UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED FEBRUARY 28, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10261
VIVRA INCORPORATED
DELAWARE I.R.S. EMPLOYER IDENTIFICATION NO. 94-3096645
1850 GATEWAY DRIVE, FIFTH FLOOR
SAN MATEO, CALIFORNIA 94404
415-577-5700
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
The number of shares outstanding of each of the issuer's classes of common stock
as of April 7, 1997 was: 41,070,626
This document contains 12 pages and the Exhibit Index is on Page 11.
1
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<TABLE>
VIVRA INCORPORATED
TABLE OF CONTENTS
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of February 28,
1997 and November 30, 1996 3
Condensed Consolidated Statements of Earnings for the
Three Months Ended February 28, 1997 and February 29, 1996 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended February 28, 1997 and February 29, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit Index 11
Exhibit 11 Computation of Earnings Per Share 12
</TABLE>
2
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Vivra Incorporated
Condensed Consolidated Balance Sheets
(in thousands)
Feb. 28, Nov. 30
1997 1996
-------------------
(Note A)
Assets
Current Assets
Cash and cash equivalents $ 35,294 $ 78,039
Short-term investments - held-to-maturity
and available-for-sale 86,941 84,640
Accounts receivable, less allowance for
doubtful accounts (2/28/97 - $20,647
and 11/30/96 - $18,707) 117,463 97,703
Inventories 16,008 13,238
Prepaid expenses and other current assets 3,659 4,272
Deferred income taxes 17,984 16,112
-------------------
Total Current Assets 277,349 294,004
Marketable non-current investments - held-to-maturity 50,968 66,297
Property, buildings and equipment - at cost,
less allowances for depreciation (2/28/97 -
$58,575 and 11/30/96 - $53,437) 101,539 97,681
Other assets 24,226 12,648
Goodwill and other intangibles, less accumulated
amortization (2/28/97 - $15,067
and 11/30/96 - $11,233) 220,146 184,588
-------------------
$674,228 $655,218
===================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 9,716 $ 16,005
Accrued payroll and related benefits 24,276 27,303
Provider claims reserve 18,016 11,487
Other accrued expenses 14,147 13,490
Income taxes 17,847 10,278
Current portion of deferred income taxes 90 418
Current maturities of long-term debt 507 609
-------------------
Total Current Liabilities 84,599 79,590
Long-term debt - exclusive of current maturities 162,906 162,534
Deferred income taxes 7,169 7,192
Minority interest 3,174 2,674
Stockholders' Equity:
Common stock, par value $.01 per share; authorized 80.0
million shares; issued 40.5 million shares in 1997
and 40.4 million in 1996 405 404
Additional paid-in capital 157,472 157,156
Retained earnings 258,469 245,164
Net unrealized gain on marketable securities, less
applicable income taxes 34 504
-------------------
Total Stockholders' Equity 416,380 403,228
-------------------
$674,228 $655,218
===================
See accompanying notes to condensed consolidated financial statements
3
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Vivra Incorporated
Condensed Consolidated Statements of Earnings
(in thousands, except per share amounts)
Three Months Ended
February 28/29,
1997 1996
----------------------
Revenues
Operating revenues $ 158,445 $ 110,075
Other income 2,253 1,877
----------------------
Total Revenues 160,698 111,952
Costs and Expenses
Operating 114,138 79,110
General and administrative 17,827 11,424
Depreciation 4,550 3,202
Interest 2,231 56
----------------------
Total Costs and Expenses 138,746 93,792
Earnings from continuing operations, before
minority interest and income taxes 21,952 18,160
Minority interest (86) (10)
----------------------
Earnings from continuing operations, before income taxes 21,866 18,150
Income taxes 8,181 6,863
----------------------
Net Earnings $ 13,685 $ 11,287
======================
Net Earnings per Share (Primary and Fully Diluted*) $ 0.34 $ 0.29
======================
Average Number of Common Shares
Primary 40,447 39,132
Fully diluted 44,709 39,132
* Fully diluted EPS calculation determined as net earnings plus the tax effected
interest expense related to the Company's 5% Convertible Subordinated Notes
divided by the fully weighted shares outstanding.
