<PAGE>
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: September 24, 1996
VIVRA INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-10261 94-3096645
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Id. No.)
incorporation)
1850 Gateway Drive, Suite 500, San Mateo, CA 94404
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 577-5700
<PAGE>
Item 5. Other Events. The Registrant acquired the all of the outstanding
------------
stock of Portsmouth Medical Specialists, Inc. and Churchland Renal Center, Inc.
on June 1, 1996 and Cooper, Moody, Altschuler, Chizner, Dennis and Niederman,
P.A. d/b/a The Greater Ft. Lauderdale Heart Group (all three such entities
collectively the "Acquired Companies") on July 1, 1996 in exchange for stock of
the Registrant. These transactions have been accounted for under the pooling-
of-interests method. Accordingly, the Registrant files herewith Supplemental
Consolidated Financial Statements which reflect the restatement of the
Registrant's historical financial statements have been presented as though the
Registrant and the Acquired Companies had been combined for all periods
presented.
Item 7. Financial Statements and Exhibits.
---------------------------------
(a) Audited Financial Statements of Acquired Businesses.
(i) Audited Financial Statements of Portsmouth Medical
Specialists, Inc. and Churchland Renal Center, Inc. for the
year ended December 31, 1995.
(ii) Audited Financial Statements of Cooper, Moody, Altschuler,
Chizner, Dennis and Niederman, P.A. d/b/a The Greater Ft.
Lauderdale Heart Group for the year ended December 31, 1995.
(c) Exhibits.
11.1 Supplemental Computation of Earnings Per Share.
23.1 Consent of Ernst & Young, LLP.
99.1 Audited Supplemental Consolidated Financial Statements of
Registrant and Subsidiaries for the year ended November 30,
1995.
99.2 Schedule 2 - Supplemental Valuation and Qualifying Accounts.
99.3 Unaudited Supplemental Consolidated Financial Statements of
Registrant and Subsidiaries for the Three and Six Months
Ended May 31, 1996.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 20, 1996
VIVRA INCORPORATED
By /s/ LEANNE M. ZUMWALT
-----------------------
Leanne M. Zumwalt
Chief Financial Officer
<PAGE>
Combined Financial Statements
Portsmouth Medical Specialists, Inc. and
Churchland Renal Center, Inc.
Year ended December 31, 1995
with Report of Independent Auditors
<PAGE>
Portsmouth Medical Specialists, Inc. and
Churchland Renal Center, Inc.
Combined Financial Statements
Year ended December 31, 1995
Contents
Report of Independent Auditors................................................1
Combined Balance Sheet........................................................2
Combined Statement of Operations and Retained Earnings........................3
Combined Statement of Cash Flows..............................................4
Notes to Combined Financial Statements........................................5
<PAGE>
Report of Independent Auditors
The Boards of Directors
Portsmouth Medical Specialists, Inc. and
Churchland Renal Center, Inc.
We have audited the accompanying combined balance sheet of Portsmouth
Medical Specialists, Inc. and Churchland Renal Center, Inc. as of December 31,
1995, and the related combined statements of operations and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall combined financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Portsmouth
Medical Specialists, Inc. and Churchland Renal Center, Inc. at December 31,
1995, and the combined results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
May 9, 1996
Richmond, Virginia
1
<PAGE>
<TABLE>
<CAPTION>
Portsmouth Medical Specialists, Inc.
and Churchland Renal Center, Inc.
Combined Balance Sheet
December 31, 1995
<S> <C>
Assets
Current assets:
Cash $ 43,577
Accounts receivable, net of allowance for
doubtful accounts of $150,000 754,714
Inventories 82,833
Prepaid expenses 32,034
Deferred income taxes 56,419
Refundable income taxes 31,001
----------
Total current assets 1,000,578
Property and equipment, less accumulated depreciation of $658,837 580,804
----------
Total assets $1,581,382
==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 155,068
Due to insurance carriers 425,591
Accrued expenses 206,055
Current obligations under capital leases 79,720
Payable under bank line of credit 32,500
----------
Total current liabilities 898,934
Deferred rent 126,000
Noncurrent obligations under capital leases 273,232
----------
Total liabilities 1,298,166
Stockholders' equity:
Paid-in-capital 1,000
Retained earnings 282,216
----------
Total stockholders' equity 283,216
----------
Total liabilities and stockholders' equity $1,581,382
==========
See accompanying notes.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Portsmouth Medical Specialists, Inc.
and Churchland Renal Center, Inc.
Combined Statement of Operations and Retained Earnings
Year ended December 31, 1995
<S> <C>
Revenues:
Net patient service revenue $ 5,800,805
Costs and expenses:
Professional care of patients 3,167,243
General and administrative 2,228,367
Rent 208,896
Provision for uncollectible accounts 161,163
Depreciation 129,040
Interest 10,477
Other 16,638
-----------
Total costs and expenses 5,921,824
-----------
Loss before income taxes (121,019)
Income taxes (benefit):
Current 10,951
Deferred (57,958)
-----------
(47,007)
-----------
Net loss (74,012)
Retained earnings at beginning of year 356,228
-----------
Retained earnings at end of year $ 282,216
===========
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Portsmouth Medical Specialists, Inc.
and Churchland Renal Center, Inc.
Combined Statement of Cash Flows
Year ended December 31, 1995
<S> <C>
Operating activities
Net loss $ (74,012)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Provision for losses on receivables 161,163
Depreciation 129,040
Deferred income taxes (57,958)
Loss on disposal of equipment 7,721
Changes in assets and liabilities:
Accounts receivable (288,102)
Prepaid expenses and other (12,355)
Inventories (82,833)
Refundable income taxes 10,951
Receivable from owners 82,828
Accounts payable 100,404
Accrued expenses 8,498
Insurance carrier overpayments 52,358
Deferred rent 4,497
---------
Net cash provided by operating activities 42,200
Investing activities
Purchases of property and equipment (366,816)
---------
Net cash used in investing activities (366,816)
Financing activities
Borrowings on bank line of credit and capital
lease obligations 806,805
Principal payments on bank line of credit and
capital lease obligations (480,083)
---------
Net cash provided by financing activities 326,722
Increase in cash 2,106
Cash at beginning of year 41,471
---------
Cash at end of year $ 43,577
=========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 10,477
=========
See accompanying notes.
</TABLE>
4
<PAGE>
Portsmouth Medical Specialists, Inc.
and Churchland Renal Center, Inc.
Notes to Combined Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
Nature of Business
Portsmouth Medical Specialists, Inc. and Churchland Renal Center, Inc. are
Virginia professional corporations under common control. Each company operates
an out-patient dialysis center in Virginia, providing hemodialysis and
ambulatory peritoneal dialysis for patients with kidney disease.
