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FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended May 31, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to ___________
Commission File Number 0-19820
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VITALINK PHARMACY SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 37-0903482
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 East Diehl Road, Naperville, Illinois 60563
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 245-4800
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 per share
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates was
$60,001,775 as of August 5, 1996 based upon a closing price of $24.25 per share.
The number of shares of Vitalink's Common Stock outstanding at May 31, 1996
was 13,979,700.
DOCUMENTS INCORPORATED BY REFERENCE:
PART II 1996 Annual Report to Stockholders
PART III Proxy Statement dated August 29, 1996
PART I
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ITEM 1. Business.
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General
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Vitalink Pharmacy Services, Inc. (the "Company" or "Vitalink") provides
institutional pharmacy services to nursing facilities and other institutions.
Vitalink presently operates 23 institutional pharmacies and 4 regional infusion
pharmacies, which specialize in pharmaceutical dispensing of individual
medications, pharmacy consulting (drug regimen review of potential medication
interaction as well as regulatory compliance with medication and administration
guidelines) and infusion therapy products. The Company, through its subsidiary
Vitalink Infusion Services, Inc., provides parenteral and enteral nutrition
products to patients who qualify under Medicare Part B and bills Medicare
directly for these products.
In 1981 Vitalink was acquired by a subsidiary of Manor Care, Inc. (Manor
Care, Inc. or its subsidiary are referred to as "Manor Care"), one of the
nation's largest publicly owned providers of long-term care services. Vitalink
was included in the acquisition of Americana Healthcare Corporation, which had
incorporated the predecessor of Vitalink in 1967. The Company changed its name
from TotalCare Pharmacy Services, Inc. in January 1992.
Vitalink sold 2,475,000 shares of its common stock in an initial public
offering in 1992. As of May 31, 1996, Manor Care owned approximately 82.3% of
Vitalink's common stock.
On November 3, 1995, the Company acquired the institutional pharmacy
business of Brentview Clinical Pharmacy, located in Los Angeles, California for
$3,206,000 in cash plus the
2
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assumption of $45,000 in liabilities and future contingent payments based on the
achievement of certain future profitability objectives.
On July 6, 1995, the Company acquired the infusion therapy business of Home
Intravenous Care, Inc., located in Loveland, Colorado for $2,325,000 in cash
plus the assumption of $105,000 in liabilities and future contingent payments
based on the achievement of certain future profitability objectives.
Institutional Pharmacy Industry
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Institutional pharmacies purchase and distribute prescription and non-
prescription medications for residents in institutional settings, including
nursing facilities, correctional facilities and retirement centers.
Institutional pharmacies also provide consultant services, including evaluation
of individual patient drug therapy and monitoring of nursing facility drug
administration, storage and control practices to help ensure a sound
pharmaceutical delivery system and compliance with state and federal
regulations.
A number of factors are expected to contribute to the continuing expansion
of the nursing facility segment, including the growth in, and the greater
affluence of, the U.S. elderly population, the trend toward delivery of cost-
efficient health care in non-hospital settings and the increasing practice of
early patient discharge from hospitals due to cost-containment measures.
Pharmacy Operations
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The Company provided institutional pharmacy services to approximately
49,900 beds from 22 institutional pharmacies as of May 31, 1996. A twenty-third
pharmacy was acquired in July 1996. The Company services each market in which
it operates through a hub pharmacy or, in cases where markets are geographically
close, a satellite pharmacy. A market consists of nursing facilities within a
radius of up to 150 miles, depending on demographics and travel times.
Vitalink has expanded from 3 pharmacies in 1981 to 23 institutional
pharmacies and 4 regional infusion pharmacies as of July 1996. The pharmacies
are located in 14 states: California, Colorado, Florida, Illinois, Indiana,
Iowa, Maryland, New Jersey, Pennsylvania, Ohio, Oklahoma, Oregon, Texas and
Wisconsin.
Management has developed a focused growth strategy that includes (i)
continued penetration of existing markets through selling more products to
existing customers and marketing directed to non-Manor Care nursing facilities;
(ii) expansion into additional markets in which there is a sufficient base of
Manor Care beds to support a Company pharmacy; (iii) infusion therapy revenue
generation created by targeting specific nursing facilities and home health care
agencies; and (iv) acquisitions of pharmacies that can be consolidated with
existing Company pharmacies or serve as a more rapid entry into new markets.
3
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The table below sets forth the number of beds serviced by the Company
during the past three fiscal years:
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Year Ended May 31
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1994 1995 1996
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Manor Care Affiliated Beds...... 14,300 16,000 19,300
Non-Manor Care Affiliated Beds.. 25,100 26,400 30,600
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Total beds serviced........ 39,400 42,400 49,900
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In the past five fiscal years, the Company has acquired seven institutional
pharmacies and one regional infusion pharmacy with contracts to service
approximately 23,000 non-Manor Care facility beds.
Services Offered by the Company
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Pharmacy Services - The basic service provided by the Company is the
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customized filling of prescription and non-prescription medications for
individual patients pursuant to physician orders delivered to nursing
facilities. The Company maintains a 24-hour on-call availability for clinical
consultation and emergency delivery of medications as well as maintaining a
provision of emergency and contingency doses of medications at each nursing
facility. The Company uses a computerized medical records system that generates
monthly nursing facility medical records including preprinted physician order
forms, medication administration records and treatment records. As an
additional service to its nursing facility customers, the Company maintains and
documents ancillary orders such as diet orders, therapy orders and activity
orders. The Company has nurse consultants on staff to observe medication
administration procedures, consult on medical records and conduct in-service
training programs as well as intravenous certification programs.
Consultant Pharmacist Services - The Company provides to its nursing
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facility customers trained consultant pharmacists whose primary responsibility
is to monitor and report on prescription drug therapy to help ensure quality
patient care. For a nursing facility to participate in the Medicare and
Medicaid reimbursement programs, it is required to have the services of a
consultant pharmacist.
The Company, in response to regulatory demands on nursing facilities, has
defined the primary responsibilities of its consultant pharmacists to include:
(i) monthly drug regimen reviews of each patient; (ii) participation on key
nursing facility committees; (iii) monthly inspection of medication carts and
storage rooms; (iv) monthly written review of facility medication administration
systems and practices; (v) development and maintenance of a pharmaceutical
policy and procedures manual; (vi) on-site educational seminars; and (vii)
assistance to the nursing facility in complying with state and federal
regulations on patient care. The Company bills nursing facilities for
consultant pharmacist services.
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Infusion Therapy Products and Services - Infusion therapy basically
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consists of a product (nutrient, antibiotic, chemotherapy or other drugs or
fluids) and the administration of the product (tube, catheter or intravenous).
Patients can receive these therapies at home or in a nursing facility at a cost
that is substantially less than hospital-based care. The trend toward delivery
of health care in the lowest cost setting and the increasing ability to treat
certain illnesses outside of hospitals represents an opportunity for nursing
facilities to attract infusion therapy patients.
The Company prepares the product to be administered, delivers the product
and trains others in administering infusion therapy. The Company does not
itself administer the therapy.
Purchasing
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The Company purchases the drugs and supplies used in its pharmacies
directly from national wholesale distributors, through membership in purchasing
groups and from pharmaceutical manufacturers. Direct purchases from drug
manufacturers allow greater price discounts than purchase through wholesale
distributors but require a significant lead time between order and actual
delivery. The advantage of buying through wholesale distributors is daily
delivery and the ability to more efficiently manage the Company's inventory of
drugs and supplies.
Reimbursement and Billing
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The Company's computerized billing system enables it to bill for products
and services in a variety of ways. The pharmacy generally bills the responsible
party directly.
Charges for pharmacy services provided to patients who are eligible for
Medicare Part A are billed by the nursing facility directly to Medicare. Under
Part A, Medicare categorizes most of the expenses related to pharmacy products
as ancillary services, which are not subject to the cost reimbursement ceilings
under Medicare regulations. However, the Company and Manor Care are subject to
related party regulations that could result in reimbursements for pharmacy
services provided to Medicare Part A patients in Manor Care nursing facilities
equal to Vitalink's permitted fully allocated costs of the services.
For patients who are eligible for Blue Cross/Blue Shield or other
insurance, the insurer is billed directly by the nursing facility or by
Vitalink. Patients not covered by insurance, Medicare or Medicaid are generally
billed directly by Vitalink.
For patients qualifying for Medicaid reimbursement in all states in which
the Company has a pharmacy, the pharmacy bills Medicaid directly, as the nursing
facility cannot obtain reimbursement from Medicaid for pharmacy services.
Medicaid is a cooperative state-federal program for medical assistance to the
medically and categorically needy.
For patients who qualify under Medicare Part B and receive PEN (parenteral
and enteral) therapies, Vitalink's specialized PEN billing subsidiary bills
Medicare Part B directly.
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The federal Medicare program provides for reimbursement under two separate
programs, Part A and Part B. Part A provides benefits covering inpatient
hospital, nursing facility and home health services. Reimbursement for nursing
facility services under Part A is restricted to those eligible for Part A
coverage who have been discharged within thirty days from an acute care hospital
after a stay of at least three days and are in need of daily skilled nursing or
rehabilitation services.
Part B provides coverage for physician services and general outpatient
services, including therapies, as well as durable medical equipment. Certain
Vitalink infusion therapy products are eligible for Part B reimbursement based
on Medicare-approved payment amounts. Part B coverage is generally subject to
an annual deductible of $100 and a statutorily mandated co-payment thereafter.
For its fiscal year 1996, the Company received approximately 65% of its net
revenues from private pay sources, including commercial insurance, managed care
and Medicare Part A patients; 6% of net revenues from Medicare Part B direct
bill; and 29% of net revenues from Medicaid direct bill.
Dependence on Key Customer
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Net revenue from Manor Care and its patients (including revenues pursuant
to government reimbursement programs) accounted for approximately 48%, 49% and
47% of total net revenues in fiscal 1996, 1995 and 1994, respectively. Under
various master agreements with Manor Care discussed below, the Company may at
its option provide pharmaceutical, consulting and infusion therapy products and
services to any and all nursing facilities owned or operated by Manor Care
through May 2001 according to the terms of the agreements and subject to each
patient's right to designate his or her own pharmacy or infusion therapy
provider. Each master agreement, however, may be limited or terminated under
certain circumstances including with respect to any nursing facilities disposed
of by Manor Care. Additionally, while the Company hopes to extend the duration
of the master agreements, there can be no assurance that the Company will be
able to do so, or that, if it is able, the extended or new agreements will be on
terms no less favorable to the Company. Any material loss of business from
Manor Care would have a material adverse effect on the Company.
Pursuant to four agreements with Manor Care entered into on June 1, 1991,
the Company provides pharmaceutical products and services, enteral and
parenteral therapy supplies and services, urological and ostomy products,
intravenous products and services and pharmacy consulting services to nursing
facilities operated by Manor Care. The Company is not restricted from providing
similar services to non-Manor Care facilities. The agreements have an initial
term of ten years.
Pursuant to the master agreement for pharmacy services and the master
agreement for infusion therapy services, the Company has the option to provide
pharmaceutical and infusion therapy products and services to nursing facilities
owned or licensed by Manor Care. Through
6
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fiscal year 1995, the Company paid each Manor Care nursing facility an
administrative fee equal to 3% of the private pay revenues derived from that
facility for the facility's agreement to bill and collect for services and for
assuming the risk of bad debt. Effective June 1, 1995, the Company no longer
pays Manor Care the 3% administrative fee as the Company assumed the billing and
collecting of private pay revenues derived from Manor Care facilities. The
change did not have a material effect on the Company's results of operations.
Pursuant to the master pharmacy consulting agreement, the Company provides
consultant pharmacy services to nursing facilities owned or licensed by Manor
Care that the Company is able to service. Each nursing facility is billed
monthly by the Company based on the number of beds serviced.
