<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
(Mark One) Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-----------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 1-14142
Renal Treatment Centers, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2518331
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1180 W. Swedesford Road
Building 2, Suite 300
Berwyn, PA 19312
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 610-644-4796
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 ___
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at November 8, 1996
----- -------------------------------------------
Common Stock, Par Value $.01 24,393,056 shares
THE EXHIBIT INDEX IS LOCATED ON PAGE 13
<PAGE>
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
<S> <C> <C>
Consolidated Statements of Income--
Three and Nine Months ended September 30, 1996 and 1995................... 3
Consolidated Balance Sheets--
September 30, 1996 and December 31, 1995.................................. 4
Consolidated Statements of Cash Flows--
Nine months ended September 30, 1996 and 1995............................. 5
Notes to Consolidated Financial Statements................................ 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 7-10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................... 11
SIGNATURES.......................................................................... 12
EXHIBITS........................................................................ 14-15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Renal Treatment Centers, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net patient revenue $63,114,969 $41,996,034 $169,247,919 $119,812,073
Patient care costs 30,942,641 20,010,157 82,425,019 58,802,286
- --------------------------------------------------------------------------------------------------------------------
Operating profit 32,172,328 21,985,877 86,822,900 61,009,787
General and administrative expense 15,676,053 10,275,270 42,308,770 30,190,916
Provision for doubtful accounts 1,653,055 1,304,330 4,961,562 3,164,431
Depreciation and amortization 4,729,964 3,032,272 12,375,082 8,673,796
Merger expenses 1,100,000 500,000 2,808,247 2,087,542
- --------------------------------------------------------------------------------------------------------------------
Income from operations 9,013,256 6,874,005 24,369,239 16,893,102
Interest expense, net 1,424,222 655,274 2,977,655 1,965,600
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,589,034 6,218,731 21,391,584 14,927,502
Provision for income taxes 3,107,943 2,672,669 8,300,236 5,004,880
- --------------------------------------------------------------------------------------------------------------------
Net income $4,481,091 $3,546,062 $13,091,348 $9,922,622
- --------------------------------------------------------------------------------------------------------------------
Weighted average number of common and
common stock equivalents outstanding 28,890,274 22,865,321 26,499,138 22,365,263
Net income per common and common
stock equivalent $0.19 $0.16 $0.55 $0.44
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Renal Treatment Centers, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,782,862 $ 8,231,421
Investments 40,593,199 ---
Accounts receivable (net of allowance for
doubtful accounts of $1,958,560 in 1996 and
$3,503,744 in 1995) 70,970,502 51,996,618
Inventories 3,950,426 2,869,019
Deferred taxes 1,414,311 819,835
Prepaid expenses and other current assets 1,197,655 1,396,893
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 121,908,955 65,313,786
- ---------------------------------------------------------------------------------------------------------------------------
Property and equipment (net of accumulated depreciation of $17,912,215 in 1996
and $10,746,557 in 1995.) 35,578,136 21,442,421
Intangibles (net of accumulated amortization of $26,925,574 in 1996 and
$22,263,385 in 1995.) 131,339,214 86,341,433
Deferred taxes, non-current 1,749,754 1,749,754
Other assets 371,149 20,842
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $290,947,208 $174,868,236
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 11,235,598 $ 4,766,262
Accounts payable 8,547,609 4,495,087
Accrued compensation 4,361,675 2,790,121
Accrued expenses 3,685,842 6,576,600
Accrued income taxes 431,449 2,218,692
Accrued interest 1,644,976 1,087,415
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 29,907,149 21,934,177
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt, net 130,698,684 42,576,100
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized: none issued
Common stock, $.01 par value, 45,000,000 shares authorized: issued and
outstanding 24,412,588 and 22,209,689 shares in 1996 and 1995, respectively. 244,126 222,097
Additional paid-in capital 87,689,237 83,257,068
Retained earnings 42,802,088 27,272,870
- ---------------------------------------------------------------------------------------------------------------------------
130,735,451 110,752,035
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Less treasury stock, 37,202 shares in 1996 and 1995, at cost (394,076) (394,076)
- ---------------------------------------------------------------------------------------------------------------------------
130,341,375 110,357,959
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $290,947,208 $174,868,236
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Renal Treatment Centers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended
September 30,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,091,348 $ 9,922,622
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 12,423,835 8,723,032
Provision for doubtful accounts 4,961,562 3,164,437
Deferred tax asset (1,792) (9,170)
Changes in operating assets and liabilities,
net of effects of companies acquired:
Accounts receivable (20,592,485) (13,896,255)
Inventories (637,006) (11,830)
Prepaid expenses and other current assets 261,609 224,045
Accounts payable and accrued expenses (174,228) (4,154,794)
Accrued income taxes (1,787,243) 4,853,949
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,545,600 8,816,036
- --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (10,584,242) (5,692,441)
Purchase of businesses, net of cash acquired (49,907,502) (10,101,057)
Sale (Purchase) of investments, net (40,593,199) 2,661,944
Other (1,987,420) (2,054,438)
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (103,072,363) (15,185,992)
- --------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of 5 5/8% convertible subordinated notes 125,000,000 ----
Proceeds from long-term debt borrowings 38,550,000 15,100,000
Repayments of debt (71,365,886) (7,045,602)
Proceeds from issuance of common stock 4,346,915 966,397
Payment of dividends (658,500) (1,388,331)
Debt issuance costs (3,750,000) ----
Payments on capital lease obligations (2,008,024) 43,481
Cash portion of consideration received for common stock 963,699 ----
- --------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 91,078,204 7,675,945
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,448,559) 1,305,989
Cash and cash equivalents at beginning of period 8,231,421 2,782,781
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,782,862 $ 4,088,770
==============================================================================================================
Supplemental disclosures of cash flows information:
Noncash financing activities:
Reduction of note issued in connection with purchase of business ---- $ 135,900
Acquisition of treasury stock in connection with payroll taxes
resulting from exercise of stock options ---- $ 346,857
Capital lease obligations entered into $ 2,677,475 $ 388,200
Issuance of common stock in connection with purchase of business $ 89,137 $ 3,118,739
Noncash investing activities:
Net assets relating to pooling transactions $ 3,096,370
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been prepared
by the Company in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. The interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's Form 8-K
filed with the Securities and Exchange Commission on August 23, 1996.
2. COMMITMENTS AND CONTINGENCIES:
The Company is a party to certain legal actions arising in the ordinary course
of business. The Company believes it has adequate legal defenses and/or
insurance coverage for these actions and that the ultimate outcome of these
actions will not have a material adverse impact on the Company's results of
operations, financial condition or liquidity.
3. SIGNIFICANT EVENTS:
POOLING TRANSACTIONS:
On February 20, 1996, the Company acquired Intercontinental Medical Services,
Inc. ("IMS"), which operated four dialysis facilities in Hawaii. The
transaction was accounted for as a pooling of interests. Accordingly, the
Company's financial statements include the results of IMS as of January 1, 1996.
In total, 1,047,464 shares of the Company's common stock were exchanged for all
outstanding shares of IMS.
On February 29, 1996, the Company acquired Midwest Dialysis Units and its
affiliates (collectively "MDU"), which operated 11 dialysis facilities in
Oklahoma. The transaction was accounted for as a pooling of interests.
Accordingly, the Company's financial statements include the results of MDU as of
January 1, 1996. In total, 767,168 shares of the Company's common stock were
exchanged for all outstanding shares of MDU.
Prior year financial statements have not been restated to reflect these
transactions because the impact on the Company's financial statements of such
transactions is not material.
On July 23, 1996 the Company consummated its acquisition of two dialysis centers
from Panama City Artificial Kidney Center, Inc. and North Florida Artificial
Kidney Center, Inc. ("the Group"). Both of the dialysis centers are located in
Florida. The transaction was accounted for as a pooling of interests.