Principles of Combination
The combined financial statements include the accounts of Portsmouth
Medical Specialists, Inc. and Churchland Renal Center, Inc. (collectively
referred to as the Companies). The common stock of each Company is controlled by
common stockholders. Intercompany accounts and transactions have been
eliminated.
<TABLE>
Common stock (all $10 par) is as follows:
<CAPTION>
Shares
Outstanding at Stated Value at
Shares December 31, December 31,
Company Authorized 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Portsmouth Medical Specialists, Inc. 1,000 1,000 $10,000
Churchland Renal Center, Inc. 1,000 1,000 10,000
-------
$20,000
=======
</TABLE>
The Companies have issued 1,900 shares of common stock under subscription
arrangements with the shareholders. Paid-in-capital has been reduced by $19,000
owed under the subscription agreements.
Inventories
Inventories consisting of medical drugs and supplies are stated at the lower of
cost or market with cost determined by use of the specific identification
method.
5
<PAGE>
Portsmouth Medical Specialists, Inc.
and Churchland Renal Center, Inc.
Notes to Combined Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Property, Equipment and Depreciation
Property and equipment is stated on the basis of cost. Depreciation includes
amortization of capitalized leases and is computed using the straight-line
method over the assets' estimated useful lives which for equipment generally is
5 to 7 years.
Property Under Capital Leases
Leased equipment consists primarily of dialysis and related equipment.
Depreciation is provided over the term of the lease using the straight-line
method.
Net Patient Service Revenue/Concentration of Credit Risk
Net patient service revenue is reported using the accrual basis of accounting at
the estimated net realizable amounts from patients, third-party payors and
others for services rendered. Approximately 85% of net patient service revenues
and approximately 85% of accounts receivable at December 31, 1995 are amounts
received or receivable from the Medicare program.
6
<PAGE>
Portsmouth Medical Specialists, Inc.
and Churchland Renal Center, Inc.
Notes to Combined Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
Income taxes are calculated based upon Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes". Under Statement 109, the
liability method is used in accounting for income taxes and deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Fair Value of Financial Instruments
The carrying amount of the bank line of credit approximates its fair value. The
Companies have entered into lease agreements bearing interest at rates ranging
from 9% to 11.5%. The agreements mature at various dates through 2000.
Management believes that any further assessment to determine the fair market
value of these instruments would not be cost beneficial.
2. Property and Equipment
<TABLE>
Property and equipment at December 31, 1995 is comprised of the following:
<S> <C>
Dialysis equipment $ 871,945
Computer equipment 80,635
Office furniture 98,050
Office equipment 68,718
Leasehold improvements 36,224
Other 84,069
----------
1,239,641
Less accumulated depreciation 658,837
----------
Net property and equipment $ 580,804
==========
</TABLE>
7
<PAGE>
Portsmouth Medical Specialists, Inc.
and Churchland Renal Center, Inc.
Notes to Combined Financial Statements (continued)
3. Employee Benefit Plan
The Companies have a non-contributory profit sharing retirement plan covering
substantially all full-time employees meeting certain eligibility requirements.
The Companies make contributions as determined by the Boards of Directors. The
Companies contributed approximately $98,000 to the plan in 1995.
4. Obligations Under Capital Leases
The Companies have acquired dialysis and related equipment under lease
arrangements accounted for as capital leases. The aggregated cost of the
equipment is $1,119,348 and the related accumulated depreciation of $577,208 at
December 31, 1995. Future minimum lease payments and the present value of the
net minimum lease payments as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Fiscal year
<S> <C>
1996 $109,128
1997 97,225
1998 97,223
1999 91,135
2000 32,639
--------
Total 427,350
Less amount representing interest 74,398
--------
Present value of net minimum lease payments $352,952
========
</TABLE>
Depreciation expense related to leased equipment for the year ended December 31,
1995 was $115,297.
8
<PAGE>
Portsmouth Medical Specialists, Inc.
and Churchland Renal Center, Inc.
Notes to Combined Financial Statements (continued)
5. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax return purposes. Significant components of
the Companies deferred tax asset as of December 31, 1995 related principally to
use of the cash basis of accounting for tax return purposes.
Income tax expense (benefit) applicable to income before income taxes consisted
of the following for the year ended December 31, 1995:
Current:
Federal $ 9,262
State 1,689
----------
Total current 10,951
Deferred:
Federal (49,018)
State (8,940)
----------
Total deferred (57,958)
----------
$ (47,007)
==========
The difference between the effective income tax rate and the statutory Federal
income tax rate for the year ended December 31, 1995 is as follows:
Federal statutory 35%
State, net of federal benefit 4%
-----
39%
=====
The Company paid no income taxes for the year ended December 31, 1995.
6. Borrowings
The Company has a bank line of credit which expires in 1996. The line of credit
agreement bears interest at the prime rate plus 1.1%.
9
<PAGE>
Portsmouth Medical Specialists, Inc.
and Churchland Renal Center, Inc.
Notes to Combined Financial Statements (continued)
7. Related Party Transaction
The Companies' buildings are leased from the stockholders. Total lease expense
incurred under these leases during 1995 was approximately $209,000. The lease
agreements run through September 30, 2000 and include a 5% annual escalation
clause.
Future minimum lease payments to related parties under noncancelable operating
leases as of December 31, 1995 are:
1996 $ 214,620
1997 225,354
1998 236,610
1999 248,442
2000 193,230
----------
$1,118,256
==========
8. Malpractice Insurance
The Companies' practicing physicians have claims made malpractice insurance
which provides coverage for all malpractice claims arising in either Portsmouth
Medical Specialists, Inc. or Churchland Renal Center, Inc. This coverage is
limited to $3 million per claim and $5 million in the aggregate.
Should the Companies not renew their claims made insurance policy or replace it
with equivalent insurance, occurrences during its term but asserted after its
term will be uninsured, unless the Companies obtains tail coverage. This policy
was renewed October 1, 1995 for the ensuing twelve month period. Companies
management is of the opinion that its financial position would not be materially
affected by the ultimate cost related to unasserted claims, if any, at December
31, 1995.
9. Commitments
An employee of the Companies has an employment agreement containing a change of
control provision. Upon change of control, 7.5% of the Companies' total sales
price will be paid to the employee.
10
<PAGE>
Portsmouth Medical Specialists, Inc.
and Churchland Renal Center, Inc.
Notes to Combined Financial Statements (continued)
10. Subsequent Event
Subsequent to year end, the Companies signed a letter of intent to exchange all
outstanding stock of the Companies for common stock of Vivra, Incorporated (a
Delaware Corporation) with a value of $12,500,000. The closing date is
scheduled for June 1, 1996.