Pursuant to the pharmacy services consultant agreement, the Company assists
Manor Care at the corporate level in establishing uniform pharmacy delivery
standards for all of its nursing facilities including those not serviced by the
Company. Manor Care pays the Company an annual fee based on the number of
nursing facility beds operated by Manor Care.
The Company does not believe that its present contractual arrangements with
Manor Care with respect to the length of term are comparable to those obtainable
from third parties. Contracts with nursing facilities not affiliated with Manor
Care are generally for a period of one to two years and are terminable by
either party for any reason upon thirty days notice.
Competition
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The Company competes with numerous local and regional institutional
pharmacies, as well as the pharmacy operations owned by long-term care providers
other than Manor Care. These competitors provide product and service offerings
similar to those provided by the Company. A number of competitors are larger or
have greater financial resources than the Company.
Quality Assurance
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The Company maintains high standards of pharmaceutical dispensing and
record keeping. The Company conducts monthly quality assurance audits at each
nursing facility it services to assess the quality and accuracy of pharmacy
services to nursing facilities.
The consultant pharmacist visits the nursing facility routinely and makes
recommendations to the nursing staff concerning various phases of the
pharmaceutical services and patient care programs. The consultant pharmacist
reviews each patient's drug regimen monthly on-site to ensure the patient drug
therapy is appropriate and the facility is complying with state and federal
regulations. The consultant pharmacist reports irregularities to the patient's
attending physician and the nursing facility's director of nursing and
administrator.
7
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Government Regulation
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Institutional pharmacies and nursing facilities are subject to various
federal and state regulations covering qualifications and day-to-day operations,
including documentation of activities. The Company's pharmacies are each
licensed by the states in which they operate and are registered with the federal
government pursuant to regulations covering controlled substances. The nursing
facilities served by the Company are separately required to be licensed by the
states in which they operate, and if they serve Medicare or Medicaid patients,
are required to be certified by the Federal government.
Given that a substantial number of nursing facility patients are covered by
the Medicare and Medicaid programs, the Company is subject to extensive
regulation under the programs, including regulation relating to persons covered,
amount of coverage, reimbursement and pricing. As a result of Manor Care's
ownership of a substantial portion of the Company's outstanding common stock,
the Company and Manor Care are subject to related party regulations that could
result in reimbursement for pharmacy services provided to Medicare Part A
patients in Manor Care nursing facilities equal to Vitalink's permitted fully
allocated costs of the services.
Changes in Medicare and Medicaid programs, regulations, reimbursements or
interpretations of existing programs, regulations or reimbursements, including
changes intended to limit or decrease the growth of Medicare and Medicaid
expenditures, or changes in the state and federal laws regulating institutional
pharmacies could adversely affect the Company's business.
Various federal and state laws provide nursing facility patients with the
freedom to choose their own pharmacy provider. The Company markets its services
primarily to nursing facilities and acts as the pharmacy provider to the
patients in such facilities that do not otherwise choose their own provider.
Increases in the percentage of patients choosing their own provider or changes
in freedom-of-choice laws may adversely affect the Company's business.
Employees
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At May 31, 1996, the Company had approximately 945 employees. The Company
believes it enjoys a good relationship with its employees. None of the
Company's employees are covered by a collective bargaining agreement.
Insurance
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Insurance coverage is principally maintained through Manor Care. The cost
of the coverage is allocated entirely to the Company when the coverage is
specific to the Company and otherwise allocated between Manor Care and the
Company. In the opinion of the Company, its current coverage is adequate given
the risks associated with the operation of an institutional pharmacy business of
the Company's size.
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ITEM 2. Properties.
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The Company's corporate offices are located in Naperville, Illinois. As of
May 31, 1996, Vitalink had 23 leased pharmacies (including the four regional
infusion pharmacies) located in Appleton, Wisconsin; Monticello, Elgin and
Hickory Hills, Illinois; Indianapolis, Indiana; Bettendorf, Iowa; Baltimore,
Maryland; Allentown, Bridgeville, York and Williamsport, Pennsylvania; Copley,
Ohio; Deerfield Beach and St. Petersburg, Florida; Ocean, New Jersey; Portland
and Eugene, Oregon; Santa Rosa and Los Angeles, California; Northglenn and
Loveland, Colorado; Oklahoma City, Oklahoma; and San Antonio, Texas. The
Company also leases administrative office space in Calumet City, Illinois.
ITEM 3. Legal Proceedings.
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Vitalink is subject to regulatory and legal investigations, actions or
claims for damages that arise from time to time in the ordinary course of
business. Vitalink is defending any such investigations, actions and claims
against it and believes that these proceedings will not have a material adverse
effect on its financial condition.
ITEM 4. Submission of Matters to a Vote of Security Holders.
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No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended May 31, 1996.
EXECUTIVE OFFICERS OF VITALINK PHARMACY SERVICES, INC.
The name, age, title, present principal occupation, business address, and
other material occupations, positions, offices and employment of each of the
executive officers of the Company are set forth below. The business address of
Ms. DeNardo, Mr. DiTrapano, Mr. Macomber and Mr. Thompson is 1250 East Diehl
Road, Suite 208 Naperville, Illinois 60563. The business address of the
remaining officers is 11555 Darnestown Road, Gaithersburg, Maryland 20878.
Donald C. Tomasso (51) was appointed Chairman of the Board and Chief
Executive Officer in December 1994 and was Vice Chairman from September 1991 to
December 1994. He has been President of Manor Healthcare Corp. ("Healthcare")
since February 1995 and was President and Chief Operating Officer of Healthcare
from May 1991 to February 1995. He has been a Director of Healthcare since May
1991, of the Company since September 1991 and of In Home Health, Inc. since
October 1995. Prior to joining Healthcare, Mr. Tomasso was employed by Marriott
Corporation for more than five years, last serving as Executive Vice
President/General Manager of its Roy Rogers Division.
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Stewart Bainum, Jr. (50) was appointed Vice Chairman of the Company in
February 1995. He was Chairman and Chief Executive Officer from September 1991
to February 1995 and was President and Chief Executive Officer from March 1987
to September 1991. Mr. Bainum has been Chairman of the Board and Chief
Executive Officer of Manor Care since March 1987 and President since June 1989.
He has been Chairman of the Board of Healthcare since March 1987 and Chief
Executive Officer since June 1989. He has served as a Director of the Company
since 1991, of Manor Care since 1981 and of Healthcare since 1976.
Donna L. DeNardo (44) has been President and Chief Operating Officer and a
Director of the Company since September 1991. Ms. DeNardo has served as a Vice
President of Healthcare and a Vice President and General Manager of the Company.
In those positions, she was responsible for managing the Company since December
1989. Ms. DeNardo has held various management positions with Healthcare since
1977, including Senior Regional Director of nursing facility operations and
nursing facility administrator in the Chicago metropolitan area.
Vincent C. DiTrapano (50) was appointed Senior Vice President, Operations
in January 1994. He served as Regional Vice President, Operations-Eastern
Region from June 1993 to January 1994. He previously was employed by Geriatric
Pharmacy Services, Inc. for seven years, including as President and Chief
Executive Officer.
Scott T. Macomber (41) was appointed Vice President, Finance and Chief
Financial Officer of the Company in September 1991. He was Vice President,
Corporate Finance for Manor Care from June 1990 to March 1992 and previously
held various acquisition and development positions within Manor Care for more
than 10 years.
Stephen A. Thompson (41) has been Vice President, Human Resources and
Administration, since August 1995. He was Senior Director, Professional
Relations, of the Company from March 1992 to August 1995, and held human
resources positions with Manor Care and Healthcare from 1986 to 1992.
James H. Rempe (66) has served as Secretary of the Company since January
1983 and a Director since September 1994. He was Senior Vice President and a
Director of the Company from January 1983 to September 1991. He has served as
Senior Vice President, General Counsel and Secretary of Manor Care since August
1981 and of Healthcare since December 1980. He has served as a Director of In
Home Health, Inc. since October 1995.
James A. MacCutcheon (44) has served as Treasurer of the Company since
September 1992 and a Director since September 1994. He was Senior Vice
President-Finance and Treasurer and a Director of the Company from October 1987
to September 1991. He has served as Senior Vice President, Chief Financial
Officer and Treasurer of Manor Care and Healthcare since September 1993 and was
Senior Vice President-Finance and Treasurer from October 1987 to September 1993.
10
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PART II
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ITEM 5. Market for Registrant's Common Equity and Related
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Stockholder Matters.
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The shares of Vitalink's Common Stock are traded through the National
Association of Securities Dealers' Automated Quotation System (NASDAQ).
Information on the high and low sales prices of Vitalink's Common Stock during
the past two years is included on page 25 of the 1996 Annual Report and is
incorporated herein by reference.
As of August 5, 1996, there were 84 record holders and approximately 1,500
beneficial holders of Vitalink Common Stock.
The Company has not paid, and does not anticipate paying for the
foreseeable future, any dividends to holders of its Common Stock.
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ITEM 6. Selected Financial Data.
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The required information is included in the
specified pages of the 1996 Annual Report
and is incorporated herein by reference Preceeding 1
ITEM 7. Management's Discussion and Analysis of
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Financial Condition and Results of Operations.
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The required information is included in the
specified pages of the 1996 Annual Report
and is incorporated herein by reference 26-28
ITEM 8. Financial Statements and Supplementary Data.
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The required information is included in the
specified pages of the 1996 Annual Report
and is incorporated herein by reference.
See Item 14 for index to financial statements
and schedules 14-25
ITEM 9. Changes in and Disagreements with Accountants
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on Accounting and Financial Disclosure.
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Not applicable
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PART III
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ITEM 10. Directors and Executive Officers of the
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Registrant.
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The required information on directors is
included in the specified pages of the
Proxy Statement dated August 28, 1996
and is incorporated herein by reference. 2-3, 5-6
The required information on executive
officers is set forth in Part I of this
Form 10-K under an unnumbered item captioned
"Executive Officers of Vitalink Pharmacy
Services, Inc."
ITEM 11. Executive Compensation.
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The required information is included in
the specified pages of the Proxy Statement
dated August 28, 1996 and is incorporated
herein by reference. 7-11
ITEM 12. Security Ownership of Certain Beneficial
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Owners and Management.
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The required information is included in
the specified pages of the Proxy Statement
dated August 28, 1996 and is incorporated
herein by reference. 2-4
ITEM 13. Certain Relationships and Related
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Transactions.
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The required information is included in
the specified pages of the Proxy Statement
dated August 28, 1996 and is incorporated
herein by reference. 17-18
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PART IV
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ITEM 14. Exhibits, Financial Statement Schedules, and
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Reports on Form 8-K.
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(a) 1. Financial Statements
Included on the following pages of the 1996
Annual Report:
Report of Independent Public Accountants......... 13
Consolidated Statements of Income................ 14
Consolidated Balance Sheets...................... 15
Consolidated Statements of Stockholders' Equity.. 16
Consolidated Statements of Cash Flows............ 17
Notes to Consolidated Financial Statements....... 18-25
2. Financial Statement Schedule
The following Report and Schedule are filed
herewith on the pages indicated:
Report of Independent Public Accountants
on Schedule...................................... 17
Schedule II - Valuation and Qualifying
Accounts......................................... 18
3. Exhibits
3.1 Restated Articles of Incorporation. Exhibit 3.1
to Registration Statement No. 33-43261 is
incorporated herein by reference.
3.2 By-Laws. Exhibit 3.2 to Registration Statement
No. 33-43261 is incorporated herein by reference.
10.1 Administrative Services Agreement, dated as of June 1,
1991, by and between the Company and Manor Care, Inc. Exhibit 10.1 to
Registration Statement No. 33-43261 is incorporated herein by reference.
</TABLE>
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10.2 Tax Agreement, dated as of June 1, 1991, by and between the
Company and Manor Care, Inc. Exhibit 10.2 to Registration
Statement No. 33-43261 is incorporated herein by reference.
