<PAGE> 1
As filed with the Securities and Exchange Commission on June 21, 1996
Registration No. _________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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)
1850 Gateway Drive, Suite 500
San Mateo, California 94404
94-3096645 (415) 577-5700
(I.R.S. Employer Identification Number) (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
1850 Gateway Drive, Suite 500, San Mateo, California 94404, (415) 577-5700
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
----------
Copy to:
SCOTT T. SMITH, ESQ.
PILLSBURY MADISON & SUTRO LLP
2700 Sand Hill Road
Menlo Park, California 94025
(415) 233-4500
----- ----
Approximate date of commencement of proposed sale to the public:
On a continuous or delayed basis pursuant to Rule 415.
<TABLE>
<CAPTION>
================================================================================================================================
Title of each class of Proposed maximum Proposed maximum
securities to be Amount to be offering price per aggregate offering Amount of
registered registered unit price registration fee
- --------------------------------------------------------------------------------------------------------------------------------
<S <C> <C> <C> <C>
Common Stock, 5,000,000 shares $32.625 $163,125,000 $56,250.00
$.01 par value (1)
================================================================================================================================
</TABLE>
(1) Includes Preferred Stock Purchase Rights which prior to the occurrence at
certain events will not be exercisable or evidenced separately from the
Common Stock.
(2) Based on the average of the high and low prices of the Company's Common
Stock on the New York Stock Exchange on June 20, 1996.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
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. [ ]
<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)
<TABLE>
<CAPTION>
Item of Form S-4 Location in Prospectus
<S> <C> <C>
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 of Certain
Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges and Cover Page; The Company; Selected
Other Information........................................ Supplemental Consolidated Financial Data;
Incorporation of Certain Documents by Reference;
Risk Factors*
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 .................. Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification **
for Securities Act Liabilities...........................
10. Information with Respect to S-3 Registrants ............. Incorporation of Certain Documents by Reference;
Risk Factors; Business; Supplemental Consolidated
Financial Statements
11. Incorporation of Certain Information by Reference ....... Incorporation of Certain Documents 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....................................... **
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.........................................
</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.
<PAGE> 3
<TABLE>
<S> <C> <C>
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.
ii
<PAGE> 4
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 21, 1996
5,363,702 SHARES
VIVRA
INCORPORATED
COMMON STOCK
----------------
The Prospectus relates to 5,363,702 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. The aggregate Shares available hereunder is covered by
two registration statements filed with the Securities and Exchange Commission.
See "Available Information."
It is anticipated that such acquisitions will consist principally of
additional health care businesses 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 indebtedness, 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, noncompetition agreements and employment agreements (which may
include the grant of Company or subsidiary stock options) 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 of Shares issued pursuant to this Prospectus.
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 June 20, 1996 was $32.25 per share.
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES CERTAIN RISKS. SEE
"RISK FACTORS."
---------
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 June , 1996
1
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed certain Registration Statements on Form S-4 with
respect to the Shares under the Securities Act of 1933, as amended, with the
Securities and Exchange Commission (the "Commission") as follows: On October 28,
1994, the Company filed a Registration Statement relating to 2,000,000 shares,
which was amended on March 14, 1995 and amended again on April 26, 1996 to
reflect the Company's 3 for 2 stock split, increasing the number of shares to
3,000,000 (of which 363,702 remains available), and on June 21, 1996 the
Company filed a Registration Statement relating to 5,000,000 shares
(collectively the "Registration Statements"). This Prospectus does not contain
all of the information in the Registration Statements, 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 Statements, 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
Statements 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 Commission are incorporated by
reference in this Prospectus:
(1) Annual Report of the Company on Form 10-K (File No. 1-10261) for
the fiscal year ended November 30, 1995.
(2) Current Report of the Company on Form 8-K (File No. 1-10261)
filed on August 16, 1995.
(3) Current Report of the Company on Form 8-K (File No. 1-10261)
filed on December 21, 1995.
(4) Current Report of the Company on Form 8-K (File No. 1-10261)
filed on January 26, 1996.
(5) Current Report of the Company on Form 8-K (File No. 1-10261)
filed on February 15, 1996.
(6) Current Report of the Company on Form 8-K (File No. 1-10261)
filed on March 14, 1996.
2
<PAGE> 6
(7) Current Report of the Company on Form 8-K (File No. 1-10261)
filed on March 29, 1996.
(8) Current Report of the Company on Form 8-K (File No. 1-10261)
filed on April 11, 1996.
(9) Quarterly Report of the Company on Form 10-Q (File No. 1-10261)
filed on April 15, 1996.
(10) Current Report of the Company on Form 8-K (File No. 1-10261)
filed on May 1, 1996.
(11) Current Report of the Company on Form 8-K (File No. 1-10261)
filed on May 14, 1996.
(12) Current Report of the Company on Form 8-K (File No. 1-10261)
filed on June 14, 1996.
(13) 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
Prospectus shall be deemed to be incorporated by reference in this Prospectus
and to be part hereof from the date of filing of such documents.
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 Statements 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 Statements.
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 LeAnne M. Zumwalt, Chief
Financial Officer, Treasurer and Secretary, VIVRA Incorporated, 1850 Gateway
Drive, Suite 500, San Mateo, California 94404 (Telephone: (415) 577-5700). In
order 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 1850 Gateway
Drive, Suite 500, San Mateo, California 94404, and its telephone number is (415)
577-5700.
3
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the supplemental consolidated
financial statements and notes thereto, appearing elsewhere in this Prospectus
or incorporated herein by reference.
THE COMPANY
Vivra is a specialty care company. The Company's business strategy is to
compete in specialties/disease states where Vivra can demonstrably deliver
differentiated care to high-cost patient populations. The Company provides
services through Vivra Renal Care ("VRC") and Vivra Specialty Partners ("VSP").
VRC is the second largest provider of dialysis services in the United States
and, as of May 31, 1996, had approximately 13,000 patients at 229 centers in 27
states and the District of Columbia. VSP provides physician network and disease
management services to entities responsible for coordinating health care for a
patient population, principally managed care organizations. VSP coordinates care
in multiple specialties, including asthma/allergy, cardiology, diabetes,
dialysis/nephrology, otolaryngology ("ENT"), obstetrics/gynecology and
orthopedics. In these specialties, VSP currently provides services through 25
contracts held by its 18 different networks and also owns 29 specialty practices
with 47 physicians and manages one additional specialty practice with 15
physicians.
4
<PAGE> 8
RISK FACTORS
When used in this Prospectus, the words "estimate," "project" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, including those
discussed below, that could cause actual results to differ materially from those
projected. These forward-looking statements speak only as of the date hereof. In
addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business.
Medicare and Medicaid Dialysis Reimbursement. The Company estimates that
approximately 66% and 70% of its dialysis revenues, including revenues from the
reimbursement of the administration of the drug erythropoietin ("EPO"), for
fiscal 1994 and 1995, respectively, 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 current average rate of $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, including the impact of
potential legislative measures regarding welfare reform, the Medicare trust fund
deficit, the health care delivery system and the approval of a federal budget.
Any reduction in reimbursement rates would have a material adverse effect on the
Company's revenues and net earnings. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Inflation and Changes in
Prices" and "Business -- Vivra Renal Care."
In March 1996, HCFA published a request for proposals from managed care
companies to arrange for the treatment of ESRD patients on a large scale. While
the Company is unable to predict the effect of the introduction of managed care
on dialysis services, such introduction could result in a reduction in the rates
of reimbursement for the Company's services. The Company may also be required to
enter into contracts directly with managed care providers.
EPO 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 1994 and 1995, approximately 84% and
85%, respectively, of the Company's dialysis patients received EPO. The
Company's revenues from the administration of EPO were approximately $43.5
million and $56.0 million, respectively, or 17% and 18% 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 could have a material 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 have a material adverse effect on the
Company's revenues and net earnings.
Other Sources of Dialysis Reimbursement. The Company estimates that
approximately 34% and 30% of its dialysis revenues for fiscal 1994 and 1995,
respectively, were derived from sources other than Medicare and Medicaid. Of
these revenues, the largest portion came from private insurance, including
managed care organizations. Reimbursement from hospitals for acute dialysis
treatments was also significant. In general, these sources of reimbursement are
at rates significantly in excess of Medicare and Medicaid rates. The Company
believes that private payers may be required in the future to assume a greater
percentage of the costs of dialysis care as the existing ESRD program is
reviewed by the United States Congress. Irrespective of legislative action, the
Company expects that these non-governmental payers will reduce payment for
dialysis services. In addition, as managed care organizations 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 treatments. If private
payer rates
5
<PAGE> 9
are reduced significantly, the Company's revenues and net earnings will be
materially and adversely affected.
Capitated Agreements. The Company believes it will be necessary to contract
with managed care payers on a capitated or at-risk basis in order to maintain or
expand the businesses of VRC and VSP. The Company currently has and intends to
enter into additional capitated agreements. 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. To the extent that health care plan members require more care
than anticipated, the capitation rate received may be insufficient to cover the
costs associated with the provided services. The Company would, directly or
indirectly, be forced to absorb some of these excess costs, which could have a
material adverse 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, reimbursement rates for dialysis treatments, from both public and private
payers, depend on a number of factors and may remain flat or be reduced, as many
payers are seeking to reduce the amounts paid for dialysis services. The Company
is attempting 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.
VSP has a limited operating history and to date has not been profitable.
The specialty network and physician practice management business is rapidly
evolving, and there can be no assurance that VSP will ever achieve
profitability. In addition, even if planned operating margins are achieved, the
Company believes that they will be significantly lower than those in its
historical dialysis business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Limitations on Growth. The dialysis industry is highly competitive with
respect to the acquisition of existing dialysis facilities and the recruitment
of Medical Directors for new centers. In the past two years, acquisition prices
and the competition for Medical Directors and new facilities have 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 and
maintain earnings per share growth and return on total capital would be
adversely impacted.
The Company intends to expand VSP significantly through the acquisition and
development of related businesses, primarily specialty physician networks and
practices. This expansion will require significant capital commitments. The
Company is incurring expenditures to develop its infrastructure and systems for
VSP in anticipation of significant growth. To the extent VSP's operations do not
expand as planned and the Company does not realize revenues sufficient to offset
such increased expenses, the Company's operating margins will be adversely
affected and VSP may experience delays in attaining profitability or may never
become financially viable. Further, VSP may not realize revenue and operating
margins as predictable as those historically provided by VRC.
Certain companies, some of which have longer operating histories and
greater financial resources than those of VSP, are providing services similar to
those that VSP is providing or pursuing. VSP may be forced to compete with these
entities for acquisitions, network and management contracts and, in some cases,
the employment of practice physicians. There can be no assurance that VSP will
be able to compete effectively with such competitors, that additional
competitors will not enter VSP's markets, or that such competition will not make
it more difficult to expand in such markets on terms beneficial to VSP. See
"Business -- Competition."
6
<PAGE> 10
Limited Operating History of VSP and Integration of Operations. Since
February 1996, VSP has grown aggressively, principally through acquisitions. VSP
will continue to pursue an aggressive growth strategy that includes both
acquisitions and the marketing of network services to payers ("Development
Activities"). VSP negotiates payer contracts to provide specialty physician
care, then acquires or develops specialty physician networks to service the
contracts and in some instances acquires physician practices. The process of
obtaining payer contracts, acquiring or establishing appropriate networks, and
developing management services, administrative organizations, facilities,
management information systems and other aspects of operations, while managing a
larger and geographically expanded entity, presents a significant challenge to
the management of Vivra and VSP, and there can be no assurance that the Company
will be successful in these efforts. The dedication of management resources to
such integration may detract attention from the day-to-day operations of Vivra
and VRC. The difficulties of integration may be increased by the necessity of
coordinating geographically separated organizations, integrating personnel with
disparate business backgrounds and combining different corporate cultures. There
can be no assurance that there will not be substantial unanticipated costs
associated with such activities or that there will not be other material adverse
effects of these Development Activities. See "Business -- Vivra Specialty
Partners."
Dependence on Key Personnel and Physicians. The Company is dependent on
certain key senior management personnel, the loss of any of whom could have an
adverse effect on the Company's business. In addition, the Company will need to
continue to attract and retain highly skilled health care executives, the
competition for whom is intense.
The Company's dialysis facilities depend upon their Medical Directors and
to a lesser extent local nephrologists and other physicians 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 substantial portion
of the patient base. The loss of one or more key physicians at a particular
facility could have a material adverse effect on the operations of that
facility, and the loss of a significant number of physicians could adversely
affect the Company's overall operations.
VSP is dependent upon its affiliations with physicians. Moreover, the
Company believes that its future success will be dependent largely on its
ability to attract and retain qualified physicians. VSP has entered into
management, provider and/or employment agreements with physicians, a significant
number of whom have the right to terminate their contracts with limited or no
notice. In the event that a significant number of such physicians terminate
their contracts or become unable or unwilling to continue in their roles, the
Company's revenues and net earnings could be materially and adversely affected.
Governmental 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.
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 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 previously published
warnings that it believes two practices common in the
7
<PAGE> 11
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.
The health care industry and physicians' medical practices are highly
regulated at the federal and state levels. Because of the uniqueness of the
structure of the relationships between the Company and the physician groups and
its networks and the nature of the Company's business, there can be no assurance
that review of the Company's business by courts or health care, tax, labor and
other regulatory authorities will not result in determinations or actions,
including decertification or disqualification from eligibility to receive
reimbursement from Medicare or Medicaid, that could adversely affect the
operations of the Company or that the health care regulatory environment will
not change in a manner that would restrict the Company's existing operations or
limit the expansion of the Company's business or otherwise adversely affect the
Company. Many state laws restrict the unlicensed practice of medicine, the
splitting or sharing of fees with non-physician entities and the enforcement of
non-competition agreements. Increased attention has been devoted to the
application of federal and state antitrust laws to physician networks and
provider agreements. For example, federal law prohibits conduct that may result
in price-fixing or other anticompetitive conduct. Although management of the
Company believes the operations of the Company are in material compliance with
existing law, there can be no assurance that the Company's existing agreements
with its physicians, including service agreements or network agreements, will
not be successfully challenged. See "Business -- Governmental Regulation."
Intradialytic Parenteral Nutrition Therapy Reimbursement. Intradialytic
parenteral nutrition ("IDPN") therapy is a nutritional supplement administered
during dialysis to patients suffering from nutritional deficiencies. In early
1993, HCFA designated four durable medical equipment regional carriers (the
"DMERCs") to process reimbursement claims for IDPN therapy. To date, these
DMERCs have denied most claims and the Company is currently appealing these
denied claims. HCFA is currently reviewing the DMERCs' position with respect to
medical policy and claims reimbursement. The final outcome of this review is
uncertain and may ultimately affect the number of patients eligible to receive
reimbursement for IDPN therapy. Patients receiving IDPN therapy
8
<PAGE> 12
prior to the DMERCs' designation are "grandfathered" under the prior carriers'
medical policies and continue to be eligible for reimbursement. Since May 1995
and based upon the continued uncertainty with respect to reimbursement for
services provided, the Company has limited administration of this therapy only
to patients who have been grandfathered or have private insurance.
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
coverage 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.
9
<PAGE> 13
Possible Volatility of Stock Price. There has been volatility in the market
price of securities of health care companies. Future announcements concerning
the Company or its competitors, including government regulations, reimbursement
changes, litigation, or other developments, as well as changes in, or the
failure by the Company to meet, estimates of securities analysts, may have a
significant impact on the market price of the Company's Common Stock. In
addition, broad market fluctuations and general economic or political conditions
may adversely affect the market price of the Company's Common Stock, regardless
of the Company's actual performance. See "Business -- Competition" and
"-- Governmental Regulation."
Anti-Takeover Provisions. The Company's Restated Certificate of
Incorporation and the Delaware General Corporation Law (the "General Corporation
Law") contain provisions that may have the effect of making more difficult or
delaying attempts by others to obtain control of the Company, even when these
attempts may be in the best interest of stockholders. The General Corporation
Law also imposes conditions on certain business combination transactions with
"interested stockholders" (as defined therein). In addition, the Company has
issued to its holders of Common Stock, pursuant to a stockholders rights plan,
rights that will cause substantial dilution to a person or group that attempts
to acquire the Company on terms not approved by the Company's Board of
Directors. See "Description of Capital Stock."
10
<PAGE> 14
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 effective as
of November 22, 1995.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE
--------------
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED NOVEMBER 30, 1994:
First quarter...................................................... $ 17 1/3 $13 1/8
Second quarter..................................................... 17 3/4 15 1/8
Third quarter...................................................... 17 1/8 15 1/8
Fourth quarter..................................................... 19 2/3 17
YEAR ENDED NOVEMBER 30, 1995:
First quarter...................................................... $ 21 7/8 $17 3/4
Second quarter..................................................... 23 7/8 18 1/3
Third quarter...................................................... 22 1/8 17 3/4
Fourth quarter..................................................... 23 3/8 21 11/64
YEAR ENDING NOVEMBER 30, 1996:
First quarter...................................................... $ 30 1/2 $22 3/4
Second quarter..................................................... 35 3/8 26 3/4
Third quarter (through June 20, 1996).............................. 34 7/8 32 1/4
</TABLE>
On June 20, 1996, the reported last sale price of the Company's Common
Stock on the New York Stock Exchange was $32.25 per share. As of June 1, 1996,
there were approximately 1,790 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.
