon, or at or about the time of closing, or
during the period or periods prior to delivery of the Shares.
See "Outstanding Securities Covered by this Prospectus" for
information relating to resales pursuant to this Prospectus of Shares issued
under this Registration Statement.
The Common Stock of the Company is listed on the New York Stock
Exchange under the symbol "V". The last reported sale price of the Common
Stock on the New York Stock Exchange on March 13, 1994 was $34.00 per share.
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES CERTAIN RISKS.
SEE "INVESTMENT CONSIDERATIONS."
--------
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.
The date of this Prospectus is March 15, 1995.
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed a Registration Statement (of which this
Prospectus is a part) with respect to the Shares under the Securities Act of
1933, as amended, with the Securities and Exchange Commission (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.
Statements made in this Prospectus as to the contents of any contract,
instrument or other document referred to are not necessarily complete, and
reference is made to the copy of such contract, instrument or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in its entirety by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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.
The Company furnishes to holders of its Common Stock annual reports
containing audited financial statements.
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). In order
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<PAGE> 6
to ensure timely delivery of the documents, any request should be made at least
five business days prior to the date on which the final investment decision
must be made.
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.
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. See "Investment Considerations" and
"Business." As used herein, a "fiscal" year means a year ending November 30.
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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
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<PAGE> 8
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 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."
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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, 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
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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.
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.
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COMMON STOCK PRICE
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HIGH LOW
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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 March 13, 1995) $34 $26 5/8
</TABLE>
On March 13, 1995, the reported last sale price of the Company's
Common Stock on the New York Stock Exchange was $34.00 per share. As of March
13, 1995 there were 1,966 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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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 which have been audited by
Ernst & Young LLP, independent auditors. 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
incorporated herein by reference.
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YEAR ENDED NOVEMBER 30,
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1990 1991 1992 1993 1994
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(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>
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<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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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
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<PAGE> 13
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
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
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<PAGE> 14
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.
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
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<PAGE> 15
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
During the period December 1, 1994 through March 13, 1995, the Company
has acquired 6 dialysis facilities, opened 6 new facilities and closed two
facilities, and as a result as of March 13, 1995 has 160 facilities.
On February 9, 1995, the Company completed a public offering of
1,800,000 shares of its common stock at a price of $31.625 per share through
Alex. Brown & Sons Incorporated, Dean Witter Reynolds, Inc. and Montgomery
Securities. Of the 1,800,000 shares offered, 1,725,000 were sold by the
Company and 75,000 were sold by Kent J. Thiry. An additional 270,000 shares
were subsequently sold pursuant to the exercise by the underwriters of their
over-allotment option. The proceeds from the offering will be used for general
corporate purposes, including future acquisitions and working capital.
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<PAGE> 16
BUSINESS
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.
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
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<PAGE> 17
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.
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
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<PAGE> 18
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 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
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<PAGE> 19
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 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.
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<PAGE> 20
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.
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.
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<PAGE> 21
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
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.
-18-
<PAGE> 22
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, 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
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<PAGE> 23
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.
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
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<PAGE> 24
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 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.
-21-
<PAGE> 25
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, 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
-22-
<PAGE> 26
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 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
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<PAGE> 27
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.
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<PAGE> 28
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.
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<PAGE> 29
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.
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.
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<PAGE> 30
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.
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>
SHARE VESTED TOTAL EXERCISE
OWNED OPTIONS OPTIONS PRICE RANGE
----- ------- ------- -----------
<S> <C> <C> <C> <C>
Kent J. Thiry -- 323,000 633,000 $14.83-$27.75
Michael W. Castaldi -- 130,500 219,000 $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>
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<PAGE> 31
OUTSTANDING SECURITIES COVERED BY THIS PROSPECTUS
This Prospectus has also been prepared for use by the persons who may
receive from the Company Shares covered by the Registration Statement in
acquisitions and who may be entitled to offer such Shares under circumstances
requiring the use of a Prospectus (such persons being referred to under this
caption as "Stockholders"); provided, however, that no Stockholder will be
authorized to use this Prospectus for any offer of such Shares without first
obtaining the consent of the Company. The Company may consent to the use of
this Prospectus for a limited period of time by the Stockholders and subject to
limitations and conditions which may be varied by agreement between the Company
and the Stockholders. Resales of such Shares may be made on the New York Stock
Exchange or such other exchange on which the Company's Common Stock may be
listed, in the over-the-counter market, in private transactions or pursuant to
underwriting agreements.