Accordingly, the Company's financial statements have been restated to give
retroactive effect to the Group since this transaction, when combined with the
MDU and IMS pooling transactions, was deemed to be a material transaction. In
total, 482,377 shares of the Company's common stock were exchanged for all the
outstanding shares of the Group.
SIGNIFICANT PURCHASE TRANSACTIONS:
On May 29, 1996, with an effective date of May 31, 1996, the Company acquired
substantially all of the assets of Kidney Center of Delaware County, Ltd.
("KCDC") and Kidney Center of Chester County, Ltd. ("KCCC"). At the time of
acquisition, these two outpatient dialysis centers, located in the Philadelphia,
Pennsylvania area, provided care to approximately 400 patients and performed
acute treatments at nine area hospitals.
On September 16, 1996, with an effective date of September 1, 1996, the Company
acquired substantially all of the assets of Columbus Regional Dialysis Center,
Marion Dialysis Center, and Phenix City Nephrology Referral Center. Two of the
centers are located in Georgia and one is located in Alabama. At the time of
acquisition, these centers provided care to approximately 230 patients and
provided acute treatments to three area hospitals.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER EVENTS:
On June 5, 1996 the Company amended its revolving credit agreement with a
consortium of banks (the "Credit Agreement") to increase the amount available
under the line of credit from $68,125,000 to $100,000,000 and to make certain
other changes to the terms of the Credit Agreement, including amendments to
certain covenants, the amortization schedule, the interest rates and the events
of default.
On June 12, 1996 the Company issued $125,000,000 principal amount of 5 5/8%
Convertible Subordinated Notes due 2006. The Company is using the proceeds of
the offering for the repayment of indebtedness, acquisitions, development of
additional dialysis centers, capital expenditures and general corporate
purposes.
<PAGE>
Item 2. Renal Treatment Centers, Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
Renal Treatment Centers, Inc. (the "Company") provides dialysis treatments and
ancillary services to patients suffering from chronic kidney failure, primarily
in its freestanding outpatient dialysis treatment centers or in the patient's
home. The Company also provides acute inpatient dialysis services to hospitals.
As of November 1, 1996, the Company operated 106 outpatient dialysis centers in
22 states, the District of Columbia and the Republic of Argentina and provided
dialysis services for approximately 7,700 patients. In addition, the Company
provided inpatient dialysis services at 80 hospitals.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected financial
information expressed as a percentage of net patient revenue and the period-to-
period percentage changes in such information.
<TABLE>
<CAPTION>
Percentage of Percentage of
Net Patient Revenue Net Patient Revenue
Three Months Ended Period-to-Period Nine Months Ended Period-to-Period
September 30, Percentage Change September 30, Percentage Change
- --------------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 vs. 1995 1996 1995 1996 vs. 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net patient revenue 100.0% 100.0% 50.3% 100.0% 100.0% 41.3%
Patient care costs 49.0% 47.6% 54.6% 48.7% 49.1% 40.2%
Operating profit 51.0% 52.4% 46.3% 51.3% 50.9% 42.3%
General and administrative
expense 24.8% 24.5% 52.6% 25.0% 25.2% 40.1%
Provision for doubtful accounts 2.6% 3.1% 26.7% 2.9% 2.6% 56.8%
Depreciation and amortization
expense 7.5% 7.2% 56.0% 7.3% 7.2% 42.7%
Merger expenses 1.7% 1.2% 120.0% 1.7% 1.7% 34.5%
Income from operations 14.3% 16.4% 31.1% 14.4% 14.1% 44.3%
Interest expense, net 2.3% 1.6% 117.3% 1.8% 1.6% 51.5%
Income before income taxes 12.0% 14.8% 22.0% 12.6% 12.5% 43.3%
Provision for income taxes 4.9% 6.4% 16.3% 4.9% 4.2% 65.8%
Net income 7.1% 8.4% 26.4% 7.7% 8.3% 31.9%
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
NET PATIENT REVENUE. Net patient revenue for the nine months ended September 30,
1996 was $169,247,919 as compared to $119,812,073 for the same period in 1995,
representing an increase of 41.3%. Of this increase, $4,823,232 was attributable
to the revenue generated from the operations of nine centers and certain acute
care agreements acquired in four separate purchase transactions from March
through December 1995, and $27,026,579 was attributable to the acquisition of
various facilities and the development of new dialysis centers ("de novo"
developments) during the first nine months of 1996. Of the $17,586,035
remaining, $9,285,595 was attributable to an increase in same-center treatments
and $8,300,440 was attributable to an increase in the average same-center
revenue per treatment, which, in turn, was due to an increase in the
administration of EPO and an improvement in the Company's payor mix.
PATIENT CARE COSTS. Patient care costs increased 40.2% to $82,425,019 for the
nine months ended September 30, 1996 from $58,802,286 for the same period in
1995. The increase was principally the result of acquisitions that occurred
subsequent to the third quarter of 1995. However, as a percentage of net patient
revenue, patient care costs decreased to 48.7% for the nine months ended
September 30, 1996 from 49.1% for the same period in 1995. This percentage
decrease was primarily related to the increase in net revenue per treatment. The
increase in net revenue per treatment was offset in part by the additional costs
related to the increased administration of EPO.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased
$12,117,854, or 40.1%, to $42,308,770 for the nine months ended September 30,
1996, as compared to $30,190,916 for the same period in 1995. This increase was
primarily the result of additional facility operating costs as well as
additional corporate and facility personnel required to support the centers
acquired and opened during 1995 and 1996. As a percentage of net patient
revenue, these expenses remained relatively constant at approximately 25.0% for
the nine months ended September 30, 1996, as compared to 25.2% for the nine
months ended September 30, 1995. The slight decrease as a percentage of net
patient revenue was attributable to the Company's ability to maintain certain
support costs, while increasing net revenues through acquisitions, internal
growth and de novo developments.
PROVISION FOR DOUBTFUL ACCOUNTS. Provision for doubtful accounts increased
$1,797,131, or 56.8%, to $4,961,562 for the nine months ended September 30,
1996, as compared to $3,164,431 for the same period in 1995. This increase was
principally a result of the additional net patient revenue generated from
acquisitions that occurred subsequent to the third quarter of 1995. As a
percentage of net patient revenue, the provision for doubtful accounts was 2.9%
for the nine months ended September 30, 1996 as compared to 2.6% for the same
period in 1995.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $3,701,286, or 42.7%, for the nine months ended September 30, 1996,
when compared to the same period in 1995. The increase was due to the
acquisition and start-up of various facilities since July 1995. As a percentage
of net patient revenue, depreciation and amortization expense was 7.3% for the
nine months ended September 30, 1996, as compared to 7.2% for the nine months
ended September 30, 1995.
MERGER EXPENSES. Merger expenses increased 34.5% to $2,808,247 for the nine
months ended September 30, 1996 from $2,087,542 for the same period in 1995. For
the nine months ended September 30, 1995, the merger expenses represent expenses
incurred in connection with the mergers with (i) Healthcare Corporation and its
affiliates and (ii) Wichita Dialysis Center, P.A., Southeast Kansas Dialysis
Center, P.A., Garden City Dialysis, P.A., and Wichita Dialysis Center, East,
P.A., (collectively "the Wichita Companies") which were completed on March 6,
1995 and August 1, 1995, respectively, and were accounted for under the pooling-
of-interests method of accounting. For the nine months ended September 30, 1996,
merger expenses were incurred as a result of the mergers with (i) IMS, (ii) MDU
and (iii) the Group which were completed on February 20, 1996, February 29, 1996
and July 23, 1996, respectively, and were accounted for under the pooling-of-
interests method of accounting. Merger expenses include fees for the investment
banker, attorneys and accountants and various other expenses incurred as a
result of combining the companies.
INCOME FROM OPERATIONS. Income from operations increased 44.3% to $24,369,239
for the nine months ended September 30, 1996 from $16,893,102 for the same
period in 1995. This increase was due to the increase in net revenues from
acquired businesses and same-center growth, which was greater than the increases
in patient care costs, general and administrative expense and depreciation and
amortization expense related to such acquired businesses.
