<PAGE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
Commission File Number 333-57191
EVEREST HEALTHCARE SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-4045521
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
AMARILLO ACUTE DIALYSIS SPECIALISTS, L.L.C.
(Exact name of registrant as specified in its charter)
Texas 75-2600377
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CON-MED SUPPLY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-3147024
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CONTINENTAL HEALTH CARE, LTD.
(Exact name of registrant as specified in its charter)
Illinois 36-3084746
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
DIALYSIS SPECIALISTS OF CORPUS CHRISTI, L.L.C.
(Exact name of registrant as specified in its charter)
Texas 74-2749663
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
DIALYSIS SPECIALISTS OF SOUTH TEXAS, L.L.C.
(Exact name of registrant as specified in its charter)
Texas 74-2749664
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
<PAGE>
DUPAGE DIALYSIS LTD.
(Exact name of registrant as specified in its charter)
Illinois 36-3029873
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4045521
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HEMO DIALYSIS OF AMARILLO, L.L.C.
(Exact name of registrant as specified in its charter)
Texas 75-2592110
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HOME DIALYSIS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0711476
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HOME DIALYSIS OF DAYTON, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1423002
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
MERCY DIALYSIS CENTER, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1589773
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
NEW YORK DIALYSIS MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
New York 36-3702390
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
NORTH BUCKNER DIALYSIS CENTER, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4206319
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
<PAGE>
EVEREST HEALTHCARE INDIANA, INC.
(Exact name of registrant as specified in its charter)
Indiana 36-3575844
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
WSKC DIALYSIS SERVICES, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-2668594
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST NEW YORK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
New York 36-4276708
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST ONE IPA, INC.
(Exact name of registrant as specified in its charter)
New York 13-3988854
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST TWO IPA, INC.
(Exact name of registrant as specified in its charter)
New York 36-4276710
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST THREE IPA, INC.
(Exact name of registrant as specified in its charter)
New York 36-5276711
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ACUTE EXTRACORPOREAL SERVICES, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 36-4265964
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
DIALYSIS SPECIALISTS OF CENTRAL CINCINNATI, LTD.
(Exact name of registrant as specified in its charter)
Ohio 31-1499030
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
<PAGE>
HOME DIALYSIS OF FAIRFIELD, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1418495
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HOME DIALYSIS OF COLUMBUS, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1430557
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
DIALYSIS SPECIALISTS OF TULSA, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1508212
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
NORTHERN NEW JERSEY DIALYSIS, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware Applied for
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 North Scoville, Oak Park, Illinois 60302
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (708) 386-1000
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 [_]
As of August 16, 1999, the number of shares outstanding of the Common Stock
of Everest Healthcare Services Corporation, par value $.001 per share, was
12,884,720.
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<PAGE>
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet
September 30, 1998 and June 30, 1999 (unaudited)................. 2
Consolidated Income Statement--(unaudited)
For the three months and nine months ended June 30, 1998 and
1999............................................................. 3
Consolidated Statement of Cash Flow--(unaudited)
For the three months and nine months ended June 30, 1998 and
1999............................................................. 4
Notes to the Consolidated Financial Statements...................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 16
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................. 17
Item 2. Changes in Securities and Use of Proceeds..................... 17
Item 3. Defaults Upon Senior Securities............................... 17
Item 4. Submission of Matters to a Vote of Security Holders........... 17
Item 5. Other Information............................................. 17
Item 6. Exhibits and Reports on Form 8-K.............................. 18
</TABLE>
1
<PAGE>
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PART I--FINANCIAL INFORMATION
- - --------------------------------------------------------------------------------
EVEREST HEALTHCARE SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September June 30,
30, 1998 1999
------------ ------------
(unaudited)
ASSETS
- - ------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 12,525,567 $ 2,633,791
Patient accounts receivable, less allowance of
$6,481,000 and $8,632,000......................... 41,473,765 50,508,301
Other current assets............................... 12,072,099 14,794,094
------------ ------------
Total current assets............................. 66,071,431 67,936,186
Other assets:
Goodwill, net...................................... 58,815,302 70,039,672
Intangible assets, net............................. 26,446,720 35,611,803
Amounts due from affiliates........................ 16,643,738 9,953,144
Other.............................................. 2,983,319 2,008,577
------------ ------------
Total other assets............................... 104,889,079 117,613,196
Property and equipment, net.......................... 27,734,949 29,520,913
------------ ------------
$198,695,459 $215,070,295
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable................................... $ 8,845,097 $ 11,468,048
Accrued liabilities................................ 19,148,881 18,617,915
Current portion of long-term debt.................. 606,624 634,587
Current portion of capital lease obligations....... 506,058 242,149
------------ ------------
Total current liabilities........................ 29,106,660 30,962,699
Long-term debt, less current portion ................ 108,146,981 121,574,857
Capital lease obligations, less current portion...... 311,408 159,962
Deferred income taxes................................ 1,500,000 1,500,000
Minority interests................................... 1,374,764 1,612,266
Stockholders' equity:
Common stock, $.001 par value, 20,000,000 shares
authorized; 12,884,720 shares issued and
outstanding....................................... 12,885 12,885
Additional paid-in capital......................... 55,171,224 55,171,224
Retained earnings.................................. 3,071,537 4,076,402
------------ ------------
Total stockholders' equity....................... 58,255,646 59,260,511
------------ ------------
$198,695,459 $215,070,295
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
EVEREST HEALTHCARE SERVICES CORPORATION
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ --------------------------
1998 1999 1998 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues............. $40,697,384 $49,227,906 $108,228,678 $132,851,909
Operating expenses:
Patient care costs..... 24,406,759 31,040,578 67,577,966 83,642,441
General and
administrative........ 8,794,553 9,860,552 21,919,051 27,139,028
Provision for bad
debts................. 1,601,895 1,108,763 3,522,636 3,232,730
Depreciation and
amortization.......... 1,896,839 2,600,722 4,933,199 7,542,910
----------- ----------- ------------ ------------
Total operating
expenses............ 36,700,046 44,610,615 97,952,852 121,557,109
----------- ----------- ------------ ------------
Income from operations... 3,997,338 4,617,291 10,275,826 11,294,800
Nonoperating income
(expense):
Interest expense....... (2,741,055) (3,564,952) (4,942,446) (9,372,008)
Interest income........ 595,942 142,244 1,314,314 1,018,520
Equity in earnings of
unconsolidated
subsidiaries.......... 210,864 (74,125) 861,830 590,216
Minority interests in
earnings.............. (9,667) (136,719) (542,447) (660,486)
Other.................. -- -- -- --
----------- ----------- ------------ ------------
(1,943,916) (3,633,552) (3,308,749) (8,423,758)
----------- ----------- ------------ ------------
Income before income
taxes................... 2,053,422 983,739 6,967,077 2,871,042
Income taxes............. 1,285,385 639,430 3,903,983 1,866,177
----------- ----------- ------------ ------------
Net income............... $ 768,037 $ 344,309 $ 3,063,094 $ 1,004,865
=========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
EVEREST HEALTHCARE SERVICES CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities:
Net income............. $ 768,037 $ 344,309 $ 3,063,094 $ 1,004,865
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Provision for bad
debts............... 1,601,895 1,108,763 3,522,636 3,232,730
Depreciation and
amortization........ 1,896,839 2,600,722 4,933,199 7,542,910
Equity in earnings of
unconsolidated
subsidiaries........ (210,864) 74,125 (861,830) (590,215)
Minority interests in
earnings............ 9,667 136,719 542,447 660,486
Changes in assets and
liabilities (net
effect of
acquisitions):
Patient and other
accounts
receivable........ (5,286,920) (3,809,188) (7,486,673) (10,508,606)
Other assets....... (5,314,282) (220,052) (7,652,554) (233,384)
Accounts payable,
accrued
liabilities and
other
liabilities....... 4,457,202 (911,924) 7,701,923 775,304
------------ ------------ ------------ ------------
Net cash provided
by (used in)
operating
activities...... (2,078,426) (676,526) 3,762,242 1,884,090
Investing Activities:
Additions to property
and equipment......... (7,017,255) (1,017,491) (10,270,492) (4,539,484)
Acquisition of
businesses, net of
cash acquired......... (4,020,411) (15,339,413) (15,792,916) (24,370,942)
Decrease in amounts due
from affiliates....... 1,808,430 1,444,572 101,856 4,269,576
------------ ------------ ------------ ------------
Net cash used in
investing
activities...... (9,229,236) (14,912,332) (25,961,552) (24,640,850)
Financing Activities:
Proceeds from long-term
debt.................. 100,000,000 23,916,024 149,303,574 47,316,024
Payments on long-term
debt.................. (37,899,181) (10,635,685) (74,227,638) (34,035,685)
Payments on
shareholders notes.... (7,208,809) -- (7,442,467) --
Payments on capital
leases................ (395,898) 160,086 (962,253) (415,355)
Distributions to
members............... -- -- (600,022) --
------------ ------------ ------------ ------------
Net cash provided
by financing
activities...... 54,496,112 13,440,425 66,071,194 12,864,984
Increase (decrease) in
cash and cash
equivalents........... 43,188,450 (2,148,433) 43,871,884 (9,891,776)
Cash and cash
equivalents, beginning
of period............. 3,140,103 4,782,224 2,456,669 12,525,567
------------ ------------ ------------ ------------
Cash and cash
equivalents, end of
period................ $ 46,328,553 $ 2,633,791 $ 46,328,553 $ 2,633,791
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
EVEREST HEALTHCARE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Reorganization
Effective November 30, 1997, Peak Healthcare, L.L.C. (Peak), the predecessor
to the Company, was reorganized whereby the following transactions occurred
simultaneously. The members of Peak contributed all of their interests in Peak
for an equal number of membership interests in Peak Liquidating, L.L.C. (Peak
Liquidating), a newly formed limited liability company. The operating agreement
and number and classes of interests of Peak Liquidating were identical to Peak.