11
<PAGE>
Financial Statements
Cooper, Moody, Altschuler, Chizner,
Dennis and Niederman, P.A.
d/b/a The Greater Ft. Lauderdale Heart Group
Year ended December 31, 1995
with Report of Independent Auditors
<PAGE>
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A.
d/b/a The Greater Ft. Lauderdale Heart Group
Financial Statements
Year ended December 31, 1995
Contents
Report of Independent Auditors..............................................1
Financial Statements
Balance Sheet...............................................................2
Statement of Income.........................................................3
Statement of Stockholders' Equity...........................................4
Statement of Cash Flows.....................................................5
Notes to Financial Statements...............................................6
<PAGE>
Report of Independent Auditors
Board of Directors
Cooper, Moody, Altschuler, Chizner,
Dennis and Niederman, P.A.
We have audited the accompanying balance sheet of Cooper, Moody, Altschuler,
Chizner, Dennis and Niederman, P.A., d/b/a The Greater Ft. Lauderdale Heart
Group, as of December 31, 1995, and the related statements of income,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cooper, Moody, Altschuler,
Chizner, Dennis and Niederman, P.A., d/b/a The Greater Ft. Lauderdale Heart
Group, at December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
May 31, 1996
Los Angeles, California
1
<PAGE>
<TABLE>
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A.
d/b/a The Greater Ft. Lauderdale Heart Group
Balance Sheet
<CAPTION>
December 31, 1995
<S> <C>
Assets
Current assets:
Cash $ 29,074
Patient accounts receivable 1,012,870
Clinical testing receivables 277,120
Receivable from stockholders 5,192
Prepaid expenses 43,067
----------
Total current assets 1,367,323
Equipment and furniture, net 248,447
----------
$1,615,770
==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 35,133
Accrued compensation and other liabilities 302,393
Deferred income taxes 390,000
Current maturities of loans from stockholders 224,000
Obligations under capital leases 48,219
----------
Total current liabilities 999,745
----------
Loans from stockholders--exclusive of current maturities 72,000
Stockholders' equity:
Common stock. Par value $100 per share; 100 shares
authorized; 5 shares issued and outstanding 500
Additional paid-in capital 199,500
Retained earnings 344,025
----------
Total stockholders' equity 544,025
----------
$1,615,770
==========
See accompanying notes.
</TABLE>
2
<PAGE>
<TABLE>
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A.
d/b/a The Greater Ft. Lauderdale Heart Group
Statement of Income
<CAPTION>
Year ended December 31, 1995
<S> <C>
Revenues:
Fees for professional services $7,778,769
Fees for clinical testing 729,734
----------
Total revenues 8,508,503
Expenses:
Salaries and benefits 6,452,455
Medical supplies and services 555,892
General and administrative 553,759
Insurance 272,406
Building and equipment rent 235,813
Depreciation and amortization 172,540
Interest 28,093
----------
Total expenses 8,270,958
Income before income taxes 237,545
Income taxes 98,000
----------
Net income $ 139,545
==========
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A.
d/b/a The Greater Ft. Lauderdale Heart Group
Statement of Stockholders' Equity
Year ended December 31, 1995
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
-----------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 500 $199,500 $204,480 $404,480
Net income -- -- 139,545 139,545
-----------------------------------------
Balance at December 31, 1995 $ 500 $199,500 $344,025 $544,025
=========================================
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A.
d/b/a The Greater Ft. Lauderdale Heart Group
Statement of Cash Flows
<CAPTION>
Year ended December 31, 1995
<S> <C>
Operating activities
Net income $ 139,545
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 172,540
Deferred income taxes 98,000
Changes in operating assets and liabilities:
Patient accounts receivable (162,656)
Clinical testing receivables (162,047)
Receivable from shareholders (5,192)
Prepaid expenses (390)
Accounts payable (5,975)
Accrued compensation and other liabilities 65,470
---------
Net cash provided by operating activities 139,295
---------
Investing activities
Purchases of property and equipment (142,207)
---------
Net cash used in investing activities (142,207)
---------
Financing activities
Borrowings from stockholders 200,000
Repayment of borrowings from stockholders (124,000)
Principal payments under capital lease obligations (63,831)
---------
Net cash provided by financing activities 12,169
---------
Increase in cash 9,257
Cash at beginning of year 19,817
---------
Cash at end of year 29,074
=========
Supplemental disclosures of cash flow information
Cash paid during the year for interest $ 28,093
=========
See accompanying notes.
</TABLE>
5
<PAGE>
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A.
d/b/a The Greater Ft. Lauderdale Heart Group
Notes to Financial Statements
Year ended December 31, 1995
1. Summary of Significant Accounting Policies
Nature of Operations
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A., d/b/a The
Greater Ft. Lauderdale Heart Group, a Florida professional association (the
Company), operates a professional medical practice, specializing in invasive,
noninvasive and interventional cardiology. The Company also performs clinical
testing for pharmaceutical company customers.
On April 17, 1996 the Company's stockholders agreed, in principle, to sell all
of the outstanding stock of the Company to Vivra Incorporated.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using
straight-line and accelerated methods, with the assets' useful lives estimated
at 5 to 7 years.
Property and equipment as of December 31, 1995 consisted of the following:
Medical equipment $ 621,854
Office equipment 329,046
Leasehold improvements 61,976
-----------
1,012,876
Less accumulated depreciation and amortization (764,429)
-----------
$ 248,447
===========
6
<PAGE>
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A.
d/b/a The Greater Ft. Lauderdale Heart Group
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Line of Credit
The Company has a $550,000 line of credit (LOC) agreement with a commercial
bank, bearing interest at the bank's prime rate, and secured by patient accounts
receivable. This LOC, which expires on August 31, 1996, was unused during 1995.
Fees for Professional Services
Fees for professional services include amounts for services paid by Medicare,
the North Broward Hospital District and other third party payers under various
fixed, capitated and fee-for-service reimbursement formulas in effect. Fees for
professional services are recorded net of any related contractual allowances.
Medicare, the North Broward Hospital District and a capitation agreement with a
health maintenance organization represented approximately 40%, 27% and 8%,
respectively, of the Company's fees for professional services in fiscal 1995.
The balance of fees, approximately 25%, were paid by insurance, private and
other third-party payers.
Income Taxes
Income taxes have been provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
7
<PAGE>
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A.
d/b/a The Greater Ft. Lauderdale Heart Group
Notes to Financial Statements (continued)
2. Related Party Transactions
As of December 31, 1995, the Company's unsecured loans from stockholders
consisted of the following:
11% notes payable, principal payments of
$24,000 annually, maturing in 1999 $ 96,000
9.5% notes payable, due on demand 200,000
---------
296,000
Less current portion (224,000)
---------
$ 72,000
=========
The Company leases one of its office buildings from a partnership which is
controlled by the Company's stockholders. The lease expires on December 31,
2002, and the related rent expense of approximately $140,000 for fiscal 1995 is
included in building and equipment rent. As of December 31, 1995, the Company
had a payable to this partnership of $6,600, which is included in accounts
payable.