INTEREST EXPENSE, NET. Interest expense net was $2,977,655 for the nine months
ended September 30, 1996 as compared to interest expense net of $1,965,600 for
the same period in 1995. The increase in interest expense net was attributable
to the additional borrowings for the funding of acquisitions that were completed
in 1995 and 1996 that remained outstanding through June 12, 1996, as well as the
additional interest expense net incurred as a result of the issuance of
$125,000,000 principal amount of 5 5/8% Convertible Subordinated Notes due 2006
("the Notes") by the Company on June 12, 1996.
PROVISION FOR INCOME TAXES. Provision for income taxes increased 65.8% to
$8,300,236 from $5,004,880 for the nine months ended September 30, 1996 and
1995, respectively. For the nine months ended September 30, 1996, the Company's
effective tax rate was 38.8%, compared to an effective tax rate of 33.5% during
the same period in 1995. The increase in the effective tax rate was primarily
attributable to the one-time tax benefit of $325,000 recorded in the first
quarter of 1995 as a result of the merger with Healthcare Corporation and its
affiliates offset by a one-time tax charge of $540,000 related to the merger
with the Wichita Companies as recorded in the third quarter of 1995. In the nine
months ended September 30, 1996, the Company incurred a one-time tax charge of
$85,350 related to the merger with MDU recorded in the first quarter of 1996 as
well as a one-time tax charge of $300,000 related to the merger with the Group
recorded in the third quarter of 1996.
NET INCOME. Net income increased 31.9% to $13,091,348 for the nine months ended
September 30, 1996 from $9,922,622 for the same period in 1995. The increase was
due to each of the items discussed above.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
NET PATIENT REVENUE. Net patient revenue for the three months ended September
30, 1996 was $63,114,969 as compared to $41,996,034 for the same period in 1995,
representing an increase of 50.3%. Of this increase, $492,375 was attributable
to the revenue generated from the operations of four centers and certain acute
care agreements acquired in two separate purchase transactions from July through
December 1995, and $12,640,410 was attributable to the acquisition of various
facilities and de novo
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
developments during the first six months of 1996. Of the $7,986,150 remaining,
$3,652,629 was attributable to an increase in same-center treatments and
$4,333,521 was attributable to an increase in the average same-center revenue
per treatment, which, in turn, was due to an increase in the administration of
EPO and an improvement in the Company's payor mix.
PATIENT CARE COSTS. Patient care costs increased 54.6% to $30,942,641 for the
three months ended September 30, 1996 from $20,010,157 for the same period in
1995. The increase was principally the result of acquisitions that occurred
subsequent to the third quarter of 1995. However, as a percentage of net patient
revenue, patient care costs increased to 49.0% for the three months ended
September 30, 1996 from 47.6% for the same period in 1995. This increase was
primarily related to the additional costs related to the increased
administration of EPO.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased
$5,400,783, or 52.6%, to $15,676,053 for the three months ended September 30,
1996, as compared to $10,275,270 for the same period in 1995. This increase was
primarily the result of additional facility operating costs as well as
additional corporate and facility personnel required to support the centers
acquired and opened during 1995 and 1996. As a percentage of net patient
revenue, these expenses were approximately 24.8% for the three months ended
September 30, 1996, as compared to 24.5% for the three months ended September
30, 1995.
PROVISION FOR DOUBTFUL ACCOUNTS. Provision for doubtful accounts increased
$348,725 , or 26.7%, to $1,653,055 for the three months ended September 30,
1996, as compared to $1,304,330 for the same period in 1995. This increase was
principally a result of the additional net patient revenue generated from
acquisitions that occurred subsequent to the third quarter of 1995. As a
percentage of net patient revenue the provision for doubtful accounts was 2.6%
for the three months ended September 30, 1996 as compared to 3.1% for the same
period in 1995.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $1,697,692, or 56.0%, for the three months ended September 30, 1996,
when compared to the three months ended September 30, 1995. The increase was due
to the acquisition and startup of various facilities since October 1995. As a
percentage of net patient revenue, depreciation and amortization expense was
7.5% for the three months ended September 30, 1996, as compared to 7.2% for the
three months ended September 30, 1995.
INCOME FROM OPERATIONS. Income from operations increased 31.1% to $9,013,256 for
the three months ended September 30, 1996 from $6,874,005 for the same period in
1995. This increase was due to the increase in net revenues from acquired
businesses and same-center growth, which was greater than the increases in
patient care costs, general and administrative expense and depreciation and
amortization expense related to such acquired businesses.
INTEREST EXPENSE, NET. Interest expense net was $1,424,222 for the three months
ended September 30, 1996 as compared to interest expense net of $655,274 for the
same period in 1995. The increase in interest expense net was attributable to
the additional borrowings for the funding of acquisitions that were completed in
1995 and 1996 that remained outstanding through June 12, 1996, as well as the
additional interest expense net incurred as a result of the issuance of the
Notes by the Company on June 12, 1996.
PROVISION FOR INCOME TAXES. Provision for income taxes increased 16.3% to
$3,107,943 from $2,672,669 for the three months ended September 30, 1996 and
1995, respectively. For the three months ended September 30, 1996, the Company's
effective tax rate was 41.0% compared to an effective tax rate of 43.0% during
the same period last year. This decrease in the effective tax rate was
attributable to the one-time tax charge of $540,000 related to the merger with
the Wichita Companies which was recorded in the third quarter of 1995 as
compared to a one-time tax charge of $300,000 relating to the merger with the
Group which was recorded in the third quarter of 1996.
NET INCOME. Net income increased 26.4% to $4,481,091 for the three months ended
September 30, 1996 from $3,546,062 for the same period in 1995. The increase was
due to each of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital for the acquisition of dialysis centers, for the
expansion of operations of its existing dialysis centers, including the
replacement of equipment and addition of leasehold improvements, for the
integration of new centers into its network of existing dialysis services and
for meeting working capital requirements.
During the nine months ended September 30,1996, expenditures for acquisitions
totalled $49,907,502, compared to $10,101,057 for acquisitions for the nine
months ended September 30, 1995. The expenditures in 1996 resulted from the
acquisition of one center in March 1996, one center in April 1996, three centers
in May 1996, one center in June 1996 and five centers in September 1996,as
compared to the expenditures in 1995, which resulted from the acquisition of
five centers in March 1995, two centers in July 1995, one center in September
1995, and the payout of certain earnout notes related to acquisitions that were
completed in 1994. For the nine months ended September 30, 1996 and 1995,
capital expenditures were $10,584,242 and $5,692,441, respectively. Cash from
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
operations before investing and financing activities was $7,545,600 and
$8,816,036 for the nine months ended September 30, 1996 and 1995, respectively.
The principal sources of the Company's liquidity during the first nine months of
1996 were earnings, additional borrowings under the Credit Agreement and the
issuance of $125,000,000 of convertible subordinated notes on June 12, 1996. The
Company had cash and cash equivalents of $3,782,862 at September 30, 1996.
The Credit Agreement provides for a $100,000,000 revolving credit term facility
available to fund acquisitions and general working capital requirements, of
which $0 and $33,675,000 were outstanding as of September 30, 1996 and December
31, 1995, respectively. Prior to the amendment of the Credit Agreement on June
5, 1996, the Credit Agreement also provided for a term loan payable in quarterly
installments, of which $3,750,000 was outstanding as of December 31, 1995. On
June 5, 1996, the Company's Credit Agreement was amended to increase the amount
available under the line of credit from $68,125,000 to $100,000,000 and to make
certain other changes to the terms of the Credit Agreement, including amendments
to certain covenants, the amortization schedule, the interest rates and the
events of default. In connection with this amendment, the $3,125,000 principal
amount outstanding under the term loan as of June 5, 1996 was repaid through
borrowings under the line of credit under the Credit Agreement. The line of
credit converts into a term loan in September 1999 that is payable in 16 equal
quarterly installments commencing December 1999 through September 2003.