Upon the exchange, Peak Liquidating, the sole member of Peak, contributed its
interests in Peak for shares of common stock of Everest Healthcare II, Inc.
(Everest II), a newly-formed subchapter C Corporation. The number of shares of
common stock of Everest II received by Peak Liquidating was equal to the number
of shares of Everest held by Peak. The number and class of authorized shares of
Everest II upon formation was identical to that of Everest. Following the
exchange, Peak was liquidated. Upon the consummation of these transactions,
Everest II issued shares of common stock, representing approximately 30% of the
shares of the Company, to the minority interest holders in Everest in exchange
for their shares of Everest common stock. The acquisition of minority interest
was treated as a purchase in accordance with generally accepted accounting
principles and goodwill of approximately $12.4 million was recognized. Upon the
consummation of these transactions, Everest became a wholly owned subsidiary of
Everest II. In March 1998, Everest was merged into Everest II. Upon the merger,
Everest II (the surviving entity) changed its name to Everest Healthcare
Services Corporation.
All references to the Company or Everest refer collectively to Peak and its
subsidiaries prior to the reorganization, and Everest Healthcare Services
Corporation and its subsidiaries subsequent to the reorganization.
2. Interim Financial Statements
The financial information at June 30, 1999 and for the three months and nine
months ended June 30, 1998 and 1999 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the financial position at such date and
the results of operations and cash flows for those periods. Results of
operations for the nine months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the entire year.
The unaudited interim consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and reporting
practices. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission; however, the Company believes the
disclosures are adequate to make the information not misleading. The unaudited
interim consolidated financial statements contained herein should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Form 10-K as filed with the Securities and
Exchange Commission on December 29, 1998.
3. New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (SFAS 131). The provisions of SFAS 131
establish standards for the way companies report information about operating
segments in annual financial statements and require that such companies report
selected information about operating segments in interim financial reports
issued to shareholders. The provisions of SFAS 131 require the disclosure of
segment information be based on a "management approach" whereby disclosures are
made of information that is available and evaluated regularly by the chief
decision makers of the Company in deciding how to allocate resources and
assessing performance. Application of the provisions of SFAS 131 will be
required for the year ended September 30, 1999. The Company operates in two
business segments; as a provider of chronic dialysis services and as a contract
service provider of extracorporeal services including acute dialysis perfusion,
apheresis, and autotransfusion. The Company believes that the adoption of SFAS
131 will not have a material impact on its future disclosure requirements.
5
<PAGE>
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 (SFAS 132), "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS 132 revises the
previous disclosure requirements of pension and postretirement plans. The
Statement does not change the recognition or measurement of pension plans. The
Company is evaluating the disclosure requirements of SFAS 132 and believes that
its adoption will not have a material impact on its future disclosure
requirements.
4. Reclassifications
Certain reclassifications have been made to the prior period's financial
statements to conform to the 1999 presentation.
5. Business Combinations
In February 1999, the Company acquired the remaining outstanding equity
interest that it previously had not owned in Dialysis Specialists of Central
Cincinnati, Ltd. (Central Cincinnati), an outpatient dialysis facility located
in Norwood, Ohio. Prior to the acquisition, the Company owned a 37.9% interest
in Central Cincinnati and accounted for the investment under the equity method
of accounting. The purchase price, including costs of the transaction, was
approximately $5.6 million. Goodwill recognized in the acquisition was
approximately $4.8 million.
In February 1999, the Company increased its investment in Dialysis
Specialists of Topeka, Inc. (Topeka) from 25% to 75%. Topeka is an outpatient
dialysis facility located in Topeka, Kansas. Prior to the acquisition, the
Topeka investment was accounted for under the equity method of accounting. The
purchase price, including costs of the transaction, was approximately $1.3
million. Goodwill recognized in the acquisition was approximately $600,000.
In March 1999, the Company acquired the remaining outstanding equity interest
that it previously had not owned in Home Dialysis of Fairfield, Inc.
(Fairfield), a home dialysis facility located in Fairfield, Ohio. Prior to the
acquisition, the Company owned a 50% interest in Fairfield and accounted for
the investment under the equity method of accounting. The purchase price,
including costs of the transaction, was approximately $2.8 million. Goodwill
recognized in the acquisition was approximately $1.9 million.
In March 1999, the Company acquired the remaining outstanding equity interest
that it previously had not owned in Home Dialysis of Columbus, Inc. (Columbus),
an outpatient dialysis facility and a home dialysis facility located in
Columbus, Ohio. Prior to the acquisition, the Company owned a 49% interest in
Columbus and accounted for the investment under the equity method of
accounting. The purchase price, including costs of the transaction, was
approximately $500,000. Goodwill recognized in the acquisition was
approximately $500,000.
Effective May 1999, the Company acquired the remaining outstanding equity
interest in the Dialysis Specialists of Tulsa, Inc. (Tulsa), an outpatient
dialysis facility located in Tulsa, Oklahoma. Prior to this transaction, the
Company owned a 33% interest in Tulsa, and accounted for the investment under
the equity method of accounting. The purchase price, including the costs of the
transaction, was approximately $4.4 million. Goodwill recognized in the
acquisition was approximately $3.6 million.
These acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the allocation of the cost of the acquired assets and
liabilities has been made on the basis of the estimated fair value. The
consolidated financial statements include the operating results of each
business from the date of acquisition.
6. Subsequent Events
Effective July 19, 1999, the Company purchased certain assets and operations
of Englewood Dialysis Facility, LLC an outpatient dialysis facility located in
Englewood, New Jersey. The purchase price, including costs of the transaction,
was approximately $10.0 million. This transaction was accounted for as a
purchase resulting in the recording of goodwill of approximately $7.3 million.
In June 1999, the Company funded the amount of the purchase price in an escrow
account that was subsequently distributed as of the date of closing on July 19,
1999.
6
<PAGE>
7. Credit Facility
On June 30, 1999, the Company refinanced its prior credit facility (the
"Prior Credit Facility") with Harris Trust and Savings Bank as agent bank. The
new credit facility (the "Credit Facility") consists of three separate
facilities; a revolving credit facility, an acquisition credit facility and a
year 2000 credit facility.