See accompanying notes to condensed consolidated financial statements
4
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Vivra Incorporated
Condensed Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended
February 28/29,
1997 1996
----------------------
Operating Activities
Net earnings $ 13,104 $ 11,287
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 6,902 4,259
Loss on sale of property and investments 890 327
Other (434) (1,980)
Changes in assets and liabilities:
Accounts receivable (17,949) (1,877)
Inventories (2,475) (1,771)
Prepaid expenses and other current assets 613 (429)
Deferred income taxes (1,962) 867
Accounts payable (7,287) 400
Accrued payroll and related benefits (3,058) (1,355)
Provider claims reserve 6,529 646
Other accrued expenses 515 263
Income taxes 7,539 6,107
----------------------
Net cash flow from operations 2,927 16,744
Financing Activities
Payments on long-term debt (713) (121)
Proceeds from Common Stock offering -- --
Proceeds from exercise of stock options and related
transactions 320 2,131
----------------------
Net cash flow from financing (393) 2,010
Investing Activities
Purchase of property, buildings and equipment (7,503) (8,195)
Purchase of held-to-maturity investments (12,277) (17,435)
Redemption of held-to-maturity investments 24,506 10,070
Proceeds from sale of available-for-sale investments -- 5,911
Proceeds from sale of property, buildings and equipment 9 574
Proceeds from investments in partnerships -- 1,700
Payment for business acquisitions, net of cash acquired (50,014) (1,042)
----------------------
Net cash flow used in investing (45,279) (8,417)
----------------------
Net increase (decrease) in cash and cash equivalents (42,745) 10,337
Beginning cash and cash equivalents 78,039 54,063
----------------------
Ending cash and cash equivalents $ 35,294 $ 64,400
======================
See accompanying notes to condensed consolidated financial statements
5
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VIVRA INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The condensed 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 condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and the
notes thereto included in the registrant's effective Form 10-K for the year
ended November 30, 1996. The balance sheet at November 30, 1996 has been
derived from the audited financial statements at that date.
B. ACQUISITIONS
During the three months ended February 28, 1997, the Company acquired eight
dialysis centers. Total consideration paid was $36.3 million, consisting of
cash of $34.6 million and 59,259 shares of the Company's common stock,
which exceeded the fair market value of net assets acquired by $33.3
million.
Also during the three months ended February 28, 1997, the Company acquired
five physician practice and related businesses. Total consideration paid
was $19.6 million, consisting of cash of $15.9 million and 120,435 shares
of the Company's common stock, which exceeded the fair market value of net
assets acquired by $3.3 million.
6
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Item7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
When used in this discussion, the words "estimate," "project" and similar
expressions are intended to identify forward-looking statements. Such
statements, which include statements concerning capital and acquisition
expenditures, are subject to certain risks and uncertainties, including those
discussed in the Risk Factors section on the Company's Form 10-K filed February
28, 1997 and those discussed herein which could cause actual results to
materially differ from those projected. These forward-looking statements speak
only as of the date hereof.
Results of Operations
The Company provides services through two segments: Vivra Renal Care ("VRC") and
Vivra Specialty Partners ("VSP"). VRC is the second largest provider of dialysis
services in the United States. VSP provides specialty physician network and
disease management services to managed care and provider organizations.
Three Months Ended February 28, 1997 Compared with Three Months Ended February
29, 1996
As compared to the three months ended February 29, 1996, revenues increased
$48.7 million, or 43.5%; costs and expenses increased $45.0 million, or 47.9%;
and earnings from continuing operations before taxes increased $3.7 million, or
20.5%. In total, net earnings for the period increased $2.4 million to $13.7
million, or 21.2%.
Operating revenues increased $48.4 million, or 43.9%, to $158.4 million.
Revenues from VRC increased $32.8 million to $123.5 million, or 36.1%;and VSP
revenues increased $15.6 million to $35.0 million, or 80.7%. The increase in
revenues from VRC was attributable to the establishment of VRC's laboratory
services business, growth in ancillary services and an increase in the number of
treatments provided. Laboratory services revenue increased $3.8 million as a
result of the opening of VRC's in-house laboratory in June 1996. Ancillary
services revenues were $34.6 million, compared to $23.2 million in the prior
year, a 49.1% increase. Ancillary revenue growth was due to an increase in the
administration and utilization of the drugs Erythropoietin ("EPO"), Calcijex and
Infed. Treatments grew 23.4% from 450,748 to 556,131, primarily as a result of
the net addition of 48 centers. The increase in revenues from VSP was due to the
acquisition and growth of its specialty physician networks and practices namely
within the heart, asthma/allergy and orthopaedics specialties. Other income of
$2.3 million represents interest earned on marketable securities.