Borrowings under the Credit Agreement bear interest, at the Company's option, at
either (i) the agent bank's base rate plus 0.25% if the Applicable Margin, which
is determined by the Company's ratio of senior debt to annualized cash flow, is
not less than 2.25 to 1, payable on a quarterly basis or (ii) a one-, two-,
three-, or six-month period LIBOR rate plus 0.75% to 1.75% depending upon the
Applicable Margin, payable at maturity. The weighted average interest rate of
all loans outstanding at December 31, 1995 was 7.4%. Loans under the Credit
Agreement are collateralized by the pledge of all stock of the Company's
subsidiaries and the assignment of all intercompany notes.
The Company has historically expended the majority of its capital resources to
implement its growth strategy and the Company intends to pursue a strategy of
growth through the acquisition and development of dialysis centers. Management
estimates that the development of a new center, depending on its size, requires
approximately $500,000 to $1,000,000 for construction costs and the purchase of
certain furniture and equipment and approximately $75,000 to $150,000 in working
capital. Acquisition of a dialysis center with an existing patient base
typically requires more capital investment, but each investment varies based on
relative size and other factors. No assurance can be given that the Company will
be successful in implementing its growth strategy or that adequate sources of
capital will be available on terms acceptable to the Company to pursue its
growth strategy in the future.
The Company believes that capital resources available to it will be sufficient
to meet the needs of its business, both on a short- and long-term basis.
<PAGE>
PART II. OTHER INFORMATION
- -------- -----------------
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
The following exhibits are filed herewith:
10.30* Employment Agreement dated as of March 1, 1996 between the
Company and Mark A. Zawiski.
10.31* Executive Severance Agreement dated as of March 1, 1996
between the Company and Mark A. Zawiski.
10.32 Asset Purchase Agreement dated as of September 7, 1996
between Renal Treatment Centers - Georgia, Inc. and Columbus
Regional Dialysis Center, Inc. (incorporated herein by
reference to Exhibit No. 2.1 filed under the Company's
Current Report on Form 8-K dated September 16, 1996).
10.33 Asset Purchase Agreement dated as of September 7, 1996
between Renal Treatment Centers - Alabama, Inc. and Phenix
City Nephrology Referral Center, Inc. (incorporated herein
by reference to Exhibit No. 2.2 filed under the Company's
Current Report on Form 8-K dated September 16, 1996).
11.1 Computation of Primary and Fully Diluted Earnings Per Share.
27 Financial Data Schedule.
____________________________
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
Form 8-K/A Amendment No. 1 to Current Report dated May 29, 1996 filed
on July 15, 1996 to file pursuant to Item 7 (1) historical finacial
information for the year ended December 31, 1995 and the three months
ended March 31, 1996 and (2) pro forma financial information for the
Company for the year ended December 31, 1995 and the three months
ended March 31, 1996 related to the acquisition of KCDC and KCCC as
reported on Form 8-K dated May 29, 1996.
Form 8-K dated August 23, 1996 filed to report under Item 5
consolidated selected financial data, management's discussion and
analysis and consolidated financial statements and financial statement
schedule as of December 31,1993, 1994 and 1995 and for each of the
three years in the period ended December 31, 1995 giving retroactive
effect to the merger with the Group.
Form 8-K dated September 16, 1996 filed to report under Item 5 the
condensed combined results of operations covering the one month period
ended August 31, 1996 following the merger with the Group.
Form 8-K dated September 16, 1996 filed to report under Item 2 the
acquisition of substantially all of the assets of Columbus Regional
Dialysis Center, Inc. and Phenix City Nephrology Referral Center, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RENAL TREATMENT CENTERS, INC.
Date: 11/14/96
_________________________ By: /s/ Frederick C. Jansen
---------------------------------
Frederick C. Jansen
Executive Vice President and
Chief Financial Officer
Date: 11/14/96
_________________________ By: /s/ Ronald H. Rodgers, Jr.
---------------------------------
Ronald H. Rodgers, Jr.
Vice President - Finance and
Chief Accounting Officer
<PAGE>
Renal Treatment Centers, Inc. and Subsidiaries
Exhibit Index
Exhibit No. Description
- ----------- -----------
10.30* Employment Agreement dated as of March 1, 1996 between the
Company and Mark A. Zawiski.
10.31* Executive Severance Agreement dated as of March 1, 1996
between the Company and Mark A. Zawiski.
10.32 Asset Purchase Agreement dated as of September 7, 1996
between Renal Treatment Centers - Georgia, Inc. and Columbus
Regional Dialysis Center, Inc. (incorporated herein by
reference to Exhibit No. 2.1 filed under the Company's
Current Report on Form 8-K dated September 16, 1996).
10.33 Asset Purchase Agreement dated as of September 7, 1996
between Renal Treatment Centers - Alabama, Inc. and Phenix
City Nephrology Referral Center, Inc. (incorporated herein
by reference to Exhibit No. 2.2 filed under the Company's
Current Report on Form 8-K dated September 16, 1996).
11.1 Computation of Primary and Fully Diluted Earnings Per Share.
27 Financial Data Schedule.
__________________________________
* Management contract or compensatory plan or arrangement.
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of March,
1996 by and between RENAL TREATMENT CENTERS, INC. ("Company"), and MARK ZAWISKI
("Employee").
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and for other good and valuable consideration, the receipt
of which the parties hereby acknowledge, the parties hereto, intending to be
legally bound hereby, agree as follows:
Section 1. Employment and Duties. Company shall employ Employee and
--------- ---------------------
Employee accepts such employment for the Term set forth in Section 3 hereof, on
the terms and conditions set forth in this Agreement. During the Term Employee
shall serve as Vice President of Reimbursement Programs and Managed Care of
Company and shall perform such duties as are normally associated with such
position, as well as such other duties as shall be assigned to Employee from
time to time during the continuance of this Agreement by the President and Chief
Executive Officer and/or the Executive Vice President and Chief Financial
Officer of Company. Employee shall devote Employee's best efforts and skills to
the business and interests of Company. Employee shall not engage in any other
business activity during the term of this Agreement; provided that nothing
herein shall restrict the Employee from owning five percent (5%) or less of the
issued and outstanding stock of a public company.
Section 2. Compensation. In consideration of the services to be performed
--------- ------------
by Employee hereunder, Employee shall receive:
2.1 Salary. A salary ("Salary") at the rate of One Hundred Thirty
------
Thousand Dollars ($130,000) per year effective as of March 1, 1996. Employee's
salary shall be payable in installments consistent with Company's payroll
schedule. Employee's salary shall be reviewed each year on or about the
anniversary of Employee's employment and Company may in its sole discretion
increase Employee's salary.
2.2 Benefits. Such medical, disability and other similar benefits as are
--------
provided to other officers of the Company. The Company hereby waives any
waiting period with respect to such benefits effective March 1, 1996. In
addition, the Company agrees to reimburse employee up to $10,000 for Internal
Revenue Service defined moving expenses upon delivery of invoices reflecting
such expenses.
2.3 Bonuses. Such bonuses as are approved by the unanimous affirmative
-------
vote of the entire membership of the Compensation Committee ("Compensation
Committee") of the Board of Directors of the Company ("Committee Approval");
provided
<PAGE>
that the potential bonus amount for 1996 is hereby established as follows: for
calendar year 1996, an Incentive Bonus (the "1996 Incentive Bonus") will be paid
if the applicable Financial Target for 1996 (as set forth below) shall be
attained or exceeded. The amount of the 1996 Incentive Bonus a maximum of 40%
of Salary; 20% to be paid if the Financial Target for 1996 is achieved and
another 20% if certain goals are attained as determined by the President and
Chief Executive Officer of Company. The Financial Target for 1996 shall be
earnings per share of $0.81. In calculating whether Employer has attained the
Financial Target for 1996 the amount of the 1996 Incentive Bonus shall be
included and items of extraordinary gain and loss shall be excluded. Nothing in
this Agreement shall prevent the Compensation Committee from awarding an
Incentive Bonus for 1996 if the Financial Target is not met or from awarding an
Incentive Bonus in excess of 40% of Salary for 1996. Incentive Bonuses in
calendar years after 1996 need not be determined in a similar manner as the 1996
Incentive Bonus; provided however, that in the event that the Financial Target
and/or certain goals applicable to each calendar year after 1996 is met, the
percentage applicable to that year shall not be less than the percentage
applicable to the immediately preceding year. Such bonus, if any, as determined
in accordance with the provisions of this Section 2.3 shall be paid no later
than fifteen (15) days following the Compensation Committee's review and
approval that such Financial Targets have been attained.