The revolving credit facility of $35.0 million matures on June 30, 2002 (the
"Revolving Credit Facility"). The borrowings on the Revolving Credit Facility
are limited to 75% of eligible accounts receivable and up to 50% of eligible
inventory. Interest is payable at the Company's option of either the higher of
the bank's prime rate (7.75% at June 30, 1999) or the Federal Funds rate plus
1/2 of 1%, plus 0.00%-1.00%, or the London Interbank Offered Rate (LIBOR)
(5.23625% at June 30, 1999) plus 2.00%-2.75%. Commitment fees of 0.50% of the
unused portion of the Revolving Credit Facility are payable quarterly. No
amounts were drawn on the revolving credit facility at June 30, 1999.
The acquisition credit facility of $65.0 million matures on June 15, 2005
(the "Acquisition Credit Facility"). Under the Acquisition Credit Facility, all
of the borrowings outstanding thereunder on each of June 30, 2000, 2001 and
2002 must be converted to one or more seven-year term loans with balloon
payments due on June 15, 2005. Interest is payable at the Company's option of
either the higher of the bank's prime rate or the Federal Funds rate plus 1/2
of 1%, plus 0.25%-1.25%, or LIBOR plus 2.25%-3.00%. Commitment fees of 0.75% of
the unused portion of the Acquisition Credit Facility are payable quarterly. At
June 30, 1999, the Company had outstanding approximately $13.8 million under
the acquisition credit facility.
A year 2K credit facility of $40.0 million is available from January 1, 2000
through June 30, 2000 (the "Year 2000 Credit Facility"). The purpose of the
Year 2000 Credit Facility is to finance government related accounts receivable
which are unpaid due to difficulties related to the year 2000. Interest is
payable at the Company's option of either the higher of the bank's prime rate
or the Federal Funds rate plus 1/2 of 1%, plus 0.00%-1.00%, or LIBOR plus
2.00%-2.75%. Commitment fees of 0.50% of the unused portion of the Year 2000
Credit Facility are payable quarterly.
The Credit Facility contains covenants, which among other things require the
Company to maintain certain financial ratios and minimum levels of net worth.
The Credit Facility, including any interest rate hedging transactions provided
by Harris Trust and Savings Bank or any syndicated bank, are collateralized by
a lien on all of the assets of the Company.
8. Other Financial Information
The Company is a holding company with no independent assets or operations.
Therefore, the Company relies primarily upon payment from its subsidiaries for
the funds necessary to meet its obligations, including the payment of interest.
The ability of the subsidiaries to fund the obligations is subject to
significant restrictions, will be dependent upon the earnings of the
subsidiaries, and will be subject to applicable laws and approval by the
subsidiaries. Full separate statements of the Guarantor Subsidiaries have not
been presented as the guarantors are wholly owned subsidiaries of the Company.
Management does not believe that inclusion of such financial statements would
be material to investors. The guarantees of the Guarantor Subsidiaries are
full, unconditional, and joint and several.
7
<PAGE>
The following table sets forth the financial data at June 30, 1999 and for
the nine months then ended:
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue.......................... $ -- $108,018,144 $ 25,263,970 $ (430,205) $ 132,851,909
Patient care costs................... -- 65,182,744 18,459,697 -- 83,642,441
General and administrative expenses.. 3,388,632 21,935,382 2,245,219 (430,205) 27,139,028
Provision for bad debts.............. -- 2,740,980 491,750 -- 3,232,730
Depreciation and amortization........ 1,520,234 4,969,969 1,052,707 -- 7,542,910
------------ ------------- ------------ ------------- -------------
Income (loss) from operations........ (4,908,866) 13,189,069 3,014,597 -- 11,294,800
Interest expense, net................ (7,448,317) (104,918) (800,253) -- (8,353,488)
Equity in earnings of subsidiaries... -- 590,216 -- -- 590,216
Minority interests in earnings....... -- (523,297) (137,189) -- (660,486)
Other................................ -- (328,724) 328,724 -- --
------------ ------------- ------------ ------------- -------------
Income before income taxes expense... (12,357,183) 12,822,346 2,405,879 -- 2,871,042
Income tax expense................... -- 1,528,631 337,546 -- 1,866,177
------------ ------------- ------------ ------------- -------------
Net income (loss).................... $(12,357,183) $ 11,293,715 $ 2,068,333 $ -- $ 1,004,865
============ ============= ============ ============= =============
Balance Sheet Data:
Assets:
Cash and cash equivalents............ $ (817,360) $ 1,172,200 $ 2,278,951 $ -- $ 2,633,791
Patient accounts receivable and
other............................... 801,586 44,928,486 7,785,342 (2,174,541) 51,340,873
Other current assets................. -- 13,670,661 290,862 -- 13,961,523
Property and equipment, net.......... 8,199,573 18,386,454 2,934,886 -- 29,520,913
Goodwill, net........................ 12,734,055 42,440,470 14,865,147 -- 70,039,672
Amounts due from affiliates.......... 36,104,983 (21,623,223) (4,528,616) -- 9,953,144
Investment in affiliates............. 54,433,537 6,238,604 1,490,050 (61,120,596) 1,041,595
Other assets, net.................... 17,378,413 19,008,462 191,909 -- 36,578,784
------------ ------------- ------------ ------------- -------------
Total assets......................... $128,834,787 $ 124,222,114 $ 25,308,531 $ (63,295,137) $ 215,070,295
============ ============= ============ ============= =============
Liabilities and Stockholders' Equity:
Current liabilities.................. $ 6,116,492 $ 21,660,140 $ 4,670,140 $ (1,484,073) $ 30,962,699
Long-term liabilities................ 108,677,484 8,469,858 8,390,211 (690,468) 124,847,085
Total stockholders' equity........... 14,040,811 94,092,116 12,248,180 (61,120,596) 59,260,511
------------ ------------- ------------ ------------- -------------
Total liabilities and stockholders'
equity.............................. $128,834,787 $ 124,222,114 $ 25,308,531 $ (63,295,137) $ 215,070,295
============ ============= ============ ============= =============
Statement of Cash Flows Data:
Operating activities:
Net income (loss).................... $(12,357,183) $ 11,293,715 $ 2,068,333 $ -- $ 1,004,865
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Provision for bad debts.............. -- 2,740,980 491,750 -- 3,232,730
Depreciation and amortization........ 1,520,234 4,969,969 1,052,707 -- 7,542,910
Equity in earnings of subsidiaries... -- (590,215) -- -- (590,215)
Minority interests in earnings....... -- 797,675 (137,189) -- 660,486
Net change in operating assets and
liabilities (net of effect of -- -- -- -- --
acquisitions)....................... (15,496,267) 7,688,188 (2,158,607) -- (9,966,686)
------------ ------------- ------------ ------------- -------------
Net cash provided by (used in)
operating activities................ (26,333,216) 26,900,312 1,316,994 -- 1,884,090
Investing activities:
Additions to property and
equipment........................... (274,775) (4,487,012) 222,303 -- (4,539,484)
Acquisition of businesses, net of
cash acquired....................... -- (24,370,942) -- -- (24,370,942)
(Increase) decrease in amounts due
from affiliates..................... 1,293,997 3,790,688 (815,109) -- 4,269,576
------------ ------------- ------------ ------------- -------------
Net cash provided by (used in)
investing activities................ 1,019,222 (25,067,266) (592,806) -- (24,640,850)
Financing Activities:
Proceeds from notes payable.......... 47,316,024 -- -- -- 47,316,024
Payments on notes payable............ (33,550,000) (485,685) -- -- (34,035,685)
Other................................ -- (415,355) -- -- (415,355)
------------ ------------- ------------ ------------- -------------
Net cash provided by (used in)
financing activities................ 13,766,024 (901,040) -- -- 12,864,984
Increase (decrease) in cash and cash
equivalents......................... (11,547,970) 932,006 724,188 -- (9,891,776)
Cash and cash equivalents at
beginning of year................... 10,730,610 240,194 1,554,763 -- 12,525,567
------------ ------------- ------------ ------------- -------------
Cash and cash equivalents at end of
year................................ $ (817,360) $ 1,172,200 $ 2,278,951 $ -- $ 2,633,791
============ ============= ============ ============= =============
</TABLE>
8
<PAGE>
The following table sets forth the financial data at June 30, 1998 and for
the nine months then ended:
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues........... $ 169,905 $ 87,686,258 $20,372,515 $ -- $108,228,678
Patient care costs..... -- 52,182,393 15,395,573 -- 67,577,966
General and
administrative
expenses.............. 2,667,816 16,942,372 2,308,863 -- 21,919,051
Provision for bad
debts................. -- 3,143,377 379,259 -- 3,522,636
Depreciation and