10.3 Intercompany Debt and Credit Agreement, dated as of June 1,
1991, by and between the Company and Manor Care, Inc.
Exhibit 10.3 to Registration Statement No. 33-43261 is
incorporated herein by reference.
10.4 Lease Agreement, dated as of June 1, 1991 by and between
the Company and Manor Healthcare Corp. Exhibit 10.5 to
Registration Statement No. 33-43261 is incorporated herein
by reference.
10.5 Master Agreement for Pharmacy Services, dated as of June 1,
1991, by and between the Company and Manor Healthcare Corp.
Exhibit 10.6 to Registration Statement No. 33-43261 is
incorporated herein by reference.
10.6 Master Pharmacy Consulting Agreement, dated as of June 1,
1991, by and between the Company and Manor Healthcare Corp.
Exhibit 10.7 to Registration Statement No. 33-43261 is
incorporated herein by reference.
10.7 Pharmacy Services Consultant Agreement, dated as of June 1,
1991, by and between the Company and Manor Healthcare Corp.
Exhibit 10.8 to Registration Statement No. 33-43261 is
incorporated herein by reference.
10.8 Master Agreement for Infusion Therapy Products and
Services, dated as of June 1, 1991, by and between Vitalink
Billing Services, Inc. and Manor Healthcare Corp. Exhibit
10.9 to Registration Statement No. 33-43261 is incorporated
herein by reference.
10.9 Key Executive Stock Option and Appreciation Rights Plan.
Exhibit 10.10 to Registration Statement No. 33-43261 is
incorporated herein by reference.
10.10 Amendment to Key Executive Stock Option and Appreciation
Rights Plan. Annex A to the Proxy Statement dated August
20, 1993 is incorporated herein by reference.
10.11 Form of Executive Cash Incentive Plan. Exhibit 10.11 to
Form 10-K for the year ended May 31, 1995 is incorporated
herein by reference.
10.12 Employment Agreement dated June 5, 1995, between Vitalink
Pharmacy Services, Inc. and Donna L. DeNardo. Exhibit 10.12
to Form 10-K for the year ended May 31, 1995 is
incorporated herein by reference.
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10.13 Employment Agreement dated June 5, 1995, between Vitalink
Pharmacy Services, Inc. and Vincent C. DiTrapano. Exhibit
10.13 to Form 10-K for the year ended May 31, 1995 is
incorporated herein by reference.
10.14 Operations Stock Grant Plan for Key Management Employees.
10.15 Employment Agreement dated November 30, 1995, between
Vitalink Pharmacy Services, Inc. and Harold Blumenkrantz.
10.16 Guarantee Agreement dated December 15, 1995, between
Vitalink Pharmacy Services, Inc. and Harold Blumenkrantz.
13 1996 Annual Report to Stockholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants.
99 Proxy Statement dated August 28, 1996.
(b) No report on Form 8-K was filed during the last quarter of the fiscal
year ended May 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: August 28, 1996 VITALINK PHARMACY SERVICES, INC.
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By: /s/ Scott T. Macomber
---------------------------
Scott T. Macomber
Vice President, Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
15
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<CAPTION>
Signature Title Date
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/s/ Donald C. Tomasso Chairman, Director August 28, 1996
- --------------------------- and Chief Executive
Donald C. Tomasso Officer
/s/ Stewart Bainum, Jr. Vice Chairman August 28, 1996
- --------------------------- and Director
Stewart Bainum, Jr.
/s/ Donna L. DeNardo Director, President August 28, 1996
- --------------------------- and Chief Operating
Donna L. DeNardo Officer
/s/ James A. MacCutcheon Director and August 28, 1996
- --------------------------- Treasurer
James A. MacCutcheon
/s/ James H. Rempe Director and August 28, 1996
- --------------------------- Secretary
James H. Rempe
/s/ Harold Blumenkrantz Director August 28, 1996
- ---------------------------
Harold Blumenkrantz
/s/ Anil K. Gupta Director August 28, 1996
- ---------------------------
Anil K. Gupta
/s/ Marvin Wilensky Director August 28, 1996
- ---------------------------
Marvin Wilensky
/s/ Joseph R. Buckley Director August 28, 1996
- ---------------------------
Joseph R. Buckley
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF VITALINK PHARMACY SERVICES, INC.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Vitalink Pharmacy Services,
Inc.'s annual report to shareholders incorporated by reference in this Form 10-
K, and have issued our report thereon dated June 25, 1996. Our audits were made
for the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index in Item 14(a)2 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. The schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.,
June 25, 1996
17
<PAGE>
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
SCHEDULE II
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED BALANCE AT
BEGINNING TO PROFIT WRITE- END OF
DESCRIPTION OF PERIOD AND LOSS OTHER/1/ OFFS PERIOD
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended May 31, 1996 $1,378 $2,412 -- $(1,627) $2,163
Year ended May 31, 1995 2,113 1,772 (1,019) (1,488) 1,378
Year ended May 31, 1994 1,310 1,612 135 (944) 2,113
</TABLE>
- ----------------
/1/ In fiscal year 1995, represents reclassification as discussed in
Registrant's consolidated financial statements included in its 1995 Annual
Report. In fiscal year 1994, represents reserve of acquired company.
18
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________
EXHIBITS
to
FORM 10-K
Annual Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
________
VITALINK PHARMACY SERVICES, INC.
================================================================================
<PAGE>
EXHIBIT INDEX
-------------
3.1 Restated Articles of Incorporation. Exhibit 3.1 to Registration Statement
No. 33-43261 is incorporated herein by reference.
3.2 By-Laws. Exhibit 3.2 to Registration Statement No. 33-43261 is
incorporated herein by reference.
10.1 Administrative Services Agreement, dated as of June 1, 1991, by and
between the Company and Manor Care, Inc. Exhibit 10.1 to Registration
Statement No. 33-43261 is incorporated herein by reference.
10.2 Tax Agreement, dated as of June 1, 1991, by and between the Company and
Manor Care, Inc. Exhibit 10.2 to Registration Statement No. 33-43261 is
incorporated herein by reference.
10.3 Intercompany Debt and Credit Agreement, dated as of June 1, 1991, by and
between the Company and Manor Care, Inc. Exhibit 10.3 to Registration
Statement No. 33-43261 is incorporated herein by reference.
10.4 Lease Agreement, dated as of June 1, 1991 by and between the Company and
Manor Healthcare Corp. Exhibit 10.5 to Registration Statement No. 33-43261
is incorporated herein by reference.
10.5 Master Agreement for Pharmacy Services, dated as of June 1, 1991, by and
between the Company and Manor Healthcare Corp. Exhibit 10.6 to
Registration Statement No. 33-43261 is incorporated herein by reference.
10.6 Master Pharmacy Consulting Agreement, dated as of June 1, 1991, by and
between the Company and Manor Healthcare Corp. Exhibit 10.7 to
Registration Statement No. 33-43261 is incorporated herein by reference.
10.7 Pharmacy Services Consultant Agreement, dated as of June 1, 1991, by and
between the Company and Manor Healthcare Corp. Exhibit 10.8 to
Registration Statement No. 33-43261 is incorporated herein by reference.
10.8 Master Agreement for Infusion Therapy Products and Services, dated as of
June 1, 1991, by and between Vitalink Billing Services, Inc. and Manor
Healthcare Corp. Exhibit 10.9 to Registration Statement No. 33-43261 is
incorporated herein by reference.
10.9 Key Executive Stock Option and Appreciation Rights Plan. Exhibit 10.10 to
Registration Statement No. 33-43261 is incorporated herein by reference.
10.10 Amendment to Key Executive Stock Option and Appreciation Rights Plan.
Annex A to the Proxy Statement dated August 20, 1993 is incorporated
herein by reference.
<PAGE>
10.11 Form of Executive Cash Incentive Plan. Exhibit 10.11 to Form 10-K for
the year ended May 31, 1995 is incorporated herein by reference.
10.12 Employment Agreement dated June 5, 1995, between Vitalink Pharmacy
Services, Inc. and Donna L. DeNardo. Exhibit 10.12 to Form 10-K for the
year ended May 31, 1995 is incorporated herein by reference.
10.13 Employment Agreement dated June 5, 1995, between Vitalink Pharmacy
Services, Inc. and Vincent C. DiTrapano. Exhibit 10.13 to Form 10-K for
the year ended May 31, 1995 is incorporated herein by reference.
10.14 Operations Stock Grant Plan for Key Management Employees.
10.15 Employment Agreement dated November 30, 1995, between Vitalink Pharmacy
Services, Inc. and Harold Blumenkrantz.
10.16 Guarantee Agreement dated December 15, 1995, between Vitalink Pharmacy
Services, Inc. and Harold Blumenkrantz.
13 1996 Annual Report to Stockholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants.
99 Proxy Statement dated August 28, 1996.
<PAGE>
Financial Highlights
$141.1
$112.3
$88.8
$86.7
$40.2
92 93 94 95 96
Net Revenues
(in millions)
[BAR GRAPH APPEARS HERE]
$22.3
$18.7
$15.0
$11.3
$8.6
92 93 94 95 96
Income from Operations
(in millions)
[BAR GRAPH APPEARS HERE]
$13.8
$11.7
$8.2
$7.3
$5.5
92 93 94 95 96
Net Income
(in millions)
[BAR GRAPH APPEARS HERE]
Selected Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended May 31: 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Revenues $141,115 $112,257 $98,569 $65,714 $40,164
Income From Operations 22,301 18,726 14,995 11,305 8,643
Net Income 13,870 11,680 9,204 7,341 5,497
Earnings Per Share .99 .84 .66 .53 .46
Total Assets 95,923 80,713 69,587 57,425 47,027
Working Capital 22,830 15,202 14,103 9,938 3,803
Due From Parent 16,910 16,888 8,167 10,276 37,196
Stockholders' Equity 86,299 72,379 60,699 51,495 44,154
Average Shares Outstanding 13,976 13,975 13,975 13,975 12,056
</TABLE>
<PAGE>
Our Mission -- To be the leader in the delivery of high quality health care
products and services to our customers and the individuals in their care -- To
realize this mission by providing innovative products and services to our
customers which will exceed their expectations --
[STETHOSCOPE APPEARS HERE]
To attract, empower and retain competent employees who will grow with our
organization and provide us with a competitive advantage in our markets --
Through the pursuit of this mission Vitalink will create a partnership with our
customers and employees which will result in the enhancement of shareholder
value.
<PAGE>
[LOGO APPEARS HERE]
Vision
To be the leader in the delivery of
health care services through the integration
of people, science and systems.
3
<PAGE>
Corporate Profile
Vitalink Pharmacy Services, one of the nation's leading institutional pharmacy
companies, provides pharmaceutical dispensing of individual medications,
infusion therapy products and services, medical supplies and pharmacy consulting
to its customers. Vitalink's customers are nursing facilities as well as other
institutions and their patients and home infusion patients. Vitalink currently
operates 23 institutional pharmacies, four regional infusion pharmacies and one
central enteral distribution facility. Through these operations Vitalink
provides services to patients in 29 states.
- ---------------------------------------
Value
Creating shareholder value
through anticipating and responding to
the needs of our provider partners.
- ---------------------------------------
Contents
2
To Our Shareholders
4
Market Trends
6
Vitalink Locations
7
The Vitalink Difference
13
Financial Information
29
Corporate Information
<PAGE>
To Our Shareholders
Fiscal 1996 was another record year for Vitalink. We not only achieved record
financial results but have successfully positioned our company for continued
growth throughout fiscal 1997 and beyond. Net revenues increased 26% for the
year to $141 million from $112 million. Net income rose 19% to $13.9 million and
earnings per share increased to $0.99 from $0.84.