Operating costs increased $35.0 million, or 44.3%, to $114.1 million. VRC
operating costs increased $23.0 million to $85.6 million, or 36.8%; and VSP
operating costs increased $12.0 million to $28.5 million, or 72.6%. The increase
in VRC operating costs was due to the increased volume of dialysis business,
increased labor and supply costs, and expenses associated with the operation of
de-novo dialysis centers. VSP operating costs increased due to the acquisition
and growth of its heart, asthma/allergy and orthopaedics specialty physician
networks and practices. In total, general and administrative expenses increased
to 11.3% of total operating revenues for 1997, as compared to 10.4% in 1996.
This was due to the continued growth and infrastructure establishment within
VSP. Depreciation increased $1.3 million, or 42.1%, to $4.6 million, primarily
due to fixed asset additions in the dialysis business. Interest expense
increased to $2.2 million, due to the expense recorded from the Company's July
1996 issuance of $150 million of 5% Convertible Subordinated Notes Due 2001 in a
private placement and the subsequent issuance of an additional $8.5 million of
the Notes in August 1996 upon exercise of the over-allotment option.
The effective tax rate for 1997 was 37.4% of earnings before income taxes,
compared with 37.8% a year earlier. This decrease was primarily due to strategic
state tax planning initiatives and a greater amount of the Company's cash assets
being invested in tax-free marketable securities, all which had the effect of
lowering the overall tax rate.
Liquidity and Capital Resources
The Company requires significant capital for the acquisition and development of
dialysis facilities and specialty physician network businesses and on-going
expenditures for property, plant and equipment.
7
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Acquisition expenditures were $55.9 million, consisting of $50.0 million in cash
and 179,694 shares of the Company's Common Stock and $18.7 million, consisting
of $3.0 million in cash and 585,419 shares of the Company's Common Stock, for
the three months ended February 28/29, 1997 and 1996, respectively. Routine
capital expenditures were $7.5 million and $8.2 million for the same periods,
respectively.
Cash flow from operations was $2.9 million and $16.5 million for the three
months ended February 28/29, 1997 and 1996, respectively. The decrease of $13.6
million was primarily attributable to the Company funding increases in accounts
receivable. Cash flow from financing activities decreased by $2.4 million to
$(0.4) million in the period ended 1997. The Company's working capital decreased
by $21.6 million to $192.8 million at February 28, 1997, from $214.4 million at
November 30, 1996.
In fiscal 1997, the Company currently plans to continue to acquire and
develop new dialysis facilities and expand its specialty physician network
businesses. To the extent the Company is able to identify significant attractive
investment opportunities, such expenditures could exceed $200 million. The
Company believes that the net proceeds from its private placement of Convertible
Subordinated Notes, together with cash generated from operations, available cash
and the ability to issue Common Stock for acquisitions will be adequate to meet
the Company's planned capital expenditure, acquisition and development and
liquidity needs for fiscal 1997.
Inflation and Changes in Prices
For the three months ended February 28/29, 1997 and 1996, approximately 72% and
71% of the Company's dialysis revenues were funded by Medicare and Medicaid, at
an average rate of $126 per dialysis treatment, before ancillary services.
Despite periods of significant inflation, the Medicare and Medicaid
reimbursement rate has remained relatively constant since 1983. The Company is
unable to predict what, if any, future changes may occur in the reimbursement
rate and, if made, whether such changes will help alleviate or increase
inflationary pressures on the Company's margins.