11
<PAGE> 15
SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected supplemental consolidated
financial data of the Company and its subsidiaries. The selected supplemental
consolidated financial data as of and for each of the three fiscal years ended
November 30, 1995 and as of February 29, 1996 and for the three months ended
February 28, 1995 and February 29, 1996 have been restated to include the
financial results of business combinations with Orthonet, Inc., which was
completed in February 1996, and Brennan, Martell and Mirmelli, M.D.'s, P.A.,
Allergy & Asthma Institute of South Florida, P.A. and Kidney Centers of
Charleston, Inc., which were completed in May 1996. Each of the transactions was
accounted for as a pooling-of-interests. Such transactions did not constitute
"significant business combinations" within the meaning of the rules of the
Commission. The selected supplemental consolidated financial data as of November
30, 1994 and 1995, and for each of the years in the three-year period ended
November 30, 1995, are derived from the supplemental consolidated financial
statements that have been audited by Ernst & Young LLP, independent auditors,
which are included elsewhere in this Prospectus. The selected
supplemental consolidated financial data as of November 30, 1993 are derived
from consolidated financial statements not included in this Prospectus.
The selected supplemental consolidated financial data as of February 29, 1996
and for the three months ended February 28, 1995 and February 29, 1996 are
derived from unaudited supplemental consolidated financial statements which are
included elsewhere in this Prospectus. The unaudited supplemental
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the three months ended February 29, 1996 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending November 30, 1996 or future periods. The data presented below should
be read in conjunction with the Supplemental Consolidated Financial Statements
and Notes thereto and other financial information included elsewhere in or
incorporated by reference into this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED NOVEMBER 30, ---------------------------
------------------------------ FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 1995 1996
-------- -------- -------- ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenues............................................... $228,002 $297,399 $366,516 $ 87,214 $106,613
Other income..................................................... 1,235 1,891 5,221 687 1,878
-------- -------- -------- ------- --------
Total revenues................................................... 229,237 299,290 371,737 87,901 108,491
Costs and expenses:
Operating...................................................... 156,507 198,039 250,663 58,503 76,665
General and administrative..................................... 22,686 40,200 46,430 12,501 10,627
Depreciation................................................... 7,344 9,712 10,978 2,440 3,122
Interest....................................................... 945 571 444 203 42
-------- -------- -------- ------- --------
Total costs and expenses......................................... 187,482 248,522 308,515 73,647 90,456
-------- -------- -------- ------- --------
Earnings from continuing operations, before minority interest and
income taxes................................................... 41,755 50,768 63,222 14,254 18,035
Minority interest................................................ -- (10) (95) (22) (10)
-------- -------- -------- ------- --------
Earnings from continuing operations, before income taxes......... 41,755 50,758 63,127 14,232 18,025
Income taxes..................................................... 17,537 20,811 24,599 5,546 6,811
-------- -------- -------- ------- --------
Net earnings from continuing operations.......................... 24,218 29,947 38,528 8,686 11,214
Earnings from discontinued operations, less applicable taxes..... 554 -- -- -- --
Gain on sale of discontinued operations, less applicable taxes... -- 697 -- -- --
-------- -------- -------- ------- --------
Net earnings..................................................... $ 24,772 $ 30,644 $ 38,528 $ 8,686 $ 11,214
======== ======== ======== ======= ========
Earnings per share from continuing operations.................... $ 0.77 $ 0.93 $ 1.06 $ 0.26 $ 0.29
Weighted average shares outstanding.............................. 31,257 32,111 36,474 33,394 38,256
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------------- FEBRUARY 29,
1993 1994 1995 1996
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................... $ 89,785 $ 98,407 $132,706 $139,952
Total assets.............................................................. 211,304 280,725 408,226 427,107
Long-term obligations..................................................... 5,183 5,403 1,840 1,527
Stockholders' equity...................................................... 173,880 213,672 345,574 359,097
</TABLE>
12
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
When used in this discussion, the words "estimate," "project" and similar
expressions are intended to identify forward-looking statements. Such
statements, which include statements concerning capital and acquisition
expenditures, are subject to certain risks and uncertainties, including those
discussed below and under "Risk Factors," that could cause actual results to
differ materially from those projected. These forward-looking statements speak
only as of the date hereof. The following discussion should be read in
conjunction with the Supplemental Consolidated Financial Statements and related
Notes included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The Company consists of two operating units, Vivra Renal Care and Vivra
Specialty Partners. Vivra Renal Care consists of dialysis and specialty pharmacy
services. Vivra Specialty Partners provides specialty care through its networks
and practices in asthma/allergy, cardiology, diabetes, dialysis/nephrology, ENT,
OB/GYN and orthopedics. During 1995, the Company sold and discontinued its Other
Services segment, which consisted of the ambulatory surgery, rehabilitation
therapy and primary care physician practice management businesses.
Three Months Ended February 29, 1996 Compared with Three Months
Ended February 28, 1995
As compared to the three months ended February 28, 1995, revenues increased
$20.6 million, or 23.4%; costs and expenses increased $16.8 million, or 22.8%;
and earnings from continuing operations before taxes increased $3.8 million, or
26.7%. In total, net earnings for the period increased $2.5 million to $11.2
million, or 29.1%.
Operating revenues increased $19.4 million, or 22.2%, to $106.6 million.
Revenues from Vivra Renal Care increased $17.7 million to $89.3 million, or
24.7%; Vivra Specialty Partners increased $11.8 million to $17.3 million; and
Other Services decreased $10.1 million. The increase in revenues from Vivra
Renal Care was attributable to the growth in the number of treatments provided
and growth in the administration of EPO prescribed for dialysis patients
suffering from anemia. Treatments grew 30.2% from 331,948 to 432,326 as a
result, in part, of the net addition of 47 centers. For the first quarter of
1996, revenues from EPO were $18.1 million, compared to $11.6 million in the
prior year, a 56.0% increase. This growth was due to an increase in the number
of patients receiving EPO and in the average size of dosages. The increase in
revenues from Vivra Specialty Partners was due to the addition of the OB/GYN,
cardiology and orthopedics specialties after the first quarter of 1995 and
growth in the asthma/allergy specialty. The decrease in Other Services revenues
was a direct result of the sale and discontinuation of the Company's ambulatory
surgery center, rehabilitation therapy and primary care physician practice
management businesses in 1995. Other income of $1.9 million included interest
earned on tax-free marketable securities and a gain from the sale of available-
for-sale marketable investments.
Operating costs increased $18.2 million, or 31.0%, to $76.7 million. Vivra
Renal Care operating costs increased $14.1 million to $62.0 million, or 29.4%;
Vivra Specialty Partners increased $10.6 million to $14.7 million; and Other
Services decreased $6.5 million. The increase in Vivra Renal Care operating
costs was due to the increased volume of dialysis business, expenses associated
with the operation of newly developed dialysis centers and the cost of the
administration of EPO. Vivra Specialty Partners operating costs increased due to
the addition of the OB/GYN, cardiology and orthopedics specialties after the
first quarter of 1995 and growth in the asthma/allergy specialty. Operating
costs of Other Services decreased as a result of the sale of the ambulatory
surgery, rehabilitation therapy and primary care physician practice management
businesses in 1995. General and administrative expenses decreased $1.9 million
to $10.6 million, or a decrease of 15.0%. General and administrative expenses
decreased primarily as a result of the sale
13
<PAGE> 17
and discontinuation of the Other Services segment businesses. These businesses
incurred $3.4 million in general and administrative expenses during the first
quarter of 1995. Depreciation increased $0.7 million, or 28.0%, to $3.1 million,
due to an increase in depreciable assets of the dialysis and asthma/allergy
businesses.
The effective tax rate for the period was 37.8% of earnings before income
taxes, compared with 39.0% a year earlier. This decrease was due, in large part,
to the Company's cash assets being invested in tax-free marketable securities,
which had the effect of lowering the overall tax rate.
1995 Compared with 1994
For fiscal 1995 as compared to fiscal 1994, revenues increased $72.4
million, or 24.2%; costs and expenses increased $60.0 million, or 24.1%; and
earnings from continuing operations before taxes increased $12.4 million, or
24.4%. In total, net earnings for the year increased $7.9 million to $38.5
million, or 25.7% compared to 1994.
Operating revenues increased $69.1 million, or 23.2%, to $366.5 million.
Revenues from Vivra Renal Care increased $50.8 million to $310.8 million, or
19.5%; Vivra Specialty Partners increased $21.4 million to $31.7 million; and
Other Services decreased $3.1 million to $24.0 million, an 11.4% decrease. The
increase in revenues from Vivra Renal Care was attributable to the growth in the
number of treatments provided and growth in the administration of EPO,
prescribed for dialysis patients suffering from anemia. Treatments grew 19.9%
from 1,289,200 to 1,545,810 as a result of the net addition of 49 centers. For
1995, revenues from EPO were $56.0 million, compared to $43.5 million in the
prior year, a 28.7% increase. This growth was due to an increase in the number
of patients receiving EPO and in the average size of dosages. As of November 30,
1995, approximately 85% of the Company's dialysis patients were receiving EPO,
compared to 84% in 1994. The increase in revenues from Vivra Specialty Partners
was due to the addition of the asthma/allergy specialty as of November 30, 1994,
the growth in diabetes services and the addition of various specialty networks
during the year. The decrease in Other Services revenues was a direct result of
the sale of the Company's ambulatory surgery center and rehabilitation therapy
businesses in May and July 1995, respectively. Other income of $5.2 million,
included a $2.2 million gain from the disposition of the Company's ambulatory
surgery center business, a $2.0 million gain from the sale of the Company's
rehabilitation therapy business, $2.3 million of charges related to the
wind-down, sale and discontinuation of the Company's primary care physician
practice management business and a $1.0 million write-down as a result of the
pending sale of the Vivra Renal Care corporate office building. In addition,
other income included $4.3 million of interest earned on tax-free marketable
securities.
Operating costs increased $52.7 million, or 26.6%, to $250.7 million. Vivra
Renal Care operating costs increased $38.3 million to $211.5 million, or 22.1%;
Vivra Specialty Partners increased $18.0 million to $23.9 million; and Other
Services decreased $3.6 million to $15.3 million, a 19.0% decrease. The increase
in Vivra Renal Care operating costs was due to the increased volume of dialysis
business, expenses associated with the operation of newly developed dialysis
centers and the cost of the administration of EPO. Vivra Specialty Partners
operating costs increased due to the growth in diabetes services and the
additions of the ENT, asthma/allergy and cardiology specialties. Operating costs
of Other Services decreased as a result of the sale of the ambulatory surgery
and rehabilitation therapy businesses in 1995. General and administrative
expenses increased $6.2 million to $46.4 million, or 15.5%. These expenses
include $3.1 million of non-recurring items consisting of a $1.1 million reserve
taken for intradialytic parenteral nutrition therapy accounts receivable, $1.6
million for severance and compensation, relocation and termination expenses and
$450,000 for other charges. Furthermore, general and administrative expenses
increased as a result of the addition of the asthma/allergy product. In total,
general and administrative expenses decreased to 12.7% of total operating
revenues for 1995, as compared to 13.5% in 1994. Depreciation increased $1.3
million, or 13.0%, to $11.0 million, due to an increase in depreciable assets of
the dialysis business and the ambulatory surgery business prior to the sale of
the business in May 1995.
14
<PAGE> 18
The effective tax rate for 1995 was 39.0% of earnings before income taxes,
compared with 41.0% a year earlier. This decrease was due, in large part, to the
Company's cash assets being invested in tax-free marketable securities, which
had the effect of lowering the overall tax rate.
1994 Compared with 1993
For fiscal 1994 as compared to fiscal 1993, revenues increased $70.1
million, or 30.6%; costs and expenses increased $61.0 million, or 32.6%;
earnings from continuing operations before taxes increased $9.0 million, or
21.6%; and net earnings from continuing operations increased $5.7 million, or
23.7%. In addition, during fiscal 1994, the Company recorded a gain of $697,000,
after applicable taxes, on the sale of its home health care nursing business.
Accordingly, the results of operations for this business are shown separately as
discontinued operations for the year ended November 30, 1993 in the Supplemental
Consolidated Statement of Earnings, restated for comparative purposes. In total,
net earnings for the year increased $5.9 million to $30.6 million, or 23.7%
compared to 1993.
Operating revenues increased $69.4 million, or 30.4%, to $297.4 million.
Revenues from Vivra Renal Care increased $46.7 million to $260.0 million, or
21.9%; Vivra Specialty Partners increased $1.9 million to $10.3 million, or
21.9%; and Other Services increased $20.9 million to $27.1 million, a 335.4%
increase. The increase in revenues from Vivra Renal Care was attributable to a
15.5% increase in the number of treatments from 1,116,199 to 1,289,200 as a
result of the net addition of 12 centers and improved patient census. An
improvement in the payer mix, revenues from the administration of EPO and other
ancillary services also contributed to the increase in dialysis revenues. For
1994, revenues from EPO were $43.5 million, compared to $35.1 million in the
prior year, a 23.9% increase. This growth was due to an increase in the number
of patients receiving EPO and in the average size of dosages. As of November 30,
1994, approximately 84% of the Company's dialysis patients were receiving EPO,
compared to 82% in 1993. The increase in revenues from Vivra Specialty Partners
was due to the growth in diabetes services. 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 $656,000 to
$1.9 million, or 53.1%, as a result of increased cash balances.
Operating costs increased $41.5 million, or 26.5%, to $198.0 million. Vivra
Renal Care operating costs increased $24.8 million to $173.2 million, or 16.7%;
Vivra Specialty Partners increased $800,000 to $5.9 million, or 15.7%; and Other
Services increased $15.9 million to $18.9 million, or 530.0%. The increase in
Vivra Renal Care operating costs was due to the increased volume of dialysis
business, expenses associated with the operation of newly developed dialysis
centers, the cost of the administration of EPO and higher labor and supply
costs. Vivra Specialty Partners operating costs increased due to the growth in
diabetes services. Operating costs of Other Services increased as a result of
the acquisition and growth of the rehabilitation therapy businesses, the
addition of new ambulatory surgery centers and the start-up of the primary care
physician practice management business. General and administrative expenses
increased $17.5 million to $40.2 million, or 77.2%, 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 businesses, the development of new managed care products and
increased incentive compensation expense. Depreciation increased $2.4 million,
or 32.2%, to $9.7 million, due to an increase in depreciable assets of the
dialysis and 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 17.0% compared to 18.2% in 1993. Overall, net earnings from
continuing operations increased $5.7 million, or 23.7%, as a result of increased
revenues, despite a slight decline in before-tax earnings margins.
The effective tax rate for 1994 was 41.0% of earnings before income taxes,
compared with 42.0% a year earlier.
15
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital for the acquisition and development of
dialysis facilities, including the purchase of property, plant and equipment,
and the acquisition and development of its new specialty practices. Acquisition
expenditures for fiscal 1995 and 1994 were $84.6 million, consisting of $66.7
million in cash and 848,391 shares of the Company's Common Stock, and $18.6
million, consisting of $9.2 million in cash and 596,422 shares of the Company's
Common Stock, respectively. For the three months ended February 29, 1996,
acquisition expenditures consisted of $1.0 million in cash and 585,419 shares of
Common Stock. Routine capital expenditures were $8.2 million, $28.9 million and
$20.8 million for the three months ended February 29, 1996 and fiscal 1995 and
1994, respectively.
Cash flow from operations was $16.4 million and $10.4 million for the three
months ended February 29, 1996 and February 28, 1995, respectively. Cash flow
from financing activities decreased by $59.6 million to $2.0 million at February
29, 1996. This decrease was primarily the result of the Company's February 1995
public offering in which the Company sold 2,992,500 shares of Common Stock and
received net proceeds of $59.8 million. The Company's working capital increased
by $7.3 million to $140.0 million at February 29, 1996, from $132.7 million at
November 30, 1995.
Cash flow from operations was $24.5 million and $44.0 million, for fiscal
1995 and 1994, respectively. The decrease of $19.5 million was primarily
attributable to the Company funding increases in accounts receivable of $16.2
million. The increases in accounts receivable reflect growth in the Company's
business operations and, beginning in 1994, a sharp reduction in IDPN claims
approved for payment. Cash flow from financing activities increased by $64.5
million to $71.4 million in fiscal 1995. This increase was primarily the result
of the Company's February 1995 public offering. The Company's working capital
increased by $34.3 million to $132.7 million at November 30, 1995, from $98.4
million at November 30, 1994.
For the remainder of fiscal 1996, the Company currently plans to continue
to acquire and develop new dialysis facilities and expand its specialty network.
The Company expects that its capital and acquisition expenditures for fiscal
1996 will exceed expenditures for fiscal 1995. To the extent the Company is able
to identify significant attractive investment opportunities, such expenditures
could exceed $150 million. The Company believes that cash generated from
operations, available cash, the ability to issue Common Stock for acquisitions
and other financing sources will be adequate to meet the Company's planned
capital expenditure, acquisition and development and liquidity needs through
fiscal 1996.
INFLATION AND CHANGES IN PRICES
Approximately 72%, 70%, 70% and 66% of the Company's dialysis revenues in
the three months ended February 29, 1996 and February 28, 1995 and fiscal 1995
and 1994, respectively, were funded by Medicare and Medicaid, at an average rate
of $126 per dialysis treatment, before ancillary services. Despite periods of
significant inflation, the Medicare and Medicaid reimbursement rate has remained
relatively constant since 1983. The Company is unable to predict what, if any,
future changes may occur in the reimbursement rate and, if made, whether such
changes will help alleviate or increase inflationary pressures on the Company's
margins.