amortization.......... 553,418 3,604,671 775,110 -- 4,933,199
------------ ------------ ----------- ----- ------------
Income (loss) from
operations............ (3,051,329) 11,813,445 1,513,710 -- 10,275,826
Interest expense
(net)................. (3,514,134) 750,393 (864,391) -- (3,628,132)
Equity in earnings of
unconsolidated
subsidiaries.......... -- 861,830 -- -- 861,830
Minority interests in
earnings.............. -- (399,084) (143,363) -- (542,447)
------------ ------------ ----------- ----- ------------
Income before income
taxes................. (6,565,463) 13,026,584 505,956 -- 6,967,077
Income tax............. -- 3,851,726 52,257 -- 3,903,983
------------ ------------ ----------- ----- ------------
Net income (loss)...... $ (6,565,463) $ 9,174,858 $ 453,699 $ -- $ 3,063,094
============ ============ =========== ===== ============
Statement of Cash Flows
Data:
Operating activities:
Net income (loss)...... $ (6,565,463) $ 9,174,858 $ 453,699 $ -- $ 3,063,094
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Provision for bad
debts................ -- 3,143,377 379,259 -- 3,522,636
Depreciation and
amortization......... 553,418 3,604,671 775,110 -- 4,933,199
Equity in earnings of
unconsolidated
subsidiaries......... -- (861,830) -- -- (861,830)
Minority interests in
earnings............. -- 399,084 143,363 -- 542,447
Net change in
operating assets and
liabilities (net of
effect of
acquisitions)........ (7,492,503) 1,105,669 (1,050,470) -- (7,437,304)
------------ ------------ ----------- ----- ------------
Net cash provided by
(used in) operating
activities........... (13,504,548) 16,565,829 700,961 -- 3,762,242
Investing activities:
Additions to property
and equipment......... -- (10,270,492) -- -- (10,270,492)
Acquisition of
businesses, net of
cash acquired......... (15,792,916) -- -- -- (15,792,916)
Increase in amounts due
from affiliates....... -- 101,856 -- -- 101,856
------------ ------------ ----------- ----- ------------
Net cash used in
investing activities.. (15,792,916) (10,168,636) -- -- (25,961,552)
Financing activities:
Proceeds from notes
payable............... 149,303,574 -- -- -- 149,303,574
Payments on notes
payable............... (82,632,358) -- -- -- (82,632,358)
Other.................. -- (600,022) -- -- (600,022)
------------ ------------ ----------- ----- ------------
Net cash provided by
(used in) financing
activities............ 66,671,216 (600,022) -- -- 66,071,194
Increase in cash and
cash equivalents....... 37,373,752 5,797,171 700,961 -- 43,871,884
Cash and cash
equivalents at
beginning of period.... 816,398 316,418 1,323,853 -- 2,456,669
------------ ------------ ----------- ----- ------------
Cash and cash
equivalents at end of
period................. $ 38,190,150 $ 6,113,589 $ 2,024,814 $ -- $ 46,328,553
============ ============ =========== ===== ============
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of the Company should be read in conjunction with the more
detailed information contained in the Consolidated Financial Statements and
notes thereto appearing elsewhere in this Report and in the Company's Report on
Form 10-K for the fiscal year ended September 30, 1998.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains certain "forward-looking statements" with respect to
results of operations and businesses of the Company. All statements other than
statements of historical facts included in this Report, including those
regarding market trends, the Company's financial position, business strategy,
projected costs, and plans and objectives of management for future operations,
are forward-looking statements. In general, such statements are identified by
the use of forward-looking words or phases including, but not limited to,
"intended," "will," "should," "may," "expects," "anticipates," and
"anticipated" or the negative thereof or variations thereon or similar
terminology. These forward-looking statements are based on the Company's
current expectations. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. Because forward-
looking statements involve risks and uncertainties, the Company's actual
results could differ materially. See the "Risk Factors" section of the
Company's Registration Statement on Form S-4 (File No. 333-57191) for a
discussion of certain risks applicable to the Company and its business.
Overview
Everest is a leading provider of dialysis and other blood treatment services.
Founded in 1968 and principally owned by nephrologists, the Company has a long-
standing focus on developing strong relationships with physicians to provide
high-quality patient care. The Company is the nation's sixth-largest provider
of chronic dialysis outpatient services and serves over 5,900 patients through
63 facilities in 12 states. Everest also contracts with 102 hospitals in 11
states to provide a broad range of other extracorporeal blood treatment
services, including inpatient acute dialysis, perfusion, apheresis and auto-
transfusion (together, "Contract Services"). Pursuant to management contracts,
Everest provides management services to (i) a physician practice group
comprised of 26 nephrologists, primarily in the Chicago and northwest Indiana
areas, and (ii) certain minority-owned or unaffiliated dialysis facilities. For
the nine months ended June 30, 1999, the Company derived 84.8% of its net
revenues from chronic dialysis services, 13.5% from Contract Services and 1.7%
from management services.
Sources of Revenues
The Company's net revenues from chronic dialysis services are derived from:
(i) in-center dialysis and home dialysis services including drugs and supplies;
and (ii) management contracts with hospital-based and other outpatient dialysis
programs. The majority of the Company's in-center and home dialysis services
are paid for under the Medicare End-Stage Renal Disease ("ESRD") program in
accordance with rates established by the Health Care Financing Administration
("HCFA"). Additional payments are provided by other third-party payors
(particularly by employer group health plans during the first thirty months of
treatment), generally at rates higher than those reimbursed by Medicare.
Everest is currently seeking to expand the portion of its revenues attributable
to non-government payors by entering into contracts with managed care companies
and other private payors. Because dialysis is an ongoing, life-sustaining
therapy used to treat a chronic condition, utilization of the Company's chronic
dialysis services is generally predictable and not subject to seasonal or
economic fluctuations. ESRD patients may receive up to 156 dialysis treatments
per year; however, due to hospitalization and no shows the Company's average
number of treatments per patient per year is 136. Unless the patient moves to
another dialysis facility, receives a kidney transplant or dies, the revenues
generated per patient per year can be estimated with reasonable accuracy.
10
<PAGE>
The Company's Contract Services revenues are derived from acute dialysis,
perfusion, apheresis and auto-transfusion services provided to hospitalized
patients pursuant to contracts with hospitals. Rates paid for such services are
negotiated with individual hospitals. Because extracorporeal blood treatment
services are required for patients undergoing major surgical procedures,
utilization of the Company's Contract Services is not subject to seasonal or
economic fluctuations.
The Company's revenues also include fees paid under management services
contracts. Management service fee revenue is recognized when earned. Management
service fees are based on contracted rates. The contracted rates are estimates
based upon the cost of services provided such as billing, accounting, technical
support, cash management and facilities management.
Acquisitions
Acquisitions of dialysis and Contract Services providers have been recorded
under purchase accounting with the purchase price being principally allocated
to fixed assets, accounts receivable and inventory based on respective
estimated fair market values at the date of acquisition. Any excess of the
purchase price over the fair value of identifiable assets (including
identifiable intangible assets) is allocated to goodwill, which is amortized
over 25 years. The results of these acquisitions have been included in the
results of operations from their respective acquisition dates. The Company
regularly evaluates the potential acquisition of, and holds discussions with,
various potential acquisition candidates; as a general rule, the Company does
not intend to publicly announce such acquisitions until a definitive agreement
has been reached.
During the three months ended June 30, 1999, the Company acquired additional
equity in one entity in which it previously held a minority interest. In May
1999, the Company acquired the remaining equity interests in Dialysis
Specialists of Tulsa, Inc. The Company's interest was increased from 33.33% to
100.0%. This acquisition represents 21 stations and 136 patients.