Consistent with our strategic objective to acquire quality providers, Vitalink
completed two acquisitions in fiscal 1996. In July, we acquired Home Intravenous
Care located in Loveland, Colorado and in November, Brentview Pharmacy in Los
Angeles, California. The Home Intravenous Care acquisition fulfilled our goal to
significantly expand our Colorado operations while adding a JCAHO (Joint
Commission on Accreditation of Healthcare Organizations) accredited home
infusion provider. The Brentview acquisition allowed Vitalink to enter the
southern California market. During the year, we also opened a new hub pharmacy
in Oklahoma City and a satellite pharmacy in St. Petersburg, Florida.
Through pharmacy acquisitions, start-ups, sales to new non-affiliate customers
and additional affiliate customers, Vitalink increased its beds served total
from 42,400 beds at the beginning of the year to 49,900 at year end, an 18%
increase.
Our people and systems form the foundation for Vitalink's current and future
success. Vitalink operates from a philosophy of shared values to which all
employees are dedicated. Customer focus is one of these values. We screen for it
in our employee selection system, use it as a standard in our hiring practices,
foster it through our training programs and reward it through our incentive
programs. This year we added a CQI (Continuous Quality Improvement) process to
measure compliance with our standardized operating practices. The results of
this process are reflected in increased customer satisfaction, decreased
customer turnover and consistent results.
In our quest to develop patient care management programs which guide the
physician, nurse and other caregivers in delivering cost effective care to
patients, we are creating a data warehouse which stores patient clinical
information from each of our pharmacies. This concept allows the pharmacy
computer system to function most efficiently and segregates data for our
Clinical Information Services group to evaluate. By aggregating the data from
the 100,000+ patients we serve in a year, we can isolate and identify
improvements in drug therapy which, if enacted, would increase the quality and
decrease the cost of health care.
Our first patient management programs (OPTIMA(SM)) designed to identify and
treat patients at risk for stroke were rolled-out to our pharmacies and patients
this year. The reception from physicians, nurses and patients has been very
positive. Not only have patients received better care, the reputations of their
providers have been elevated as a result. Vitalink benefits when our customers
are successful.
Programs which utilize sound clinical guidelines to focus pharmacist and nurse
intervention in patient care will continue to be rolled-out through fiscal 1997.
Priority will be given to those disease states in which the greatest clinical
and cost impact can be made. To date, programs geared to the management of
congestive heart failure, depression, asthma, wounds, diabetes and osteoporosis
have been designed.
The strength of the programs we develop is predicated on the expertise and
dedication of our clinical professionals. We have created a formal internal
certification process which ensures that our staff has the training necessary to
implement and deliver these clinical programs. While today our OPTIMA(SM)
programs provide competitive advantage to our customers and our pharmacies, in
the future they will be critical to managing patients in an integrated
environment which focuses on outcomes and assumption of risk.
Extraordinary commitment to customer needs coupled with superior systems make
Vitalink an exceptional company. We thank our shareholders, our employees and
our customers for their support and belief in our mission.
Sincerely,
/s/ Donald C. Tomasso /s/ Donna L. DeNardo
Donald C. Tomasso Donna L. DeNardo
Chairman and Chief Executive Officer President and Chief Operating Officer
Bed Growth
(in thousands)
[LINE GRAPH OF BED GROWTH APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C>
16.3 30.7 38.4 42.4 49.9
92 93 94 95 96
</TABLE>
.non-affiliate beds
.affiliate beds
Our total number of beds
served has more than
tripled since fiscal year 1992.
<PAGE>
- -----------------------------------------
Vitalink's
Revenue Mix
75% Prescription Management
16% Infusion Therapy
[PIE GRAPH
APPEARS HERE]
3% Consultation
6% Medical Supplies and Other
Market Trends
Anticipating and responding to current and future health care trends is
Vitalink's primary strength. At a time when industry change makes some health
care providers uneasy, Vitalink continues to build the resources necessary to
capitalize on this change.
Demographics, economics, the expansion of health care to non-institutional
settings and consolidation are driving change within the health care industry.
The setting for long-term care continues to broaden beyond the traditional
nursing facility. The aging of our population drives more people into the
Medicare and then the Medicaid programs. Cost pressures from payers continue to
make it attractive to treat higher acuity patients in nursing facilities which
focus on complex rehabilitative care. Vitalink's ability to provide intravenous
medications, tube feedings, respiratory care, cancer chemotherapy treatment and
assistance in post-operative care provides growth opportunities for both
Vitalink and its nursing facility partners.
Demographics--As nursing facilities increasingly focus on offering a medical
model of care for the elderly and chronically ill, the nursing facility setting
is becoming a less appropriate place for the frail-but-not-truly-sick elderly.
In addition, as baby boomers age, many doubt that Medicare and Medicaid will be
able to cover the nation's health care expenses. These trends will foster a
large market for private long-term care insurance, increased coverage for health
care delivery in non-traditional settings and the need for payers to manage the
total health care costs of an aging population. Assisted living facilities, home
health agencies and adult day care can fill the gap between increased demand for
health care services and the need to reduce its cost.
People become frail before they become sick and often need assistance with
medication management before a need for more skilled care arises. Vitalink has
positioned itself to capitalize on the future growth in a wide variety of semi-
institutional, community-based or home-like settings with services designed for
less independent individuals. Vitalink has developed systems which allow maximum
resident autonomy while at the same time ensuring the integrity of medication
dispensing. These systems also facilitate the integration of patients into our
preventative patient care management programs.
Economics--The ability to provide service along a continuum of care, and through
a continuum of cost, will be necessary to address the flexibility and
responsiveness demanded by consumers as they move through various levels of
care.
In the future, payers are more likely to scrutinize the cost of care rather than
the particular location in which it is delivered. The health care system
continues to evolve with the emphasis on integration of various levels of
service designed to make access to health care easier.
Our primary business partners are also changing. Consolidation of independent
nursing and assisted living facility operators into companies with regional or
national presence continues. More long-term care providers are expanding their
service offerings into the assisted living facility, home care, and adult day
care settings by leveraging their expertise in post-acute care in order to bring
consolidated, integrated care systems to both consumers and payers.
The proliferation of post-acute care settings has caused providers to redefine
their product offerings and strive for product integrity, often across multiple
markets. Vitalink is not only positioned to address the needs of larger provider
partners who require comprehensive service packages to accomplish their goals
but is also positioned to service smaller partners who rely upon Vitalink to
provide the necessary resources for them to adequately address market changes.
The systems and processes necessary to assist payers and providers to manage
total health care costs and achieve greater program integrity require
integrating patient care across a spectrum of post-acute care settings. It also
requires that they interface with acute inpatient and chronic outpatient care.
To this end, Vitalink is committed to the development of integrated data systems
and care processes essential to affect and measure outcomes and reduce the
incidence of inappropriate drug use and the associated downstream costs of
such drug misadventures.
Vitalink's patients, provider partners and payers routinely look to Vitalink to
provide consistency, accountability, lower cost, market focus and improved
clinical and quality of life outcomes.
Vitalink's
Payer Mix
29% Medicaid
65% Private/*/
[PIE GRAPH APPEARS HERE]
6% Medicare/**/
*Includes private, Medicare Part A, insurance and other third party payers
**Includes Medicare Part B only
<PAGE>
Vitalink Locations
[MAP OF VITALINK LOCATIONS APPEARS HERE]
Map Key
.
States Served
H
Hub Pharmacies
S
Satellite Pharmacies
R
Regional Infusion Pharmacies
E
Enteral Distribution Site
California
Los Angeles
San Bernardino
Santa Rosa
Colorado
Northglenn
Florida
Deerfield Beach
St. Petersburg
Illinois
Elgin
Hickory Hills
Monticello
Indiana
Indianapolis
Iowa
Bettendorf
Maryland
Baltimore
New Jersey
Ocean
Ohio
Copley
Oklahoma
Oklahoma City
Oregon
Eugene
Portland
Pennsylvania
Allentown
Bridgeville
Williamsport
York
Texas
San Antonio
Wisconsin
Appleton
Medisco Healthcare Services
Acquired July, 1996
San Bernardino, California
Brentview Pharmacy
Acquired November, 1995
Los Angeles, California
Home Intravenous Care
Acquired July, 1995
Loveland, Colorado
Parker's Pharmacy
Acquired April, 1995
San Antonio, Texas
Apothecary Services
Acquired January, 1994
Northglenn, Colorado
Propac Pharmacy
Acquired August, 1993
Portland, Oregon
West End Family Pharmacy
Acquired December, 1992
Ocean, New Jersey
Northern Nursing Home Pharmacy
Acquired August, 1992
Baltimore, Maryland
Carrol-Hansen Drugs
Acquired May, 1992
Aurora, Illinois
Regional Infusion Pharmacies
Colorado
Loveland
Illinois
Hickory Hills
Oregon
Portland
Pennsylvania
Allentown
Enteral Distribution Site
Illinois
Calumet City
The Vitalink Difference
Our network of caring people, innovative
systems and improved outcomes
Caring People--Vitalink's employees play a vital role in enabling the company to
meet the challenges of today and tomorrow. Our objective is to hire the
industry's best, foster their continued development and support them in
providing the best patient care and customer service possible.
To reach our customer service and patient care goals, Vitalink must first
attract and recruit individuals that can accomplish our mission. This is
achieved through a series of structured interviews for key pharmacy personnel.
Our commitment is also reflected in the selection of acquisition candidates who
not only have the required financial profile but who also have dedicated
employees and high quality service reputations.
It is Vitalink's responsibility to ensure our employees are properly trained.
Vitalink's technicians, drivers, billing clerks, support personnel, nurses and
pharmacists receive targeted training to enhance their ability to better serve
our customers. Training begins with clearly communicating the company's core
values and setting the expectation that employees will live by these values.
Training programs that promote key principles in providing unparalleled customer
service are then conducted to achieve Vitalink's mission based on these values.
Vitalink provides initial customer service training programs as well as
technical and professional training. Training modules are added based upon
advances in patient care. An anti-coagulation training program for consultant
pharmacists and nurses, for example, was added prior to the national roll-out of
Vitalink's OPTIMA(SM) (Optimizing Patient Therapy in Medication Administration)
program for stroke management. The certification programs validate the
proficiencies required to properly perform key operational and patient care
roles.
Vitalink is committed to the belief that training promotes the ability of our
employees to serve as integral members of the patient care team, working to
anticipate, avoid and solve the problems of our provider partners.
[PICTURE APPEARS HERE]
-------------------------
Products and Services
Prescription management
Infusion therapies and support services
Patient care management protocols
Remote site dispensing
Facility based information systems
Professional consulting
Medical records management
Pre-survey assessment
Managed care contract support
Clinical information services
Medical supplies
Customer education programs
Nutritional support services
<PAGE>
Innovative Systems--Innovative systems are essential to support the patient care
and customer service goals Vitalink has embraced. Vitalink's goals of
consistency, accountability, clinical superiority and efficiency can only be
achieved through sound underlying systems.
In the future, the ability of a pharmacy provider to effectively direct
medication management across a continuum of care will be critical in providing
real value to the health care system. Safe, effective and efficient use of
medications can only be accomplished by applying a coordinated systems approach
to pharmacy services.
The first critical piece in utilizing a coordinated systems approach is
obtaining accurate patient information. How this data is collected,
- --------------------------------
Integrated Information Systems
Our sound operating systems
insure consistency, accountability,
clinical superiority and efficiency.
[SYSTEMS GRAPHIC APPEARS HERE]
Formulary Development
Continuous Quality Improvement
Outcome Measurement
OPTIMASM Patient Care Management
Protocol Development
Clinical Systems
Revenue
Billing Flexibility
Risk Sharing
Performance Tracking
Accounts Receivable Management
Inventory Management
"Vital Data"
Electronic Record
Financial
Systems
Dispensing
Regulatory Compliance
Automated Systems
Formulary Compliance
Logistics
Operations Systems
analyzed and used is the key to Vitalink's patient care and business
philosophies. Vitalink consultants provide training and support to our provider
partners to ensure that timely, accurate and complete information is
communicated to our pharmacies. The data is then entered into our proprietary
information system specifically designed to enhance our ability to promote
appropriate medication utilization.