The balance of dialysis revenues, which are paid at rates significantly in
excess of Medicare and Medicaid, represented 28% of revenues in three months
ended February 29, 1996 compared to 30% in the three months ended February 28,
1995 and 30% of revenues in fiscal 1995 compared to 34% in fiscal 1994. The
decline in revenues from these sources was due to the April 24, 1995
clarification of the government's original interpretation of an amendment to the
Social Security Act contained in the Omnibus Budget Reconciliation Act of 1993
("OBRA 93"). OBRA 93 established rules for determining whether Medicare or an
Employer Group Health Plan ("EGHP") should be the primary payer when
beneficiaries who are eligible for or entitled to Medicare on the basis of ESRD
are also entitled to Medicare on the basis of age or disability. HCFA originally
required EGHPs to be the
16
<PAGE> 20
primary payer during the benefits coordination period when a patient had dual
entitlement. However, on April 24, 1995, HCFA revised its interpretation of this
statute to make Medicare the primary payer in cases where a patient would
otherwise be eligible for Medicare coverage prior to the patient's ESRD
diagnosis or when the patient's EGHP was intended to be supplemental. On June 6,
1995, the United States District Court for the District of Columbia issued a
preliminary injunction precluding HCFA from implementing its revised
interpretation for services furnished between August 10, 1993 and April 24,
1995. In the event this preliminary injunction is not upheld, the Company may be
required to refund amounts paid by commercial payers and bill Medicare as the
primary payer for those patients whose Medicare eligibility preceded their
eligibility due to ESRD. Furthermore, 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.
17
<PAGE> 21
BUSINESS
Vivra is a specialty care company. The Company's business strategy is to
compete in specialties/disease states where Vivra can demonstrably deliver
differentiated care to high-cost patient populations. The Company provides
services through Vivra Renal Care ("VRC") and Vivra Specialty Partners ("VSP").
VRC is the second largest provider of dialysis services in the United States
and, as of May 31, 1996, had approximately 13,000 patients at 229 centers in 27
states and the District of Columbia. VSP provides physician network and disease
management services to entities responsible for coordinating health care for a
patient population, principally managed care organizations. VSP coordinates care
in multiple specialties, including asthma/allergy, cardiology, diabetes,
dialysis/nephrology, ENT, obstetrics/gynecology and orthopedics. In these
specialties VSP currently provides services through 25 contracts held by its 18
different networks and also owns 29 specialty practices with 47 physicians and
manages one additional specialty practice with 15 physicians.
VIVRA RENAL CARE
Industry Overview
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 services grew from approximately 66,000
in 1982 to approximately 187,000 in 1994, representing a compound annual growth
rate of 9%. VRC 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. Additionally,
management believes 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 ESRD. Treatment options for ESRD include
hemodialysis, peritoneal dialysis and kidney transplant surgery. HCFA estimates
that, as of December 31, 1994, 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"). Peritoneal dialysis offers
patients an improved lifestyle, but is limited in application by a higher
incidence of infection. Both CAPD and CCPD use 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 VRC 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, medical treatments or artificial kidneys that reduce or
eliminate the necessity for dialysis.
VRC Facilities and Operations
VRC 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. However,
18
<PAGE> 22
the dialysis industry is highly competitive and, as a result, VRC may not be
able to acquire new dialysis facilities economically. As of May 31, 1996, VRC
owned and operated 229 facilities in 27 states and the District of Columbia. The
facilities range in size from 6 to 41 stations; the average size is 15 stations.
The number of VRC's facilities has increased significantly during the past five
years through the acquisition of 51 existing facilities and the development of
56 new facilities, offset by the closure of 12 facilities. As a result of a net
increase in facilities, as well as an increase in the number of treatments at
existing centers, VRC has increased total treatments provided by 101.1% over the
past 5 years. During fiscal 1995, VRC's "same store" patient growth was 6.0%.
There can be no assurance that VRC will continue to experience similar growth in
the future.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF TREATMENTS
FISCAL YEAR END FACILITIES PROVIDED
- --------------- --------- ----------
<S> <C> <C>
1990 104 664,955
1991 112 768,743
1992 128 911,979
1993 138 1,116,199
1994 150 1,289,200
1995 199 1,545,510
</TABLE>
The above table includes total CAPD and CCPD treatments of 48,164, 64,463,
83,579, 114,340, 136,092 and 171,846 in fiscal 1990 through 1995, respectively.
As of May 31, 1996, VRC's facilities were located as follows: California
(40); Florida (34); Texas and Georgia (20 each); South Carolina (18);
Pennsylvania (15); Alabama (14); Virginia (12); North Carolina (7); Louisiana
(6); Maryland (5); District of Columbia (4); Connecticut, Michigan, Missouri,
New Jersey, New Mexico, Oklahoma and Oregon (3 each); Arizona, Kansas,
Massachusetts and Tennessee (2 each); Colorado, Illinois, Iowa, Ohio and West
Virginia (1 each).
As required by Medicare regulations, each of VRC's facilities is supervised
by a Medical Director. VRC'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
dietitian 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. VRC engages in organized and systematic
efforts to measure, maintain and improve the quality of services it delivers.
Each of VRC'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. VRC 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, 66% for
fiscal year 1994 and 70% for fiscal 1995, 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 current average rate of $126.
The Medicaid programs are also subject to statutory and regulatory changes that
could affect the rate of Medicaid reimbursement. VRC 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 VRC'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 health plan, regulations require such insurance to pay for
19
<PAGE> 23
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. VRC 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 1994 and 1995, approximately 84% and 85%, respectively, of VRC's
dialysis patients received EPO. Revenues from the administration of EPO were
approximately $43.5 million and $56.0 million, respectively, or 17% and 18%,
respectively, 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 a negative impact on
Vivra's revenues and net earnings. In addition, EPO is produced by a single
manufacturer, and any interruption of supply could adversely affect Vivra's
revenues and net earnings.
VRC estimates that approximately 34% of its dialysis revenues for the
fiscal year ended 1994 and 30% for 1995, 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. VRC
believes that private payers will 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. VRC is unable to predict
to what extent decreases in these reimbursement rates will be made in the
future. Any reduction in the ability of VRC 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. See Note 10 of Notes to Supplemental
Consolidated Financial Statements.
Ancillary Services. In September 1991, the Company established Associated
Health Services ("AHS") to provide IDPN pharmacy and support services to its
dialysis patients. AHS operates a pharmacy in Southern California and provides
IDPN therapy services to dialysis patients in facilities owned by third parties,
in addition to VRC's patients.
In 1996, VRC began development of a dialysis laboratory and concurrently
entered into a management agreement with an independent third party to manage
the laboratory, which is currently scheduled to begin operations in July 1996.
Tests to be performed at the laboratory will include: (i) blood tests which are
reimbursed as part of the dialysis composite rate, (ii) blood tests ordered for
co-morbidity ESRD conditions (i.e., diseases that are the result of or cause
ESRD) and (iii) general symptom testing.
20
<PAGE> 24
VIVRA SPECIALTY PARTNERS
VSP believes that, with the growth of managed care, substantial
opportunities may exist to provide network and practice management services
related to high-cost specialty care. VSP believes that its physician networks
have the ability to effectively manage expenses related to high cost diseases,
which account for a significant portion of total medical expenses. In addition,
VSP believes that it will have the opportunity to acquire a significant
number of specialty practices.
VSP's strategy is to contract for and manage the delivery of high quality,
cost-effective specialty care through organized physician networks. VSP's
networks are integrated groups of physicians within the same specialty who are
contractually linked to VSP for the purpose of delivering specialty care to
patient populations. The networks are typically arranged to provide
comprehensive geographic coverage in and across the service area of managed care
organizations. VSP provides operating and systems infrastructure, secures
managed care contracts and facilitates the care process while providing
physicians significant autonomy and the ability to co-govern their financial
affairs and generate utilization and practice quality enhancements. VSP has
acquired and intends to continue to acquire specialty physician practices which
are complementary to its physician networks and where VSP has sub-capitated or
case-rate contracts, or where it expects to obtain such contracts. The Company
believes that these specialty practices may allow it to develop clinical and
management insights to enhance the provision of specialty care.
VSP currently owns network and/or practices and provides services in the
following specialties:
<TABLE>
<S> <C>
- - Asthma & Allergy - ENT
- - Cardiology - OB/GYN
- - Diabetes - Orthopedics
- - Dialysis/Nephrology
</TABLE>
In these specialties, VSP provides services for approximately 3.6 million
"Specialty Lives" through 25 contracts held by its 18 different networks. Each
health plan member is deemed to have one Specialty Life for each specialty
contracted.
VSP owns 29 specialty practices with 47 physicians and manages one
additional specialty practice with 15 physicians. To date, VSP's acquired
practices are primarily in asthma/allergy and cardiology. However, the Company
intends to acquire practices in the other specialties it serves.
VSP's network information processing company, Vivra Network Services
("VNS"), provides claims processing and management reporting to VSP's specialty
networks. In addition, VNS has contracts with ten third-party specialty networks
covering approximately 1.8 million Specialty Lives to provide claims processing
and management reporting services.
VSP intends to continue to aggressively expand through the acquisition and
development of related businesses, primarily physician network and practice
entities. While this will require significant capital commitments, there can be
no guarantee that these new businesses will ever become profitable or obtain
financial viability. Further, there can be no assurance that VSP will be able to
successfully compete with companies which provide services similar to VSP, some
of which have greater financial resources and longer operating histories.
COMPETITION
VRC. It is estimated that the six largest dialysis providers constitute
approximately 40% 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
has accelerated as large providers have increased the pace at which they are
making
21
<PAGE> 25
acquisitions. As a result, VRC 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 of a patient or a physician when selecting a
dialysis facility is convenience of location for the patient. Other competitive
factors include quality of care and service. On occasion, VRC has experienced
competition from the establishment of a facility by a former Medical Director.
VSP. Certain companies, some of which have longer operating histories and
greater financial resources than those of VSP, are providing network and
management services similar to those that VSP is providing or pursuing. VSP may
be forced to compete with these entities for acquisitions, network and
management contracts and, in some cases, the employment of practice physicians.
There can be no assurance that VSP will be able to compete effectively with such
competitors, that additional competitors will not enter VSP's markets, or that
such competition will not make it more difficult to expand in such markets on
terms beneficial to VSP.
GOVERNMENTAL REGULATION
General. The Company's operations are subject to extensive governmental
regulation at the federal, state and local levels.
Fraud and Abuse. The Company's operations are subject to the illegal
remuneration provisions of the Social Security Act (sometimes referred to as the
"anti-kickback" statute) and similar state laws that impose criminal and civil
sanctions on persons who knowingly and willfully solicit, offer, receive or pay
any remuneration, whether directly or indirectly, in return for, or to induce,
the referral of a patient for treatment, or, among other things, the ordering,
purchasing, or leasing, of items or services that are paid for in whole or in
part by Medicare, Medicaid or similar state programs. Violations of the federal
anti-kickback statute are punishable by criminal penalties, including
imprisonment, fines and exclusion of the provider from future participation in
the Medicare and Medicaid programs. Federal enforcement officials also may
attempt to impose civil false claims liability with respect to claims resulting
from an anti-kickback violation. If successful, civil penalties could be
imposed, including assessments of $2,000 per improper claim for payment plus
twice the amount of such claim and suspension from future participation in
Medicare and Medicaid programs. Civil suspension for anti-kickback violations
also can be imposed through an administrative process, without the imposition of
civil monetary penalties. Some state statutes also include criminal penalties.
While the federal anti-kickback statute expressly prohibits transactions that
have traditionally had criminal implications, such as kickbacks, rebates or
bribes for patient referrals, its language has been construed broadly and has
not been limited to such obviously wrongful transactions. Court decisions state
that, under certain circumstances, the statute is also violated when one purpose
(as opposed to the "primary" or a "material" purpose) of a payment is to induce
referrals. Congress has frequently considered federal legislation that would
expand the federal anti-kickback statute to include the same broad prohibitions
regardless of payer source.
In July 1991 and in November 1992, the Secretary of HHS published
regulations that create exceptions or "safe harbors" for certain business
transactions. Transactions that satisfy the criteria under the applicable safe
harbors will be deemed not to violate the federal anti-kickback statute.
22
<PAGE> 26
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 many 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.
Stark II. Federal law, commonly referred to as 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 and 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 of a business arrangement or other activity
that violates any state or federal law; and (vii) the arrangement meets such
other requirements that may be imposed pursuant to regulations promulgated by
HHS.
Another Stark II exception for compensation arrangements applies to bona
fide employment relationships. This exception can apply to amounts paid by an
employer to a physician-employee if: (i) the employment is for identifiable
services; (ii) the amount of remuneration is consistent with the fair market
value of services and is not determined in a manner that takes into account,
directly or indirectly, the volume or value of any referrals by the referring
physician; (iii) the remuneration
23
<PAGE> 27
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.
State Referral Regulations. Various states have in place or are
considering anti-referral statutes which impose requirements on or prohibit
certain referrals. The Company could be subject to sanctions and could 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.
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 structure of the relationships
between the Company and its medical providers, 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.
Dialysis Segment. With respect to the Company's dialysis operations, the
Company must 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
health care reform reducing dialysis reimbursement or reducing or eliminating
coverage for dialysis services, would have a material adverse effect on the
Company's business. The health care 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 health
care reform will not result in a material adverse change to the Company.
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
24
<PAGE> 28
contract refer patients to the Company's facilities, the federal anti-kickback
statute could apply. However, the Company believes its contractual arrangements
with these physicians are in material compliance with the anti-kickback statute.
Among the safe harbors promulgated by the Secretary of HHS is one relevant to
the Company's arrangements with its Medical Directors and the other physicians
under contract. The Company endeavors to enter into agreements with its Medical
Directors and other physicians under contracts which satisfy the requirements of
the personal services and management contract safe harbor.
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.
Stark II may require the Company to restructure certain existing
compensation arrangements 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.
Specialty Care Segment. Most states have laws regulating insurance
companies, HMOs and third-party administrators. The Company is not licensed in
any state to engage in the insurance, HMO or third-party administrator
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, HMO
and third-party administrator laws and regulations. The Company does not believe
that its practices in either VRC or VSP, 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
25
<PAGE> 29
regulatory agencies, and accordingly may be required to change or discontinue
certain practices which could have a material adverse effect on the Company.
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.
In recent years, increased attention has been focused on the application of
federal and state antitrust laws to physician networks and provider
arrangements. Federal law prohibits conduct that may result in price-fixing or
other anticompetitive conduct. Although management of the Company believes the
operations of the Company are in material compliance with existing law, there
can be no assurance that the Company's existing agreements with its physicians,
including service agreements or network agreements, will not be successfully
challenged.
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 dialysis or
other services. Further, statutes or regulations may be adopted which impose
additional requirements in order for the Company to be eligible to participate
in the federal and state payment programs. Such new legislation or regulations
may adversely affect the Company's business operations.
Other Regulations. The Company's operations are subject to various state
hazardous waste disposal laws. Those laws as currently in effect do not classify
most of the waste produced during the provision of dialysis services to be
hazardous, although disposal of non-hazardous medical waste is also subject to
regulation. OSHA regulations require employers of workers who are occupationally
subject to blood or other potentially infectious materials to provide those
workers with certain prescribed protections against bloodborne pathogens. The
regulatory requirements apply to all health care 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 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
26
<PAGE> 30
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 $40.0 million for each loss occurrence. The all risk
property insurance coverage limits are $10.0 million based on replacement cost
for each loss occurrence. The loss occurrence limit includes separate annual
aggregate sublimits for earthquake and flood damage of $5.0 million for each
state. The Company believes that its insurance coverage is adequate.
EMPLOYEES
As of May 31, 1996, the Company had approximately 4,400 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.
27
<PAGE> 31
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning each of the
directors, executive officers and significant employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ---------------------------------------------
<S> <C> <C>
Kent J. Thiry........................... 40 President, Chief Executive Officer and
Director
LeAnne M. Zumwalt....................... 37 Chief Financial Officer, Treasurer, Secretary
and Director
David P. Barry.......................... 38 Vice President
Steven C. Bilt.......................... 30 Vice President
Ernest A. Blackwelder................... 36 Vice President
Gregory M. Holcomb...................... 45 Vice President
Jacob Lazarovic, M.D.................... 46 Vice President
Robert A. Prosek........................ 51 Vice President
Thomas O. Usilton....................... 44 Vice President
Robert A. Vraciu........................ 48 Vice President
Alan R. Hoops........................... 47 Director
David L. Lowe........................... 36 Director
John M. Nehra........................... 47 Director
David G. Connor, M.D.................... 55 Director
Richard B. Fontaine..................... 52 Director
Stephen G. Pagliuca..................... 40 Director
</TABLE>
Set forth below is additional information regarding the Company's
directors, executive officers and significant employees.
Kent J. Thiry was appointed President and Chief Executive Officer in
September 1992. Prior thereto, Mr. Thiry was President and Co-Chief Executive
Officer from April through August 1992, and President and Chief Operating
Officer from September 1991 through March 1992. From 1983 to 1991, Mr. Thiry was
Consultant, and later Vice President, Director of U.S. Health Care Consulting at
Bain & Company in San Francisco, California. Mr. Thiry has been a Director of
the Company since 1991. Mr. Thiry is also a director of Summit Medical Systems,
Inc.
LeAnne M. Zumwalt was appointed Chief Financial Officer in May 1996, and
Treasurer and Secretary in March 1995. From August 1995 to May 1996, Ms. Zumwalt
was Executive Vice President and previously was Vice President, Finance. Prior
to 1991, Ms. Zumwalt was Audit Senior Manager at Ernst & Young. Ms. Zumwalt has
been a Director of the Company since 1994.
