<PAGE>
Form 10-Q/A
Amendment No. 1
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 June 30, 1997
------------------------
( ) 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
- -------------------------------------- -----------------------
(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
- -------------------------------------- -----------------------
(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 August 7, 1997
----- -----------------------------------------
Common Stock, Par Value $.01 24,989,141 shares
<PAGE>
INTRODUCTORY STATEMENT
Renal Treatment Centers, Inc. ("RTC") was acquired by Total Renal Care
Holdings, Inc. ("TRCH") on February 27, 1998. On April 1, 1998, TRCH announced
(i) that it had undertaken a detailed review of RTC's accounts receivable and
other balance sheet accounts in connection with the completion of the audit of
RTC's financial statements for the fiscal year ended December 31, 1997, and (ii)
that as a result of such review, it expected to recognize between $25 million
and $30 million of non-cash charges related to prior periods which would require
a revision of RTC's previously announced results of operations. On April 30,
1998, TRCH announced that RTC might be required to correct previously audited
financial statements.
The analysis of RTC's financial statements was completed on May 15, 1998. In
order to correct certain errors discovered through such analysis, TRCH has
determined to (i) restate RTC's financial statements for the fiscal year ended
December 31, 1996, (ii) revise RTC's financial statements for the quarterly
periods ended March 31, 1997, June 30, 1997 and September 30, 1997 and (iii)
revise RTC's previously announced results of operations for the fiscal quarters
ended March 31, 1996 and 1997, June 30, 1996 and 1997, September 30, 1996 and
1997 and December 31, 1996 and 1997 and the fiscal years ended December 31, 1996
and 1997. This Form 10-Q/A is being filed to correct the financial statements
included in the Form 10-Q for the quarterly period ended June 30, 1997 which was
filed on August 14, 1997 (the "Second Quarter 10-Q"). RTC is concurrently filing
(i) separate Form 10-Q/A's to correct the financial statements included in its
Form 10-Q's previously filed for the quarterly periods ended March 31, 1997 and
September 30, 1997 and (ii) a Form 10-K/A to correct the financial statements
included in the Form 10-K for the year ended December 31, 1996 which was filed
on March 29, 1997.
The balance sheets included in the Second Quarter 10-Q are being amended
hereby to reflect a reduction of accounts receivable at June 30, 1997 and at
December 31, 1996 and to reflect the balance sheet impact of (i) the restatement
of RTC's financial statements for the year ended December 31, 1996 and (ii) the
revision of the statement of income for the six months ended June 30, 1997.
The statements of income included in the Second Quarter 10-Q are being amended
hereby to reflect related reductions of net patient revenue, related increases
in the provision for doubtful accounts and related reductions in the provision
for income taxes. For the interim periods ended June 30, 1997, the reduction in
the provision for income taxes was offset, in part, by an increase in the
provision for income taxes primarily related to RTC's foreign operations. (See
Note 2 of the financial statements filed herewith.)
Approximately one half of the charges described above relate to untimely
billing and subsequent requests for information by RTC with governmental payors
(primarily state medicaid programs) and contracted private payors. The remainder
relates primarily to improper contractual allowances related to revenue
recognition at the time of billing and to uncollectible accounts. TRCH believes
that the causes of such problems have been appropriately addressed and that
systems and processes are now in place to ensure accurate contractual allowances
related to revenue recognition and timely account resolution, including all
appropriate collection efforts.
Information included in Item 2 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) under the captions "Results of
Operations" and "Six Months Ended June 30, 1997 Compared to Six Months Ended
June 30, 1996" of the Second Quarter 10-Q was based on RTC's unaudited
consolidated financial statements prior to the amendments described above.