Vitalink pharmacists use our information systems to go beyond the
dose, allergy and interaction screening commonly employed by institutional
pharmacies. All prescriptions for every patient are evaluated for
appropriateness relative to specific diagnoses, patient's age, physical
condition, laboratory findings and application of disease state management
protocols.
Using this innovative approach, Vitalink pharmacists recommend patient specific
drug regimen changes that eliminate unnecessary or duplicative therapies, select
drugs that have proven clinical superiority in target populations, reduce or
eliminate drug related problems, lower overall drug costs and improve patient
clinical and quality of life outcomes.
Vitalink's MIS department recently developed VitalCONSULT, an integrated
consultant software package, which allows our pharmacists and nurses to record
outcome events, laboratory data, patient status updates and clinical follow-up
notes and to administer patient care management programs and formularies more
efficiently.
VitalCONSULT allows Vitalink to provide sophisticated clinical support on a
continuous, real-time basis. All patient data required to support clinical
decision making is readily available. This facilitates proactive recommendations
(even by pharmacists providing after-hours, on-call services) and enhances our
ability to effectively communicate with physicians and nursing facility staff in
providing superior clinical services.
Vitalink's information systems have also been enhanced to print drug information
text on charting documents and patient drug information sheets ideally suited
for our assisted living, home care and adult day care patients. This integrated
approach allows Vitalink to follow a patient across multiple service settings
(home to assisted living facility to nursing facility) while addressing their
needs in each setting.
In addition, Vitalink's information systems allow us to query the medical
records of our entire patient population, quality check our clinical processes,
help identify diseases where the opportunity exists to improve
VitalCONSULT
Our proprietary information system allows our pharmacist and nurse consultants
to improve patient clinical and quality of life outcomes.
Vitalink 1996 Annual Report
The Vitalink Difference
<PAGE>
treatment, isolate high cost patterns to develop cost reduction initiatives,
aggregate and report utilization and outcome data and support the
company's initiatives in clinical research and product development.
Integrating patient data management and care support across multiple practice
settings also provides Vitalink with unique competitive advantages for future
anticipated fixed payment contracting and inclusion into integrated health care
systems.
Our CARE group is charged with developing company-wide policies and procedures
to ensure consistent operating practices in all our pharmacies. This consistency
is crucial in providing the high quality services and product integrity demanded
by our customers. In addition, it also provides a competitive advantage in
securing regional or national contracts and other new business.
Vitalink's CARE group standards form the foundation for operational consistency
and brand leverage. Vitalink utilizes interdisciplinary audit teams to ensure
compliance with CARE group standards. The audits are designed to identify areas
for improvement and focus efforts in our continuous quality improvement program.
This system reinforces our organizational commitment to the best operating
practices in addition to providing the oversight necessary to avoid regulatory
compliance issues.
Vitalink's Clinical Information Services (CIS) group has the responsibility to
ensure and improve the quality of Vitalink's clinical systems and capacity. CIS
provides comprehensive drug information services, designs modules for our
patient care management system, conducts drug utilization research and provides
clinical sales support for the organization. This year, the CIS team initiated
the national roll-out of the first program in Vitalink's patient care management
system, OPTIMA/(SM)/.
The OPTIMA/(SM)/ system is designed to improve clinical, functional and economic
outcomes in critical, high mortality/morbidity and costly diseases such as
stroke, osteoporosis, obstructive pulmonary disease, heart failure and
depression. This is achieved through the combination of drug and disease
management practice guidelines (derived from AHCPR, NIH and physician specialty
society protocols), interdisciplinary coordination, care management queuing,
professional training, disease specific drug formularies, physician and facility
staff education and support, outcomes monitoring and data capture and analysis.
Improved Outcomes--The OPTIMA/(SM)/ program is designed to achieve dramatic
changes in patient care. Vitalink's OPTIMA/(SM)/ stroke management/anticoagulant
program follows the national guidelines which have been proven to reduce the
incidence of stroke significantly.
The potential positive impact when applied to our entire patient base could
result in 1,500 less strokes, 500 less deaths, 2,000 fewer occurrences of
serious physical and mental disabilities such as paralysis and dementia and
savings of at least $25 million in health care costs annually.
Utilizing OPTIMA/(SM)/ systems in the management of osteoporosis could help
reduce the incidence of hip fractures in the elderly by over 70%. This is
significant since the elderly, particularly women, who experience hip fractures
have shown at least a 20% greater increase in mortality in the year following
the incident. As people age they are more likely to experience osteoporosis.
Appropriate screening and treatment at age 65 has the potential to keep almost
all patients out of the high-risk for fracture range.
The OPTIMA/(SM)/ program is just one tool that Vitalink uses to enhance
outcomes. Our systems and professionals are being redeployed to play a more
prominent and interactive role in patient management through appropriate drug
therapy which avoids drug misadventures and resultant problems.
Inappropriate drug use is a common problem in the elderly. National data
indicates that noncompliance with prescription directions causes over 125,000
deaths per year, accounts for 5% to 10% of hospital admissions and results in
admissions to nursing facilities with an annual cost over $5 billion.
This problem exists across the entire continuum of care: sub-acute care, long-
term care, assisted living and home care. It causes unnecessary
suffering, disease progression, increases the incidence of debilitation, lessens
the quality of life and causes premature death. Our provider partners feel the
impact in the need for increased patient support through greater staffing and
resultant increased operating costs. Payers experience misdirected resources and
unnecessary costs. Vitalink's goal is to utilize its human and technological
resources to change the status quo.
Having a positive effect on our patients' drug therapies creates tremendous
value for Vitalink's services, provides improved clinical and quality of life
outcomes for our patients, improves the efficiency of our provider partners and
reduces the overall cost of health care.
Our OPTIMA/(SM)/
Program
The GAO estimates that 30%
of all drugs prescribed to the elderly
are taken inappropriately.
Vitalink's OPTIMA/(SM)/ program is targeted
toward minimizing this problem.
- --------------------30% inappropriate
drug use
<PAGE>
- ----------------
Continuum
of Care
[FLOW CHART GRAPHIC APPEARS HERE]
Market Needs
Vitalink's Position
minimum care & cost
Provide first point of entry for
comprehensive services
Increase professional staff efficiency
Provide case management assistance
Assist in initial analysis
of medication regimen
Develop systems reducing
medication dispensing time and improving compliance
$2.3 billion
market
300,000
clients served
Adult
Day Care
Viewed as the preferred
choice for clients
Ability to manage chronic care
elderly with multiple treatments
Provide infusion and
nutritional therapy
products and support
$28 billion
market
7 million
clients served
Home Health
$12 billion
market
1 million
residents served
Increase staff efficiency
Regulatory compliance
Extend staff expertise
Develop consulting
and dispensing systems
which maintain resident
dignity and independence
Assisted Living
Regulatory compliance
Economic outcomes measurement
New business development assistance
Cost control
Increase staff efficiency
Assist facility partners to provide increasingly
complex, cost-sensitive and regulated medical care
$100 billion
market
1.7 million
patients served
Skilled Care
Increased accreditation requirements
Economic outcomes measurement
Ability to manage high acuity patients
Highly trained staff
Cooperation in patient management
$4 billion
market
350,000
patients served
Provide services and
products that bridge acute, long-term, ambulatory
and home care needs
Subacute
maximum care & cost
Vitalink 1996 Annual Report
The Vitalink Difference
#
<PAGE>
Report of Independent
Public Accountants
To the Board of Directors and Shareholders of Vitalink Pharmacy Services, Inc.:
We have audited the accompanying consolidated balance sheets of Vitalink
Pharmacy Services, Inc. (a Delaware Corporation) and subsidiaries as of May 31,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended May 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 financial statements referred to above present fairly, in
all material respects, the financial position of Vitalink Pharmacy Services,
Inc. and subsidiaries as of May 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1996 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Washington, D.C.
June 25, 1996
<PAGE>
------------------
Earnings Per Share
(in dollars)
.99 .84 .66
[Graph of Earnings Per Share Appears Here]
94 95 96
Consolidated Statements of Income
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended May 31, 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues
- --------------------------------------------------------------------------
Affiliates and their patients $ 67,066 $ 54,734 $45,976
------------------------------------------------------------------------
Non-affiliates and their patients 74,049 57,523 52,593
------------------------------------------------------------------------
Total net revenues 141,115 112,257 98,569
------------------------------------------------------------------------
Cost of Goods Sold 71,122 56,280 51,146
- --------------------------------------------------------------------------
Gross Profit 69,993 55,977 47,423
- --------------------------------------------------------------------------
Operating Expenses
- --------------------------------------------------------------------------
Payroll expenses 29,255 22,153 18,901
------------------------------------------------------------------------
Selling, general and
administrative expenses 11,662 9,573 8,558
------------------------------------------------------------------------
Provision for doubtful accounts 2,412 1,772 1,612
------------------------------------------------------------------------
Depreciation and amortization 4,363 3,753 3,357
------------------------------------------------------------------------
Total operating expenses 47,692 37,251 32,428
------------------------------------------------------------------------
Income from Operations 22,301 18,726 14,995
- --------------------------------------------------------------------------
Interest Income and Other, Net 1,003 893 691
- --------------------------------------------------------------------------
Interest Expense (51) (57) (215)
- --------------------------------------------------------------------------
Income Before Allocation of Income Taxes 23,253 19,562 15,471
- --------------------------------------------------------------------------
Income Tax Allocation 9,383 7,882 6,267
- --------------------------------------------------------------------------
Net Income $ 13,870 $ 11,680 $ 9,204
- --------------------------------------------------------------------------
Weighted Average Shares Outstanding 13,976 13,975 13,975
- --------------------------------------------------------------------------
Earnings Per Share $ .99 $ .84 $ .66
- --------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
As of May 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
- ------
Assets
- ------
Current Assets
- --------------------------------------------------------------------------------
Cash $ 889 $ $198
-----------------------------------------------------------------------------
Receivables (net of allowances of $2,163 and
$1,378) 20,093 13,844
-----------------------------------------------------------------------------
Inventories 7,426 6,520
-----------------------------------------------------------------------------
Deferred income taxes 1,138 1,012
-----------------------------------------------------------------------------
Other 330 167
-----------------------------------------------------------------------------
Total current assets 29,876 21,741
-----------------------------------------------------------------------------
Due from Parent 16,910 16,888
- --------------------------------------------------------------------------------
Property and Equipment, at cost,
Net of Accumulated Depreciation 8,191 6,227
- --------------------------------------------------------------------------------
Pharmacy Contracts
(net of amortization of $3,044 and $2,116) 6,187 7,015
- --------------------------------------------------------------------------------
Goodwill (net of amortization of $2,146 and $1,360) 31,194 26,028
- --------------------------------------------------------------------------------
Other Assets (net of amortization of $3,292 and $2,365) 3,565 2,814
- --------------------------------------------------------------------------------
Total Assets $ 95,923 $ 80,713
- --------------------------------------------------------------------------------
- ------------------------------------
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
- --------------------------------------------------------------------------------
Accounts payable $3,918 $2,594
-----------------------------------------------------------------------------
Accrued expenses 2,403 3,037
-----------------------------------------------------------------------------
State income taxes payable 725 908
-----------------------------------------------------------------------------
Total current liabilities 7,046 6,539
-----------------------------------------------------------------------------
Deferred Income Taxes ($1,916 and $1,078)
& Other Long-Term Liabilities 2,578 1,795
- --------------------------------------------------------------------------------
Stockholders' Equity
- --------------------------------------------------------------------------------
Common stock
(30,000,000 shares authorized, 13,979,700 and
13,975,000 shares issued, $.01 par value) 140 140
-----------------------------------------------------------------------------
Contributed capital 38,155 38,105
-----------------------------------------------------------------------------
Retained earnings 48,004 34,134
-----------------------------------------------------------------------------
Total stockholders' equity 86,299 72,379
-----------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $95,923 $80,713