David P. Barry was appointed Vice President in May 1992. Mr. Barry was
appointed President of Vivra Renal Care, Inc., where he is responsible for
operations, in August 1995 and was appointed President of Specialty CareAmerica,
Inc., where he is responsible for specialty dialysis services, in 1993. From May
1992 to November 1993, Mr. Barry was President of Personal Care Health Services,
Inc., a home health care business and former subsidiary of the Company. From
1984 to 1992, Mr. Barry was employed with Homedco, an infusion therapy company,
where he was appointed District Manager for California in 1990.
Steven C. Bilt was appointed Vice President, Finance in July 1995. From
1993 to 1995, Mr. Bilt was Vice President of South Coast Rehabilitation
Services, Inc., a provider of rehabilitation services and a majority-owned
subsidiary of the Company until July 1995. Prior thereto, Mr. Bilt was an Audit
Manager with Ernst & Young.
Ernest A. Blackwelder was appointed Vice President in November 1994. In
August 1995, Mr. Blackwelder was appointed President of Vivra Heart Services,
Inc., and in August 1994, was appointed President of Specialty Partners of
America, Inc., a subsidiary of the Company, and Surgical Partners of America,
Inc. Prior thereto, Mr. Blackwelder was District Manager and Assistant to the
President of BMC West Corporation, a building supply company, from 1991 to 1994,
and was a consultant specializing in the health care industry with Bain &
Company from 1988 to 1991.
28
<PAGE> 32
Gregory M. Holcomb was appointed Vice President, Finance in November 1993.
Prior thereto, Mr. Holcomb was Director of Finance for the Company.
Jacob Lazarovic, M.D., was appointed Vice President in October 1995, at
which time he was also appointed Vice President of Vivra Specialty Partners,
Inc. Prior thereto, Dr. Lazarovic was Regional Medical Director, Southern Region
at Blue Cross/Blue Shield of Florida/Health Options from 1988 to 1995.
Robert A. Prosek was appointed Vice President in December 1994, at which
time he was also appointed President of Asthma & Allergy CareAmerica, Inc., a
subsidiary of the Company. Prior thereto, Mr. Prosek was President of Allergy
Care of America, Inc. in 1994; was President of Care Partners, a health care
company, from 1991 to 1993; and was President of PSICOR, a provider of contract
clinical services for cardiac surgery, from 1989 to 1991.
Thomas O. Usilton was appointed Vice President in September 1995, at which
time he was also appointed Executive Vice President of Vivra Specialty Partners,
Inc. Prior thereto, Mr. Usilton was Chief Executive Officer of Premier Allergy,
Inc., which he founded, from 1990 to 1994 and was acquired by the Company in
1994.
Robert A. Vraciu was appointed Vice President, Diabetes Management Services
in September 1995, at which time he was also appointed President of Vivra Health
Advantage, a subsidiary of the Company which provides diabetes management
services. Prior thereto, Mr. Vraciu was Vice President of Strategic Planning at
HealthTrust, Inc.
Alan R. Hoops, Director of the Company since 1995, has been Chief Executive
Officer and Director of PacifiCare Health Systems since 1993, where he was also
Chief Operating Officer from 1991 to 1993.
David L. Lowe, Director of the Company since 1995, has been Chairman and
Chief Executive Officer since 1994 of ADAC Laboratories, Inc., a medical imaging
and health care information company, where he was Chief Executive Officer from
1992 to 1994, and President from 1988 to 1994.
John M. Nehra, Director of the Company since 1989, has been Managing
General Partner of Catalyst Ventures L.P., a venture capital partnership, since
1989. From 1983 to 1989, Mr. Nehra 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. Nehra is also a
director of Summit Medical Systems, Inc.
David G. Connor, M.D., Director of the Company since 1989, has been a
physician in private practice in Daly City, California since 1973, specializing
in nephrology and internal medicine. Dr. Connor has been Medical Director of the
Company's dialysis center in Daly City since 1977. From 1986 to 1988, Dr. Connor
was President of the Medical Staff of Seton Medical Center, a general acute care
hospital in Daly City.
Richard B. Fontaine, Director of the Company since 1992, has been an
independent health care consultant since 1992. Prior thereto, Mr. Fontaine was
Senior Vice President of CR&R Incorporated, a waste management company, from
1988 to 1992, and was Vice President, Business Development of Caremark, Inc., a
health care company, from 1984 to 1988.
Stephen G. Pagliuca, Director of the Company since 1992, has been a
managing director of Bain Capital, Inc. since May 1993 and a general partner of
Bain Venture Capital since 1989, where he founded Information Partners. Mr.
Pagliuca also serves as Chairman of the Board of Dade International,
Physio-Control International Corporation and Wesley-Jessen Corporation, and
director of several other companies including Gartner Group, Coram Healthcare,
EduServ Technologies and FTD.
29
<PAGE> 33
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the cash and certain other compensation paid by
the Company to the Chief Executive Officer for his service for fiscal 1995, 1994
and 1993, and to each of the four other most highly compensated current
executive officers in all executive capacities in which they served during the
fiscal years ending November 30, 1995, 1994 and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
-------------------- OPTIONS/ COMPENSATION
NAME/PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS(#) ($)(2)
- ----------------------------------------- ----- --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Kent J. Thiry............................ 1995 250,000 275,000 (1) 150,000 24,546
President and Chief 1994 225,000 200,000 150,000 17,072
Executive Officer 1993 225,000 200,000 225,000 --
LeAnne M. Zumwalt........................ 1995 124,200 75,000 84,000 8,956
Executive Vice President, 1994 107,725 60,000 18,000 5,770
Treasurer and Secretary
David P. Barry........................... 1995 127,000 225,000 141,000 8,519
Vice President 1994 115,000 120,725 10,500 7,893
1993 110,789 85,000 16,875 --
Ernest A. Blackwelder.................... 1995 120,000 50,000 45,000 --
Vice President
Robert A. Prosek......................... 1995 176,750 -- 30,000 --
Vice President
</TABLE>
- ---------------
(1) In addition, Mr. Thiry was granted a contingent bonus of $200,000 for fiscal
1993, which will be paid after November 30, 1996, if the Company's earnings
per share as of that date are at least $1.25, which represents a 17.5%
compound annual growth rate over earnings per share reported for fiscal
1992, and if the Board approves granting such bonus.
(2) Share of Company's contribution to Profit Sharing Plan.
30
<PAGE> 34
FISCAL 1995 VIVRA OPTION/SAR GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OF FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------------- -------------- ------------- ------------ ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kent J. Thiry.................. 150,000(1) 16.9 23.25 11/09/00 963,532 2,129,154
LeAnne M. Zumwalt.............. 9,000(2) 1.0 21.92 10/05/00 54,505 120,442
75,000(1) 8.4 23.25 11/09/00 481,766 1,064,577
David P. Barry................. 30,000(3) 3.4 21.92 03/30/00 181,683 401,472
15,000(4) 1.7 20.00 08/16/00 82,884 183,153
21,000(2) 2.4 21.92 10/05/00 127,178 281,030
75,000(1) 8.4 23.25 11/09/00 481,766 1,064,577
Ernest A. Blackwelder.......... 45,000(3) 5.1 21.92 03/30/00 272,524 602,208
Robert A. Prosek............... 30,000(5) 3.4 19.08 11/30/99 158,144 349,455
</TABLE>
- ---------------
(1) Vests 25% each year on November 9, 1996 through 1999 and 100% in the event
of a change of control.
(2) Vests 20% on October 5, 1995, and 20% each year on October 5, 1996 through
1999 and 100% in the event of a change of control.
(3) Vests 20% on March 30, 1996, and 80% on March 30, 1998 and 100% in the event
of a change of control.
(4) Vests 20% on August 16, 1996, and 40% each year on August 16, 1998 through
1999 and 100% in the event of a change of control.
(5) Vests 20% on December 1, 1994, and 20% each year on December 1, 1995 through
1998 and 100% in the event of a change of control.
FISCAL 1995 VIVRA OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named
executives concerning the exercise of options and/or limited SARs during the
last fiscal year and unexercised options and limited SARs held as of the end of
the fiscal year, November 30, 1995:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END FISCAL YEAR-END
(#) ($)(1)
SHARES --------------------- --------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- --------------------- --------------------
<S> <C> <C> <C> <C>
Kent J. Thiry............... 187,500 2,097,848 484,500/ 5,117,895/
427,500 2,321,885
LeAnne M. Zumwalt........... 11,812 98,996 37,838/ 310,611/
108,600 180,601
David P. Barry.............. 54,375 430,036 69,300/ 625,262/
157,200 242,700
Ernest A. Blackwelder....... -- -- 12,000/ 81,000/
63,000 159,000
Robert A. Prosek............ -- -- 6,000/ 22,000/
24,000 88,000
</TABLE>
- ---------------
(1) The closing price of the Company's Common Stock on the New York Stock
Exchange at fiscal year end, November 30, 1995, was $22.75 per share.
31
<PAGE> 35
Subsidiary Options. The Company has granted options to employees and other
individuals in various operating subsidiaries. The purpose of such option grants
is to motivate individuals directly responsible for the subsidiary's success.
Under the subsidiary option programs, options are granted pursuant to a stock
option plan adopted by the subsidiary. Each option is reflected by an option
agreement which provides for the grant of options at fair market value typically
with a term of the earlier of 5 years or a defined period after death,
disability or termination of employment. The subsidiary may also compel the
exercise of options under certain circumstances. The options generally vest over
a four-year term in equal annual installments. Optionholders are also required
to be bound by the terms of a Stockholders Agreement. The Stockholders Agreement
contains rights of first refusal on transfers by stockholders, a right of
repurchase (the "Call Right") in the event the employee is no longer employed by
the subsidiary, and a right of the employee to compel the subsidiary to
repurchase (a "Put Right") the shares in 1999. The Call Right and the Put Right
may be satisfied by the Company by the payment of cash, a promissory note, or,
in some cases, an equivalent value of Vivra Common Stock. The Stockholders
Agreement also contains various other rights and restrictions, including
"piggyback" registration rights to include shares in registration statements
filed by the subsidiary under the Securities Act of 1933, as amended.
Set forth below is a summary of options in subsidiaries granted to
executive officers and directors of the Company:
In fiscal 1995, Vivra Heart Services, Inc., a subsidiary of the Company,
granted to Messrs. Blackwelder, Barry, Nehra and Prosek, Ms. Zumwalt and Dr.
Connor options to purchase 240,000, 10,000, 110,000, 2,500, 15,000 and 2,500
shares, respectively, at exercise prices of $0.50; except in the case of 50,000
of Mr. Nehra's options, which were granted at an exercise price of $1.00.
In fiscal 1995, Vivra Specialty Partners, Inc., a subsidiary of the
Company, granted to Mr. Barry and Ms. Zumwalt options to acquire 60,000 and
70,000 shares, respectively, at an exercise price of $1.65.
In fiscal 1996, Vivra Asthma & Allergy CareAmerica, Inc. ("VAACA"), a
subsidiary of the Company, granted Mr. Prosek options to purchase 600,000 shares
of its common stock at an exercise price of $0.375 per share. Mr. Prosek will
receive options to purchase an additional 300,000 shares of VAACA common stock
at an exercise price equal to the fair market value per share on the date of
grant upon his relocation to San Mateo, California.
32
<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 80,000,000 shares
of Common Stock, $.01 par value and 10,000,000 shares of Preferred Stock, $.01
par value.
COMMON STOCK
As of June 1, 1996, there were 39,005,287 shares of Common Stock
outstanding. Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to the holders of outstanding shares of Preferred Stock, if any, the
holders of Common Stock are entitled to receive such lawful dividends as may be
declared by the Board of Directors. See "Dividend Policy." In the event of
liquidation, dissolution or winding up of the Company, and subject to the rights
of the holders of outstanding shares of Preferred Stock, if any, the holders of
shares of Common Stock shall be entitled to receive pro rata all of the
remaining assets of the Company available for distribution to the stockholders.
There are no redemption or sinking fund provisions applicable to the Common
Stock. All outstanding shares of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
The Company has currently authorized 600,000 shares of Series A Junior
Participating Preferred Stock, of which no shares are outstanding. See
"-- Stockholder Rights Plan." The Board of Directors has the authority, without
further action by the stockholders, to issue from time to time the Preferred
Stock in one or more series and to fix the number of shares, designations,
preferences, powers, and relative, participating, optional or other special
rights and the qualifications or restrictions thereof. The preferences, powers,
rights and restrictions of different series of Preferred Stock may differ with
respect to dividend rates, amounts payable on liquidation, voting rights,
conversion rights, redemption provisions, sinking fund provisions, and purchase
funds and other matters. The issuance of Preferred Stock could decrease the
amount of earnings and assets available for distribution to holders of Common
Stock or affect adversely the rights and powers, including voting rights, of the
holders of Common Stock, and may have the effect of delaying, deferring or
preventing a change in control of the Company. The ability of the Board of
Directors to issue Preferred Stock without further stockholder approval could
also have the effect of entrenching management by discouraging potential
acquisition proposals even if such a transaction is favored by a majority of the
independent stockholders.
33
<PAGE> 37
STOCKHOLDER RIGHTS PLAN
On February 13, 1996, the Company's Board of Directors adopted an amended
and restated stockholder rights plan pursuant to which the Rights attach to each
share of Common Stock on the basis of one Right for each share held.
In general, the Rights become exercisable or transferable only upon the
occurrence of certain events related to changes in ownership of the Common
Stock. Once exercisable, each Right entitles its holder to purchase from the
Company one one-hundredth of a share ("unit") of Series A Junior Participating
Preferred Stock at a purchase price of $100 per unit, subject to adjustment. The
Rights will separate from the Common Stock and become exercisable or
transferable on a distribution date (the "Distribution Date"), which will occur
on the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired
beneficial ownership of securities representing 15% or more of the outstanding
Common Stock or (ii) 10 business days following the commencement of (or a public
announcement of an intention to make) a tender or exchange offer that would
result in a person or group of related persons becoming an Acquiring Person.
Upon the occurrence of certain other events related to changes in the ownership
of the Common Stock, each holder of a Right would be entitled to purchase shares
of the Common Stock, or an acquiring corporation's common stock, having a market
value equal to two times the exercise value of the Right.
The Rights expire on the earliest of (i) August 31, 1999, (ii) redemption
of the Rights or (iii) exchange of the Rights. Subject to certain conditions,
the Rights may be redeemed by the Company's Board of Directors at any time at a
price of $.001 per Right or may be exchanged in whole or in part for Preferred
Stock or Common Stock. The Rights are not currently exercisable and trade
together with the shares of Common Stock associated therewith.
The Rights, if exercised, will cause a substantial dilution to the equity
interest in Vivra to a person or group's ownership interest in the Company's
Common Stock that attempts to acquire the Company on terms not approved by the
Company's Board of Directors. See "Risk Factors -- Anti-Takeover Provisions."
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation provides that certain provisions
thereof and the Company's By-Laws may be repealed or amended only by a vote of
80% of the stockholders. Further, the Certificate of Incorporation requires that
all stockholder action be taken at a stockholders' meeting. In addition, those
provisions of the Certificate of Incorporation may only be amended or repealed
by the holders of at least 80% of the voting power of all the then-outstanding
shares of stock entitled to vote generally for the election of directors voting
together as a single class.
The Company's Certificate of Incorporation contains, in addition to other
provisions which have an anti-takeover effect, a "fair price" provision and a
provision for a classified Board of Directors. The "fair price" provision
requires the affirmative vote of the holders of at least 80% of the outstanding
shares of voting stock of the Company in the case of certain mergers, sales or
other dispositions involving a beneficial holder of 5% or more of the Company's
outstanding voting stock or a liquidation or dissolution of the Company proposed
by such a substantial stockholder, or in the case of certain other specified
transactions involving such a substantial stockholder, whether or not they
otherwise require a stockholder vote. The provisions described above, together
with the Rights, may have the effect of deterring a hostile takeover or delaying
a change in control or management of the Company. See "-- Stockholder Rights
Plan."
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the General
Corporation Law ("Section 203"). Section 203 provides, with certain exceptions,
that a Delaware corporation may not
34
<PAGE> 38
engage in any of a broad range of business combinations with a person or an
affiliate, or associate of such person, who is an "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person becoming an
interested stockholder, or the business combination, is approved by the Board of
Directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
such person an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans) or (iii) on or after the date the person becomes
an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is (i) the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action of
its stockholders to exempt itself from coverage, provided that such amendment
shall not become effective until 12 months after the date it is adopted. The
Company has not adopted such an amendment to its Restated Certificate or Bylaws.
35
<PAGE> 39
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 Statements 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 Shares offered
hereby will be passed upon for the Company by Pillsbury Madison & Sutro LLP,
Menlo Park, California.
EXPERTS
The consolidated financial statements and schedule of the Company appearing
in the Company's Annual Report on Form 10-K for the year ended November 30,
1995, 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 and schedule are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The supplemental consolidated financial statements and supplemental
schedule of the Company at November 30, 1995 and 1994 and for each of the three
years in the period ended November 30, 1995 appearing in this Prospectus have
also been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and are included in reliance
upon the authority of such firm as experts in accounting and auditing.