3. Leases
Obligations under capital leases mature in 1996, have remaining payments of
approximately $52,000 ($3,800 represents interest) and bear an effective
interest rate of approximately 10%. The related leased equipment has a
capitalized cost of $293,000, net of accumulated amortization of $249,050 as of
December 31, 1995. Amortization expense was $58,600 for fiscal 1995.
Future minimum commitments under noncancelable operating leases at December 31,
1995, including the related party lease in Note 2, are as follows:
1996 $ 204,131
1997 194,405
1998 132,000
1999 138,600
2000 145,530
2001 and thereafter 313,254
----------
$1,127,920
==========
8
<PAGE>
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A.
d/b/a The Greater Ft. Lauderdale Heart Group
Notes to Financial Statements (continued)
4. Income Taxes
The Company's income tax provision for fiscal 1995 consisted of $89,450 and
$8,550 of deferred federal and deferred state income taxes, respectively.
As of December 31, 1995, the Company's net deferred income tax liability
consisted of the following:
Receivables and prepaid expenses recognized on the cash
basis for income tax purposes $ 513,000
Accounts payable and accrued expenses recognized on the
cash basis for income tax purposes (123,000)
=========
$ 390,000
=========
A reconciliation income tax expense to the statutory rate of 35% for personal
service corporations is as follows:
Amount Percent
-------------------------------
Tax at U.S. statutory rate $83,140 35%
State income taxes net of federal
tax benefit 8,550 4
Other 6,310 2
-------------------------------
$98,000 41%
===============================
The Company paid no income taxes for the year ended December 31, 1995.
5. Malpractice Insurance
The Company carries claims-made malpractice insurance for each of its
physicians. This insurance provides coverage of $1,000,000 per incident, with a
$3,000,000 annual limit. In addition, the Company has an umbrella policy which
provides coverage of $1,000,000 per claim, with a $3,000,000 annual limit.
9
<PAGE>
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A.
d/b/a The Greater Ft. Lauderdale Heart Group
Notes to Financial Statements (continued)
6. Estimated Fair Value of Financial Instruments
It is not practicable to estimate the fair value of the Company's loans from
stockholders.
7. Retirement Plan
The Company maintains an employee savings and profit sharing plan under Section
401(k) of the Internal Revenue Code. The plan covers substantially all
employees. Under the plan, the Company may make discretionary contributions
subject to various limits. The Company also has a money purchase retirement
plan, covering substantially all employees. This plan requires mandatory
contributions equal to 3% of the salaries of eligible employees. Total Company
expense related to these plans was $138,000 for fiscal 1995.
10
<PAGE>
<TABLE>
Exhibit 11.1 - Statement Re:
Supplemental Computation of Per Share Earnings*
Vivra Incorporated and Subsidiaries
Three Years Ended November 30, 1995
Year ended November 30
<CAPTION>
1995 1994 1993
-----------------------------------------------------
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 37,350,000 32,987,000 31,158,000
(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 38,028,000 33,803,000 32,098,000
=====================================================
Net earnings from continuing operations $38,599,000 $30,187,000 $24,376,000
Earnings from discontinued operations less applicable taxes - - 554,000
Gain on sale of discontinued operations less applicable taxes - 697,000 -
-----------------------------------------------------
Net earnings $38,599,000 $30,884,000 $24,930,000
=====================================================
Earnings per Share:
Net earnings from continuing operations $1.03 $.92 $.76
Earnings from discontinued operations - - .02
Gain on sale of discontinued operations - .02 -
-----------------------------------------------------
Net earnings $1.03 $.94 $.78
=====================================================
Fully diluted:
Weighted average shares outstanding 37,350,000 32,987,000 31,158,000
(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 38,046,000 33,830,000 32,133,000
=====================================================
Net earnings from continuing operations $38,599,000 $30,187,000 $24,376,000
Earnings from discontinued operations less applicable taxes - - 554,000
Gain on sale of discontinued operations less applicable taxes - 697,000 -
-----------------------------------------------------
Net earnings $38,599,000 $30,884,000 $24,930,000
=====================================================
Earnings per Share:
Net earnings from continuing operations $1.03 $.92 $.76
Earnings from discontinued operations - - .02
Gain on sale of discontinued operations - .02 -
-----------------------------------------------------
Net earnings $1.03 $.94 $.78
=====================================================
* Adjusted to reflect three-for-two stock splits payable to shareholders of
record on November 22, 1995 and November 10, 1993, respectively and the
issuance of 875,702 shares of Common Stock in connection with the
pooling-of-interests described in Note 1 to the Supplemental Consolidated
Financial Statements, reflected retroactively for all periods presented.
(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 Consolidated Financial
Statements.
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement No.
333-6495 on Form S-4 dated June, 21 1996; No. 33-60513 on Form S-8 dated July
23, 1995; No. 33-98246 on Form S-8 dated August 17, 1994; and No. 33-80030 on
Form S-3 dated June 20, 1994 of our report dated September 20, 1996, with
respect to the supplemental consolidated financial statements and schedule of
Vivra Incorporated included in this Form 8-K.
We also consent to the incorportion by reference in Registration Statement
No. 333-6495 on form S-4 dated June 21, 1996; and No. 33-80030 on form S-3 dated
June 20, 1994 of our reports dated May 9, 1996 with respect to the
combined financial statements of Portsmouth Medical Specialists, Inc.
and Churchland Renal Center, Inc. as of December 31, 1995 and
for the year then ended and dated May 31, 1996 with respect to the financial
statements of Cooper, Moody, Altschuler, Chizner, Dennis and Niederman,
P.A., d/b/a The Greater Ft. Lauderdale Heart Group as of December 31, 1995
and for the year then ended included in this form 8-K.
ERNST & YOUNG LLP
September 20, 1996
Los Angeles, California
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying supplemental consolidated balance sheets
of Vivra Incorporated (formed as a result of the consolidation of Vivra
Incorporated; Portsmouth Medical Specialists, Inc. and Churchland Renal Center,
Inc.; and Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A. d/b/a
The Greater Ft. Lauderdale Heart Group) 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. The supplemental consolidated financial statements give retroactive effect
to the merger of Vivra Incorporated and Portsmouth Medical Specialists, Inc. and
Churchland Renal Center, Inc. on June 1, 1996 and Vivra Incorporated and Cooper,
Moody, Altschuler, Chizner, Dennis and Niederman, P.A. d/b/a The Greater Ft.