2.4 Acceleration of Retirement Benefits. In the event Company terminates
-----------------------------------
this Agreement for any reason other than under Section 3.2 hereof or if
Employee's employment terminates by reason of death or disability as described
in Section 3.3 hereof, then in addition to amounts otherwise payable to
Employee, Company shall pay Employee, within thirty (30) days of the effective
date of termination, an amount equal to the portion of Company's contributions
for the benefit of Employee under Company's Savings Plan, or any other qualified
retirement plan of Company then in effect, that has not vested as of the date of
Employee's termination, if any, plus an additional amount sufficient to satisfy
Employee's federal or state income tax liability with respect to the foregoing
payment and any additional amount payable pursuant to this Section 2.4, it being
Company's intention that Employee's net after tax position be identical to that
which would have been obtained had Employee not been subject to any federal or
state income tax liabilities with respect to payments made under this Section
2.4.
2.5 Acceleration of Exercisability of Stock Options. In the event
-----------------------------------------------
Employee is terminated for any reason other than under Section 3.2 hereof, or if
Employee's employment terminates by reason of death or disability as described
in Section 3.3 hereof, or in the event of a Constructive Discharge, as defined
below, then all unexer cised options granted to Employee under Company's stock
option plans which would otherwise have vested within twelve (12) months from
the date of Employee's termination or which would otherwise have vested during
the full Term of this Agreement, whichever is greater, shall be deemed fully
vested and exercisable immediately upon Employee's termination. In determining
which options shall become immediately exercisable hereunder, the then
unexercisable options under each grant of options to Employee shall
-2-
<PAGE>
become exercisable. The foregoing benefit shall be in addition to, and not in
lieu of, any similar benefit contained in the Executive Severance Agreement
between Company and Employee, dated as of March 1, 1996 (the "Executive
Severance Agreement"). For purposes of this Agreement, the term "Constructive
Discharge" means a termination of Employee's employment by Employee due to a
failure of Company or its successors, without the prior written consent of
Employee, to fulfill Company's obligations under this Agreement in any material
respect, including any material change by Company in the functions, duties, or
responsibilities of Employee's position with Company which would reduce the
ranking, level, dignity, responsibility, importance or scope of such position.
Section 3. Term.
--------- ----
3.1 Commencement. The term ("Term") of this Agreement shall commence
------------
("Commencement Date") on the date hereof and unless sooner terminated as
provided herein, shall continue thereafter until February 28, 1998; provided
that the Term shall automatically renew for an additional period of two (2)
years unless either party shall deliver written notice to the other of its
intention not to renew the Term not later than ninety (90) days prior to the
applicable renewal date.
3.2 Termination for Material Cause. Company may terminate this Agreement
------------------------------
for material cause, provided that, before Company may terminate this Agreement
for material cause, Company must give Employee at least 30 days' advance written
notice of its intention to terminate, specifying in detail the cause for
termination and the intended termination date. For purposes hereof, the term
"for material cause" shall mean: (a) conviction of a felony involving moral
turpitude relating to the business of Company and which does, in fact, adversely
and directly affect the business of Company; (b) the adjudication by a court of
competent jurisdiction that Employee has committed any act of fraud or
dishonesty resulting or intended to result directly or indirectly in personal
enrichment at the expense of Company; (c) repeated failure or refusal by
Employee to follow policies or directives reasonably established by the
President and Chief Executive Officer of Company that goes uncorrected for a
period of thirty (30) consecutive days after written notice has been provided to
Employee; (d) persistent willful failure by Employee to fulfill his duties
hereunder that goes uncorrected for a period of thirty (30) consecutive days
after written notice has been provided to Employee; or (e) intentional breach by
Employee of Sections 4.1(1), 4.1(2), or Section 4.2 of this Agreement.
3.3 Death and Disability. This Agreement shall automatically terminate
--------------------
upon the death of Employee. Upon thirty (30) days' notice (which notice may be
given prior to the completion of the periods described herein), Company may
terminate this Agreement in the event that Employee has for the preceding six
(6) month period been subject to a physical or mental disability that prevented
Employee from adequately performing Employee's regular duties; provided that
either: (i) immediately upon the effective date of such termination, Employee
shall be eligible to receive full disability
-3-
<PAGE>
benefits under the disability insurance, if any, provided to him by Company, or
(ii) Company shall continue to pay the Salary to Employee until the first to
occur of: (A) full disability benefits are received or (B) one year.
3.4 Rights and Obligations Upon Termination. Upon termination, this
---------------------------------------
Agreement shall be of no further force and effect and neither party shall have
any further right or obligation hereunder; provided however, no termination
shall modify or affect the rights and obligations of the parties which have
accrued prior to termination; and further provided however, the rights and
obligations of the parties under Section 4 shall survive termination of this
Agreement.
Section 4. Information and Competition.
--------- ---------------------------
4.1(1) Information. Employee recognizes and acknowledges that: (i) in
-----------
the course of Employee's employment or continued employment by Company, it will
or may be necessary for Employee to create, use or have access to (A) technical,
business, or customer information, materials, or data relating to Company's
present or planned business which has not previously been released to the public
with Company's authorization, including, but not limited to, confidential
information, materials or proprietary data belonging to Company or relating to
Company's affairs (collectively, the "Confidential Information") and (B)
information and materials that concern Company's business that come into
Employee's possession by reason of employment with Company (collectively,
"Business Related Information"); (ii) the Confidential Information and Business
Related Information are the property of Company; (iii) the use, misappropriation
or disclosure of the Confidential Information or the Business Related
Information would constitute a breach of trust and could cause serious and
irreparable injury to Company; and (iv) it is essential to the protection of
Company's good will and to the maintenance of Company's competitive position
that the Confidential Information and Business Related Information be kept
secret and that Employee not disclose the Confidential Information or the
Business Related Information to others or use same to Employee's own advantage
or the advantage of others.
4.1(2) Non-Disclosure. In recognition of the acknowledgments contained in
--------------
Section 4.1(1) above, Employee agrees during the Term and thereafter: (i) to
hold and safeguard the Confidential Information and Business Related Information
in trust for Company, its successors and assigns; (ii) not to appropriate or
disclose or make available to anyone for use outside of Company's organization
at any time, either during employment with Company or subsequent to the
termination of employment with Company for any reason, any of the Confidential
Information or Business Related Information, whether or not developed by
Employee, except as required in the performance of Employee's duties to Company;
(iii) to keep in strictest confidence, both during Employee's employment and
subsequent to termination of employment, any Confidential Information or
Business Related Information; and (iv) not to disclose or divulge, or allow to
be disclosed or divulged by any person within Employee's control,
-4-
<PAGE>
to any person, firm or corporation, or use directly or indirectly, for
Employee's own benefit or the benefit of others, any Confidential Information or
Business Related Information.