36
<PAGE> 40
VIVRA INCORPORATED
AND SUBSIDIARIES
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Financial Statements:
Supplemental Consolidated Balance Sheet as of November 30, 1995 and 1994............ F-3
Supplemental Consolidated Statement of Earnings for the years ended November 30,
1995, 1994 and 1993.............................................................. F-4
Supplemental Consolidated Statement of Stockholders' Equity......................... F-5
Supplemental Consolidated Statement of Cash Flows for the years ended November 30,
1995, 1994 and 1993.............................................................. F-6
Notes to Supplemental Consolidated Financial Statements............................. F-7
Condensed Supplemental Consolidated Balance Sheet as of February 29, 1996
(unaudited) and November 30, 1995................................................ F-22
Condensed Supplemental Consolidated Statement of Earnings for the three months ended
February 29, 1996 and February 28, 1995 (unaudited).............................. F-23
Condensed Supplemental Consolidated Statement of Cash Flows for the three months
ended February 29, 1996 and February 28, 1995 (unaudited)........................ F-24
Notes to Condensed Supplemental Consolidated Financial Statements (unaudited)....... F-25
Schedule II - Supplemental Valuation and Qualifying Accounts........................ F-26
</TABLE>
F-1
<PAGE> 41
REPORT OF INDEPENDENT AUDITORS
Board of Directors
VIVRA Incorporated
We have audited the accompanying supplemental consolidated balance sheets
of VIVRA Incorporated (formed as a result of the consolidation of VIVRA
Incorporated, Kidney Centers of Charleston, Inc., Brennan, Martell, and
Mirmelli, M.D.s, P.A. and Allergy & Asthma Institute of South Florida, P.A., and
Orthonet, Inc.) as of November 30, 1995 and 1994 and the related supplemental
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended November 30, 1995. Our audits also
included the supplemental financial statement schedule listed in the Index to
Supplemental Consolidated Financial Statements. The supplemental consolidated
financial statements give retroactive effect to the merger of VIVRA Incorporated
and Kidney Centers of Charleston, Inc. on May 1, 1996; VIVRA Incorporated and
Brennan, Martell and Mirmelli, M.D.s, P.A. and Allergy & Asthma Institute of
South Florida, P.A. on May 1, 1996; and VIVRA Incorporated and Orthonet, Inc. on
February 28, 1996, all of which have been accounted for using the pooling of
interests method as described in the notes to the supplemental consolidated
financial statements and schedule. These supplemental financial statements and
schedule are the responsibility of the management of VIVRA Incorporated. Our
responsibility is to express an opinion on these supplemental financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying supplemental financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of VIVRA Incorporated at November 30, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended November 30, 1995, after giving retroactive effect to
the merger of Kidney Centers of Charleston, Inc.; Brennan, Martell and Mirmelli,
M.D.s, P.A. and Allergy & Asthma Institute of South Florida, P.A.; and Orthonet,
Inc., as described in the notes to the supplemental consolidated financial
statements, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule when considered
in relation to the basic supplemental financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, California
June 7, 1996
F-2
<PAGE> 42
VIVRA INCORPORATED AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
NOVEMBER 30,
---------------------
1995 1994
-------- --------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................ $ 53,990 $ 80,620
Short-term investments -- held-to-maturity and available-for-sale
(Note 4).......................................................... 43,616 --
Accounts receivable, less allowance for doubtful accounts
(1995 -- $13,279 and 1994 -- $10,640)............................. 64,004 53,650
Inventories.......................................................... 9,030 6,549
Prepaid expenses and other current assets............................ 1,959 989
Deferred income taxes (Note 6)....................................... 14,514 10,674
-------- --------
Total Current Assets......................................... 187,113 152,482
Marketable non-current investments -- held-to-maturity (Note 4)........ 22,510 --
Property, buildings and equipment -- at cost, less allowances for
depreciation (Notes 5 and 7)......................................... 76,189 66,717
Other assets........................................................... 8,479 5,353
Goodwill and other intangibles, less accumulated amortization
(1995 -- $6,727 and 1994 -- $4,691).................................. 113,935 56,173
-------- --------
$408,226.. $280,725
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................................... $ 11,004 $ 10,011
Accrued payroll and related benefits................................. 22,693 23,231
Other accrued expenses............................................... 10,768 10,978
Income taxes (Note 6)................................................ 4,674 2,184
Current portion of deferred income taxes............................. 3,791 283
Current maturities of long-term debt (Note 7)........................ 1,477 7,388
-------- --------
Total Current Liabilities.................................... 54,407 54,075
Long-term debt -- exclusive of current maturities (Note 7)............. 1,840 5,403
Deferred income taxes (Note 6)......................................... 6,643 6,184
Minority interest...................................................... (238) 1,391
Stockholders' Equity (Note 8):
Common stock, par value $.01 per share; authorized 80.0 million
shares; issued 38.1 million shares in 1995 and 32.6 million in
1994.............................................................. 381 223
Additional paid-in capital........................................... 142,762 54,876
Retained earnings.................................................... 197,361 158,573
Net unrealized gain on marketable securities, less applicable income
taxes............................................................. 5,070 --
-------- --------
Total Stockholders' Equity................................... 345,574 213,672
-------- --------
$408,226 $280,725
======== ========
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-3
<PAGE> 43
VIVRA INCORPORATED AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues:
Operating revenues....................................... $366,516 $297,399 $228,002
Other income............................................. 5,221 1,891 1,235
-------- -------- --------
Total Revenues................................... 371,737 299,290 229,237
Costs and Expenses:
Operating................................................ 250,663 198,039 156,507
General and administrative............................... 46,430 40,200 22,686
Depreciation............................................. 10,978 9,712 7,344
Interest................................................. 444 571 945
-------- -------- --------
Total Costs and Expenses......................... 308,515 248,522 187,482
-------- -------- --------
Earnings from continuing operations, before minority
interest and income taxes............................. 63,222 50,768 41,755
Minority interest........................................ (95) (10) --
-------- -------- --------
Earnings from continuing operations, before income
taxes................................................. 63,127 50,758 41,755
Income taxes (Note 6).................................... 24,599 20,811 17,537
-------- -------- --------
Net earnings from continuing operations.................. 38,528 29,947 24,218
Earnings from discontinued operations, less applicable
taxes (Note 3)........................................ -- -- 554
Gain on sale of discontinued operations, less applicable
taxes (Note 3)........................................ -- 697 --
-------- -------- --------
Net earnings............................................. $ 38,528 $ 30,644 $ 24,772
======== ======== ========
Earnings per Share (Primary and Fully Diluted):
Net earnings from continuing operations.................. $ 1.06 $ .93 $ .77
Earnings from discontinued operations.................... -- -- .02
Gain on sale of discontinued operations.................. -- .02 --
-------- -------- --------
Net earnings..................................... $ 1.06 $ .95 $ .79
======== ======== ========
Average Number of Common Shares:
Primary.................................................. 36,474 32,111 31,222
Fully diluted............................................ 36,474 32,111 31,257
======== ======== ========
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-4
<PAGE> 44
VIVRA INCORPORATED AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
ADDITIONAL TREASURY STOCK GAIN (LOSS) ON
COMMON PAID-IN RETAINED ---------------- MARKETABLE
STOCK CAPITAL EARNINGS SHARES AMOUNT SECURITIES
------ ---------- -------- ------ ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 1, 1992................. $139 $ 40,578 $102,593 42 $(1,198)
Common Stock split effected by three-for-two
distribution (Note 8)..................... 64 (103) 21
Cash paid in lieu of issuance of fractional
shares.................................... (12)
Exercise of employees' stock options, net of
treasury stock transactions (Note 8)...... 5 2,522 (63) 1,198
Income tax benefits derived from employee
stock option transactions................. 2,776
Stock issued in connection with acquisitions
(Note 2).................................. 7 6 533
Net earnings for year....................... 24,772
---- -------- -------- --- ------- ------
Balance at November 30, 1993................ 215 45,767 127,898 -- -- --
Exercise of employees' stock options, net of
treasury stock transactions (Note 8)...... 6 4,163
Income tax benefits derived from employee
stock option transactions................. 3,514
Stock issued in connection with acquisition
(Note 2).................................. 2 1,432 31
Net earnings for year....................... 30,644
---- -------- -------- --- ------- ------
Balance at November 30, 1994................ 223 54,876 158,573 -- -- --
Common stock split affected by three-for-two
distribution (Note 8)..................... 103 (103)
Cash paid in lieu to issuance of fractional
shares.................................... (59)
Sale of Common Stock (Note 8)............... 30 59,562
Exercise of employees' stock options, net of
treasury stock transactions (Note 8)...... 14 13,800
Income tax benefits derived from employee
stock option transactions................. 5,162
Stock issued in connection with acquisition
(Note 2).................................. 11 9,524 260
Net earnings for year....................... 38,528
Net unrealized gain on marketable
securities, less applicable income taxes
(Note 6).................................. $5,070
---- -------- -------- --- ------- ------
Balance at November 30, 1995................ $381 $142,762 $197,361 -- -- $5,070
==== ======== ======== === ======= ======
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-5
<PAGE> 45
VIVRA INCORPORATED AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------
1995 1994 1993
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities:
Net earnings.............................................. $ 38,528 $ 30,644 $ 24,772
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 14,093 11,792 8,694
Assets held for sale...................................... -- -- (3,261)
Gain on sale of discontinued operations................... -- (1,229) --
Loss (Gain) on sale of property and investments........... (1,565) 1,061 1
Other..................................................... (6,159) (3,626) (533)
Changes in assets and liabilities:
Accounts receivable.................................... (16,249) (1,754) (4,057)
Inventories............................................ (2,431) (1,287) (510)
Prepaid expenses and other current assets.............. (1,652) 295 507
Deferred income taxes.................................. (3,841) (4,039) (2,094)
Accounts payable....................................... 5,312 (774) 25
Accrued payroll and related benefits................... (369) 6,371 3,518
Other accrued expenses................................. (3,279) 5,286 1,073
Income taxes........................................... 2,160 1,271 653
--------- -------- --------
Net cash flow from operations..................... 24,548 44,011 28,788
Financing Activities:
Payments on long-term debt................................ (7,703) (3,652) (1,494)
Proceeds from Common Stock offering....................... 59,592 -- --
Proceeds from long-term borrowing......................... 613 2,860 310
Proceeds from exercise of stock options and related
transactions........................................... 18,918 7,683 6,451
--------- -------- --------
Net cash flow from financing...................... 71,420 6,891 5,267
Investing Activities:
Purchase of property, buildings and equipment............. (28,925) (20,761) (12,316)
Purchase of held-to-maturity investments.................. (51,037) -- --
Purchase of available-for-sale investments................ (4,985) -- --
Proceeds from sale of property, buildings
and equipment.......................................... 29,158 193 14
Proceeds from sale of discontinued operations............. -- 6,238 --
Proceeds from investments in partnerships................. 841 1,627 1,097
Minority interest investment.............................. (1,000) (1,500) --
Payment for business acquisitions, net of cash acquired... (66,650) (9,160) (9,885)
--------- -------- --------
Net cash flow used in investing................... (122,598) (23,363) (21,090)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents...... (26,630) 27,539 12,965
Beginning cash and cash equivalents....................... 80,620 53,081 40,116
--------- -------- --------
Ending cash and cash equivalents.................. $ 53,990 $ 80,620 $ 53,081
========= ======== ========
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-6
<PAGE> 46
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The supplemental consolidated financial statements include the accounts of
the Company and its subsidiaries. In December 1993, the Company sold its home
health care nursing business, Personal Care Health Services. The related gain on
the sale is shown separately in 1994 under discontinued operations. The 1993
results of operations for the home health care nursing business are shown
separately under discontinued operations, with the Supplemental Consolidated
Statement of Earnings restated for comparative purposes. All significant
intercompany transactions have been eliminated in the accompanying consolidated
financial statements. Certain amounts have been reclassified to conform with
1995 presentations. As described more fully in Note 2, the Company completed
business combinations with Orthonet, Inc. on February 28, 1996, Brennan, Martell
and Mirmelli, M.D.'s, P.A. and Allergy & Asthma Institute of South Florida, P.A.
on May 1, 1996 and Kidney Centers of Charleston, Inc. on May 1, 1996 in stock
for stock exchanges or mergers with the Company. These supplemental consolidated
financial statements have been prepared following the pooling-of-interests
method of accounting and reflect the combined financial position and operating
results of the Company and these combined businesses for all periods presented.
The Company's fiscal year end is November 30. These supplemental
consolidated financial statements combine the results of the Company for each of
the three years ended November 30, 1995 along with Orthonet, Inc. and Kidney
Centers of Charleston, Inc. for each of the three years ended December 31, 1995,
and Brennan, Martell and Mirmelli, M.D.'s, P.A. and Allergy & Asthma Institute
of South Florida, P.A. for the fiscal years ended February 29, 1996, February
28, 1995 and 1994. The effect of combining results based on different fiscal
year conventions is not considered material to the Company's financial
statements.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Financial Instruments
Effective December 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities ("FAS 115"), which resulted in a change in the accounting for
debt and equity securities held for investment purposes. In accordance with FAS
115, the Company's debt and equity securities are now considered as either
held-to-maturity or available-for-sale. Held-to-maturity securities represent
those securities that the Company has both the positive intent and ability to
hold to maturity and are carried at amortized cost. Available-for-sale
securities represent those securities that do not meet the classification of
held-to-maturity or trading, and are carried at fair value. Unrealized gains and
losses on these securities are excluded from earnings and are reported as a
separate component of Stockholders Equity. The adoption of FAS 115 had no effect
on the Company's reported earnings in fiscal 1995.
Inventories
Inventories of supplies are stated at the lower of cost or market, with
cost being determined on a first-in, first-out basis.
F-7
<PAGE> 47
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Buildings and Equipment
Depreciation is computed on the straight-line method based on the estimated
useful lives of buildings or items of equipment.
Preopening Costs
Costs incurred prior to the opening of new facilities are deferred and
amortized on a straight-line basis over a one to three year period.
Goodwill and Other Intangibles
Goodwill resulting from acquisitions is being amortized on a straight-line
basis over 15 to 40 years. The Company reviews the performance of its operating
units periodically to determine if an impairment has occurred. If events or
changes in circumstances indicate that an impairment exists, the Company
writes-down the corresponding goodwill to fair value. Other intangible assets
are being amortized on a straight-line basis over 15 to 30 years.
Income Taxes
Effective December 1, 1993, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 109, Accounting for Income Taxes ("FAS
109"), which requires an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and liabilities are
computed for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on rates applicable to the period in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets. The Company adopted FAS 109 prospectively. There was
no cumulative effect of the change in the method of accounting for income taxes.
Operating Revenues
Operating revenues include amounts for services reimbursable by Medicare,
Medicaid, certain Blue Cross and other third-party payers under reimbursement
formulas in effect. Operating revenues are recorded net of any related
contractual allowances. Medicare and Medicaid provided approximately 63% of the
Company's operating revenues in fiscal year 1995. The balance of revenues,
approximately 37%, was from insurance, private and other third-party payers.
Stock Options
Proceeds from the exercise of stock options are credited to Common Stock to
the extent of par value, and the balance to additional paid-in capital. No
charges or credits are made to earnings with respect to options granted or
exercised. Income tax benefits derived from the exercise of non-qualified stock
options and from sales of stock obtained from incentive stock options before the
minimum holding period are credited to additional paid-in capital.
Earnings Per Share
Earnings per share have been computed based upon the weighted average
number of shares of Common Stock outstanding during each year after adjusting
for stock splits and giving effect for Common Stock equivalents arising from
stock options.
F-8
<PAGE> 48
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
Effective March 1995, the Financial Accounting Standards Board issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of ("FAS 121"), which requires impairment
losses to be recorded on long-lived assets used in operations, or to be disposed
of, when such impairment has been determined. The Company will adopt FAS 121 in
the first quarter of 1996 and, based on current circumstances, does not believe
the effect of adoption will be material.
2. MERGERS, ACQUISITIONS AND DISPOSITIONS
The Company completed business combinations with Orthonet, Inc. on February
28, 1996, Brennan, Martell and Mirmelli, M.D.'s, P.A. and Allergy & Asthma
Institute of South Florida, P.A. on May 1, 1996 and Kidney Centers of
Charleston, Inc. on May 1, 1996 in stock for stock exchanges or mergers with the
Company. These transactions have been accounted for under the
pooling-of-interests method. Accordingly, the historical financial statements
for periods prior to the consummation of these combinations have been restated
as though the companies had been combined. The restated financial statements
have been adjusted to conform with differing accounting policies of the separate
companies. All fees and expenses related to these transactions have not been
reflected in the supplemental consolidated statements of income, but will be
reflected in the Company's supplemental consolidated statements of income for
the quarter ending May 31, 1996.
The calculation of net income per share for each period presented reflects
the issuance of 1,405,373 shares for the Orthonet, Inc. combination, the
Brennan, Martell and Mirmelli, M.D.'s, P.A. and Allergy & Asthma Institute of
South Florida, P.A. combination and the Kidney Centers of Charleston, Inc.
combination.
Separate and combined results from the above transactions are as follows
and reflect income tax adjustments related to the Company's effective tax rate
for each fiscal year:
<TABLE>
<CAPTION>
VIVRA ORTHONET BRENNAN CHARLESTON COMBINED
-------- -------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year ended November 30, 1995
Revenues............................. $355,647 $715 $8,156 $7,219 $371,737
Net Income........................... 37,940 187 121 280 38,528
Year ended November 30, 1994
Revenues............................. $286,519 $274 $6,762 $5,735 $299,290
Net Income........................... 30,439 47 182 (24) 30,644
Year ended November 30, 1993
Revenues............................. $217,981 -- $6,305 $4,951 $229,237
Net Income........................... 24,396 -- 197 179 24,772
</TABLE>
In 1995, the Company acquired twenty-eight dialysis centers. Total
consideration paid was $76.0 million, consisting of cash of $58.0 million and
848,391 shares of the Company's Common Stock, which exceeded the fair value of
net assets acquired by $59.7 million.