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net Revenues. Net revenues increased $8.5 million or 20.9% to $49.2 million
for the three months ended June 30, 1999 from $40.7 million for the three
months ended June 30, 1998. This increase resulted primarily from a 17.5%
increase in the number of treatments to 176,005 for the three months ended June
30, 1999 from 146,792 for the three months ended June 30, 1998. This growth in
treatments is the result of acquisitions and development of various dialysis
facilities and a 7.0% increase in same store treatments for the three months
ended June 30, 1999 over the three months ended June 30, 1998. The average net
revenue per treatment increased from $241 for the three months ended June 30,
1998 to $243 for the three months ended June 30, 1999. The remaining increase
in net revenues is attributable to the acquisition of a Contract Services
business and increases in the acute and extracorporeal hospital services.
Patient Care Costs. Patient care costs consist of costs directly related to
the care of patients, including direct and indirect labor, drugs and other
medical supplies and operational costs of the facilities. Patient care costs
increased $6.6 million or 27.0% to $31.0 million for the three months ended
June 30, 1999 from $24.4 million for the three months ended June 30, 1998. This
increase resulted primarily from an increase in the number of treatments
performed during the period that caused a corresponding increase in the use of
labor, drugs and supplies.
General and Administrative Expenses. General and administrative expenses
include corporate office costs and other administrative costs including
accounting, billing, quality assurance, facility costs, treasury and
information systems. General and administrative expenses increased $1.1 million
or 12.5% to $9.9 million for the three months ended June 30, 1999 from $8.8
million for the three months ended June 30, 1998. This increase is mainly
attributable to the continued growth of the corporate infrastructure, including
the expansion of information systems and Year 2000 costs.
11
<PAGE>
Provision for Bad Debts. The Company provides for doubtful accounts in the
same period that revenue is recognized based on management's estimate of the
collectibility of the accounts receivable based upon several factors such as
payor mix and billing practices. Provision for bad debts decreased $500,000 or
31.3% to $1.1 million for the three months ended June 30, 1999 from $1.6
million for the three months ended June 30, 1998. This decrease was a result of
the timing of the bad debt provision in fiscal 1998. The Company significantly
increased its provision for bad debts during fiscal 1998 due to the commercial
price increase that was effected in the fourth quarter of fiscal 1997. Since
that point in time, no significant changes in commercial pricing have occurred.
Depreciation and amortization. Depreciation and amortization increased
approximately $700,000 or 36.8% to $2.6 million for the three months ended June
30, 1999 from $1.9 million for the three months ended June 30, 1998. The
increase was due to increased amortization of goodwill and other intangibles as
a result of business acquisitions (including the purchase of minority
interests).
Income from Operations. Income from operations increased approximately
$600,000 or 15.0% to $4.6 million for the three months ended June 30, 1999 from
$4.0 million for the three months ended June 30, 1998. Income from operations
as a percentage of net revenues decreased slightly to 9.4% for the three months
ended June 30, 1999 as compared to 9.8% for the three months ended June 30,
1998.
Interest Expense, Net. Interest expense, net of interest income, increased
approximately $1.3 million or 61.9% to $3.4 million for the three months ended
June 30, 1999 from $2.1 million for the three months ended June 30, 1998. The
increase in interest expense, net of interest income, was attributable to the
interest associated with the senior subordinated debt and the amortization of
deferred financing costs. This increase was offset by a decrease in the net
borrowings under the Prior Credit Facility.
Equity in Earnings of Subsidiaries. Equity in earnings of subsidiaries
represents the Company's portion of earnings in unconsolidated joint ventures.
The Company recognized a loss of approximately $74,000 from unconsolidated
joint ventures for the three months ended June 30, 1999 as compared to
recognizing equity in earnings of subsidiaries of $211,000 for the three months
ended June 30, 1998. The change in the equity in earnings was due to the
Company's strategy of rolling-up the more profitable unconsolidated joint
ventures.
Minority Interests in Earnings. Minority interests in earnings represents the
proportionate equity interests of other partners in the Company's consolidated
entities that are not wholly owned. The minority interests in earnings
increased approximately $127,000 to $137,000 for the three months ended June
30, 1999 as compared to $10,000 for the three months ended June 30, 1998. This
is due to an increase in the earnings of majority owned entities.
Income Taxes. Income taxes decreased approximately $661,000 or 50.8% to
$639,000 for the three months ended June 30, 1999 from $1.3 million for the
three months ended June 30, 1998 as a result of the factors discussed above.
Nine Months Ended June 30, 1999 Compared to Nine Months Ended June 30, 1998
Net Revenues. Net revenues increased $24.7 million or 22.8% to $132.9 million
for the nine months ended June 30, 1999 from $108.2 million for the nine months
ended June 30, 1998. This increase resulted primarily from a 23.8% increase in
the number of treatments from 394,363 for the nine months ended June 30, 1998
to 488,128 for the nine months ended June 30, 1999. This growth in treatments
is the result of the acquisition and development of various dialysis facilities
and an 7.8% increase in same store treatments for the nine months ended June
30, 1999 over the nine months ended June 30, 1998. The net revenue per
treatment remained constant at $232 per treatment for the nine months ended
June 30, 1999 and 1998. Factoring in the contractual adjustments of $1.4
million which occurred in the first quarter of fiscal 1999, the average net
revenue per treatment would have increased from $227 in the third quarter of
fiscal 1998 to $236 in the third quarter of fiscal 1999. The remaining increase
in net revenues is attributable to the acquisition of a Contract Services
business and increases in the acute and extracorporeal hospital services.
12
<PAGE>
Patient Care Costs. Patient care costs consist of costs directly related to
the care of patients, including direct and indirect labor, drugs and other
medical supplies and operational costs of the facilities. Patient care costs
increased $16.0 million or 23.7% to $83.6 million for the nine months ended
June 30, 1999 from $67.6 million for the nine months ended June 30, 1998. This
increase resulted primarily from an increase in the number of treatments
performed during the period that caused a corresponding increase in the use of
labor, drugs and supplies. Patient care costs as a percentage of net revenues
remained relatively constant at 62.5% for the nine months ended June 30, 1998
versus 62.9% for the nine months ended June 30, 1999.
General and Administrative Expenses. General and administrative expenses
include corporate office costs and other administrative costs including
accounting, billing, quality assurance, facility costs, treasury and
information systems. General and administrative expenses increased $5.2 million
or 23.7% to $27.1 million for the nine months ended June 30, 1999 from $21.9
million for the nine months ended June 30, 1998. This increase is mainly
attributable to the continued growth of the corporate infrastructure, including
the expansion of information systems and Year 2000 costs.
Provision for Bad Debts. The Company provides for doubtful accounts in the
same period that revenue is recognized based on management's estimate of the
collectibility of the accounts receivable based upon several factors such as
payor mix and billing practices. Provision for bad debts decreased $300,000 or
8.6% to $3.2 million for the nine months ended June 30, 1999 from $3.5 million
for the nine months ended June 30, 1998.
Depreciation and Amortization. Depreciation and amortization increased
approximately $2.6 million or 53.1% to $7.5 million for the nine months ended
June 30, 1999 from $4.9 million for the nine months ended June 30, 1998. The
increase was due to increased amortization of goodwill and other intangibles as
a result of business acquisitions (including the purchase of minority
interests).
Income from Operations. Income from operations improved slightly to $11.3
million for the nine months ended June 30, 1999 from $10.3 million for the nine
months ended June 30, 1998. However, income from operations as a percentage of
net revenues decreased to 8.5% for the nine months ended June 30, 1999 as
compared to 9.5% for the nine months ended June 30, 1998. This decrease was
mainly attributable to the increase in depreciation and amortization expense.
Interest Expense, Net. Interest expense, net of interest income, increased
$4.8 million or 133.3% to $8.4 million for the nine months ended June 30, 1999
from $3.6 million for the nine months ended June 30, 1998. The increase in
interest expense, net of interest income, was attributable to the interest
associated with the senior subordinated debt and the amortization of deferred
financing costs. This increase was offset by a decrease in the net borrowings
under the Prior Credit Facility.