4.2 Competition. During the Term and thereafter Employee:
-----------
(a) for a period of one (1) year shall not solicit for employment or
employ for his own or for another's benefit any employee, former employees,
officer, director or consultant of Company; and
(b) for a period of one (1) year shall not directly or indirectly, (on
his own behalf or as an officer, director, consultant, partner, owner,
stockholder, employee, creditor, agent, trustee or advisor of any individual,
partnership or corporation or other entity (hereinafter a "Person") or in any
other capacity) own, manage, control, operate, invest or acquire an interest in
or otherwise engage in or act for or on behalf of any Person other than Company
engaged in any activity, in those states within the United States and those
countries outside the United States in which Company or any of its subsidiaries
during his employment had conducted any business, where such activity is similar
to and competitive with the activities carried on by Company or any of its
subsidiaries during his employment by Company or is, directly or indirectly,
concerned with soliciting, serving or catering to any of the customers,
patients, physicians or hospitals served by Company or its subsidiaries during
his employment by Company for the provision of products or services of a nature
offered by Company during the Term; provided that nothing herein shall restrict
the Employee from owning five percent (5%) or less of the issued and outstanding
stock of a public company. Employee acknowledg es that the nature of Company's
activities is such that competitive activities could be conducted effectively
regardless of the geographic distance between Company's place of business and
the place of any competitive business.
4.3 Enforcement. In the event that any part of this Section 4 shall be
-----------
held unenforceable or invalid, the remaining parts thereof shall nevertheless
continue to be valid and enforceable as though the invalid portions had not been
a part hereof. In the event that the area, period of restriction, activity or
subject established in accordance with this Section 4 shall be deemed to exceed
the maximum area, period of restriction, activity or subject that a court of
competent jurisdiction deems enforceable, said area, period of restriction,
activities or subjects shall, for the purpose of this Section 4, be reduced to
the extent necessary to render them enforceable.
4.4 Equitable Relief. Employee agrees that any violation by him of any
----------------
covenant in Section 4 may cause such damage to Company as will be serious and
irreparable and the exact amount of which will be difficult to ascertain, and
for that reason, Employee agrees that Company shall be entitled, as a matter of
right, to a temporary, preliminary and/or permanent injunction and/or other
injunctive relief, ex parte or otherwise, from any court of competent
jurisdiction, restraining any further violations
-5-
<PAGE>
by Employee. Such injunctive relief shall be in addition to and in no way in
limitation of, any and all other remedies Company shall have in law and equity
for the enforcement of such covenants and provisions.
4.5 Indemnification and Payment. In the event of Employee's violation of
---------------------------
any covenant in Section 4, Employee shall indemnify and hold harmless Company
from any loss, liability, cost or expense (including reasonable attorney's fees)
arising out of such violation and shall pay over to Company any benefit received
by Employee in connection with such violation.
4.6 Documents. Upon the termination of Employee's employment with Company
---------
for any reason, Employee shall promptly deliver to Company all materials and
documents belonging to or concerning Company or relating to its affairs and,
without limiting the foregoing, will promptly deliver to Company any and all
other documents or materials containing or constituting Confidential Information
or Business Related Information.
Section 5. Entire Agreement. This Agreement supersedes any and all prior
--------- ----------------
agreements between the parties and represents the entire understanding of the
parties hereto with respect to the employment of Employee and there are no other
agreements, warranties or representations except as herein provided. The
parties acknowledge that this Agreement shall not affect any prior, subsequent,
or contemporaneous agreements between the parties respecting Confidential
Information or Business Related Information. This Agreement including this
Section 5 may not be altered or amended except in writing executed by both
parties hereto. Notwithstanding the execution and delivery of this Agreement
and anything herein to the contrary, the Executive Severance Agreement shall
remain in full force and effect as of the date hereof.
Section 6. Assignment; Benefit. This Agreement is personal and may not be
--------- -------------------
assigned by Employee. This Agreement may be assigned by Company and shall inure
to the benefit of and be binding upon the successors and assigns of Company.
Section 7. Applicable Law. This Agreement shall be governed by the
--------- --------------
internal laws of the Commonwealth of Pennsylvania, without regard to conflicts
of laws provisions.
Section 8. Notice. Any notice required or permitted to be given hereunder
--------- ------
shall be sufficient if in writing and if sent by certified or registered mail to
the last address as shall appear on the records of Company in the case of
Employee or to its principal office in the case of Company.
Section 9. Waiver. The waiver by any party of a breach of any provision
--------- ------
of this Agreement by the other shall not operate or be construed as a waiver of
any other or subsequent breach of such or any provision.
-6-
<PAGE>
Section 10. Jurisdiction. Employee hereby submits to the jurisdiction of
---------- ------------
the courts of the Commonwealth of Pennsylvania or of the United States Court for
the Eastern District of Pennsylvania in any action or dispute arising out of
this Agreement, its interpretation or implementation. With respect to the
undersigned submitting to said courts of the Commonwealth of Pennsylvania or of
said United States court, Employee agrees that personal jurisdiction over
Employee may be obtained by the mailing of a summons or complaint (postage
prepaid) to Employee at the last address of Employee as shall appear on the
records of Company.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals as of the day and year set forth above.
RENAL TREATMENT CENTERS, INC.
By:/s/ Robert L. Mayer, Jr.
-----------------------------------------------
Robert L. Mayer, Jr.,
President and Chief
Executive Officer
Witness:/s/ Thomas J. Karl /s/ Mark Zawiski
------------------ -----------------------------------------------
Mark Zawiski
-7-
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
-----------------------------
THIS AGREEMENT is made as of the 1st day of March, 1996 between RENAL
TREATMENT CENTERS, INC. (the "Company"), a Delaware corporation, and MARK
ZAWISKI (the "Executive").
RECITALS:
--------
The Company considers the employment and maintenance of continuity in its
key management personnel to be essential to protecting and enhancing the best
interests of the Company and its shareholders. In this connection the Company
recognizes that the possibility of a change of control may exist and that such
possibility, and the uncertainty and questions that it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its shareholders. Accordingly, the Company's
Board of Directors (the "Board") has determined that appropriate steps should be
taken to reinforce and encourage employment of the Executive and the Executive's
continued attention and dedication to his assigned duties without distraction in
the face of the potentially disturbing circumstances arising from the
possibility of a change of control of the Company.
In order to induce the Executive to accept employment and to thereafter
remain in the employ of the Company notwithstanding the occurrence of a Change
of Control of the Company (as defined in Section 7 of this Agreement), the
Company is willing to employ the Executive in accordance with the terms of that
certain Employment Agreement dated as of March 1, 1996 between the Company and
the Executive (the "Employment Agreement") and thereafter in accordance with
such terms as may be agreed upon by the Executive and the Company and, if a
Change of Control shall occur during such employment period, the Company is
willing to continue to employ the Executive for a period equal to the remaining
term under the Employment Agreement or 12 months immediately following the date
of Change of Control, whichever is greater, on the terms and conditions set
forth in this Agreement.
In consideration of the undertakings of the Company in this Agreement, and
intending to be legally bound hereby, the Executive is willing to continue to
serve the Company in a management capacity in accordance with the terms of the
Employment Agreement and, if a Change of Control shall occur during such
employment period, the Executive is willing to serve the Company for a period
equal to the remaining term under the Employment Agreement or 12 months
immediately following the date of Change of Control, whichever is greater, on
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and covenants set forth
herein, and intending to be legally bound hereby, it is agreed as follows:
<PAGE>
1. Employment.
----------
(a) The Company hereby affirms, confirms and reaffirms its agreement
to employ the Executive and the Executive hereby affirms, confirms and reaffirms
his agreement to be employed by the Company in accordance with the terms of the
Employment Agreement, the term of which shall be subject to extension as
provided in Section 1(b) hereof.
(b) If the Executive is employed by the Company on the date on which
a Change of Control of the Company occurs, then, except as otherwise provided in
Sections 4 and 5(a), the Company agrees to employ the Executive, and the
Executive agrees to serve the Company, in a management capacity for a period of
(i) the remaining term under the Employment Agreement or (ii) twelve (12)
months, whichever is greater, commencing on the date on which the Change of
Control occurs.
(c) The period following a Change of Control during which the
Executive shall be employed pursuant to this Agreement is hereinafter referred
to as the "Post Change of Control Employment Period."