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
------------------------
Return on Average Assets
(as percent)
15.5 15.7
[Graph of Return on Average Assets Appears Here]
95 96
<PAGE>
Vitalink 1996 Annual Report
-------------------
Retained Earnings
(in millions of dollars)
13.3 22.5 34.1 48.0
[Vertrical Bar Graph of Retained Earnings Appears Here]
93 94 95 96
Consolidated Statements of
Stockholders' Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Contributed Retained
Shares Amount Capital Earnings
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, May 31, 1993 13,975,000 $140 $38,105 $13,250
- ------------------------------------------------------------------------
Net income -- -- -- 9,204
- ------------------------------------------------------------------------
Balance, May 31, 1994 13,975,000 140 38,105 22,454
- ------------------------------------------------------------------------
Net income -- -- -- 11,680
- ------------------------------------------------------------------------
Balance, May 31, 1995 13,975,000 140 38,105 34,134
- ------------------------------------------------------------------------
Net income -- -- -- 13,870
- ------------------------------------------------------------------------
Exercise of stock options 4,700 -- 50 --
- ------------------------------------------------------------------------
Balance, May 31, 1996 13,979,700 $140 $38,155 $48,004
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Consolidated Statements
of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended May 31, 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------
Cash Flows from Operating Activities
- ------------------------------------
Net income $ 13,870 $ 11,680 $ 9,204
- ----------------------------------------------------------------------------------
Reconciliation of net income to net
cash provided by operating activities
- ----------------------------------------------------------------------------------
Depreciation and amortization 4,363 3,753 3,357
--------------------------------------------------------------------------------
Provision for doubtful accounts 2,412 1,772 1,612
--------------------------------------------------------------------------------
Gain on sale of business -- (50) (110)
--------------------------------------------------------------------------------
Decrease (increase) in deferred taxes 712 (114) (77)
--------------------------------------------------------------------------------
Change in assets and liabilities, net of
acquisitions
--------------------------------------------------------------------------------
Change in receivables (8,661) (1,731) (6,217)
------------------------------------------------------------------------------
Change in inventories (450) (1,103) 771
------------------------------------------------------------------------------
Change in other assets (1,163) (21) (21)
------------------------------------------------------------------------------
Change in accounts payable and
accrued expenses 1,559 242 (1,032)
------------------------------------------------------------------------------
Change in state income taxes payable (183) (84) 230
------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 12,459 14,344 7,717
------------------------------------------------------------------------------
- ------------------------------------
Cash Flows from Investing Activities
- ------------------------------------
Investment in property and equipment (3,537) (2,163) (1,567)
- ----------------------------------------------------------------------------------
Proceeds from sale of business -- 144 222
- ----------------------------------------------------------------------------------
(Increase) decrease in due from parent, net (22) (8,721) 2,109
- ----------------------------------------------------------------------------------
Acquisition of pharmacy businesses (5,531) (2,451) (7,217)
- ----------------------------------------------------------------------------------
Deferred payments on previous acquisitions (2,030) (1,400) --
- ----------------------------------------------------------------------------------
Other items, net (644) (107) (312)
- ----------------------------------------------------------------------------------
Net Cash (Used in) Investing Activities (11,764) (14,698) (6,765)
--------------------------------------------------------------------------------
- ------------------------------------
Cash Flows from Financing Activities
- ------------------------------------
Principal payments of debt (54) (56) (764)
- ----------------------------------------------------------------------------------
Exercise of stock options 50 -- --
- ----------------------------------------------------------------------------------
Net Cash (Used in) Financing Activities (4) (56) (764)
-------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 691 (410) 188
- ----------------------------------------------------------------------------------
Cash at Beginning of Period 198 608 420
- ----------------------------------------------------------------------------------
Cash at End of Period $ 889 $ 198 $ 608
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Vitalink 1996 Annual Report
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies
Organization--Vitalink Pharmacy Services, Inc. (the "Company") owns and
operates, directly or through its subsidiaries, institutional pharmacies. As of
May 31, 1996, Manor Care, Inc. ("Manor Care") owned approximately 82.3% of the
Company's common stock. Manor Care, through its wholly-owned subsidiary Manor
HealthCare Corp. ("Manor HealthCare"), operates nursing facilities. Unless the
context otherwise requires, Manor Care shall mean Manor Care and its
subsidiaries other than the Company.
Principles of Consolidation--The consolidated financial statements include the
accounts of Vitalink Pharmacy Services, Inc. and all of its subsidiaries. All
significant intercompany transactions have been eliminated in consolidation.
Revenue Recognition and Concentration of Credit Risk--The Company records
revenues at the time services or supplies are provided. Revenue is reported at
the estimated net realizable amounts expected to be received from individuals,
third party payers or others for services and supplies provided. Net revenues
from Medicaid and Medicare programs were $40,250,000 and $8,151,000,
respectively, for the year ended May 31, 1996 and $32,963,000 and $7,915,000,
respectively, for the year ended May 31, 1995. Accounts receivable outstanding
on the consolidated balance sheets from Medicaid and Medicare programs were 25%
and 9%, respectively, of total accounts receivable at May 31, 1996 and 33% and
13%, respectively, of total accounts receivable at May 31, 1995.
Inventories--Inventories are stated at the lower of cost (first-in, first-out
method) or market and are comprised primarily of products held for resale.
Property and Equipment--The components of property and equipment at May 31,
are as follows:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Leasehold improvements $ 1,125 $ 988
- ------------------------------------------------------------------------------
Furniture, fixtures and equipment 6,907 4,746
- ------------------------------------------------------------------------------
Vehicles 1,553 1,070
- ------------------------------------------------------------------------------
Computer equipment 3,199 2,625
- ------------------------------------------------------------------------------
12,784 9,429
- ------------------------------------------------------------------------------
Less accumulated depreciation (4,593) (3,202)
- ------------------------------------------------------------------------------
$ 8,191 $ 6,227
- ------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization of property and equipment is computed using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Leasehold improvements 5-10 years
- --------------------------------------------------
Furniture, fixtures and equipment
including computer equipment 3-8 years
- --------------------------------------------------
Vehicles 2-3 years
- --------------------------------------------------
</TABLE>
Capitalization Policies--Maintenance, repairs and minor replacements are charged
to expense. Major renovations and replacements are capitalized to appropriate
property and equipment accounts. Upon sale or retirement of property, the cost
and related accumulated depreciation are eliminated from the accounts and the
related gain or loss is recorded.
Goodwill and Pharmacy Contracts--Goodwill arising from business acquisitions is
amortized on the straight-line basis over 40 years. Pharmacy contracts,
principally representing the estimated value of acquired contracts to service
customers, are amortized over their estimated useful lives, not to exceed 10
years. The recoverability of these assets is evaluated quarterly and whenever
events or circumstances indicate that the value of the assets may be impaired.
The evaluation is based on comparing the future estimated undiscounted cash
flows of the acquired business or specific intangible asset over the remaining
amortization period with the carrying amount of the asset. If the evaluation
indicates that the recorded value of the intangible asset will not be fully
recovered, the carrying value of the asset will be reduced by the estimated
shortfall in undiscounted cash flows. The Company will adopt Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" in fiscal year 1997.
The Company does not anticipate that the adoption will have a material effect on
the financial statements. Amortization expense charged to operations for
goodwill and pharmacy contracts, respectively, was $786,000 and $928,000 in
1996, $635,000 and $904,000 in 1995 and $536,000 and $830,000 in 1994.
Earnings Per Common Share--Earnings per common share have been computed based
on the weighted average number of shares of common stock outstanding. The effect
of outstanding stock options on the computation is insignificant.
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 reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
- --------------------------------------------------------------------------------
Related Party Transactions
The Company provides pharmaceutical dispensing, infusion therapy and pharmacy
consulting services to nursing facilities owned and operated by Manor Care and
the patients of these facilities. In prior fiscal years, sales of pharmaceutical
and infusion therapy products and services to Manor Care's nursing facilities
were made at prices charged to other customers less an administrative fee equal
to 3% of the private pay revenues derived from each facility. The administrative
fee was $485,000 and $440,000, respectively, for the two years ended May 31,
1995. Effective June 1, 1995, the Company ceased to pay Manor Care the 3%
administrative fee as the Company assumed the billing and collecting of private
pay revenues derived from Manor Care facilities. Revenues from sales to Manor
Care nursing facilities and patients, which are included in net revenues from
affiliates and their patients in the consolidated statements of income, were
$64,302,000, $52,449,000 and $43,984,000, respectively, for the three years
ended May 31, 1996. Fees from consulting services to Manor Care and Manor Care
facilities, which are included in net revenues from affiliates and their
patients in the consolidated statements of income, are charged based on an
annual fee per bed and totalled $2,764,000, $2,285,000 and $1,992,000,
respectively, for the three years ended May 31, 1996.
The Company and Manor Care have entered into an Administrative Services
Agreement. The agreement has annual renewal terms. Manor Care provides various
services to the Company including, among others, cash management, payroll and
payables processing, employee benefit plans, insurance, legal, accounting, tax,
information systems and certain administrative services, as required.
Substantially all cash received by the Company is immediately deposited in and
combined with Manor Care's corporate funds through its cash management system.
Similarly, operating expenses, capital expenditures and other cash requirements
of the Company are paid by Manor Care and charged to the Company. Administrative
fees of $595,000, $551,000 and $500,000, respectively, for the three years ended
May 31, 1996, were charged based on a time allocation method which Manor Care
utilized to charge administrative services to all of its subsidiaries.
Management believes that the foregoing charges are reasonable allocations of the
costs incurred by Manor Care on the Company's behalf.
Manor Care obtains and provides insurance coverage for group health, auto,
general liability, property casualty and workers' compensation through its self-
insurance and outside insurance programs and charges the Company based on the
relative percentage of insurance costs incurred by Manor Care on the Company's
behalf. Total insurance costs allocated
<PAGE>
were $1,777,000, $1,360,000 and $1,279,000, respectively, for the three years
ended May 31, 1996. Management believes that the foregoing charges are
reasonable allocations of the costs incurred by Manor Care on the Company's
behalf.
The net result of all of these intercompany transactions, plus tax allocations
as discussed in the next footnote regarding income taxes, is included in the due
from parent amount in the accompanying consolidated balance sheets. Due from
parent has no set repayment terms, but it is expected that repayment will occur
as the Company needs cash.
Additionally, Manor Care credited the Company with interest income of $972,000,
$822,000 and $330,000, respectively, for the three years ended May 31, 1996
relating to the average balance due from parent. The interest earned on the
average balance due from parent was calculated based on an average three-month
Treasury Bill rate plus 100 basis points. The average three-month Treasury Bill
rate was 5.13% in 1996, 5.23% in 1995 and 3.26% in 1994.
The Company and Manor Care have entered into an Intercompany Debt and Credit
Agreement whereby Manor Care provides the Company with a line of credit of
$10,000,000. The Intercompany Debt and Credit Agreement, dated June 1, 1991, is
for a five-year term and is automatically renewable unless terminated by either
party. The agreement was renewed on June 1, 1996. Manor Care will pass through
the charges under its own credit facility for the line of credit. These charges
include a 1/4 point fee on the unused funds and a 1/8 point fee on the entire
amount under the line of credit. These fees amounted to $38,000 in each of the
three years ended May 31, 1996. The interest rate charged on borrowed funds is
LIBOR plus 5/8 percentage points. There was no balance outstanding under this
agreement at May 31, 1996 or 1995.
The Company has entered into pharmacy, infusion therapy and consulting services
agreements with Manor Care, whereby the Company has the option to provide
pharmaceutical products and services, infusion therapy products and services and
pharmacy consulting services to Manor Care, Manor Care nursing facilities and
patients. The agreements have a ten-year term commencing June 1, 1991. The
Company will continue to charge Manor Care for consulting services as set forth
above.