Lauderdale Heart Group on July 1, 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. Our audits include the
financial statement Schedule 2--Supplemental Valuation and Qualifying
Accounts listed in the index at Item 7(c). 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 the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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 Portsmouth Medical Specialists, Inc. and Churchland Renal Center,
Inc. and Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A. d/b/a
The Greater Ft. Lauderdale Heart Group, 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 2-Supplemental Valuation and Qualifying Accounts when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
September 20, 1996
Los Angeles, California
<PAGE>
<TABLE>
Vivra Incorporated and Subsidiaries
Supplemental Consolidated Balance Sheet
<CAPTION>
November 30,
1995 1994
---------------------------
(In thousands)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 54,063 $ 80,681
Short-term investments - held-to-maturity and available-for-sale (Note 4) 43,616 -
Accounts receivable, less allowance for doubtful accounts (1995 - $13,429 and 1994
- $10,790) 66,049 55,243
Inventories 9,113 6,549
Prepaid expenses and other current assets 2,070 1,174
Deferred income taxes (Note 6) 14,570 10,674
---------------------------
Total Current Assets 189,481 154,321
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) 77,018 67,343
Other assets 8,479 5,353
Goodwill and other intangibles, less accumulated amortization
(1995 - $6,727 and 1994 - $4,691) 113,935 56,173
---------------------------
$411,423 $283,190
===========================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 11,194 $ 10,106
Accrued payroll and related benefits 22,995 23,464
Other accrued expenses 11,526 11,670
Income taxes (Note 6) 4,668 2,184
Current portion of deferred income taxes 4,181 575
Current maturities of long-term debt (Note 7) 1,862 7,697
---------------------------
Total Current Liabilities 56,426 55,696
Long-term debt - exclusive of current maturities (Note 7) 2,185 5,485
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 38.9
million shares in 1995 and 33.5 million in 1994 389 231
Additional paid-in capital 142,754 54,868
Retained earnings 198,194 159,335
Net unrealized gain on marketable securities, less applicable income taxes 5,070 -
---------------------------
Total Stockholders' Equity 346,407 214,434
---------------------------
$411,423 $283,190
===========================
See Notes to Supplemental Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
Vivra Incorporated and Subsidiaries
Supplemental Consolidated Statement of Earnings
<CAPTION>
Year ended November 30
1995 1994 1993
----------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues
Operating revenues $380,826 $310,117 $239,391
Other income 5,221 1,891 1,235
----------------------------------------------------
Total Revenues 386,047 312,008 240,626
Costs and Expenses
Operating 260,838 207,779 165,359
General and administrative 50,107 42,495 24,635
Depreciation 11,280 9,953 7,589
Interest 483 606 1,016
----------------------------------------------------
Total Costs and Expenses 322,708 260,833 198,599
----------------------------------------------------
Earnings from continuing operations, before minority interest
and income taxes 63,339 51,175 42,027
Minority interest (95) (10) -
----------------------------------------------------
Earnings from continuing operations, before income taxes
63,244 51,165 42,027
Income taxes (Note 6) 24,645 20,978 17,651
----------------------------------------------------
Net earnings from continuing operations 38,599 30,187 24,376
Earnings from discontinued operations, less applicable taxes
(Note 3) - - 554
Gain on sale of discontinued operations, less applicable taxes
(Note 3) - 697 -
----------------------------------------------------
Net earnings $ 38,599 $ 30,884 $ 24,930
====================================================
Earnings per Share (Primary and Fully Diluted):
Net earnings from continuing operations $ 1.03 $ .92 $ .76
Earnings from discontinued operations - - .02
Gain on sale of discontinued operations - .02 -
----------------------------------------------------
Net earnings $ 1.03 $ .94 $ .78
====================================================
Average Number of Common Shares:
Primary 37,350 32,987 32,098
Fully diluted 37,350 32,987 32,133
====================================================
- ---------------------
See Notes to Supplemental Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
Vivra Incorporated and Subsidiaries
Supplemental Consolidated Statement of Stockholders' Equity
<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 $147 $40,570 $102,957 42 $(1,198)
Common Stock split effected by
three-for-two distribution (Note 64 (103) 21
8)
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 2,776
transactions
Stock issued in connection with
acquisitions (Note 2) 7 6 533
Net earnings for year 24,930
------------------------------------------------------------------------------
Balance at November 30, 1993 223 45,759 128,420 - - -
Exercise of employees' stock
options, net of treasury stock
transactions (Note 8) 6 4,163
Income tax benefits derived from
employee stock option 3,514
transactions
Stock issued in connection with
acquisition (Note 2) 2 1,432 31
Net earnings for year 30,884
------------------------------------------------------------------------------
Balance at November 30, 1994 231 54,868 159,335 - - -
Common stock split affected by
three-for-two distribution (Note 103 (103)
8)
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 5,162
transactions
Stock issued in connection with
acquisition (Note 2) 11 9,524 260
Net earnings for year 38,599
Net unrealized gain on marketable
securities, less applicable
income taxes (Note 6) $5,070
------------------------------------------------------------------------------
Balance at November 30, 1995 $389 $142,754 $198,194 - - $5,070
==============================================================================
See Notes to Supplemental Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
Vivra Incorporated and Subsidiaries
Supplemental Consolidated Statement of Cash Flows
<CAPTION>
Year ended November 30
1995 1994 1993
------------------------------------------
(In thousands)
<S> <C> <C> <C>
Operating Activities
Net earnings $38,599 $30,884 $24,930
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 14,396 12,035 8,939
Assets held for sale - - (3,261)
Gain on sale of discontinued operations - (1,229) -
Loss (Gain) on sale of property and investments (1,557) 1,061 1
Other (5,998) (3,571) (543)
Changes in assets and liabilities:
Accounts receivable (16,863) (1,796) (4,072)
Inventories (2,514) (1,287) (510)
Prepaid expenses and other current assets (1,575) 251 482
Deferred income taxes (3,801) (4,039) (2,094)
Accounts payable 5,406 (818) 12
Accrued payroll and related benefits (310) 6,388 3,577
Other accrued expenses (3,214) 5,340 1,120
Income taxes 2,160 1,271 566
------------------------------------------
Net cash flow from operations 24,729 44,490 29,147
Financing Activities
Payments on long-term debt (8,371) (4,026) (2,022)
Proceeds from Common Stock offering 59,592 - -
Proceeds from long-term borrowing 1,620 2,900 487
Proceeds from exercise of stock options and
related transactions 18,918 7,683 6,451
------------------------------------------
Net cash flow from financing 71,759 6,557 4,916
Investing Activities
Purchase of property, buildings and equipment (29,433) (20,932) (12,357)
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 (123,106) (23,534) (21,131)
------------------------------------------
Net increase (decrease) in cash and cash equivalents (26,618) 27,513 12,932
Beginning cash and cash equivalents 80,681 53,168 40,236
------------------------------------------
Ending cash and cash equivalents $54,063 $80,681 $53,168
==========================================
See Notes to Supplemental Consolidated Financial Statement
</TABLE>
<PAGE>
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
healthcare 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 healthcare 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 supplemental
consolidated financial statements. Certain amounts have been reclassified to
conform with 1995 presentations. As described more fully in Note 2, the Company
acquired the all of the outstanding stock of Portsmouth Medical Specialists,
Inc. and Churchland Renal Center, Inc. on June 1, 1996 and Cooper, Moody,
Altschuler, Chizner, Dennis and Niederman, P.A. d/b/a The Greater Ft. Lauderdale
Heart Group on July 1, 1996 in exchange for stock of 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 acquired businesses for
all periods presented. Upon issuance of financial statements for the period that
includes the dates of the mergers, these supplemental consolidated financial
statements will become the historical financial statements of the Company.