In 1997 and 1996, the remaining 28% and 29% of dialysis revenues were
reimbursed by payers generally at rates significantly in excess of Medicare and
Medicaid. Of these revenues, the largest portion came from private insurance,
including managed care organizations. Reimbursement from hospitals for acute
dialysis treatments was also significant. The percentage of the costs of
dialysis care required to be assumed by private payers may change as the
existing ESRD program is reviewed by the United States Congress. Notwithstanding
any legislative action, the Company expects that non-governmental payers will
reduce payment for dialysis services because they have a strong incentive to
further reduce the costs of specialty care and will aggressively seek to reduce
amounts paid for dialysis treatments. If private payer rates are reduced
significantly, this would have a material adverse effect on the Company's
revenues and net earnings.
The dialysis industry is highly competitive with respect to the acquisition
of existing dialysis facilities and the recruitment of medical directors for new
centers. In the past two years, acquisition prices and the competition for
medical directors and new facilities has increased. To the extent that the
Company is unable to acquire existing dialysis facilities economically, to
develop facilities profitably or to recruit Medical Directors to operate its
facilities, its ability to expand its dialysis business and maintain earnings
per share growth and return on total capital would be adversely impacted.
The Company intends to expand VSP significantly through the acquisition and
development of related businesses, primarily specialty physician networks and
practices. This expansion will require significant capital commitments.
Additionally, the Company is incurring expenditures to develop its
infrastructure and systems for VSP in anticipation of significant growth. To the
extent VSP's operations do not expand as planned and the Company does not
realize revenues sufficient to offset such increased expenses, the Company's
operating margins will be adversely affected and VSP may experience delays in
attaining profitability or may never become financially viable. VSP may not
realize revenue and operating margins as predictable as those historically
provided by VRC.
8
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
See Exhibit 11 on Page 13
Exhibit 27 - Financial Data Schedule
b) No reports on Form 8-K filed in current period
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIVRA INCORPORATED
-------------------------
(Registrant)
Date: April 14, 1997 /s/ LeAnne M. Zumwalt
------------------------ -------------------------
LeAnne M. Zumwalt
Chief Financial Officer
and Secretary / Treasurer
10
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VIVRA INCORPORATED
EXHIBIT INDEX
EXHIBIT NO. PAGE NO.
----------- --------
11. Computation of Earnings Per Share 12
27. Financial Data Schedule
11
EXHIBIT 11
VIVRA INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
Three Months Ended
February 28/29,
1997 1996
---------------------
Primary:
Average shares outstanding 40,447 39,132
Stock options granted to employees, based
on the treasury-stock method using
average market price 500* 655*
----------- ---------
Total 40,947 39,787
=========== =========
Net Earnings $13,685 $11,287
=========== =========
Net Earnings per Share $ 0.34 $ 0.29
=========== =========
Fully diluted:
Average shares outstanding 40,447 39,132
Assumed conversion of 5% convertible
subordinated notes due 2001 4,262 0
----------- ---------
Total 44,709 39,132
=========== =========
Average shares outstanding 44,709 39,132
Stock options granted to employees, based on
the treasury-stock method using quarter end
market price, if higher than average
market price 510* 747*
----------- ---------
Total 45,219 39,879
=========== =========
Net Earnings $13,685 $11,287
Add 5% convertible subordinated notes due 2001
interest, net of income taxes 1,369** 0
----------- ---------
Total $15,054 $11,287
=========== =========
Net Earnings per Share $ 0.34 $ 0.29
=========== =========
* 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.
** Fully diluted EPS calculation determined as net earnings plus the tax
effected interest expense related to the Company's 5% Convertible
Subordinated Notes divided by the fully diluted weighted shares outstanding.
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Feb-28-1997
<CASH> 35,294
<SECURITIES> 86,941
<RECEIVABLES> 138,110
<ALLOWANCES> 20,647
<INVENTORY> 16,008
<CURRENT-ASSETS> 277,349
<PP&E> 160,114
<DEPRECIATION> 58,575
<TOTAL-ASSETS> 674,228
<CURRENT-LIABILITIES> 84,599
<BONDS> 162,906
<COMMON> 405
0
0
<OTHER-SE> 416,380
<TOTAL-LIABILITY-AND-EQUITY> 674,228
<SALES> 158,445
<TOTAL-REVENUES> 160,698
<CGS> 114,138
<TOTAL-COSTS> 114,138
<OTHER-EXPENSES> 22,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,231
<INCOME-PRETAX> 21,866
<INCOME-TAX> 8,181
<INCOME-CONTINUING> 13,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,685
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