During fiscal 1993, the Company entered into an agreement to lease an operating
facility from an employee. Rental expense under the non-cancelable operating
lease was $290,000 in the three years ended May 31, 1996. Future minimum lease
payments for the lease, which expires in 2002, are $1,883,000 at May 31, 1996.
- --------------------------------------------------------------------------------
Income Taxes
An agreement exists whereby the Company joins with Manor Care in the filing of a
consolidated Federal tax return. The consolidated provision of Manor Care is
allocated among its subsidiaries on a separate company basis. Accordingly, the
Company accrues taxes payable to or benefits receivable from Manor Care in the
due from parent account, based on the statutory rate applied to income before
taxes after considering appropriate tax credits. Deferred taxes are recorded for
the tax effect of temporary differences between book and tax income.
The allocation of the consolidated provisions for income taxes follows for the
years ended May 31:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------
(in thousands)
<S> <C> <C> <C>
Current
- -------------------------------------
Federal $7,459 $6,381 $5,074
-----------------------------------
State 1,722 1,476 1,171
-----------------------------------
Deferred
- -------------------------------------
Federal 164 20 27
-----------------------------------
State 38 5 (5)
-----------------------------------
$9,383 $7,882 $6,267
- -------------------------------------
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at May 31:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Gross deferred tax liabilities
- ----------------------------------------------------------------------------
Depreciation $ (941) $ (784) $(527)
--------------------------------------------------------------------------
Amortization of
intangibles (390) (269) (221)
--------------------------------------------------------------------------
Other (598) (266) (47)
--------------------------------------------------------------------------
Total gross deferred
tax liabilities (1,929) (1,319) (795)
--------------------------------------------------------------------------
Gross deferred tax assets
- ----------------------------------------------------------------------------
Reserve for doubtful
accounts 964 747 548
--------------------------------------------------------------------------
Other 187 506 67
--------------------------------------------------------------------------
Total gross deferred
tax assets 1,151 1,253 615
--------------------------------------------------------------------------
Net deferred tax liabilities $ (778) $ (66) $(180)
- ----------------------------------------------------------------------------
</TABLE>
The Company expects the deferred tax assets to be realized through future
taxable income.
Reconciliation of the Federal statutory income tax rate and the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
- -----------------------------------------------------------------------------
State income taxes,
net of Federal tax benefit 4.9% 4.9% 4.9%
- -----------------------------------------------------------------------------
Other 0.4% 0.4% 0.6%
- -----------------------------------------------------------------------------
Effective income tax rate 40.3% 40.3% 40.5%
- -----------------------------------------------------------------------------
</TABLE>
Cash paid for state income taxes was $1,210,000, $1,100,000 and $640,000,
respectively, for the three years ended May 31, 1996.
<PAGE>
Vitalink 1996 Annual Report
- --------------------------------------------------------------------------------
Accrued Expenses
Accrued expenses were as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
(in thousands)
<S> <C> <C>
Payroll and incentive
compensation $2,064 $1,567
- -----------------------------------------------------------
Acquisition related accruals 243 1,333
- -----------------------------------------------------------
Taxes, other than income 20 34
- -----------------------------------------------------------
Other 76 103
- -----------------------------------------------------------
$2,403 $3,037
- -----------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Leases
The Company operates certain property and equipment under operating leases that
expire at various dates through 2002. Rental expense under noncancelable
operating leases was $1,373,000, $1,086,000, and $1,014,000, respectively, for
the three years ended May 31, 1996. Future minimum lease payments are as
follows:
<TABLE>
<CAPTION>
Operating Leases
- ------------------------------------------------
(in thousands)
<S> <C>
1997 $1,333
- ------------------------------------------------
1998 1,118
- ------------------------------------------------
1999 859
- ------------------------------------------------
2000 690
- ------------------------------------------------
2001 482
- ------------------------------------------------
Thereafter 594
- ------------------------------------------------
Total minimum lease payments $5,076
- ------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Acquisitions and Divestitures
Fiscal Year 1996--On November 3, 1995, the Company acquired the institutional
pharmacy business of Brentview Clinical Pharmacy, located in Los Angeles,
California for $3,206,000 in cash plus the assumption of $45,000 in liabilities
and future contingent payments based on the achievement of future profitability
objectives.
On July 6, 1995, the Company acquired the infusion therapy business of Home
Intravenous Care, Inc., located in Loveland, Colorado, for $2,325,000 in cash
plus the assumption of $105,000 in liabilities and future contingent payments
based on the achievement of certain future profitability objectives.
Fiscal Year 1995--On April 27, 1995, the Company acquired the institutional
pharmacy business of Parker's Pharmacy, Inc., located in San Antonio, Texas, for
$2,451,000 in cash plus the assumption of $107,000 in liabilities.
On June 27, 1994, the Company sold its last retail pharmacy operation located
in Wisconsin for $144,000 in cash.
Fiscal Year 1994--On January 4, 1994, the Company acquired the institutional
pharmacy business of Apothecary Services ("Apothecary"), located in Thornton,
Colorado, for $3,448,000 in cash plus the assumption of $107,000 in liabilities
and a contingent additional purchase price up to a maximum of $1,400,000 based
on the achievement of certain future operating objectives.
On August 24, 1993, the Company acquired White, Mack and Wart, Inc., which
operated Propac Pharmacy ("Propac"), located in Portland, Oregon, for
$3,769,000 in cash plus the assumption of $2,100,000 in liabilities and a
guarantee provision on stock options totalling $656,000, plus future contingent
payments based on the achievement of certain future operating objectives. If
required, the guaranteed value of stock options is payable in fiscal 1999.
In January 1994, the Company sold its retail pharmacy operation in Illinois for
$222,000 in cash.
The above acquisitions are accounted for under the purchase method of accounting
with the assets recorded at their estimated fair market values at the date of
acquisition. The fiscal 1995 and 1996 acquisitions were not material to the
Company's financial position or results of operations on a proforma basis. The
estimated fair market values of pharmacy contracts acquired are amortized over
the expected remaining lives of 10 years including estimated contract renewals.
Goodwill, representing the excess of acquisition costs over the fair market
value of acquired assets, is amortized over 40 years. Other assets include
noncompete covenants totalling $1,681,000 and $2,192,000, respectively, at May
31, 1996 and 1995. Other assets are amortized over their estimated useful lives
ranging from 2 to 10 years. Depreciation and amortization in the consolidated
statements of income include amortization of intangible assets of $2,641,000,
$2,449,000 and $2,256,000, respectively, for the three years ended May 31, 1996.
The guaranteed value of stock options granted to the sellers of acquired
businesses was considered part of the purchase price of the businesses. Included
in deferred income taxes and other long-term liabilities in the consolidated
balance sheets at May 31, 1996 and 1995 is $656,000 representing the guaranteed
value of stock options. An additional $1,000,000 is included in accrued expenses
at May 31, 1995 related to the guaranteed value of stock options granted in a
prior acquisition.
The results of operations of acquired businesses are included in the Company's
consolidated results from the date of acquisition. Had the acquisitions of
Apothecary and Propac occurred on June 1, 1993, management estimates that on an
unaudited pro forma basis, revenues, net earnings and earnings per share would
have been $102,174,000, $9,285,000 and $.66, respectively, for the year ended
May 31, 1994. These pro forma estimates reflect certain adjustments, including
amortization of intangible assets acquired, acquisition employment agreements,
reduced interest income from funds used in connection with the acquisition and
related income tax effects. The pro forma results are not necessarily indicative
of the operating results that would have occurred had the acquisitions been
consummated on June 1, 1993, nor are they indicative of future results.
- --------------------------------------------------------------------------------
Contingencies and Compensating Balances
The Company is subject to legal actions or claims for damages that arise in the
ordinary course of business. In the opinion of management and counsel to the
Company, the ultimate outcome of such litigation will not have a material
adverse effect on the Company's financial position or results of operations.
In connection with acquisitions, contingent purchase price payments exist up to
an aggregate maximum of $4,600,000, plus additional uncapped amounts based on
future performance.
Compensating balances of $75,000 are required under certain debt agreements of
Manor Care.
<PAGE>
Vitalink 1996 Annual Report
- --------------------------------------------------------------------------------
Pension, Profit Sharing and Incentive Plans
The Company participates in the various pension and profit sharing plans of
Manor Care and contributes through Manor Care to certain welfare plans. The
provision for these plans amounted to $433,000, $317,000 and $268,000,
respectively, for the three years ended May 31, 1996. All vested benefits under
retirement plans are funded or accrued. Additionally, included in accrued
expenses at May 31, 1996 and 1995 are $80,000 and $160,000, respectively, of
benefits assumed in the West End acquisition.
The Company also has incentive compensation plans for management personnel and
officers based primarily on new business development and achievement of certain
profitability levels. Incentive compensation expense was $1,003,000, $968,000
and $628,000, respectively, for the three years ended May 31, 1996.
- --------------------------------------------------------------------------------
Capital Stock
In September 1991, the Company's sole shareholder and Board of Directors
authorized 10,000,000 shares of preferred stock at $.01 par value. None of the
preferred stock is issued and outstanding. The Board of Directors is authorized
to determine the rights of the preferred shares.
In September 1991, the Company's Board of Directors adopted the Company's 1991
Key Executive Stock Option and Appreciation Rights Plan (the "Plan"). Under the
Plan, 420,000 shares were reserved for issuance upon exercise of options granted
thereunder. The Plan provides for the granting of options at prices equal to the
market value of the stock at date of grant. In addition, a stock appreciation
right may be granted in tandem with a stock option. At the election of the
Board, the stock appreciation right may be paid in lieu of the option exercise
in cash or shares of common stock or a combination thereof in an amount equal to
the difference between the option exercise price and the then market value of
the shares subject to the option. Options granted are not exercisable during
either the first one or two years after the date of grant and vest over periods
of 48 to 96 months. The options expire from 5 to 10 years after the date of
grant.
In fiscal 1994, the Board adopted and the shareholders approved an increase in
the number of shares reserved for issuance to 1,000,000.
The following summarizes stock option transactions for the three fiscal years
ended May 31:
<TABLE>
<CAPTION>
Number of Shares 1996 1995 1994
- -------------------------------------------------------
<S> <C> <C> <C>
Outstanding at June 1, 497,100 398,600 286,600
- -------------------------------------------------------
Granted
at $10.06-$19.88 109,000 126,000 128,000
- -------------------------------------------------------
Exercised
at $10.06-$12.75 (4,700) -- --
- -------------------------------------------------------
Cancelled
at $11.06-$17.00 (100,000) (27,500) (16,000)
- -------------------------------------------------------
Outstanding at May 31, 501,400 497,100 398,600
- -------------------------------------------------------
Exercisable at May 31, 83,613 75,786 20,126
- -------------------------------------------------------
Available for grant
at May 31, 493,900 503,500 602,000
- -------------------------------------------------------
</TABLE>
In fiscal 1996, the Board of Directors adopted a restricted stock grant plan for
key employees. The plan permits the grant of restricted stock in which vesting
is subject to continued employment for a period of five years from the date of
grant. At May 31, 1996, 15,000 shares of restricted stock grants were
outstanding.
In 1993, options were granted to four of the former shareholders of White, Mack
and Wart, Inc. to purchase 100,000 shares of common stock at $10.88 per share.
Theses options are not exercisable during the first two years after the date of
grant and then vest at the rate of 25% per year commencing at the end of year
two. The options expire six years after the date of grant.