Agreements with Stockholders permitting use of this Prospectus may
provide that any such offering be effected in an orderly manner through
securities dealers, acting as broker or dealer, selected by the Company; that
Stockholders enter into custody agreements with one or more banks with respect
to such shares; and that sales be made only by one or more of the methods
described in this Prospectus, as appropriately supplemented or amended when
required. The Stockholders may be deemed to be underwriters within the meaning
of the Securities Act of 1933 (the "Securities Act").
When resales are to be made through a broker or dealer selected by the
Company, it is anticipated that a member firm of the New York Stock Exchange
may be engaged to act as the Stockholders' agent in the sale of shares by such
Stockholders. The commission paid to the member firm will be the normal stock
exchange commission (including negotiated commissions to the extent
permissible). Sales of shares by the member firm may be made on the New York
Stock Exchange or other exchange from time to time at prices related to prices
then prevailing. Any such sales may be by block trade. Any such member firm
may be deemed to be an underwriter within the meaning of the Securities Act and
any commissions earned by such member firm may be deemed to be underwriting
discounts and commissions under the Securities Act.
Upon the Company being notified by a Stockholder that any block trade
has taken place, a supplementary Prospectus, if required, will be filed
pursuant to Rule 424 under the Securities Act, disclosing the name of the
member firm, the number of shares involved, the price at which such shares were
sold by such Stockholder, and the commissions to be paid by such Stockholder to
such member firm.
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.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report on Form 10-K 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 therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
-28-
<PAGE> 32
________________________________________________________________________________
No person is authorized to give any information and representations
which are contained or incorporated by reference in this Prospectus, and any
information or representation which is not contained or incorporated by
reference in this Prospectus must not be relied on as having been authorized by
them. The information herein is set forth as of the date on the cover page; it
is anticipated that changes will occur in the affairs of the Company subsequent
to that date. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the Shares in any jurisdiction where, or to
any person to whom, 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 an implication that there has not been any change in the
facts set forth in this Prospectus or in the affairs of the Company since the
date hereof.
__________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . 2
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . 4
PRICE RANGE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . 7
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SELECTED CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 9
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
OUTSTANDING SECURITIES COVERED BY THIS PROSPECTUS . . . . . . . . . 28
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
________________________________________________________________________________
________________________________________________________________________________
2,000,000 SHARES
VIVRA
INCORPORATED
COMMON STOCK
-------------------
P R O S P E C T U S
-------------------
MARCH 15, 1994
________________________________________________________________________________
<PAGE> 33
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits the
Company's board of directors to indemnify any person against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any threatened,
pending or completed action, suit or proceeding in which such person is made a
party by reason of his being or having been a director, officer, employee or
agent of the Company, in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). The statute provides that indemnification pursuant to
its provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
Article 8 of the Company's Restated Certificate of Incorporation
provides for indemnification of its directors, officers, employees and other
agents to the maximum extent permitted by law. In addition, the Company has
entered into separate indemnification agreements with its directors and
officers that will require the company, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors or officers to the fullest extent not prohibited by law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------------------------------------------------------------------------------------------------
<S> <C>
4.1 Form of Common Stock Certificate (filed as Exhibit 4C to Registrant's Registration Statement on
Form 10, File No. 1-10621 and incorporated in full herein by this reference).
4.2 Form of Rights Agreement between Registrant and Bank of America National Trust and Savings
Association (filed as Exhibit 4D to Registrant's Registration Statement on Form 10, File No. 1-10621
and incorporated in full herein by this reference).
4.3 Certificate of Designation of Series A Junior Participating Preferred Stock (filed as Exhibit 3.2 to
Registrant's Registration Statement on Form S-1, File No. 33-34438 and incorporated in full herein
by this reference).
5.1* Opinion of Pillsbury Madison & Sutro.