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 in the period ended November 30, 1995 along with Portsmouth Medical
Specialists, Inc. and Churchland Renal Center, Inc. ("Portsmouth") and Cooper,
Moody, Altschuler, Chizner, Dennis and Niederman, P.A. d/b/a The Greater Ft.
Lauderdale Heart Group ("Altschuler") for each of the three years in the period
ended December 31, 1995. 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.
Property, Buildings and Equipment
Depreciation is computed on the straight-line method based on the estimated
useful lives of buildings or items of equipment.
<PAGE>
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-incentive 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.
<PAGE>
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 Portsmouth Medical Specialists,
Inc. and Churchland Renal Center, Inc. on June 1, 1996 and Cooper, Moody,
Altschuler, Chizner, Dennis and Niederman, P.A. d/b/a The Greater Ft. Lauderdale
Heart Group on July 1, 1996 in stock for stock exchanges with the Company. These
transactions have been accounted for under 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 for all periods presented. 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 consolidated statements of income for the quarter
ending August 31, 1996.
The calculation of net income per share for each period presented reflects the
issuance of 875,702 shares for the Portsmouth Medical Specialists, Inc. and
Churchland Renal Center, Inc. combination and the Cooper, Moody, Altschuler,
Chizner, Dennis and Niederman, P.A. d/b/a The Greater Ft. Lauderdale Heart Group
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>
Vivra Portsmouth Altschuler Combined
----- ---------- ---------- --------
<S> <C> <C> <C> <C>
Year ended November 30,1995
Revenues................................. $371,737 $5,801 $8,509 $386,047
Net Income (Loss)........................ 38,528 (74) 145 38,599
Year ended November 30,1994
Revenues................................. $299,290 $5,273 $7,445 $312,008
Net Income............................... 30,644 157 83 30,884
Year ended November 30,1993
Revenues................................. $229,237 $4,433 $6,956 $240,626
Net Income (Loss)........................ 24,772 173 (15) 24,930
</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.
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.
<PAGE>
2. Mergers, Acquisitions and Dispositions (continued)
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 $412,918 $365,314
Net Earnings 39,821 32,773
Earnings per Share $1.07 $0.97
</TABLE>
<PAGE>
3. Discontinued Operations
In December 1993, the Company sold its home healthcare nursing business,
Personal Care Health Services. The cash proceeds net of retained assets,
liabilities and taxes were approximately $5.9 million. Accordingly, the home
healthcare 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 healthcare 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 Cost Unrealized Gains Unrealized Fair Value
Losses
------------------------------------------------------------
(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.
5. Property, Buildings and Equipment
<TABLE>
Property, buildings and equipment are summarized as follows:
<CAPTION>
November 30
1995 1994
-----------------------------------
(In thousands)
<S> <C> <C>
Land $ 4,734 $ 6,450
Buildings and improvements 37,636 38,689
Furniture, fixtures and equipment 72,780 66,773
Construction in progress (estimated costs to complete at
November 1995 - $2,634,000) 4,067 1,006
-----------------------------------
119,217 112,918
Less accumulated depreciation (42,199) (45,575)
-----------------------------------
$ 77,018 $ 67,343
===================================
</TABLE>
<PAGE>
6. Income Taxes
<TABLE>
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<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 233 1,295
-----------------------------------
Total deferred tax assets 14,570 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 334 1,149
-----------------------------------
Total deferred tax liabilities 10,824 6,759
-----------------------------------
Net deferred tax assets $ 3,746 $ 3,915
===================================
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.
</TABLE>
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) (2,966) (3,277) (1,365)
-----------------------------------------------------
$24,645 $20,978 $17,651
=====================================================
</TABLE>
<PAGE>
6. Income Taxes (continued)
<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:
<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 1,133 (1,181) (875)
-----------------------------------------------------
$(2,966) $(3,277) $(1,365)
=====================================================
</TABLE>
<TABLE>
The differences between federal income taxes computed at the statutory rate and
the total provision are:
<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 (820) 255 672
-----------------------------------------------------
$24,645 $20,978 $17,651
=====================================================
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.
</TABLE>
<PAGE>
7. Long-Term Debt
<TABLE>
Long-term debt at November 30, 1995, consists of the following:
<CAPTION>
Principal Installments Due
Due Within One After
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 $1,517,000 983 900
-------------------------------------
$1,862 $2,185
=====================================
Interest paid was $623,000, $507,000 and $909,000 in 1995, 1994 and 1993,
respectively.
</TABLE>
The approximate annual maturities of long-term debt at November 30, 1995, are as
follows:
Year ending November 30 (In thousands)
1996 $ 1,862
1997 864
1998 615
1999 432
2000 217
<PAGE>
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 Supplemental 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.
<TABLE>
A summary of activity under the plan during 1993, 1994 and 1995 is as follows:
<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>
<PAGE>
8. Capital Stock and Stock Options (continued)
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.
<TABLE>
A summary of activity under the plan during 1993, 1994 and 1995 is as follows:
<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 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 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.
<PAGE>
8. Capital Stock and Stock Options (continued)
<TABLE>
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:
<CAPTION>
VSP Plan VHS Plan
----------------------------------
<S> <C> <C>
Options outstanding at December 1, 1994 0 0
Options granted 845,000 782,000
----------------------------------
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, 1994 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. 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.
<PAGE>
9. Profit Sharing and 401(k) Plan (continued)
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.
<TABLE>
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.