- --------------------------------------------------------------------------------
Quarterly Financial Data
(unaudited)
The following table summarizes the quarterly financial data for the fiscal years
ended May 31, 1996 and 1995:
<TABLE>
<CAPTION>
Income
Quarter Net from Net Per
Ended Revenues Operations Income Share
- ----------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Fiscal 1996
- ----------------------------------------------------------------------
August $ 31,822 $ 5,070 $ 3,191 $.23
- ----------------------------------------------------------------------
November 33,998 5,390 3,366 .24
- ----------------------------------------------------------------------
February 36,497 5,646 3,486 .25
- ----------------------------------------------------------------------
May 38,798 6,195 3,827 .27
- ----------------------------------------------------------------------
$141,115 $22,301 $13,870 $.99
- ----------------------------------------------------------------------
Fiscal 1995
- ----------------------------------------------------------------------
August $ 26,911 $ 4,354 $ 2,692 $.19
- ----------------------------------------------------------------------
November 27,450 4,518 2,801 .20
- ----------------------------------------------------------------------
February 28,786 4,876 3,057 .22
- ----------------------------------------------------------------------
May 29,110 4,978 3,130 .22
- ----------------------------------------------------------------------
$112,257 $18,726 $11,680 $.84*
- ----------------------------------------------------------------------
*Does not add due to rounding
</TABLE>
- --------------------------------------------------------------------------------
Market Price Data
Vitalink's common stock trades on The Nasdaq Stock Market under the symbol
"VTLK". The following table sets forth the high and low sales price per share of
Vitalink's common stock for each quarter indicated, as reported in published
financial sources (rounded to the nearest cent):
<TABLE>
<CAPTION>
Market Price Per Share
High Low
- -------------------------------------------------
<S> <C> <C>
Fiscal 1996
- -------------------------------------------------
August $17.50 $14.75
----------------------------------------------
November 19.50 14.75
----------------------------------------------
February 25.38 16.88
----------------------------------------------
May 24.50 19.00
----------------------------------------------
Fiscal 1995
- -------------------------------------------------
August $12.25 $ 8.50
----------------------------------------------
November 15.50 10.75
----------------------------------------------
February 14.25 11.00
----------------------------------------------
May 17.00 12.50
----------------------------------------------
</TABLE>
The Company has not paid, and does not anticipate paying in the foreseeable
future, any dividends to the holders of its common stock.
<PAGE>
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
Results of Operations
Fiscal 1996 Compared to Fiscal 1995--Net revenues for fiscal 1996 were
$141,115,000, an increase of $28,858,000, or 25.7%, over fiscal 1995. The
increase in net revenues was principally attributable to increases in the number
of nursing facility beds serviced by the Company and increased revenues per bed
from higher patient acuity levels. At May 31, 1996, the Company provided
services to approximately 49,900 nursing facility beds, including 19,300 Manor
Care beds and 30,600 non-affiliate beds. At May 31, 1995, the Company provided
services to approximately 42,400 beds, including 16,000 Manor Care beds and
26,400 non-affiliate beds.
Increases in beds serviced were achieved through acquisitions, start-ups in
Oklahoma City and St. Petersburg and marketing efforts to customers in existing
markets. In the first quarter, the Company acquired Home Intravenous Care, Inc.,
located in Loveland, Colorado. Brentview Clinical Pharmacy, located in Los
Angeles, California, was acquired in the second quarter. In fiscal 1996, these
two acquisitions contributed net revenues of $1,821,000 and $3,305,000,
respectively. Included in fiscal 1996 revenues from Manor Care facilities and
patients are $2,764,000 in fees charged for consulting services as compared with
$2,285,000 charged in fiscal 1995.
Gross profit for fiscal 1996 was $69,993,000, an increase of $14,016,000, or
25.0%, over fiscal 1995. The gross profit margin decreased slightly to 49.6%
in fiscal 1996 compared to 49.9% in fiscal 1995.
Operating expenses increased $10,441,000 to $47,692,000, or 33.8% of net
revenues in fiscal 1996 compared to $37,251,000, or 33.2% of net revenues in
fiscal 1995. Both payroll and selling, general and administrative expenses
increased to support the growth in beds serviced. Payroll expenses, as a
percentage of net revenues, increased to 20.7% from 19.7%, primarily resulting
from investments in staff for information systems and selling efforts. The
increase in depreciation and amortization is the result of the amortization of
pharmacy contracts, goodwill and noncompete agreements obtained in connection
with acquired businesses as well as depreciation on capital expenditures for
existing pharmacies.
The increase in interest income and other, net, which consists principally of
interest earned on the balance due from parent, is primarily due to the higher
average monthly balance due from parent resulting from unused operating cash
flows. The interest earned on the loan is equal to the average three-month
Treasury Bill rate plus 100 basis points. Interest income and other, net for
fiscal 1995 also includes a $50,000 gain on the sale of the Company's retail
operation located in Wisconsin.
The Company is required to adopt FASB No. 123 "Accounting for Stock-Based
Compensation" in 1997. The Company plans to adopt the disclosure method
described in this pronouncement and does not believe the implementation will
have a material impact on the Company's financial statements.
Fiscal 1995 Compared to Fiscal 1994--Net revenues for fiscal 1995 were
$112,257,000, an increase of $13,688,000, or 13.9%, over fiscal 1994. Included
in fiscal 1994 net revenues are approximately $801,000 in revenues from a retail
operation which was sold in June 1994. Retail revenues were only $56,000 in
fiscal 1995. The increase in net revenues was principally attributable to
increases in the number of nursing facility beds serviced by the Company and
increased revenues per bed from higher patient acuity levels. At May 31, 1995,
the Company provided services to approximately 42,400 nursing facility beds,
including 16,000 Manor Care beds and 26,400 non-affiliate beds. At May 31, 1994,
the Company provided services to approximately 39,400 beds, including 14,300
Manor Care beds and 25,100 non-affiliate beds.
Increases in beds serviced were achieved through an acquisition and marketing
efforts to customers in existing markets. In the fourth quarter, the Company
completed the acquisition of Parker's Pharmacy, located in San Antonio, Texas.
At the time of acquisition, Parker's serviced approximately 1,300 beds. Included
in fiscal 1995 revenues from Manor Care facilities and patients are $2,285,000
in fees charged for consulting services as compared with $1,992,000 charged in
fiscal 1994. These consulting activities are primarily due to the need to comply
with standards for nursing facilities associated with the implementation of OBRA
in October 1990.
Gross profit for fiscal 1995 was $55,977,000, an increase of $8,554,000, or
18.0%, over fiscal 1994. The gross profit margin was 49.9% for fiscal 1995
compared to 48.1% for fiscal 1994. The increase in gross profit margin was due
to a combination of factors. The elimination of lower margin retail revenues
during fiscal 1995 contributed, in part, to a more favorable product mix. In
addition, the increasing focus of our customers, particularly Manor Care, on the
higher margin subacute market resulted in more sales of higher margin products.
And finally, the Company's greater emphasis on generic and therapeutic
substitution resulted in higher margin product selection.
Operating expenses increased $4,823,000 to $37,251,000, or 33.2% of net revenues
in fiscal 1995 compared to $32,428,000, or 32.9% of net revenues in fiscal 1994.
Both payroll and selling, general and administrative expenses increased to
support the growth in beds serviced. The increase in depreciation and
amortization is the result of the amortization of pharmacy contracts, goodwill
and noncompete agreements obtained in connection with acquired businesses as
well as depreciation on capital expenditures for existing pharmacies.
The increase in interest income and other, net, which consists principally of
interest earned on the balance due from parent, is primarily due to the higher
average monthly balance due from parent resulting from unused operating cash
flows. The interest earned on the loan is equal to the average three-month
Treasury Bill rate plus 100 basis points. Interest income and other, net for
fiscal 1995 also includes a $50,000 gain on the sale of the Company's retail
operation located in Wisconsin.
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company meets its ongoing capital requirements and operating needs from
operating cash flows. Cash flows provided by operating activities were
$12,459,000 in fiscal 1996 compared to $14,344,000 in fiscal 1995. Fiscal 1996
operating cash flows were approximately $2,500,000 lower because of the change
to billing private pay residents in Manor Care facilities directly rather than
being paid by Manor Care. Operating cash flows not used to acquire pharmacies or
invest in new property and equipment is held in the form of a receivable due
from Manor Care. The balance due is classified as due from parent on the
consolidated balance sheets and totalled approximately $17,000,000 at May 31,
1996.
The Company's acquisition program is funded by operating cash flows, a
$10,000,000 line of credit with Manor Care or other conventional sources, if
required. During fiscal 1996, the Company paid cash of $3,206,000 to acquire the
institutional pharmacy business of Brentview Clinical Pharmacy and $2,325,000 to
acquire the infusion therapy business of Home Intravenous Care, Inc. During
fiscal 1995, the Company acquired the institutional pharmacy business of
Parker's Pharmacy for cash of $2,451,000. During fiscal 1994, the Company
acquired the
<PAGE>
institutional pharmacy businesses of Propac and Apothecary for $3,769,000 and
$3,448,000, respectively, in cash. Generally, the purchase contracts for
acquisitions stipulate future payments contingent upon achievement of future
profitability objectives.
On June 1, 1991, the Company entered into an "Intercompany Debt and Credit
Agreement" with Manor Care pursuant to which Manor Care provides the Company
with a line of credit of $10,000,000. Manor Care, through a wholly-owned
subsidiary, owns approximately 82% of the Company. To date, the line of credit
has not been utilized and the entire $10,000,000 balance on the line of credit
remains available to the Company. The line of credit and approximately
$17,800,000 of cash and amounts due from parent are available for general
corporate purposes including potential acquisitions of pharmacies, the internal
development of additional pharmacies, working capital and capital expenditures.
The Company's net working capital has been sufficient to meet capital and other
cash requirements. The Company believes that cash generated from operations, the
$10,000,000 line of credit and the remaining amounts due from parent will be
adequate to meet the Company's foreseeable capital and other cash requirements.
<PAGE>
Vitalink Information
<TABLE>
<CAPTION>
<S> <C>
Officers
Corporate Information
Donald C. Tomasso
Chairman Corporate Headquarters
Chief Executive Officer Vitalink Pharmacy Services, Inc.
1250 East Diehl Road, Suite 208
Stewart Bainum, Jr. Naperville, Illinois 60563
Vice Chairman 630-245-4800
http://www.vtlk.com
Donna L. DeNardo
President Auditors
Chief Operating Officer Arthur Andersen LLP
1666 K Street, N.W.
Vincent C. DiTrapano Washington, DC 20006
Senior Vice President, Operations
Registrar & Transfer Agent
Scott T. Macomber ChaseMellon Shareholder Services
Vice President, Finance New York, New York 10001-2697
Chief Financial Officer
Investment Inquiries
Stephen A. Thompson For more information about Vitalink, please
Vice President, Human Resources and contact the Investor Relations Department at 630-245-4800.
Administration
James A. MacCutcheon For changes of address, information concerning transfer of stock, or
Treasurer miscellaneous requests,
shareholders may contact:
James H. Rempe
Secretary ChaseMellon Shareholder Services
450 West 33rd Street, 15th Floor
Gerald F. Hickey New York, New York 10001-2697
Assistant Treasurer 800-851-9677
K. Peter Kemezys
Assistant Secretary
Directors
Donald C. Tomasso
Chairman
Director, In Home Health, Inc.
Stewart Bainum, Jr.
Vice Chairman
Chairman, Manor Care, Inc.
Donna L. DeNardo
Harold Blumenkrantz
Executive Director, Vitalink
Director, Drug Guild, Inc.
Joseph R. Buckley
Executive Vice President, Manor Care, Inc.
Director, In Home Health, Inc.
Directors--continued
Anil K. Gupta
Professor of Strategy and Organization
College of Business and Management
University of Maryland
James A. MacCutcheon
Senior Vice President and Chief Financial Officer
Manor Care, Inc.
James H. Rempe
Senior Vice President and General Counsel
Manor Care, Inc.
Director, In Home Health, Inc.
Marvin Wilensky
Chairman
Wilmac, Inc.
</TABLE>
20
<PAGE>
- -------------------------------------
Vitalink
Vitalink Pharmacy Services, Inc.
1250 East Diehl Road, Suite 208
Naperville, Illinois 60563
Phone 630-245-4800 Fax 630-505-1319
[LOGO OF VITALINK APPEARS HERE]
21