Equity in Earnings of Subsidiaries. Equity in earnings of subsidiaries
represents the Company's portion of earnings in unconsolidated joint ventures.
The Company recognized equity in earnings of subsidiaries of approximately
$590,000 for the nine months ended June 30, 1999 as compared to $862,000 for
the nine months ended June 30, 1998. The Company continues to acquire the
remaining interests in minority owned entities. As a result, the number of
minority owned joint ventures is diminishing and, hence, the amount of income
generated from such entities has decreased.
Minority Interests in Earnings. Minority interests in earnings represents the
proportionate equity interests of other partners in the Company's entities that
are not wholly owned. The minority interests in earnings increased
approximately $118,000 to $660,000 for the nine months ended June 30, 1999 as
compared to $542,000 for the nine months ended June 30, 1998.
Income Taxes. Income taxes decreased approximately $2.0 million or 51.3% to
$1.9 million for the nine months ended June 30, 1999 from $3.9 million for the
nine months ended June 30, 1998 as a result of the factors discussed above.
13
<PAGE>
Year 2000 Compliance by the Company and Others
Year 2000 compliance concerns the ability of certain computerized information
systems to properly recognize date-sensitive information as the year 2000
approaches. Systems that do not recognize such information could generate
erroneous data or cause systems to fail; this problem may occur as early as
calendar year 1999. The Company is at risk both for its own Year 2000
compliance and for the Year 2000 compliance of those with whom it does
business, particularly third party payors.
The Company has established a Year 2000 Task Force to study and address Year
2000 issues. The Task Force consists of the Company's Director of Technology
and Chief Information Officer, and representatives from all major areas of the
Company, including facilities, Bio-Med, purchasing, telecommunications and
technology. The Task Force is divided into several sub-Task Forces, each with a
separate function. The Task Force meets weekly where all sub-Task Forces report
progress. The Company has also hired four consultants that devote full time
attention to Year 2000 issues.
The Task Force has formulated and begun to implement a plan with six stages,
as follows: (1) awareness, (2) inventory, (3) impact analysis, (4) remediation,
(5) testing and (6) implementation.
"Awareness" involves the education of our employees and is an ongoing process
that will continue past January 2000. "Inventory" involves taking stock of our
systems, a process that is underway and progressing through each unit and
corporate office. "Impact analysis" involves determining which items are not
Year 2000 compliant and how they will affect the Company's business.
"Remediation" is the process of determining what to do with non-compliant
items. Options are to fix the problem, replace the item with new software or
equipment or retire the item. "Testing" involves verifying that the fixed or
replaced item is now Year 2000 compliant. "Implementation" is the process of
placing the tested item into production. Phases (1) through (6) are currently
in progress; the Company's goal is to complete all phases and be Year 2000
compliant by October 30, 1999.
Contingency planning has commenced for dialysis units and corporate offices.
The Company's plan includes patient education, the establishment of a disaster
committee, list of units and when they are dialyzing, a plan to have all units
checked on January 1, 2000 for operational readiness and a plan to insure that
all units alert local utilities to their medical status. A final step is to put
into place various scenarios on what to do if the building is without power or
water.
The Company has five major information technology systems, the present
compliance of which is described below:
1. Client tracking system. This system is Year 2000 compliant.
2. Accounting package. The existing accounting package is not Year 2000
compliant. A Year 2000 upgrade will be available in the fourth quarter of
fiscal 1999 and will be installed during October 1999.
3. Interim accounting package for Contract Services. This package is Year
2000 compliant.
4. Physician billing. The Company installed a new billing system which is
Year 2000 compliant.
5. Facilities billing. This system is not yet Year 2000 compliant. It has
been analyzed, and arrangements are being made with the vendor to upgrade
the system. The upgrade will be completed by October 1999.
These systems would have been upgraded or replaced to support Company growth
irrespective of the Year 2000 issue. The process of upgrading or replacing
these systems was not accelerated by Year 2000 considerations.
14
<PAGE>
The Company has started a full review of the Year 2000 compliance of its non-
information technology systems (i.e., embedded technology such as micro-
controllers).
The Company anticipates that the total amounts it will expend on Year 2000
issues are as follows:
<TABLE>
<S> <C>
Consultants................................................... $ 750,000
Hardware...................................................... 558,000
Software...................................................... 165,000
Bio-Med Embedded Technology................................... 100,000
----------
Total..................................................... $1,573,000
==========
</TABLE>
Approximately 50% of the Year 2000 budget has been spent through the third
quarter of fiscal 1999. The Company has and is funding Year 2000 expenditures
through its working capital. The Company anticipates that the majority of its
systems will be Year 2000 compliant by November 1999.
Management believes that the most significant risk to the Company of Year
2000 issues is the effect such issues may have on third-party payors, such as
Medicare. With respect to Medicare payments, neither HCFA nor its fiscal
intermediaries have any contingency plan in place. However, HCFA has mandated
that its fiscal intermediaries submit a draft of their contingency plans to it
and that they be prepared to ensure that no interruption of Medicare payments
results from Year 2000 related failures of their systems. The Task Force has
begun to consider worst case scenarios and is currently working on contingency
plans to deal with those scenarios. In the third quarter of 1999, the Company
amended its credit facility with the Harris Bank. The new Credit Facility
provides, among other things, for a $40 million Year 2000 Credit Facility to
finance government related accounts receivable which are unpaid due to
difficulties related to the year 2000 (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resource").
There can be no assurance that Year 2000 issues will not have a material
adverse effect on the Company's business, results of operations and financial
condition.
Liquidity and Capital Resources
The Company requires capital primarily for the acquisition and development of
dialysis centers and Contract Services businesses, the purchase of property and
equipment for existing centers and to finance working capital requirements. At
June 30, 1999, the Company's working capital was $36.9 million.
The Company's net cash provided by operating activities was $1.9 million for
the nine months ended June 30, 1999. Cash provided by operating activities
consists of net income increased by non-cash expenses such as depreciation,
amortization and the provision for bad debts and adjusted by the changes in
components of working capital, primarily receivables, payables and accrued
expenses. The Company's net cash used in investing activities was $24.6 million
for the nine months ended June 30, 1999. The Company's principal sources and
uses of cash consist of investing activities related to purchases of new
equipment and leasehold improvements for existing dialysis centers, the
purchase of majority interests in five dialysis centers and a decrease in net
advances due from affiliated entities. Net cash provided by financing
activities was approximately $12.9 million for the nine months ended June 30,
1999. The primary sources and uses of cash from financing activities were net
borrowings or repayments under the Prior Credit Facility.
The Company does not have any current material commitments for capital
expenditures.
On June 30, 1999, the Company refinanced its Prior Credit Facility with
Harris Trust and Savings Bank as agent bank, the same commercial bank that
provided the Prior Credit Facility. The new Credit Facility consists of three
separate facilities: (i) the $35.0 million Revolving Credit Facility maturing
on June 30, 2002; (ii) $65.0 million Acquisition Credit Facility maturing on
June 15, 2005, which includes the requirement to convert all of
15
<PAGE>
the borrowings outstanding thereunder on each of June 30, 2000, 2001 and 2002
to one or more seven-year term loans with balloon payments due on June 15, 2005
(the "Term Loans"); and (iii) the $40.0 million Year 2000 Credit Facility,
available from January 1, 2000 through June 30, 2000, to finance government
related accounts receivable which are unpaid due to difficulties related to the
year 2000. The total amount drawn under the Credit Facility may not exceed
$140.0 million. The Credit Facility contains operating and financial covenants,
including, without limitation, requirements to maintain leverage and debt
service coverage ratios and minimum tangible net worth. In addition, the Credit
Facility includes customary covenants relating to the delivery of financial
statements, reports, notices and other information, access to information and
properties, maintenance of insurance, payment of taxes, maintenance of assets,
nature of business, corporate existence and rights, compliance with applicable
laws, including environmental laws, transactions with affiliates, use of
proceeds, limitation on indebtedness, limitations on liens, limitations on
certain mergers and sales of assets, limitations on stock repurchases, and
limitation on debt payments and other distributions including prepayment or
redemption of the Company's Senior Subordinated Notes due 2008. The Credit
Facility contains certain events of default after expiration of applicable
grace periods, including defaults relating to: (i) nonpayment of principal,
interest, fees or other amounts; (ii) violation of covenants; (iii) material
inaccuracy of representations and warranties; (iv) bankruptcy; (v) material
judgments; (vi) certain ERISA liabilities; and (vii) actual or asserted
invalidity of any loan documents.