24.1 Consent of Pillsbury Madison & Sutro (included in Exhibit 5.1).
24.2 Consent of Ernst & Young L.L.P.
</TABLE>
_________________
* Previously filed
II-1
<PAGE> 34
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Company hereby undertakes:
(1) To file during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement:
(a) To include any prospectus required by Section
10(a)(3) of the Act;
(b) To reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in this
Registration Statement; and
(c) To include any material information with respect
to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement; provided,
however, that paragraphs (a) and (b) do not apply if the
information required to be included in a post-effective
amendment by the paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that are incorporated by reference in
this Registration Statement.
(2) That, for the purpose of determining any liability
under the Act, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-offering amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) For purposes of determining any liability under the
Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act which is
incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(5) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part
of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to
II-2
<PAGE> 35
reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other Items of the applicable
form.
(6) That every prospectus (i) that is filed pursuant to
paragraph (5) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933
and is used in connection with an offering of securities subject
to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment
is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(7) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt
of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(8) To supply by means of a post-effective amendment all
required information concerning a transaction, and the company
being acquired involved therein, that was not included in the
registration statement when it became effective.
II-3
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement
on Form S-4 to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Burlingame and State of California on March 13,
1995.
VIVRA INCORPORATED
By /s/ LEANNE ZUMWALT
---------------------------------
(Leanne Zumwalt, Director
and Vice President, Finance)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement on Form S-4 has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ KENT J. THIRY* Director, President and Chief March 13, 1995
- -------------------------------------------- Executive Officer (Principal
(Kent J. Thiry) Executive Officer)
/s/ LEANNE ZUMWALT Director and Vice President- March 13, 1995
- -------------------------------------------- Finance (Principal Accounting
(LeAnne Zumwalt) Officer)
/s/ WILLIAM H. MALKMUS* Treasurer and Secretary March 13, 1995
- -------------------------------------------- (Principal Financial Officer)
(William H. Malkmus)
/s/ DAVID G. CONNOR, M.D.* Director March 13, 1995
- --------------------------------------------
(David G. Connor, M.D.)
/s/ RICHARD B. FONTAINE* Director March 13, 1995
- --------------------------------------------
(Richard B. Fontaine)
/s/ JOHN M. NEHRA* Director March 13, 1995
- --------------------------------------------
(John M. Nehra)
</TABLE>
II-6
<PAGE> 37
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEPHEN G. PAGLIUCA* Director March 13, 1995
- --------------------------------------------
(Stephen G. Pagliuca)
*By /s/ LEANNE ZUMWALT March 13, 1995
----------------------------------------
(LeAnne Zumwalt)
(Attorney-in-Fact)
</TABLE>
II-7
<PAGE> 38
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------------------------------------------------------------------------------------------------
<S> <C>
4.1 Form of Common Stock Certificate (filed as Exhibit 4C to Registrant's Registration Statement on
Form 10, File No. 1-10621 and incorporated in full herein by this reference).
4.2 Form of Rights Agreement between Registrant and Bank of America National Trust and Savings
Association (filed as Exhibit 4D to Registrant's Registration Statement on Form 10, File No. 1-10621
and incorporated in full herein by this reference).
4.3 Certificate of Designation of Series A Junior Participating Preferred Stock (filed as Exhibit 3.2 to
Registrant's Registration Statement on Form S-1, File No. 33-34438 and incorporated in full herein
by this reference).
5.1* Opinion of Pillsbury Madison & Sutro.
24.1 Consent of Pillsbury Madison & Sutro (included in Exhibit 5.1).
24.2 Consent of Ernst & Young L.L.P.
</TABLE>
_________________
* Previously filed
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Information" in Amendment No. 1 to the
Registration Statement Form S-4 No. 33-85736 and related Prospectus of Vivra,
Incorporated for the Registration of 2,000,000 shares of its common stock and
to the incorporation by reference therein of our report dated January 23,
1995 with respect to the consolidated financial statements and schedules of
Vivra, Incorporated included in its Annual Report on Form 10-K for the year
ended November 30, 1994 filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Los Angeles, California
March 13, 1995