Also in 1995, the Company acquired seven physician businesses. Total cash
consideration was $9.9 million, which exceeded the fair value of net assets
acquired by $9.8 million.
F-9
<PAGE> 49
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGERS, ACQUISITIONS AND DISPOSITIONS (CONTINUED)
The purchase price of 1995 acquisitions was allocated to $76.3 million of
assets acquired, less $1.2 million of cash, and $2.4 million of liabilities
assumed. The consideration included the Company's Common Stock and $66.7 million
of cash.
During 1994, the Company acquired five dialysis centers. Total
consideration paid was $4.3 million, consisting of cash of $763,000 and 255,777
shares of the Company's Common Stock, which exceeded the fair value of net
assets acquired by approximately $1.8 million.
Also during 1994, the Company acquired eight physician practice and related
businesses. Total consideration paid was $8.8 million, consisting of cash of
$6.6 million and 130,043 shares of the Company's Common Stock, which exceeded
the fair value of net assets acquired by approximately $6.2 million.
In November 1994, the Company purchased certain assets and liabilities in
Asthma and Allergy CareAmerica, Inc., a provider of outpatient asthma/allergy
care. Total consideration paid was $4.8 million, consisting of cash of $1.3
million and 210,602 shares of the Company's Common Stock, which exceeded the
fair value of net assets acquired by approximately $2.1 million. The purchase
agreement entitles the selling shareholders to receive further consideration of
up to $14.3 million payable in cash or Common Stock of the Company, based upon
meeting predetermined earnings targets in the years 1995 through 1998. The 1995
earnings target was not met, therefore no earnout payment was made.
During 1993, the Company acquired six dialysis centers. Total consideration
paid was $17.9 million, consisting of cash of $9.9 million and 663,750 shares of
the Company's Common Stock, which exceeded the fair value of net assets acquired
by approximately $9.2 million.
The acquisitions of four dialysis centers in 1995, three dialysis centers
in 1994, in addition to one physician practice, and two dialysis centers in 1993
have been accounted for as pooling of interests. Consolidated Financial
Statements for the periods prior to the exchanges have not been restated as the
effect of the poolings were not material to the Company.
The acquisitions of the remaining dialysis centers and related specialty
businesses have all been accounted for as purchases and, accordingly, have been
included in the statement of earnings since their dates of acquisition.
In June 1995, the Company completed the sale of the assets related to the
operation of its five ambulatory surgery centers. In connection with the sale,
the Company realized a pre-tax gain of $2.2 million.
In July 1995, the Company sold its 60% interest in South Coast
Rehabilitation Services ("SCRS"), a medical rehabilitation provider. In
connection with the sale, the Company realized a pre-tax gain of $2.0 million.
The following table presents the unaudited consolidated results of
operations on a pro forma basis as though the acquisitions made in 1995 had
occurred on December 1, 1993.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------
1995 1994
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Operating revenues................................... $398,608 $352,596
Net earnings......................................... 39,750 32,533
Earnings per share................................... $ 1.09 $ 0.99
</TABLE>
F-10
<PAGE> 50
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DISCONTINUED OPERATIONS
In December 1993, the Company sold its home health care nursing business,
Personal Care Health Services. The cash proceeds net of retained assets,
liabilities and taxes were approximately $5.9 million. Accordingly, the home
health care nursing business has been classified as a discontinued operation in
the accompanying Supplemental Consolidated Statement of Earnings.
Net assets held for sale in the accompanying Supplemental Consolidated
Balance Sheet are composed of $3.2 million net current assets and $502,000 of
net noncurrent assets as of November 30, 1993. These amounts consist primarily
of accounts receivable, furniture and equipment and related liabilities.
The sale of the home health care nursing business resulted in a gain on the
sale of discontinued operations in the accompanying Supplemental Consolidated
Statement of Earnings of $697,000 net of applicable income tax of $505,000 in
1994.
Revenues applicable to discontinued operations were $17.7 million in 1993.
Earnings from discontinued operations in the accompanying Supplemental
Consolidated Statement of Earnings were $554,000 net of applicable income tax of
$402,000 in 1993.
4. INVESTMENTS
The amortized cost and estimated fair value of the Company's investments
are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, 1995
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Short-term investments:
Debt securities:
Due within 1 year.......................... $28,527 $ -- $ -- $ 28,527
Marketable equity............................. 6,486 9,049 (446) 15,089
------- ------ ----- -------
Subtotal................................... 35,013 9,049 (446) 43,616
Noncurrent investments:
Debt securities:
Due after 1 year through 5 years........... 22,510 -- -- 22,510
------- ------ ----- -------
Total Investments............................... $57,523 $9,049 $ (446) $ 66,126
======= ====== ===== =======
</TABLE>
The Company's debt securities are classified as held-to-maturity and
marketable equity securities are classified as available-for-sale.
F-11
<PAGE> 51
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment are summarized as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land................................................... $ 4,734 $ 6,450
Buildings and improvements............................. 37,538 38,591
Furniture, fixtures and equipment...................... 70,625 65,119
Construction in progress (estimated costs to complete
at November 1995 -- $2,634,000)...................... 4,067 1,006
-------- --------
116,964 111,166
Less accumulated depreciation.......................... (40,775) (44,449)
-------- --------
$ 76,189 $ 66,717
======== ========
</TABLE>
6. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
30,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................................ $ 5,484 $ 4,434
Accrued compensation and other benefits................................ 3,147 2,250
Accrued workers compensation insurance................................. 2,247 1,633
Accrued health care costs.............................................. 577 1,062
Deferred income........................................................ 2,882 --
Other assets........................................................... 177 1,295
------- -------
Total deferred tax assets................................................ 14,514 10,674
Deferred tax liabilities:
Net unrealized gain on marketable securities, classified as current.... 3,791 283
Amortization of intangibles............................................ 4,428 3,241
Depreciation........................................................... 2,271 2,086
Other liabilities...................................................... (56) 857
------- -------
Total deferred tax liabilities........................................... 10,434 6,467
------- -------
Net deferred tax assets.................................................. $ 4,080 $ 4,207
======= =======
</TABLE>
The above deferred tax assets and liabilities included deferred tax assets
totaling $393,000 which were acquired as part of the Company's acquisitions in
1995.
F-12
<PAGE> 52
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Income tax expense from continuing operations consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................................... $21,052 $19,031 $15,110
State....................................................... 6,559 5,224 3,906
Deferred (credit)............................................. (3,012) (3,444) (1,479)
------- ------- -------
$24,599 $20,811 $17,537
======= ======= =======
</TABLE>
Deferred income taxes result from timing differences in the recognition of
certain revenues and expenses for tax and financial statement purposes. The tax
effects of these differences are:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Amortization of intangibles........................... $ 455 $ 1,786 $ 422
Provision for doubtful accounts in excess of amounts
written off......................................... (1,081) (1,537) --
Accrued compensation and other benefits............... (612) (1,118) --
Accrued workers compensation insurance................ (640) (1,098) --
Health insurance reserves in excess of claims paid.... 288 (129) (912)
Deferred income....................................... (2,509) -- --
Other................................................. 1,087 (1,348) (989)
------- ------- -------
$(3,012) $(3,444) $(1,479)
======= ======= =======
</TABLE>
The differences between federal income taxes computed at the statutory rate
and the total provision are:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------
1995 1994 1993
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rate................ $22,094 $17,765 $14,615
State taxes on income, net of federal tax benefit..... 3,371 2,958 2,364
Miscellaneous items................................... (866) 88 558
------- ------- -------
$24,599 $20,811 $17,537
======= ======= =======
</TABLE>
The Company made income tax payments, net of refunds received, of
$19,690,000, $20,629,000, and $14,523,000 in 1995, 1994 and 1993, respectively.
F-13
<PAGE> 53
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT
Long-term debt at November 30, 1995, consists of the following:
<TABLE>
<CAPTION>
PRINCIPAL INSTALLMENTS
DUE WITHIN DUE AFTER
ONE YEAR ONE YEAR
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
Physician notes payable, collateralized by deeds of
trust on physician practice assets with a cost of
approximately $3,414,000, interest ranging from
5 1/2% to 7%, due through 2000.................... $ 879 $ 1,285
Other notes payable, collateralized by deeds of
trust on land, buildings and equipment with a cost
of approximately $1,517,000....................... 598 555
------ ------
$1,477 $ 1,840
====== ======
</TABLE>
Interest paid was $585,000, $481,000 and $853,000 in 1995, 1994 and 1993,
respectively.
The approximate annual maturities of long-term debt at November 30, 1995,
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
NOVEMBER 30, (IN THOUSANDS)
------------- --------------
<S> <C>
1996...................................... $1,477
1997...................................... 708
1998...................................... 532
1999...................................... 354
2000...................................... 189
</TABLE>
8. CAPITAL STOCK AND STOCK OPTIONS
The Company declared three-for-two stock splits, in the form of stock
dividends, for shareholders of record on October 25, 1995 and November 10, 1993
with shares distributed on November 22, 1995 and November 29, 1993,
respectively. The number of shares and the earnings per share shown in the
Consolidated Financial Statements, as well as information in this Note, Note 2
and Note 12, have been restated to reflect the stock splits.
In February 1995, the Company completed a registered public offering. In
this offering, the Company sold 2,992,500 shares of common stock and the Company
realized net proceeds of approximately $59.3 million.
The Company has eight stock option plans under which stock options may be
granted.
The Company's 1989 Stock Incentive Plan provides for the granting of
options to purchase Common Stock to officers and other employees. Options may be
granted at not less than 100% of fair market value at the date of grant, are
exercisable at various dates and expire no more than 10 years after the date of
grant. Options may be paid for in cash or by the return of previously acquired
shares of Common Stock. Shares acquired by the Company through option exercises
were 116,067 in 1994, and 92,021 in 1993. These shares were included in treasury
stock and were valued at market at the date of exercise. Treasury shares issued
in lieu of Common Stock to effect stock option exercises were 116,067 in 1994
and 187,028 in 1993.
As of November 30, 1995, 6,083,096 options had been granted, of which
1,143,436 are exercisable. Additionally, 736,725 options remain available for
grant.
F-14
<PAGE> 54
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)
A summary of activity under the plan during 1993, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF SHARES PER SHARE OPTION PRICE
---------- ------------- ------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Options outstanding at December 1, 1992...... 2,950,208 $ 3.72-13.33 $ 24,852
Options granted............................ 727,313 10.56-15.50 8,387
Options canceled and expired............... (33,870) 3.72-12.89 (377)
Common Stock issued on exercise............ (825,941) 3.72-12.44 (4,764)
--------- ------------ --------
Options outstanding at November 30, 1993..... 2,817,710 4.00-15.50 28,098
Options granted............................ 680,213 13.33-18.92 11,759
Options canceled and expired............... (17,010) 4.00-11.72 (182)
Common Stock issued on exercise............ (675,530) 4.86-13.33 (4,384)
--------- ------------ --------
Options outstanding at November 30, 1994..... 2,805,383 4.54-18.92 35,291
Options granted............................ 889,960 17.92-23.25 19,146
Options canceled and expired............... (285,141) 4.86-21.92 (4,173)
Common Stock issued on exercise............ (1,018,396) 4.86-18.50 (11,725)
========= ============ ========
Options outstanding at November 30, 1995..... 2,391,806 $ 4.54-23.25 $ 38,539
========= ============ ========
</TABLE>
The market value of the Company's Common Stock at the date the options were
exercised was $17.81-$23.63 for 1995, $13.08-$19.17 for 1994, and $10.22-$15.78
for 1993.
The Company adopted the Transition Consultants Stock Option Plan in
connection with its spin-off from Community Psychiatric Centers on August 31,
1989. On that date options were granted to purchase 1,316,250 shares of the
Company's Common Stock to four employees of Community Psychiatric Centers at
$5.82, which was the fair market value at that date. As of November 30, 1995,
all outstanding options are exercisable.
A summary of activity under the plan during 1993, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
NUMBER
OF AGGREGATE
SHARES PER SHARE OPTION PRICE
-------- --------- ------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Options outstanding at December 1, 1992............ 839,813 $5.82 $ 4,888
Common Stock issued on exercise.................. (52,313) 5.82 (305)
-------- ----- -------
Options outstanding at November 30, 1993........... 787,500 5.82 4,583
Common Stock issued on exercise.................. (278,400) 5.82 (1,620)
-------- ----- -------
Options outstanding at November 30, 1994........... 509,100 5.82 2,963
Common Stock issued on exercise.................. (359,100) 5.82 (2,090)
-------- ----- -------
Options outstanding at November 30, 1995........... 150,000 $5.82 $ 873
======== ===== =======
</TABLE>
The market value of the Company's Common Stock at the date the options were
exercised was $20.33-$22.30 for 1995 and $14.67-$19.33 for 1994 and
$12.22-$14.55 for 1993.
During 1995, the Company established Stock Option Plans for the following
subsidiaries: Vivra Specialty Partners, Inc. (the "VSP Plan"), Vivra Heart
Services, Inc. (the "VHS Plan"), Vivra Asthma & Allergy CareAmerica, Inc. (the
"VAC Plan"), Vivra Health Advantage, Inc. (the "VHA
F-15
<PAGE> 55
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)
Plan"), Vivra Orthopedic Services, Inc. (the "VOR Plan") and Vivra OB-GYN
Services, Inc. (the "VOG Plan"), (collectively, the "1995 Stock Option Plans").
Each of the 1995 Stock Option Plans has similar terms. The plans provide for the
granting of options to purchase common stock of the respective company to
officers, employees, advisors and certain related entities of the company or
Vivra. Options may be granted at not less than 100% of the fair market value at
the date of grant, are exercisable at various dates and expire no more than 10
years after the date of grant. Options may be paid for in cash or by the return
of previously acquired shares. Subject to certain conditions, stockholders in
these companies are permitted to put shares at a defined date in the future to
the company at a price equal to the then fair market value of the stock. If the
employment or consulting agreement of any equity holder shall terminate, then
the companies have the right to repurchase such stockholder s shares at the then
fair market value. Additionally, the companies retain the right of first refusal
regarding the sale or transfer of any acquired shares.
During 1995, there was no activity related to the VAC and VOG Plans.
Information regarding activity in the other 1995 Stock Option Plans is
summarized in the tables below:
<TABLE>
<CAPTION>
VSP PLAN VHS PLAN
---------- ---------
<S> <C> <C>
Options outstanding at December 1, 1995.............................. 0 0
Options granted.................................................... 845,000 782,500
---------- ---------
Options outstanding at November 30, 1995............................. 845,000 782,500
========== =========
Number of subsidiary's fully diluted common shares................... 18,845,000 6,782,500
========== =========
Average option price per share at November 30, 1995.................. $ 1.65 $ 0.50
========== =========
</TABLE>
<TABLE>
<CAPTION>
VHA PLAN VOR PLAN
---------- ---------
<S> <C> <C>
Options outstanding at December 1, 1995.............................. 0 0
Options granted.................................................... 625,000 706,500
---------- ---------
Options outstanding at November 30, 1995............................. 625,000 706,500
========== =========
Number of subsidiary's fully diluted common shares................... 7,625,000 5,206,500
========== =========
Average option price per share at November 30, 1995.................. $ 0.79 $ 1.06
========== =========
</TABLE>
As of November 30, 1995, no options are exercisable under the 1995 Stock
Option Plans.
During 1995, the Company sold the assets related to the operations of its
subsidiary, Surgical Partners of America, Inc. ("SPA"). All personnel formerly
employed by SPA were either transferred to another subsidiary or terminated.
Accordingly, there are no longer any participants in the SPA 1992 Stock Option
Plan. During the year, there were 178,823 options which were exercised and
551,503 options were forfeited and canceled.
9. PROFIT SHARING AND 401(K) PLAN
The Company's Profit Sharing Plan ("the Plan") is a noncontributory,
trusteed profit sharing plan. All regular non-union employees in the United
States (union employees are eligible if the collective bargaining agreement so
specifies) with at least 1,000 hours of service per annum, over 21 years of age,
and employed at fiscal year-end are eligible for participation in the Plan after
one year of employment. Contributions to the Plan are discretionary and are
determined annually by the Board of Directors. Effective February 1, 1993, the
Plan was amended to add a 401(k) provision.
F-16
<PAGE> 56
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. PROFIT SHARING AND 401(K) PLAN (CONTINUED)
Employees may make voluntary contributions of up to 10% of their before tax
compensation under the 401(k) provision of the Plan and may also contribute up
to an additional 10% of their after tax compensation in accordance with the
original Plan provisions.
Contributions to the Plan by the Company were $940,000, $3.0 million and
$1.6 million for 1995, 1994 and 1993, respectively.
10. BUSINESS SEGMENT INFORMATION
The Company has three principal business segments, Vivra Renal Care, Vivra
Specialty Partners and Other Services. Vivra Renal Care consists of dialysis and
specialty pharmacy services. Vivra Specialty Partners consists of
Asthma/Allergy, Diabetes, Cardiology, OB-GYN and ENT network services. Other
Services consists of the ambulatory surgery, rehabilitation therapy and primary
care physician practice management businesses which were sold in 1995.