In November 1996, the Company issued notes in the aggregate principal amount
of $7.0 million as part of the purchase price for its acquisition of The
Extracorporeal Alliance. The notes bear interest at a variable rate equal to
the five-year Treasury note rate plus three percent and mature on October 31,
2002.
A significant component of the Company's growth strategy is the acquisition
and development of dialysis centers and the acquisition of Contract Services
businesses. The Company believes that the existing cash and funds from
operations, together with funds available under the Credit Facility, will be
sufficient to meet the Company's acquisition, development, expansion, capital
expenditure and working capital needs for at least the next twelve months. In
order to finance certain strategic acquisition opportunities, the Company may
from time to time incur additional short and long-term bank indebtedness and
may issue equity or debt securities, the availability and terms of which will
depend on market and other conditions. There can be no assurance that the
Company will be successful in implementing its growth strategy or that adequate
sources of capital will be available in the future as needed on terms
acceptable to the Company.
Impact of Inflation
A substantial portion of the Company's net revenues is subject to
reimbursement rates that are regulated by the federal government and do not
automatically adjust for inflation. The Company is unable to increase the
amount it receives for the services provided by its dialysis businesses that
are reimbursed under the Medicare composite rate. Increased operating costs due
to inflation, such as labor and supply costs, without a corresponding increase
in reimbursement rates, may adversely affect the Company's earnings in the
future. However, part of the Company's growth strategy is to acquire additional
Contract Services businesses which are not directly dependent on reimbursement
from government agencies. In addition, the Company believes that the effect of
inflation is further mitigated by a recent change in current governmental
health care laws that extends the coordination of benefits period for ESRD
patients who are covered by an employer group health plan from 18 to 21 months
to 30 to 33 months before Medicare becomes the primary payor.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in hedging or other market structure derivative
trading activities. Additionally, the Company's debt obligations are primarily
fixed-rate in nature and, as such, are not sensitive to changes in interest
rates. The Company does not believe that its market risk financial instruments
on June 30, 1999 would have a material effect on future operations or cash
flow.
16
<PAGE>
- - --------------------------------------------------------------------------------
PART II--OTHER INFORMATION
- - --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of
business, including those arising from patient treatment. The Company believes
it will be covered by malpractice insurance with respect to these claims and
does not believe that the ultimate resolution of pending proceedings will have
a material adverse effect on the Company. However, claims against the Company,
regardless of their merit or eventual outcome, could require management to
devote time to matters unrelated to the operation of the Company's business,
and may also have a material adverse effect on the Company's ability to attract
patients or expand its business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) On May 5, 1998, the Company sold (the "Initial Offering") its
$100,000,000 9 3/4% Senior Subordinated Notes due 2008, Series A (the "Private
Notes"). On October 2, 1998, the Company delivered in exchange (the "Exchange")
for the Private Notes its $100,000,000 9 3/4% Senior Subordinated Notes due
2008, Series B (the "Notes"). The net proceeds to the Company from the Initial
Offering were $95.2 million, after deducting the initial purchaser's discount
and offering expenses. The Company used $48.4 million of the net proceeds to
repay indebtedness under the Company's prior credit facility that bore interest
at a weighted average rate of 8.99% per annum as of June 30, 1998 and was to
mature in May 2000. $7.2 million of the net proceeds were used to repay loans
made to the Company by certain of its shareholders. $5.1 million of these loans
bore interest at the prime rate plus 1% per annum and matured at various times
throughout 1998. $2.1 million of these loans bore interest at the prime rate
plus 1% per annum and matured on November 29, 2000. The Company used $19.2
million of net proceeds to acquire a management services agreement and $4.7
million to acquire land and buildings. The Company used approximately $10.0
million to acquire controlling interests in four dialysis facilities.
Additionally, the Company used the remaining $5.7 million of the net proceeds
for working capital purposes.
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLE
ITEM 5. NOT APPLICABLE
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
2 Plan and Agreement of Merger dated June 28, 1999 by and between
Ohio Valley Dialysis Centers, Inc., Northwest Indiana Dialysis
Centers, Inc. and Lake Avenue Dialysis Centers, Inc.
27 Financial Data Schedule.
</TABLE>
(b) A report on Form 8-K was filed on July 28, 1999 reporting: (1) the hiring
of Lawrence D. Damron as Chief Financial Officer; (2) the amendment and
restatement of the Credit Agreement; (3) the consolidation of Everest's Indiana
entities; and (4) the acquisition of Englewood Dialysis Facility, L.L.C.
18
<PAGE>
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, on the 16th day of
August, 1999.
Everest Healthcare Services
Corporation
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
19
<PAGE>
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, on the 16th day of
August, 1999.
Amarillo Acute Dialysis Specialists,
L.L.C.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
20
<PAGE>
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, on the 16th day of
August, 1999.
Con-Med Supply Company, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
21
<PAGE>
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, on the 16th day of
August, 1999.
Continental Health Care, Ltd.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
22
<PAGE>
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, on the 16th day of
August, 1999.
Dialysis Specialists of Corpus
Christi, L.L.C.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
23
<PAGE>
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, on the 16th day of
August, 1999.
Dialysis Specialists of South Texas,
L.L.C.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
24
<PAGE>
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, on the 16th day of
August, 1999.
DuPage Dialysis Ltd.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
25
<PAGE>
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, on the 16th day of
August, 1999.
Everest Management, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
26
<PAGE>
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, on the 16th day of
August, 1999.
Hemo Dialysis of Amarillo, L.L.C.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
27
<PAGE>
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, on the 16th day of
August, 1999.
Home Dialysis of America, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
28
<PAGE>
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, on the 16th day of
August, 1999.
Home Dialysis of Dayton, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
29
<PAGE>
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, on the 16th day of
August, 1999.
Mercy Dialysis Center, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
30
<PAGE>
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, on the 16th day of
August, 1999.
New York Dialysis Management, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
31
<PAGE>
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, on the 16th day of
August, 1999.
North Buckner Dialysis Center, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
32
<PAGE>
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, on the 16th day of
August, 1999.
Everest Healthcare Indiana, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
33
<PAGE>
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, on the 16th day of
August, 1999.
WSKC Dialysis Services, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
34
<PAGE>
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, on the 16th day of
August, 1999.
Everest New York Holdings, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
35
<PAGE>
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, on the 16th day of
August, 1999.
Everest One IPA, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
36
<PAGE>
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, on the 16th day of
August, 1999.
Everest Two IPA, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
37
<PAGE>
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, on the 16th day of
August, 1999.
Everest Three IPA, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
38
<PAGE>
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, on the 16th day of
August, 1999.
Acute Extracorporeal Services,
L.L.C.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
39
<PAGE>
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, on the 16th day of
August, 1999.
Dialysis Specialists of Central
Cincinnati, Ltd.
/s/ Craig W. Moore
By: __________________________________
Craig W. Moore
President and Chief Executive
Officer
/s/ Lawrence D. Damron
By: __________________________________
Lawrence D. Damron
Chief Financial Officer
40
<PAGE>
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, on the 16th day of
August, 1999.
Home Dialysis of Fairfield, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
President and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
41
<PAGE>
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, on the 16th day of
August, 1999.
Home Dialysis of Columbus, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
President and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
42
<PAGE>
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, on the 16th day of
August, 1999.
Dialysis Specialists of Tulsa, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
President and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
43
<PAGE>
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, on the 16th day of
August, 1999.
Northern New Jersey Dialysis, L.L.C.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
44
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
2 Plan and Agreement of Merger dated June 28, 1999 by and between
Ohio Valley Dialysis Centers, Inc., Northwest Indiana Dialysis
Centers, Inc. and Lake Avenue Dialysis Centers, Inc.