2. Duties.
------
(a) During the Post Change of Control Employment Period, the
Executive's duties on behalf of the Company shall be in the same area of
operations and the same corporate capacity and of the same general nature as
those performed by him prior to the Post Change of Control Employment Period.
(b) During the Post Change of Control Employment Period, the
Executive shall devote such amount of his time, energy and skills to the
endeavors of the Company and the promotion of its interests as prior to the Post
Change of Control Employment Period.
(c) The Executive agrees that during the Post Change of Control
Employment Period he shall be subject to the non-competition provisions of the
Employment Agreement or any non-competition agreement between the Executive and
the Company entered into prior to the Post Change of Control Employment Period.
3. Compensation.
------------
(a) As consideration for the undertakings of the Executive in this
Agreement, and as compensation for the Executive's services during the Post
Change of Control Employment Period, the Company shall pay the Executive a
salary at least equal to the base salary that the Executive is being paid by the
Company on the date on which the Change of Control occurs.
(b) During the Post Change of Control Employment Period, the
Executive shall be entitled to employee benefits (including, but not limited to,
retirement benefits, medical
-2-
<PAGE>
insurance, disability insurance, other insurance programs and vacations) no less
favorable than those to which he is entitled on the date on which the Change of
Control occurs.
(c) In addition to all other compensation to be paid to the Executive
by the Company hereunder, upon the occurrence of a Change of Control, the
Company shall cause all options to purchase the Company's common stock
("Options") granted to the Executive under the Company's stock option plans to
automatically become fully vested and exercisable immediately upon a Change of
Control. In addition, the Executive shall have the right exercisable by
written notice to the Company to elect to receive, in lieu of shares of common
stock of the Company (the "Company Shares") issuable upon the exercise of
Options (which Options shall be cancelled upon the making of the payment
referred to below), an amount in cash equal to the aggregate spread between the
exercise prices of all Options held by the Executive, whether or not then fully
vested or exercisable, and the higher of (A) the closing price of Company Shares
as reported on the principal securities exchange on which the Company's common
stock is traded or if the principal trading market for the Company's common
stock is the Nasdaq National Market then such market on the date of Change of
Control (or the last trading date prior thereto), or (B) the highest price per
Company Share actually paid in connection with the Change of Control of the
Company (the higher price being referred to as the "Termination Price"), but
excluding from such calculation all Options the exercise price of which is in
excess of the Termination Price.
4. Death or Disability.
-------------------
(a) If the Executive shall die during the Post Change of Control
Employment Period, the Company's remaining obligations under this Agreement
shall terminate.
(b) If, during the Post Change of Control Employment Period, the
Executive shall, in the reasonable opinion of the Board, become totally disabled
or incapacitated for a period of at least six consecutive months, the Company
shall so notify the Executive in writing and, upon the expiration of such six-
month period or such later time as shall be specified in the Company's notice,
the Post Change of Control Employment Period shall terminate.
5. Termination.
-----------
(a) If, during the Post Change of Control Employment Period, the
Executive shall terminate his employment other than for Good Reason (as defined
in Section 7 of this Agreement) or other than for Constructive Discharge (as
defined in the Employment Agreement) or shall violate the provisions of Section
2(c) hereof, the Company's remaining obligations under this Agreement shall
terminate.
(b) The Company shall have the right to terminate the Post Change of
Control Employment Period of the Executive under this Agreement for Material
Cause (as defined in the Employment Agreement), and for no other reason. Upon
such termination, the Company's remaining obligations under this Agreement shall
terminate. For purposes of
-3-
<PAGE>
this Section 5(b), the Executive shall not be deemed to have been terminated for
Material Cause unless,in addition to the requirements set forth in the
definition of Material Cause in the Employment Agreement, the Executive lacked
good faith and a reasonable belief that his conduct was in the best interest of
the Company. Moreover, any conduct of the Executive in connection with a Change
of Control (including his opposition to or support of a Change of Control) shall
not under any circumstances be deemed to constitute Material Cause for purposes
of this Agreement.
(c) If the Executive shall terminate his employment for Good Reason
or by reason of Constructive Discharge prior to the end of the Post Change of
Control Employment Period, the Executive shall receive the same payments that
would have been provided to the Executive under Sections 5(e) and 5(f) hereof.
(d) If the Company shall terminate the employment of the Executive
prior to the end of the Post Change of Control Employment Period for any reason
other than Material Cause as provided in Section 5(b) of this Agreement or total
disability or incapacity for a period of at least six consecutive months as
provided in Section 4(b) of this Agreement, or if the Executive shall terminate
his employment for Good Reason or by reason of Constructive Discharge prior to
the end of the Post Change of Control Employment Period, the Executive shall be
entitled to receive such payments and benefits as are specifically provided by
this Agreement for a period equal to the balance of the Post Change of Control
Employment Period as if such termination had not occurred.
(e) Except as provided in Sections 4(a), 4(b) and 5(b) hereof, if the
Executive's employment is terminated by the Company prior to the end of the Post
Change of Control Employment Period, the Executive shall receive his base salary
in effect immediately prior to the date on which the Change of Control occurs
until the expiration of the Post Change of Control Employment Period as if such
termination had not occurred.
(f) If the Executive is entitled to continue to receive salary
pursuant to Section 5(d) of this Agreement after the termination of his
employment, he shall also be entitled to receive employee fringe and welfare
benefits (including, but not limited to, medical insurance, disability insurance
and other insurance programs) at least comparable to those to which he was
entitled immediately prior to the date on which such termination occurs. If the
terms of any of the Company's welfare benefit plans do not permit continued
participation by the Executive, the Company shall arrange to provide to the
Executive a benefit substantially similar to, and no less favorable than, the
benefit he was entitled to receive under such plan at the end of the period of
coverage.
(g) In addition to all other amounts payable to the Executive under
this Section 5, upon the termination of his employment, the Executive shall be
entitled to receive all benefits (as if he were employed until the end of the
Change of Control Post Employment Period) payable to the Executive under the
Company's tax-qualified retirement plan and any other plan or agreement relating
to retirement benefits.
-4-
<PAGE>
(h) Any purported termination of the Executive's employment by the
Company or by the Executive shall be communicated by a Notice of Termination to
the other party hereto in accordance with Section 12 hereof. A "Notice of
Termination" shall mean a written notice that indicates the specific termination
provision in this Agreement relied upon and sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment.
(i) Notwithstanding anything to the contrary set forth herein, upon
the termination of this Agreement, the Employee shall be entitled to receive any
payments or benefits under any benefit or retirement plans or other arrangements
that would, by their terms, apply.
6. Expense Reimbursement. In the event that any person asserts the
---------------------
invalidity of all or any part of this Agreement and the Executive incurs legal
fees or out-of-pocket expenses in connection with defending the validity of all
or a portion of this Agreement, the Company shall reimburse the Executive for
all legal fees and out-of-pocket expenses the Executive so incurs.
7. Definitions.
-----------
(a) For purposes of this Agreement, "Change of Control" shall be
deemed to have occurred if, during the term of this Agreement:
(i) the beneficial ownership of at least 50% of the
Company's voting securities or all or substantially all of the assets of the
Company shall have been acquired, directly or indirectly, by a single person or
a group of affiliated persons, other than the Executive or a group in which the
Executive is a member, in any transaction or series of transactions; or
(ii) as the result of or in connection with any cash
tender offer, exchange offer, sale of assets, merger, consolidation or other
business combination of the Company with another corporation or entity or
contested election of directors, the persons who were directors of the Company
immediately prior to such occurrence shall cease to constitute a majority of the
Board of Directors of the Company or the surviving, new or combined entity and
any corporation or entity that shall control the Company or the surviving, new
or combined entity.