The following tables have been prepared in accordance with the requirements
of FASB Statement No. 14. This information has been derived from the Company's
accounting records and represents the Company's estimates as to proper
allocation of certain expenses.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues:
Vivra Renal Care......................................... $310,769 $259,988 $213,330
Vivra Specialty Partners................................. 31,718 10,297 8,445
Other Services........................................... 24,029 27,114 6,227
-------- -------- --------
Total operating revenues......................... $366,516 $297,399 $228,002
======== ======== ========
Operating profits:
Vivra Renal Care......................................... $ 64,766 $ 54,120 $ 44,403
Vivra Specialty Partners................................. (1,258) 631 766
Other Services........................................... (16) (550) 199
-------- -------- --------
Total operating profits.......................... $ 63,492 $ 54,201 $ 45,368
Other income............................................... 5,221 1,891 1,235
Corporate expenses......................................... (5,047) (4,753) (3,903)
Interest expense........................................... (444) (571) (945)
-------- -------- --------
Earnings from continuing operations, before minority
interest and income taxes............................. $ 63,222 $ 50,768 $ 41,755
======== ======== ========
</TABLE>
F-17
<PAGE> 57
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable assets:
Vivra Renal Care......................................... $252,099 $147,896 $137,139
Vivra Specialty Partners................................. 27,088 16,226 2,077
Other Services........................................... 4,402 25,423 12,278
Asset held for sale/Home Nursing Business................ -- -- 3,727
Corporate................................................ 124,637 91,180 56,083
-------- -------- --------
$408,226 $280,725 $211,304
======== ======== ========
Depreciation expense:
Vivra Renal Care......................................... $ 9,822 $ 8,785 $ 6,818
Vivra Specialty Partners................................. 323 86 76
Other Services........................................... 711 716 337
Corporate................................................ 122 125 113
-------- -------- --------
$ 10,978 $ 9,712 $ 7,344
======== ======== ========
Capitalized expenditures for property, buildings and
equipment:(1)
Vivra Renal Care......................................... $ 26,819 $ 14,927 $ 10,433
Vivra Specialty Partners................................. 1,042 264 88
Other Services........................................... 1,000 5,514 1,661
Corporate................................................ 64 56 134
-------- -------- --------
$ 28,925 $ 20,761 $ 12,316
======== ======== ========
</TABLE>
- ---------------
(1) Excludes assets acquired in business acquisitions of $4.3 million, $2.1
million and $1.5 million in 1995, 1994 and 1993, respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company rents office facilities under lease arrangements which are
classified for financial statement purposes as operating leases. The future
minimum rental commitments under noncancellable operating leases at November 30,
1995, are summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996........................................... $ 12,151
1997........................................... 9,989
1998........................................... 8,138
1999........................................... 6,742
2000........................................... 4,611
</TABLE>
Total rent expense amounted to $11.4 million, $8.5 million, and $6.8
million in 1995, 1994, and 1993, respectively.
F-18
<PAGE> 58
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Contingencies
On May 20, 1992, in the Pennsylvania Court of Common Pleas in Delaware
County, a complaint was filed against the Company's subsidiary, Vivra Renal Care
("VRC"). In September 1993, the court determined that the suit could proceed as
a class action on behalf of 93 patients, subsequently reduced to 72, who were
treated at one of the VRC facilities, some of whom are alleged to have died or
been injured during the course of treatment. Unspecified compensatory and
punitive damages are being claimed. Since May 20, 1992, four other individual
actions have been filed asserting similar claims, one of which has been settled.
The Company's insurer has assumed defense of these actions, and the merit
of the claims and the extent of the damages are still under investigation. As
the investigation is not complete, management is unable to make an informed
judgment as to the ultimate resolution of such proceedings and their impact on
the results of operations; however, it believes insurance coverage is sufficient
to cover any losses likely to result from these actions and therefore any such
claims should not have a material adverse effect on the Company's financial
condition.
The Company is also subject to other claims and suits in the ordinary
course of business. Management believes that insurance is adequate to cover any
such claims and the outcome of such claims should not have a material adverse
effect on the Company's results of operations or financial condition.
F-19
<PAGE> 59
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly data for the three
years ended November 30, 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
FEBRUARY MAY AUGUST NOVEMBER
28/29 31 31 30
-------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PRICE
DATA)
<S> <C> <C> <C> <C>
1995
Total operating revenues........................... $ 87,214 $92,536 $91,661 $95,105
Net earnings....................................... 8,686 9,983 10,596 9,263
Earnings per share (primary and fully diluted):
Net earnings....................................... .26 .27 .28 .25
Stock prices:
High............................................. 21 7/8 23 7/8 22 1/8 23 3/8
Low.............................................. 17 3/4 18 1/3 17 3/4 21 11/64
1994
Total operating revenues........................... $ 66,659 $72,724 $77,140 $80,876
Earnings from continuing operations.............. 6,880 7,442 7,741 7,884
Gain on sale of discontinued operations.......... 697 -- -- --
------- ------- ------- -------
Net earnings....................................... 7,577 7,442 7,741 7,884
Earnings per share (primary and fully diluted):
Continuing operations............................ .22 .23 .24 .24
Gain on sale of discontinued operations.......... .02 -- -- --
------- ------- ------- -------
Net earnings....................................... .24 .23 .24 .24
Stock prices:
High............................................. 17 1/3 17 3/4 17 1/8 19 2/3
Low.............................................. 13 1/8 15 1/8 15 1/8 17
1993
Total operating revenues........................... $ 51,504 $55,187 $58,926 $62,385
Earnings from continuing operations.............. 5,297 5,854 6,552 6,515
Earnings from discontinued operations............ 84 163 151 156
------- ------- ------- -------
Net earnings....................................... 5,381 6,017 6,703 6,671
Earnings per share (primary and fully diluted):
Continuing operations............................ .17 .20 .21 .20
Discontinued operations.......................... -- .01 -- .01
------- ------- ------- -------
Net earnings....................................... .17 .21 .21(1) .21
Stock prices:
High............................................. 13 1/4 12 1/2 15 1/2 15 3/4
Low.............................................. 10 1/8 9 7/8 12 12 5/8
</TABLE>
- ---------------
(1) As a result of rounding and the restatement of earnings from continuing
operations in 1993, year to date third quarter earnings per share from
continuing operations was $0.58 rather than $0.59.
F-20
<PAGE> 60
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUBSEQUENT EVENTS
On February 13, 1996, the Board of Directors (the "Board") of the Company
amended and restated the Company's Rights Agreement originally adopted in August
1989 and amended in February 1991 (the "Rights Agreement") to make the following
changes:
(i) To reduce the threshold of an acquiring person from 20% to 15% of
the Company's outstanding Common Stock (provided, however, that any person
as of February 13, 1996 that beneficially owned in excess of 15% but less
than 20% would be grandfathered with respect to the amount that such person
beneficially owned as of such date);
(ii) To reset the number of rights associated with each share of
Common Stock to the original level of one right per share of Common Stock,
each right exercisable at a price of $100 in exchange for 1/100th of a
share of the Company's Series A Junior Participating Preferred Stock having
the dividend, voting and liquidation provisions of one share of Common
Stock;
(iii) To eliminate the exception in the Rights Agreement for all-cash
tender offers for all of the Company's outstanding shares in which the
acquiror purchases 85% or more of the shares in such tender offer; and
(iv) To eliminate the provision in the Rights Agreement that requires
a special meeting of stockholders in the event the Company receives an
all-cash, fully financed offer to acquire the Company from a person or
group that owns less than one percent of the outstanding stock, such
special meeting to be held for the purpose of voting on a precatory
resolution requesting the Board to accept such offer and providing for a
redemption of the rights in the event that the precatory resolution
receives the affirmative vote of a majority of the shares of Common Stock.
During the six months ended May 31, 1996, the Company consummated mergers
and acquisitions comprised of 19 dialysis centers, 12 physician practices and an
orthopedic network. The mergers and acquisitions were treated either as
pooling-of-interests or purchases. Total consideration paid was $93.6 million,
consisting of cash of $38.3 million and 2,003,033 shares of the Company's common
stock.
F-21
<PAGE> 61
VIVRA INCORPORATED
CONDENSED SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEB. 29, NOV. 30,
1996 1995
----------- --------
(UNAUDITED) (NOTE A)
<S> <C> <C>
A S S E T S
Current Assets:
Cash and cash equivalents.......................................... $ 63,920 $ 53,990
Short-term investments -- held-to-maturity and
available-for-sale.............................................. 43,600 43,616
Accounts receivable, less allowance for doubtful accounts
(2/29/96 -- $13,791 and 11/30/95 -- $13,279).................... 67,184 64,004
Inventories........................................................ 10,858 9,030
Prepaid expenses and other current assets.......................... 2,370 1,959
Deferred income taxes.............................................. 13,649 14,514
-------- --------
Total Current Assets....................................... 201,581 187,113
Marketable non-current investments -- held-to-maturity............... 24,024 22,510
Property, buildings and equipment -- at cost, less allowances for
depreciation (2/29/96 -- $42,527 and 11/30/95 -- $40,775........... 79,396 76,189
Other assets......................................................... 7,141 8,479
Goodwill and other intangibles, less accumulated amortization
(2/29/96 -- $7,692 and 11/30/95 -- $6,727)......................... 114,965 113,935
-------- --------
$ 427,107 $408,226
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................... $ 11,685 $ 11,004
Accrued payroll and related benefits............................... 21,263 22,693
Other accrued expenses............................................. 12,708 10,768
Income taxes....................................................... 10,929 4,674
Current portion of deferred income taxes........................... 3,476 3,791
Current maturities of long-term debt............................... 1,568 1,477
-------- --------
Total Current Liabilities.................................. 61,629 54,407
Long-term debt -- exclusive of current maturities.................... 1,527 1,840
Deferred income taxes................................................ 5,123 6,643
Minority interest.................................................... (269) (238)
Stockholders' Equity:
Preferred Stock, $.01 par value, 10.0 million shares authorized, no
shares issued and outstanding................................... -- --
Common stock, par value $.01 per share; authorized 80.0 million
shares; issued 38.6 million shares in 1996 and 38.1 million in
1995............................................................ 386 381
Additional paid-in capital......................................... 145,837 142,762
Retained earnings.................................................. 208,254 197,361
Net unrealized gain on marketable securities, less applicable
income taxes.................................................... 4,620 5,070
-------- --------
Total Stockholders' Equity................................. 359,097 345,574
-------- --------
$ 427,107 $408,226
======== ========
</TABLE>
See accompanying notes to condensed supplemental consolidated financial
statements
F-22
<PAGE> 62
VIVRA INCORPORATED
CONDENSED SUPPLEMENTAL CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 29/28,
--------------------
1996 1995
-------- -------
(UNAUDITED)
<S> <C> <C>
Revenues:
Operating revenues.................................................... $106,613 $87,214
Other income.......................................................... 1,878 687
-------- -------
Total Revenues..................................................... 108,491 87,901
Costs and Expenses:
Operating............................................................. 76,665 58,503
General and administrative............................................ 10,627 12,501
Depreciation.......................................................... 3,122 2,440
Interest.............................................................. 42 203
-------- -------
Total Costs and Expenses........................................... 90,456 73,647
Earnings from continuing operations, before minority interest and
income taxes....................................................... 18,035 14,254
Minority interest..................................................... (10) (22)
-------- -------
Earnings from continuing operations, before income taxes.............. 18,025 14,232
Income taxes.......................................................... 6,811 5,546
-------- -------
Net earnings.......................................................... $ 11,214 $ 8,686
======== =======
Net earnings per share.................................................. $ .29 $ .26
======== =======
Average Number of Common Shares......................................... 38,256 33,394
</TABLE>
See accompanying notes to condensed supplemental consolidated financial
statements
F-23
<PAGE> 63
VIVRA INCORPORATED
CONDENSED SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 29/28,
---------------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Operating Activities
Net earnings........................................................... $ 11,214 $ 8,686
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization.......................................... 4,287 2,959
Loss (Gain) on sale of property and investments........................ 327 (15)
Other.................................................................. (1,980) (713)
Changes in assets and liabilities:
Accounts receivable.................................................. (2,312) (3,030)
Inventories.......................................................... (1,746) (567)
Prepaid expenses and other current assets............................ (429) (179)
Deferred income taxes................................................ 867 (1,094)
Accounts payable..................................................... 377 4,927
Accrued payroll and related benefits................................. (1,306) (337)
Other accrued expenses............................................... 899 (3,438)
Income taxes......................................................... 6,193 3,242
-------- --------
Net cash flow from operations..................................... 16,391 10,441
Financing Activities
Payments on long-term debt........................................... (158) (5,377)
Proceeds from Common Stock offering.................................. -- 59,786
Proceeds from exercise of stock options and related transactions..... 2,131 7,177
-------- --------
Net cash flow from financing...................................... 1,973 61,586
Investing Activities
Purchase of property, buildings and equipment........................ (8,212) (4,479)
Purchase of held-to-maturity investments............................. (17,435) --
Redemption of held-to-maturity investments........................... 10,070 --
Proceeds from sale of available-for-sale investments................. 5,911 --
Proceeds from sale of property, buildings and equipment.............. 574 11
Proceeds from investments in partnerships............................ 1,700 --
Payment for business acquisitions, net of cash acquired.............. (1,042) (15,563)
-------- --------
Net cash flow used in investing................................... (8,434) (20,031)
-------- --------
Net increase in cash and cash equivalents.............................. 9,930 51,996
Beginning cash and cash equivalents.................................... 53,990 80,620
-------- --------
Ending cash and cash equivalents.................................. $ 63,920 $132,616
======== ========
</TABLE>
See accompanying notes to condensed supplemental consolidated financial
statements
F-24
<PAGE> 64
VIVRA INCORPORATED
NOTES TO CONDENSED SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
A. BASIS OF PRESENTATION
The condensed supplemental consolidated financial statements are unaudited
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of management, all
adjustments necessary for a fair presentation of the financial position, results
of operations and cash flows for the periods presented have been made and are of
a normal recurring nature. The Company completed business combinations with
Orthonet, Inc. on February 28, 1996, Brennan, Martell and Mirmelli, M.D.'s, P.A.
and Allergy & Asthma Institute of South Florida, P.A. on May 1, 1996 and Kidney
Centers of Charleston, Inc. on May 1, 1996 in stock for stock exchanges or
mergers with the Company. These condensed supplemental consolidated financial
statements have been prepared following the pooling-of-interests method of
accounting and reflect the combined financial position and operating results of
the Company and these acquired businesses for all periods presented.
The condensed supplemental consolidated financial statements should be read
in conjunction with the Company's November 30, 1995 supplemental consolidated
financial statements and the notes included herewith.
B. ACQUISITIONS
During the three months ended February 29, 1996, the Company acquired three
dialysis centers. Total consideration paid was $6.4 million, consisting of cash
of $2.5 million and 154,037 shares of the Company's common stock, which exceeded
the fair market value of net assets acquired by $2.4 million.
Also during the three months ended February 29, 1996, the Company acquired
four physician practices and an orthopedics network. Total consideration paid
was $12.3 million, consisting of cash of $0.5 million and 431,382 shares of the
Company's common stock, which exceeded the fair market value of net assets
acquired by $0.7 million.
C. RECENT ACCOUNTING PRONOUNCEMENTS
Effective March 1995, the Financial Accounting Standards Board issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of ("FAS 121"), which requires impairment
losses to be recorded on long-lived assets used in operations, or to be disposed
of, when such impairment has been determined. On December 1, 1995, the Company
adopted FAS 121 and the impact of this adoption did not have a material effect
on the Company.
F-25
<PAGE> 65
Schedule II - Supplemental Valuation and Qualifying Accounts
Vivra Incorporated and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D
- --------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------------
Balance at Charged to
Beginning of Charged to Costs Other Accounts - Deductions -
Description Period and Expenses Describe Describe
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended November 30, 1993 $ 6,400,000 $1,610,000 $1,743,000 (2) $(2,006,000) (1)
Year ended November 30, 1994 7,747,000 2,228,000 1,350,000 (3) (685,000) (1)
Year ended November 30, 1995 10,640,000 4,383,000 604,000 (2) (2,348,000) (1)
</TABLE>
(1) Write-offs, net of recoveries. Included in the 1993 amount is $243,000
which pertains to assets held for sale.
(2) Contingent rate adjustments charged to operating revenues.
(3) Allowance purchased as part of 1994 acquisitions.
F-26
<PAGE> 66
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
Page
----
AVAILABLE INFORMATION ..................... 2
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE ................ 2
THE COMPANY................................ 4
RISK FACTORS .............................. 5
PRICE RANGE OF COMMON STOCK ............... 11
DIVIDEND POLICY ........................... 11
SELECTED SUPPLEMENTAL CONSOLIDATED
FINANCIAL DATA ........................ 12
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS ............................ 13
BUSINESS .................................. 18
MANAGEMENT ................................ 28
DESCRIPTION OF CAPITAL STOCK .............. 33
OUTSTANDING SECURITIES
COVERED BY THIS PROSPECTUS ............ 36
LEGAL MATTERS ............................. 36
EXPERTS ................................... 36
INDEX TO SUPPLEMENTAL
CONSOLIDATED FINANCIAL STATEMENTS ..... F-1
5,363,702 SHARES
VIVRA
INCORPORATED
COMMON STOCK
------------------
P R O S P E C T U S
------------------
JUNE , 1996
<PAGE> 67
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
Exhibit
Number Description
------- ---------------------------------------------------------
(2) Plan of Acquisition
*(2.1) Stock Purchase Agreement dated as of
March 31, 1995, by and among the Registrant, Cape Coral
Dialysis Center, Inc. and Dialysis Services of Southwest
Florida, Inc. And each of the Stockholders listed on
Exhibit A thereto (filed as an exhibit to the Prospectus
Supplement to the Prospectus dated March 14, 1995 (File
No. 33-85736) and incorporated herein by reference).