27 Financial Data Schedule.
</TABLE>
45
<PAGE>
EXHIBIT 2
---------
PLAN AND AGREEMENT OF MERGER
----------------------------
[Pursuant to (S)368(a)(1)(A) of the Internal Revenue Code of 1986 and
pursuant to Indiana Code 23-1-40-1 et. seq.]
--------
This Plan and Agreement of Merger is made and entered into this 28th day of
June, 1999, by and between OHIO VALLEY DIALYSIS CENTER, INC., an Indiana
corporation ("Ohio Valley" and in its post-merger form, the "Surviving
Corporation"), NORTHWEST INDIANA DIALYSIS CENTER, INC., an Indiana corporation
("NW Ind") and LAKE AVENUE DIALYSIS CENTER, INC., an Indiana corporation ("Lake
Avenue") ("NW Ind" and "Lake Avenue" sometimes referred to herein as the "Merged
Corporations") (Ohio Valley and the Merged Corporations hereinafter sometimes
referred to collectively as "Constituent Corporations").
R E C I T A L S :
1. The parties hereto deem that the purposes and objectives of the Constituent
Corporations may be effectively achieved and promoted within a single
corporate structure; and
2. The Board of Directors of each Constituent Corporation deems it advisable
that the Merged Corporations be merged with and into the Surviving
Corporation (the "Merger") on the terms and conditions hereinafter set
forth and in accordance with the applicable provisions of the Indiana Code,
as amended; and
NOW, THEREFORE, in consideration of the premises and of the agreements,
covenants, and conditions hereinafter set forth and for the purpose of fixing
and declaring the terms and conditions upon which the Constituent Corporations
are to be merged, and such other details or provisions as are deemed necessary
or desirable, the Constituent Corporations, by their Boards of Directors, hereby
agree as follows:
1
<PAGE>
AGREEMENT
---------
ARTICLE I
---------
FORMATION OF MERGER
-------------------
This Plan and Agreement of Merger shall be submitted to and approved by the
board of directors as required and the stockholders of the Constituent
Corporations, as provided by 23-1-40-1 et.seq. of the Indiana Code, as amended,
and the Constituent Corporations shall execute, acknowledge, file, deliver and
record all necessary documents and take all actions and do all things necessary,
advisable or proper under the laws of Indiana to consummate and make effective
the Merger, including the filing of the Articles of Merger with the Indiana
Secretary of State, and to carry out the purposes of this Plan and Agreement of
Merger.
Anything herein or elsewhere to the contrary notwithstanding, this Agreement may
be abandoned by any of the Constituent Corporations by appropriate resolution of
its Board of Directors at any time prior to the Effective Time of the Merger.
ARTICLE II
----------
CORPORATE NAME
--------------
Upon the Effective Time of the Merger (hereinafter defined) and thereafter, the
name of the Surviving Corporation shall be Everest Healthcare Indiana, Inc.
ARTICLE III
-----------
EFFECT OF MERGER
----------------
Upon the Merger becoming effective:
(1) the Constituent Corporations shall be a single corporation;
(2) the separate corporate existence of the Merged Corporation shall cease,
except to the extent provided for by the laws of the State of Indiana
in the case of a corporation after its merger into another corporation;
(3) the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and debts due on whatever
account, and every other interest belonging to or due to each of the
Constituent Corporations shall be deemed to be transferred to and
vested in the Surviving Corporation, without further act, deed or
transfer;
(4) the Surviving Corporation shall thenceforth be responsible for and
subject to all of
2
<PAGE>
the debts, liabilities and obligations of each of the Constituent
Corporations in the same manner as if the Surviving Corporation had
itself incurred them;
(5) any claim, existing action, or proceeding pending by or against either
of the Constituent Corporations may be prosecuted to judgment by the
Surviving Corporation;
(6) neither the rights of creditors nor any liens upon the property of
either of the Constituent Corporations shall be impaired by the Merger.
ARTICLE IV
----------
MANNER AND BASIS OF CONVERTING SHARES
-------------------------------------
The manner and basis of converting the outstanding shares of the capital stock
of the Merged Corporations into the shares or other securities of the Surviving
Corporation shall be as follows: upon the Effective Time of the Merger, all of
the shares of the capital stock of the Merged Corporations shall then be
immediately cancelled and shall cease to exist and the outstanding shares of the
Surviving Corporation shall remain in effect.
ARTICLE V
---------
CERTIFICATE OF INCORPORATION AND BYLAWS
---------------------------------------
The Articles of Incorporation of the Surviving Corporation, existing on the
Effective Time of the Merger shall continue in full force as the Articles of
Incorporation of the Surviving Corporation until they are duly altered, amended
or repealed. The Bylaws of the Surviving Corporation existing on the Effective
Time of the Merger shall continue in full force as the Bylaws of the Surviving
Corporation until they are duly altered, amended or repealed.
ARTICLE VI
----------
BASIS FOR TRANSFERRING ASSETS AND LIABILITIES
---------------------------------------------
The assets and liabilities of the Merged Corporation, at the Effective Time of
the Merger, shall be taken on the books of the Surviving Corporation at the
amounts at which they are, on such date, carried on the books of the Merged
Corporation.
ARTICLE VII
-----------
DIRECTORS AND OFFICERS
----------------------
The Board of Directors and Officers of the Surviving Corporation shall be the
Directors and Officers holding such offices of the Surviving Corporation at the
Effective Time of the Merger. Such
3
<PAGE>
individuals shall hold office until their successors shall have been elected or
appointed and qualified in accordance with the Bylaws of the Surviving
Corporation.
ARTICLE VIII
------------
EXPENSES OF MERGER
------------------
The Surviving Corporation shall pay all expenses of implementing this Agreement
of Merger and accomplishing the Merger provided for herein.
ARTICLE IX
----------
EFFECTIVE TIME
--------------
This Plan and Agreement of Merger of each of the Constituent Corporations herein
provided for shall become effective at 12:01 a.m. on June 30, 1999, which time
and date shall be the "Effective Time of the Merger.
ARTICLE X
---------
AMENDMENTS
----------
The Constituent Corporations hereby reserve the right to amend, alter, change or
repeal any provisions contained in this Agreement prior to the Effective Time of
the Merger, in the matter now or hereafter prescribed by its Certificate of
Incorporation, statute or otherwise authorized by law; and all rights and powers
conferred herein on stockholders, directors or officers of any of the
Constituent Corporations or of any other person, whomsoever, are subject to this
reserve power.
ARTICLE XI
----------
FURTHER ASSURANCES
------------------
If at any time the Surviving Corporation shall determine or be advised that any
further assignment or assurance in law is necessary or desirable to vest in the
Surviving Corporation the title to any property or rights of the Constituent
Corporations, the proper officers and directors of the Constituent Corporations
shall execute and deliver or cause to be executed and delivered all such proper
assignments, conveyances and assurances in law and do all things necessary or
proper to vest and perfect such property or rights in the Surviving Corporation,
and otherwise to carry out the purposes of this Plan and Agreement of Merger.
4
<PAGE>
IN WITNESS WHEREOF, the Surviving Corporation and the Merged Corporations
have each caused this Plan and Agreement of Merger to be signed by its
president, sealed and attested by the signature of its secretary, as of the day
and year first above written.
Ohio Valley Dialysis Center, Inc.
By: /S/ Craig W. Moore
------------------------------
Craig W. Moore, President
ATTEST:
Ohio Valley Dialysis Center, Inc.
By: /S/ Paul Balter
--------------------------------
Paul Balter, M.D., Secretary
Northwest Indiana Dialysis, Inc.
By: /S/ Craig W. Moore
------------------------------
Craig W. Moore, President
ATTEST:
Northwest Indiana Dialysis, Inc.
By: /S/ Paul Balter
--------------------------------
Paul Balter, M.D., Secretary
Lake Avenue Dialysis Center, Inc.
By: /S/ Craig W. Moore
------------------------------
Craig W. Moore, President
ATTEST:
Lake Avenue Dialysis Center, Inc.
By: /s/ Paul Balter
----------------------------
Paul Balter, M.D., Secretary
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<PAGE>
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<NAME> EVEREST HEALTHCARE SERVICES CORPORATION
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