<CAPTION>
Year ended November 30
1995 1994 1993
-----------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Operating revenues:
Vivra Renal Care $316,570 $265,261 $217,763
Vivra Specialty Partners 40,227 17,742 15,401
Other Services 24,029 27,114 6,227
-----------------------------------------------------
Total operating revenues $380,826 $310,117 $239,391
=====================================================
Operating profits:
Vivra Renal Care $64,656 $54,406 $44,746
Vivra Specialty Partners (992) 787 766
Other Services (16) (550) 199
-----------------------------------------------------
Total operating profits $63,648 $54,643 $45,711
Other income 5,221 1,891 1,235
Corporate expenses (5,047) (4,753) (3,903)
Interest expense (483) (606) (1,016)
-----------------------------------------------------
Earnings from continuing operations before minority
interest and income taxes $63,339 $51,175 $42,027
=====================================================
</TABLE>
<PAGE>
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 $253,681 $149,058 $138,293
Vivra Specialty Partners 28,703 17,529 3,400
Other Services 4,402 25,423 12,278
Asset held for sale/Home Nursing Business - - 3,727
Corporate 124,637 91,180 56,083
-----------------------------------------------------
$411,423 $283,190 $213,781
=====================================================
Depreciation expense:
Vivra Renal Care $9,951 $8,913 $6,945
Vivra Specialty Partners 496 199 194
Other Services 711 716 337
Corporate 122 125 113
-----------------------------------------------------
$11,280 $9,953 $7,589
=====================================================
Capitalized expenditures for property, buildings and
equipment: (1)
Vivra Renal Care $27,185 $14,980 $10,460
Vivra Specialty Partners 1,184 382 102
Other Services 1,000 5,514 1,661
Corporate 64 56 134
-----------------------------------------------------
$29,433 $20,932 $12,357
=====================================================
(1) Excludes assets acquired in business acquisitions of $4.3 million, $2.1
million and $1.5 million in 1995, 994 and 1993, respectively.
</TABLE>
<PAGE>
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:
(In thousands)
1996 $12,570
1997 10,408
1998 8,507
1999 7,129
2000 4,950
Total rent expense amounted to $11.8 million, $8.9 million, and $7.2 million in
1995, 1994, and 1993, respectively.
Contingencies
On May 20, 1992, in the Pennsylvania Court of Common Pleas in Delaware County, a
complaint was filed against the Company's subsidiary, 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.
<PAGE>
12. Quarterly Results of Operations (Unaudited)
<TABLE>
The following is a tabulation of the unaudited quarterly data for the three
years ended November 30, 1995.
<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 $90,791 $96,114 $95,238 $98,683
Net earnings 8,704 10,001 10,613 9,281
Earnings per share (primary and fully diluted):
Net earnings .25 .26 .28 .24
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 $69,838 $75,903 $80,319 $84,057
Earnings from continuing operations 6,940 7,502 7,801 7,944
Gain on sale of discontinued operations 697 -- -- --
----------------------------------------------------------
Net earnings 7,637 7,502 7,801 7,944
Earnings per share (primary and fully diluted):
Continuing operations .22 .23 .23 .24
Gain on sale of discontinued operations .02 -- -- --
----------------------------------------------------------
Net earnings .24 .23 .23 .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
</TABLE>
<PAGE>
12. Quarterly Results of Operations (Unaudited)
<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>
1993
Total operating revenues $54,351 $58,035 $61,773 $65,232
Earnings from continuing operations 5,336 5,894 6,591 6,555
Earnings from discontinued operations 84 163 151 156
-----------------------------------------------------------
Net earnings 5,420 6,057 6,742 6,711
Earnings per share (primary and fully diluted):
Continuing operations .17 .19 .20 .20
Discontinued operations - .01 - .01
-----------------------------------------------------------
Net earnings .17 .20 .20 .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>
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.
On July 8, 1996, the Company completed a $150 million issuance of 5% Convertible
Subordinated Notes Due 2001 in a private placement. In addition, an
over-allotment of $8.5 million in Notes was exercised on August 6, 1996. The net
proceeds from this private placement and over-allotment were approximately
$154.6 million.
During the nine months ended August 31, 1996, the Company consummated mergers
and acquisitions comprised of 22 dialysis centers, 15 physician practices and an
orthopedics network. The mergers and acquisitions were treated either as
pooling-of-interests or purchases. Total consideration paid was $130.0 million,
consisting of cash $46.8 million and 2,924,214 shares of the Company's Common
Stock.
<PAGE>
<TABLE>
Schedule II - Valuation and Qualifying Accounts
<CAPTION>
Vivra Incorporated and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
------------------------------------
(2)
Balance at Charged to (1)
Beginning of Charged to Costs Other Accounts - Deductions - Balance at End of
Description Period and Expenses Describe Describe Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended November 30, 1993 $ 6,550,000 $1,610,000 $1,743,000(2) $(2,006,000)(1) $ 7,897,000
Year ended November 30, 1994 7,897,000 2,228,000 1,350,000(3) (685,000)(1) 10,790,000
Year ended November 30, 1995 10,790,000 4,383,000 604,000(2) (2,348,000)(1) 13,429,000
(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.