(b) For purposes of this Agreement, the date of Change of Control
shall mean the earlier to occur of:
(i) the first date on which a single person or group of
affiliated persons acquires the beneficial ownership of 50% or more of the
Company's voting securities or all or substantially all of the Company's assets
in any transaction or series of transactions; or
(ii) the date on which a cash tender offer, exchange
offer, sale of assets, merger, consolidation, other business combination or
contested election of directors
-5-
<PAGE>
resulting in the change in the Board of Directors contemplated by Section
7(a)(ii) hereof is consummated.
(c) For purposes of this Agreement, the term "Good Reason" shall mean
the occurrence of any of the following events after the date of Change of
Control without the Executive's express written consent:
(i) the assignment to the Executive of any duties that
are not in the same corporate capacity or area of operations or are not of the
same general nature as the Executive's duties with the Company immediately prior
to a Change of Control or the failure by the Company to provide the Executive
office accommodations and assistance substan tially equivalent to the
accommodations and assistance provided to the Executive immediately prior to the
Change of Control;
(ii) a reduction in the Executive's compensation as in
effect on the date of the Change of Control or as the same may be increased
thereafter; or
(iii) the Company's assigning the Executive to a facility
situated beyond the radius of 30 miles from the facility to which he was
assigned immediately prior to a Change of Control.
8. Excess Parachute Payment. In the event that any payment or benefit
------------------------
received or to be received by the Executive in connection with a Change of
Control (whether payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any successor to the Company or
any corporation ("Affiliate") affiliated with the Company or which becomes so
affiliated pursuant to the transactions resulting in a Change of Control, both
within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), (collectively all such payments are hereinafter referred
to as the "Total Payments")) is deemed to be an "excess parachute payment" (in
whole or part) to the Executive as a result of Section 280G and/or 4999 of the
Code, no change shall be made to the Total Payments to be made in connection
with the Change of Control except that, in addition to any other payment,
coverage or benefit due and owing hereunder, the Company shall pay to Executive
on the date on which a Change of Control occurs a cash payment equal to an
amount determined by multiplying the rate of excise tax then imposed by Section
4999 by the amount of the "excess parachute payment" received by the Executive
(determined without regard to any payments made to the Executive pursuant to
this Section) and dividing the product so obtained by the amount obtained by
subtracting the aggregate local, state and Federal income tax rate applicable to
the receipt by Executive of the "excess parachute payment" (taking into account
the deductibility for Federal income tax purposes of the payment of state and
local income taxes thereon) from the amount obtained by subtracting from 1.00
the rate of excise tax then imposed by Section 4999 of the Code, it being the
Company's intention that the Executive's net after tax position be identical to
that which would have obtained had Sections 280G and 4999 not been part of the
Code.
-6-
<PAGE>
For purposes of implementing this Section 8, the following provisions shall
apply: (i) no portion, if any, of the Total Payments, the receipt or enjoyment
of which the Executive shall have effectively waived in writing prior to the
date of payment of the Total Payments, shall be taken into account; and (ii) the
value of any non-cash benefit or any deferred cash payment included in the Total
Payments shall be determined by the Company's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
9. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of any successor to the Company including without limitation any
successor to all or substantially all of the business or assets of the Company,
and such successor shall also be responsible for the discharge and performance
of all obligations of the Company hereunder.
10. Successors. The Company will require any successor (whether direct or
----------
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled hereunder if the
Executive terminated his employment for Good Reason or for Constructive
Discharge.
11. Notice. Notices and all other communications provided for in this
------
Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested,
postage prepaid, addressed to the Company at its principal office and to the
Executive at his principal residence as shown in the Company's personnel
records, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
12. Conflict with Other Agreements. In the event of any conflict between
------------------------------
the provisions of this Agreement and the Employment Agreement, the provisions of
this Agreement shall control.
13. Effective Date. This Agreement shall become effective on the date
--------------
Executive's employment with Company commences pursuant to the terms of the
Employment Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Attest: RENAL TREATMENT CENTERS, INC.
/s/ Thomas J. Karl By:/s/ Robert L. Mayer, Jr.
- -------------------------- -------------------------------------
President
Witness:
/s/ Thomas J. Karl /s/ Mark Zawiski
- -------------------------- ----------------------------------------
Mark Zawiski
-8-
<PAGE>
Exhibit 11.1
Renal Treatment Centers, Inc. and Subsidiaries
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
for the three and nine months ended September 30, 1996
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
Primary Fully Diluted Primary Fully Diluted
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,481,091 $ 4,481,091 $13,091,348 $13,091,348
Add back interest on Denver earn out note, tax effected --- 53,206 --- 183,580
Add back interest on convertible notes, tax effected 1,132,032 1,132,032 1,355,906 1,355,906
- ----------------------------------------------------------------------------------------------------------------------------------
Net income available to common stockholders $ 5,613,123 $ 5,666,329 $14,447,254 $14,630,834
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 24,300,036 24,300,036 24,164,022 24,164,022
Weighted average number of maximum shares subject
to exercise under outstanding stock options 1,741,535 1,741,535 1,654,288 1,655,655
Weighted average shares assumed issued upon
conversion of earn out note --- 519,097 --- 598,095
Weighted average shares assumed issued upon
conversion of convertible notes 3,654,971 3,654,971 1,480,663 1,480,633
- ----------------------------------------------------------------------------------------------------------------------------------
29,696,542 30,215,639 27,298,973 27,898,405
Less treasury shares assumed purchased with proceeds
from assumed exercise of outstanding common stock
options 806,268 735,606 799,835 658,075
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common and common
stock equivalents outstanding 28,890,274 29,480,033 26,499,138 27,240,330
- ----------------------------------------------------------------------------------------------------------------------------------
Net income per common and common stock equivalent $0.19 $0.19 $0.55 $0.54
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 11.1
Renal Treatment Centers, Inc. and Subsidiaries
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
for the three and nine months ended September 30, 1995
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1995 September 30, 1995
Primary Fully Diluted Primary Fully Diluted
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,546,062 $ 3,546,062 $ 9,922,622 $ 9,922,622
Add back interest on Denver earn out note, tax effected --- 67,665 --- 214,727
- ----------------------------------------------------------------------------------------------------------------------------------
Net income available to common stockholders $ 3,546,062 $ 3,613,727 $ 9,922,622 $10,137,349
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 22,033,059 22,033,059 21,764,159 21,764,159
Weighted average number of maximum shares subject
to exercise under outstanding stock options 1,403,184 1,403,184 1,498,968 1,498,968
Weighted average shares assumed issued upon
conversion of earn out note --- 661,502 --- 689,446
- ----------------------------------------------------------------------------------------------------------------------------------
23,436,243 24,097,745 23,263,127 23,952,573
Less treasury shares assumed purchased with proceeds
from assumed exercise of outstanding common stock options 570,922 736,754 897,864 744,474
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common and common
stock equivalents outstanding 22,865,321 23,360,991 22,365,263 23,208,099
- ----------------------------------------------------------------------------------------------------------------------------------
Net income per common and common stock equivalent $0.16 $0.15 $0.44 $0.44
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,782,862
<SECURITIES> 40,593,199
<RECEIVABLES> 72,929,062
<ALLOWANCES> 1,958,560
<INVENTORY> 3,950,426
<CURRENT-ASSETS> 121,908,955
<PP&E> 53,490,351
<DEPRECIATION> 17,912,215
<TOTAL-ASSETS> 290,947,208
<CURRENT-LIABILITIES> 29,907,149
<BONDS> 130,698,684
0
0
<COMMON> 244,126
<OTHER-SE> 130,097,249
<TOTAL-LIABILITY-AND-EQUITY> 290,947,208
<SALES> 0
<TOTAL-REVENUES> 169,247,919
<CGS> 0
<TOTAL-COSTS> 82,425,019
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,961,562
<INTEREST-EXPENSE> 2,977,655
<INCOME-PRETAX> 21,391,584
<INCOME-TAX> 8,300,236
<INCOME-CONTINUING> 13,091,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,091,348
<EPS-PRIMARY> .55
<EPS-DILUTED> .54
</TABLE>