*(2.2) Agreement for Sale and Purchase of Assets,
dated July 1, 1995, by and among CDC and Oakwood,
Chilikapati Family Limited Partnership and Thavarajah
Family Limited Partnership, Vijay Kumar Chilikapati
Revocable Living Trust dated September 26, 1984 and the
Krishnapilla Thavarajah Revocable Living Trust, the sole
shareholders of Oakwood and K. Thavarajah, M.D. and C.V.
Kumar, M.D. (filed as Exhibit (c)(vii) to the
Registrant's Current Report on Form 8-K (File No.
1-10261) dated August 16, 1995 and incorporated herein by
reference).
II-1
<PAGE> 68
*(2.3) Agreement for Sale and Purchase of Assets,
dated as of July 1, 1995, by and among CDC and Wyandotte
and CTA Investment Group, Vijay Kumar Chilikapati
Revocable Living Trust dated September 26, 1984, the
Krishnapilla Thavarajah Revocable Living Trust, and Syed
Akbar, M.D., an individual and K. Thavarajah, M.D., an
individual, and C.V. Kumar, M.D., an individual (filed as
Exhibit (c)(vii) to the Registrant's Current Report on
Form 8-K filed on August 16, 1995 and incorporated
herein by reference).
*(2.4) Master Merger Agreement among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; Pediatric
Allergy Group, a Professional Association; Jerald M.
Duncan, M.D.; Fred T. Grogan, Jr., M.D.; Jourdan A.
Roane, M.D.; Phillip L. Lieberman, M.D., P.C.; Phillip L.
Lieberman, M.D.; George H. Treadwell, III, M.D., P.C.;
and George H. Treadwell, III, M.D. (filed as Exhibit
10.1 to the Registrant's Current Report on Form 8-K (File
No. 1-10261) dated January 30, 1996 and incorporated
herein by reference).
*(2.5) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; and
Pediatric Allergy Group, a Professional Association
(filed as Exhibit 10.1 to the Registrant's Current Report
on Form 8-K (File No. 1-10261) dated January 30, 1996 and
incorporated herein by reference).
*(2.6) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc., Vivra Incorporated, Phillip L.
Lieberman, M.D. and Phillip L. Lieberman, M.D., P.C.
(filed as Exhibit 10.1 to the Registrant's Current Report
on Form 8-K (File No. 1-10261) dated January 30, 1996 and
incorporated herein by reference).
*(2.7) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; George H.
Treadwell, III, M.D., P.C.; and George H. Treadwell, III
(filed as Exhibit 10.1 to the Registrant's Current Report
on Form 8-K (File No. 1-10261) dated January 30, 1996 and
incorporated herein by reference).
*(2.8) Stock Exchange Agreement among Vivra
Incorporated; Raj & Jay, Inc.; Vadakkipalayam Devarajan,
M.D.; Chemmale Jayakrishnan, M.D.; David J. Vial, M.D.;
and Martin Ballenger, M.D. (filed as Exhibit 10.1 to
the Registrant's Current Report on Form 8-K (File No.
1-10261) dated January 30, 1996 and incorporated herein
by reference).
*(2.9) Stock Exchange Agreement among Vivra Renal
Care, Inc.; Vivra Incorporated; Martin Gelman, M.D. and
Gerald Bousquet, M.D. (filed as Exhibit 10.1 to the
Registrant's Current Report on Form 8-K (File No.
1-10261) dated March 14, 1996 and incorporated herein
by reference).
II-2
<PAGE> 69
*(2.10) Stock Exchange Agreement among Vivra
Orthopaedics, Inc.; Vivra Incorporated; and Joseph
Zagorski, M.D. (filed as Exhibit 10.1 to the Registrant's
Current Report on Form 8-K (File No. 1-10261) dated
March 15, 1996 and incorporated herein by reference).
*(2.11) Stock Exchange Agreement among Vivra
Incorporated; Mr. Qualls and Mr. Robins (filed as Exhibit
10.1 to the Registrant's Current Report on Form 8-K (File
No. 1-10261) dated March 29, 1996 and incorporated herein
by reference).
*(2.12) Master Merger Agreement among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; Pollard &
Sublett, PSC; Stephen J. Pollard, M.D.; James L. Sublett,
M.D. and Allergy & Asthma Research Institute, Inc. (filed
as Exhibit 10.1 to the Registrant's Current Report on
Form 8-K (File No. 1-10261) dated April 11, 1996 and
incorporated herein by reference).
*(2.13) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; Pollard &
Sublett, PSC; Stephen J. Pollard, M.D. and James L.
Sublett, M.D. (filed as Exhibit 10.2 to the Registrant's
Current Report on Form 8-K (File No. 1-10261) dated April
11, 1996 and incorporated herein by reference).
*(2.14) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; Allergy &
Asthma Research Institute, Inc.; Stephen J. Pollard, M.D.
and James L. Sublett, M.D. (filed as Exhibit 10.3 to the
Registrant's Current Report on Form 8-K (File No.
1-10261) dated April 11, 1996 and incorporated herein by
reference).
*(2.15) Master Merger Agreement among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; Brennan,
Martell & Mirmelli, M.D.'s, P.A.; Asthma & Allergy
CareAmerica of Florida, Inc.; Frank R. Martell, M.D.;
Philip C. Mirmelli, M.D. and Asthma & Allergy Institute
of South Florida, Inc. (filed as Exhibit 10.1 to the
Registrant's Current Report on Form 8-K (File No.
1-10261) dated May 14, 1996 and incorporated herein by
reference).
*(2.16) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; Brennan,
Martell & Mirmelli, M.D.'s, P.A.; Asthma & Allergy
CareAmerica of Florida, Inc.; Frank R. Martell, M.D. and
Philip C. Mirmelli, M.D. (filed as Exhibit 10.2 to the
Registrant's Current Report on Form 8-K (File No.
1-10261) dated May 14, 1996 and incorporated herein by
reference).
*(2.17) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; AACA-AAI
Acquisition, Inc.; Asthma & Allergy Institute of South
Florida, Inc.; Frank R. Martell, M.D. and Philip C.
Mirmelli, M.D. (filed as Exhibit 10.3 to
II-3
<PAGE> 70
the Registrant's Current Report on Form 8-K (File No.
1-10261) dated May 14, 1996 and incorporated herein
by reference).
*(2.18) Agreement and Plan of Merger among Vivra
Renal Care, Inc.; Vivra Incorporated; Charleston Kidney
Center, Inc.; George Malanos, M.D.; Jerry Owens, M.D. and
Arthur Smith, M.D. (filed as Exhibit 10.4 to the
Registrant's Current Report on Form 8-K (File No.
1-10261) dated May 14, 1996 and incorporated herein by
reference).
*(2.19) Agreement and Plan of Merger among Vivra
Specialty Partners, Inc.; Vivra Incorporated; Melter,
Inc.; Melter Rehabilitation Services, Inc. and Melvyn
Drucker, M.D. (filed as Exhibit 10.5 to the Registrant's
Current Report on Form 8-K (File No. 1-10261) dated May
14, 1996 and incorporated herein by reference).
(3) Articles of Incorporation and By-Laws of Registrant
*(3.1) Amended and Restated Certificate of
Incorporation (filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
November 30, 1995 and incorporated herein by reference).
*(3.2) By-Laws (filed as Exhibit 3B to Registrant's
Registration Statement on Form 10, File No. 1-10261
incorporated herein by reference.)
(4) Instruments defining the Rights of Securities Holders
*(4.1) Amended and Restated Rights Agreement dated
February 13, 1996 between Registrant and The First
National Bank of Boston (filed as Exhibit 4D to the
Company's Form 10/A filed on February 15, 1996 and
incorporated herein by reference).
(5.1) Opinion of Pillsbury Madison & Sutro LLP.
(10) Material Contracts
*(10.1) Debenture Payment Assumption Agreement
between Registrant and Community Psychiatric Centers
(filed as Exhibit 10.5A.6 to Registrant's Registration
Statement on Form 10, File No. 1-10261, filed May 26,
1989, and incorporated herein by reference).
*(10.2) Registrant's Transition Consultants Stock
Option Plan (filed as Exhibit 10G to the Registrant's
Registration Statement on Form 10, File No. 1-10261 and
incorporated herein by reference).
*(10.2.1) Transition Consultants Stock Option
Agreement (filed as Exhibit 10.4.4 to Registrant's Report
on Form 10-K for
II-4
<PAGE> 71
its fiscal year ended November 30, 1989 and incorporated
herein by reference).
*(10.3) Registrant's Amended 1989 Stock Incentive
Plan (filed as Exhibit 10.3 to Registrant's Post-
Effective Amendment No. 2 to Registration Statement on
Form S-4 (File No. 33-85736) and incorporated herein by
reference).
*(10.4) Registrant's Profit Sharing Plan (filed as
Exhibit 10.11 to Registrant's Amendment on Form 8 to
Report on Form 10-K for its fiscal year ended November
30, 1992 and incorporated herein by reference).
*(10.5) Form of Officer and Director Indemnification
Agreement (filed as Exhibit 10.5 to Registrant's Report
on Form 10-K for its fiscal year ended November 30, 1991,
and incorporated herein by reference).
*(10.6) Employment Agreement between Registrant and
Kent J. Thiry, dated as of December 1, 1992 (filed as
Exhibit 10.6 to Registrant's Amendment on Form 8 to
Report on Form 10-K for its fiscal year ended November
30, 1992 and incorporated herein by reference).
*(10.7) Form of Employment Agreement between the
Registrant and certain executive officers of the
Registrant (filed as Exhibit 10.7 to the Company's Annual
Report on Form 10-K for the fiscal year ended November
30, 1995 and incorporated herein by reference).
*(10.8) Form of agreement between the Registrant and
the Medical Directors of its dialysis facilities (filed
as Exhibit 10.6 to Registrant's Registration Statement on
Form S-1, File No. 33-34438 and incorporated herein by
reference).
+*(10.9) Agreement effective February 1, 1996
between Amgen Inc. and the Registrant (filed as Exhibit
10.9 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1995 and incorporated
herein by reference).
+*(10.10) Agreement effective February 1, 1996
between Bellco Drug Corp., Metro Health Corp. and the
Registrant (filed as Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended
November 30, 1995 and incorporated herein by reference).
(11) Statement re Supplemental Computation of Per Share
Earnings.
*(21) Subsidiaries of the Registrant (filed as Exhibit 21 to
the Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1995 and incorporated herein by
reference).
II-5
<PAGE> 72
(23) Consents
(23.1) Consent of Independent Auditors.
(23.2) Consent of Pillsbury Madison & Sutro LLP
(included in Exhibit 5.1).
- ----------------
* Previously filed
+ Confidential Treatment requested as to certain portions, which are
omitted and filed separately with the Commission.
II-6
<PAGE> 73
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") 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.
(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 Securities Exchange Act of 1934 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
II-7
<PAGE> 74
party who is deemed to be an underwriter within the meaning of Rule 145(c),
Registrant undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
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 Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
this Registration Statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Act, 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 this 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 the subject of and included in this
Registration Statement when it became effective.
II-8
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of San Mateo
and State of California on June 18, 1996.
VIVRA INCORPORATED
By /s/ LEANNE ZUMWALT
----------------------------------------
(LeAnne Zumwalt, Chief Financial Officer,
Secretary and Treasurer)
POWER OF ATTORNEY
Each of the undersigned hereby appoints Kent J. Thiry, LeAnne M. Zumwalt
and Charles W. Ott, and each of them (with full power to act alone), as
attorneys and agents for the undersigned, with full power of substitution for
and in the same place, and stead of the undersigned, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933 any and all
amendments and exhibits to this Registration Statement and any and all
applications, instruments or other documents to be filed with the Securities and
Exchange Commission pertaining to the registration of the securities covered
hereby, with full power and authority to do and perform any and all acts and
things whatsoever required or desirable.
Pursuant to the requirements of the Securities Act of 1933, this
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 June 18, 1996
- --------------------------------- Executive Officer (Principal
(Kent J. Thiry) Executive Officer)
/s/ LEANNE ZUMWALT Director and Chief Financial June 18, 1996
- --------------------------------- Officer, Treasurer and Secretary
(LeAnne Zumwalt) (Principal Accounting Officer and
Principal Financial Officer)
/s/ DAVID G. CONNOR, M.D. Director June 18, 1996
- ---------------------------------
(David G. Connor, M.D.)
</TABLE>
II-9
<PAGE> 76
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD B. FONTAINE Director June 18, 1996
- -------------------------------
(Richard B. Fontaine)
/s/ ALAN HOOPS Director June 18, 1996
- -------------------------------
(Alan Hoops)
/s/ DAVID LOWE Director June 18, 1996
- -------------------------------
(David Lowe)
/s/ JOHN M. NEHRA
- ------------------------------- Director June 18, 1996
(John M. Nehra))
/s/ STEPHEN G. PAGLIUCA Director June 18, 1996
- -------------------------------
(Stephen G. Pagliuca)
</TABLE>
II-10
<PAGE> 77
EXHIBIT INDEX
(5.1) Opinion of Pillsbury Madison & Sutro LLP
(11) Statement Re: Supplemental Computation of Per Share
Earnings
(23) Consents
(23.1) Consent of Independent Auditors.
(23.2) Consent of Pillsbury Madison & Sutro LLP
(included in Exhibit 5.1).
<PAGE> 1
EXHIBIT 5.1
June 21, 1996
VIVRA Incorporated
1850 Gateway Drive, Suite 500
San Mateo, California 94404
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We are acting as counsel for VIVRA Incorporated, a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act of
1933, as amended, of five million (5,000,000) shares of authorized but
heretofore unissued shares of Common Stock, par value $.01 per share, of the
Company (the "Shares"), which are to be offered and sold by the Company. In this
regard we have participated in the preparation of a Registration Statement on
Form S-4 relating to the Shares (the "Registration Statement").
We are of the opinion that the Shares have been duly authorized and, when
issued and sold by the Company in the manner described in the Registration
Statement and in accordance with resolutions adopted by the Board of Directors
of the Company, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus included therein.
Very truly yours,
Pillsbury Madison & Sutro LLP
<PAGE> 1
Exhibit 11 - Statement Re:
Supplemental Computation of Per Share Earnings*
Vivra Incorporated and Subsidiaries
Three Years Ended November 30, 1995
<TABLE>
<CAPTION>
Year ended November 30
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 36,474,000 32,111,000 30,282,000
(a) Stock options granted to employees, based on the
treasury-stock method using average market price 678,000 (1) 816,000 (1) 940,000
-----------------------------------------------
Total 37,152,000 32,927,000 31,222,000
===============================================
Net earnings from continuing operations $38,528,000 $29,947,000 $24,218,000
Earnings from discontinued operations less applicable taxes -- -- 554,000
Gain on sale of discontinued operations less applicable taxes -- 697,000 --
-----------------------------------------------
Net earnings $38,528,000 $30,644,000 $24,772,000
===============================================
Earnings per Share:
Net earnings from continuing operations $1.06 $.93 $.77
Earnings from discontinued operations -- -- .02
Gain on sale of discontinued operations -- .02 --
-----------------------------------------------
Net earnings $1.06 $.95 $.79
===============================================
Fully diluted:
Weighted average shares outstanding 36,474,000 32,111,000 30,282,000
(a) Stock options granted to employees, based on the
treasury-stock method using the year-end market
price, if higher than average market price 696,000 (1) 843,000 (1) 975,000
-----------------------------------------------
Total 37,170,000 32,954,000 31,257,000
===============================================
Net earnings from continuing operations $38,528,000 $29,947,000 $24,218,000
Earnings from discontinued operations less applicable taxes -- -- 554,000
Gain on sale of discontinued operations less applicable taxes -- 697,000 --
-----------------------------------------------
Net earnings $38,528,000 $30,644,000 $24,772,000
===============================================
Earnings per Share:
Net earnings from continuing operations $1.06 $.93 $.77
Earnings from discontinued operations -- -- .02
Gain on sale of discontinued operations -- .02 --
-----------------------------------------------
Net earnings $1.06 $.95 $.79
===============================================
</TABLE>
* Adjusted to reflect three-for-two stock splits payable to shareholders of
record on November 22, 1995 and November 10, 1993, respectively.
(1) As the dilutive Common Stock equivalents are less than 3% of the weighted
average outstanding shares, they have not been included in the computation
of earnings per share as shown in the Condensed Supplemental Consolidated
Financial Statements.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference of our report dated January 24, 1996, with respect
to the consolidated financial statements and schedule of VIVRA Incorporated
included in its Annual Report on Form 10-K for the year ended November 30, 1995
and the inclusion of our report dated June 7, 1995 with respect to the
supplemental consolidated financial statements and schedule of VIVRA
Incorporated at November 30, 1995 and 1994 and for each of the three years in
the period ended November 30, 1995, appearing in the Registration Statement
(Form S-4 No. ________) and related Prospectus of VIVRA Incorporated for the
registration of 5,000,000 shares of common stock.
ERNST & YOUNG LLP
Los Angeles, California
June 21, 1996