</TABLE>
<PAGE>
<TABLE>
Vivra Incorporated
Condensed Supplemental Consolidated Balance Sheet
(in thousands)
<PAGE>
<CAPTION>
May 31, Nov. 30
1996 1995
---------------------------
(Note A)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 29,441 $ 54,063
Short-term investments - held-to-maturity and available-for-sale 27,401 43,616
Accounts receivable, less allowance for doubtful accounts (5/31/96 - $13,941 and
11/30/95 - $13,429) 77,496 66,049
Inventories 11,154 9,113
Prepaid expenses and other current assets 5,349 2,070
Deferred income taxes 14,198 14,570
---------------------------
Total Current Assets 165,039 189,481
Marketable non-current investments - held-to-maturity 31,379 22,510
Property, buildings and equipment - at cost, less allowances for depreciation
(5/31/96 - $44,027 and 11/30/95 - $42,199 84,282 77,018
Other Assets 10,317 8,479
Goodwill and other intangibles, less accumulated amortization
(5/31/96 - $7,692 and 11/30/95 - $6,727) 154,926 113,935
---------------------------
$445,943 $411,423
===========================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 9,800 $ 11,194
Accrued payroll and related benefits 22,552 22,995
Other accrued expenses 18,611 11,526
Income taxes 3,335 4,668
Current portion of deferred income taxes 3,694 4,181
Current maturities of long-term debt 1,428 1,862
---------------------------
Total Current Liabilities 59,420 56,426
Long-term debt - exclusive of current maturities 2,220 2,185
Deferred income taxes 7,832 6,643
Minority interest 1,025 (238)
Stockholders' Equity:
Common stock, par value $.01 per share; authorized 80.0 million shares; issued 39.9
million shares in 1996 and 38.9 million in 1995 399 389
Additional paid-in capital 150,857 142,754
Retained earnings 219,445 198,194
Net unrealized gain on marketable securities, less applicable income taxes 4,745 5,070
---------------------------
Total Stockholders' Equity 375,446 346,407
---------------------------
$445,943 $411,423
===========================
See accompanying notes to condensed supplemental consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Vivra Incorporated
Condensed Supplemental Consolidated Statement of Earnings
(in thousands, except per share amounts)
<CAPTION>
Six Months Ended Three Months Ended
May 31, May 31,
1996 1995 1996 1995
-------------------------- ------------------
<S> <C> <C> <C> <C>
Revenues
Operating revenues $233,401 $186,905 $123,326 $96,114
Other income 4,039 4,236 2,161 3,550
------------ ------------ -------- -------
Total Revenues 237,440 191,141 125,487 99,664
Costs and Expenses
Operating 165,520 126,061 86,400 65,013
General and administrative 26,745 28,582 15,330 15,161
Depreciation 6,673 5,315 3,471 2,800
Interest 129 354 73 141
------------ ------------ -------- -------
Total Costs and Expenses 199,067 160,312 105,274 83,115
Earnings from continuing operations, before
minority interest and income taxes 38,373 30,829 20,213 16,549
Minority interest (14) (186) (14) (163)
------------ ------------- -------- -------
Earnings from continuing operations, before income taxes 38,359 30,643 20,209 16,386
Income taxes 14,606 11,940 7,743 6,385
------------ ------------ -------- -------
Net Earnings $23,753 $18,703 $ 12,466 $10,001
============ ============ ======== =======
Net Earnings per Share $.60 $.52 $.31 $.26
============ ============ ======== =======
Average Number of Common Shares 39,374 36,047 39,614 37,787
See accompanying notes to condensed supplemental consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Vivra Incorporated
Condensed Consolidated Statement of Cash Flows
(in thousands)
<CAPTION>
Six Months Ended
May 31,
1996 1995
-------------------------------
<S> <C> <C>
Operating Activities
Net earnings $23,753 $18,703
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 9,217 6,211
Loss (Gain) on sale of property and investments (861) (2,170)
Other (3,811) (2,727)
Changes in assets and liabilities:
Accounts receivable (9,685) (9,549)
Inventories (1,484) (709)
Prepaid expenses and other current assets (3,157) (1,716)
Deferred income taxes 567 (4,649)
Accounts payable (3,171) 7,586
Accrued payroll and related benefits (421) (877)
Other accrued expenses 2,527 (3,973)
Income taxes (507) 2,034
-------------------------------
Net cash flow from operations 12,967 8,164
Financing Activities
Payments on long-term debt (2,727) (5,547)
Proceeds from Common Stock offering - 59,597
Proceeds from exercise of stock options and
related transactions 5,565 13,036
-------------------------------
Net cash flow from financing 2,838 67,086
Investing Activities
Purchase of property, buildings and equipment (13,399) (12,048)
Purchase of held-to-maturity investments (29,968) (41,575)
Redemption of held-to-maturity investments 30,670 -
Proceeds from sale of available-for-sale investments 8,373 -
Proceeds from sale of property, buildings and equipment 593 1,211
Proceeds from investments in partnerships 1,700 -
Payment for business acquisitions, net of cash acquired (38,396) (30,063)
-------------------------------
Net cash flow used in investing (40,427) (82,475)
-------------------------------
Net increase in cash and cash equivalents (24,622) (7,225)
Beginning cash and cash equivalents 54,063 80,620
-------------------------------
Ending cash and cash equivalents $29,441 $73,395
===============================
See accompanying notes to condensed supplemental consolidated financial statements
</TABLE>
<PAGE>
Vivra Incorporated
Notes to Condensed Supplemental Consolidated Financial Statements
May 31,1996
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 Portsmouth Medical Specialists,
Inc. and Churchland Renal Center, Inc. on June 1, 1996 and Cooper, Moody,
Altschuler, Chizner, Dennis and Niederman, P.A. d/b/a The Greater Ft.
Lauderdale Heart Group on July 1, 1996 in stock for stock exchanges 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 consolidated supplemental
financial statements and the notes included herewith.
B. ACQUISITIONS
During the six months ended May 31, 1996, the Company consummated mergers
and acquisitions comprised of 19 dialysis centers, 12 physician practices and
an orthopedics network. The mergers and acquisitions were treated either as
pooling-of-interests or purchases. Total consideration paid was $93.6
million, consisting of cash $38.3 million and 2,003,033 shares of the
Company's Common Stock.
Separate and combined results from the transactions noted in Note A are as
follows and reflect income tax adjustments related to the Company's effective
tax rate for both the Three and Six Months Ended May 31, 1996 and 1995:
<TABLE>
<CAPTION>
Vivra Portsmouth Altschuler Combined
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Six Months Ended May 31, 1996
Revenues $230,827 $ 2,776 $ 3,837 $237,440
Net Income (Loss) 23,612 204 (63) 23,753
Six Months Ended May 31, 1995
Revenues $183,986 $ 2,901 $ 4,254 $191,141
Net Income (Loss) 18,668 (37) 72 18,703
Three Months Ended May 31, 1996
Revenues $122,335 $ 1,388 $ 1,764 $125,487
Net Income (Loss) 12,401 102 (37) 12,466
Three Months Ended May 31, 1995
Revenues $ 96,087 $ 1,450 $ 2,127 $ 99,664
Net Income (Loss) 9,983 (18) 36 10,001
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.
D. CONVERTIBLE SUBORDINATED NOTES PRIVATE PLACEMENT
On July 8, 1996, the Company completed a $150 million issuance of 5%
Convertible Subordinated Notes Due 2001 in a private placement. In addition,
an over-allotment of $8.5 million in Notes was exercised on August 6, 1996.
The net proceeds from this private placement and over-allotment were
approximately $154.6 million.
<PAGE>
</TABLE>
<TABLE>
VIVRA INCORPORATED
Supplemental Computation of Per Share Earnings
(in thousands, except per share amounts)
<CAPTION>
Six Months Ended
May 31,
1996 1995
------------------------
<S> <C> <C>
Primary:
Average shares outstanding 39,374 36,047
Stock options granted to employees, based
on the treasury-stock method using
average market price 655 * 806 *
-------- --------
Total 40,029 36,853
Net earnings $ 23,645 $ 18,703
======== ========
Net Earnings per share $ .60 $ .52
======== ========
Fully diluted:
Average shares outstanding 39,374 36,047
Stock options granted to employees, based
on the treasury-stock method using
quarter end market price, if higher than
average market price 747 * 902 *
-------- --------
Total 40,121 36,949
Net earnings $ 23,645 $ 18,703
======== ========
Net Earnings per share $ .60 $ .52
======== ========
- -------------
* 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 Consolidated Financial
Statements.
</TABLE>