Consequently, the information included in Item 2 under such captions overstates
both net patient revenue and the provision for income taxes and understates the
provision for doubtful accounts as described above. RTC believes that the
amendment of Item 2 to reflect such changes would provide no material additional
information not already presented in Item 2 of the Second Quarter 10-Q or in
this Form 10-Q/A. Consequently, such Item 2 is not restated in this Form 10-
Q/A.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Renal Treatment Centers, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 9,129,138 $ 1,445,798
Investments - 41,202,123
Accounts Receivable, net of allowance for doubtful accounts of
$9,109,321 in 1997 and $7,853,350 in 1996 75,222,707 65,198,524
Inventories 5,064,238 4,388,290
Deferred Taxes 2,014,742 2,149,718
Prepaid expenses and other current assets 6,943,144 2,749,497
Income tax receivable 4,392,107 3,782,890
- ----------------------------------------------------------------------------------------------------------
Total current assets 102,766,076 120,916,840
- ----------------------------------------------------------------------------------------------------------
Property and equipment (net of accumulated depreciation of $24,832,100
in 1997 and $19,691,015 in 1996) 51,891,707 39,578,245
Intangibles (net of accumulated amortization of $40,523,648 in 1997 and
$32,934,871 in 1996) 187,097,297 130,645,378
Deferred Taxes, non-current 2,807,064 2,807,064
- ----------------------------------------------------------------------------------------------------------
Total assets $344,562,144 $293,947,527
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 1,313,808 $ 12,369,365
Accounts payable 10,848,340 11,341,983
Accrued compensation 4,464,111 3,838,502
Accrued expenses 5,956,394 4,051,614
Accrued income taxes - -
Accrued interest 3,430,002 3,638,874
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 26,012,655 35,240,338
- ----------------------------------------------------------------------------------------------------------
Long-term debt, net 175,629,792 130,573,685
Commitments and contingencies
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 25,025,739 and 24,430,256 shares in 1997
and 1996, respectively 250,257 244,303
Additional paid-in capital 94,094,774 87,890,138
Retained earnings 48,962,344 40,393,139
- ----------------------------------------------------------------------------------------------------------
143,307,375 128,527,580
- ----------------------------------------------------------------------------------------------------------
Less treasury stock, 36,598 shares in 1997 and 37,202 shares in
1996, at cost (387,678) (394,076)
- ----------------------------------------------------------------------------------------------------------
142,919,697 128,133,504
- ----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $344,562,144 $293,947,527
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Renal Treatment Centers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net patient revenue $74,963,047 $53,136,553 $143,870,701 $101,392,035
Patient care costs 36,672,989 26,997,151 70,998,558 51,482,378
- ------------------------------------------------------------------------------------------------------------------
Operating profit 38,290,058 26,139,402 72,872,143 49,909,657
General and administrative expense 19,270,596 13,479,366 36,748,462 26,632,717
Provision for doubtful accounts 2,701,091 2,595,464 5,515,138 4,971,399
Depreciation and amortization expense 6,333,987 4,072,917 12,067,654 7,645,118
Merger expenses - - - 1,708,247
- ------------------------------------------------------------------------------------------------------------------
Income from operations 9,984,384 5,991,655 18,540,889 8,952,176
- ------------------------------------------------------------------------------------------------------------------
Interest expense, net 2,154,831 856,313 3,978,874 1,553,433
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,829,553 5,135,342 14,562,015 7,398,743
Provision for income taxes 3,223,464 1,745,276 5,992,810 2,550,080
- ------------------------------------------------------------------------------------------------------------------
Net income $ 4,606,089 $ 3,390,066 $ 8,569,205 $ 4,848,663
- ------------------------------------------------------------------------------------------------------------------
Net income per common share $0.18 $0.13 $0.35 $0.19
Weighted average number of common
shares outstanding 24,962,389 25,828,734 24,737,326 25,284,349
Net income per common share--
assuming dilution $0.18 $0.13 $0.33 $0.19
Weighted average number of common
shares and equivalents outstanding--
assuming dilution 25,844,770 27,256,337 25,789,820 26,711,952
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Renal Treatment Centers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,569,205 $ 4,848,663
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 12,255,154 7,666,084
Deferred income taxes - -
Provision for doubtful accounts 5,515,138 4,971,399
Equity in (earnings) losses from affiliates (74,377) -
Changes in operating assets and liabilities, net of effects of companies acquired:
Accounts receivable (15,539,321) (6,614,644)
Inventories (238,434) (673,916)
Prepaid expenses and other current assets (4,096,908) 239,556
Accounts payable and accrued expenses 1,298,221 (5,722,617)
Accrued income taxes (579,426) (4,348,124)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities 7,109,252 366,401
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (9,939,392) (6,188,493)
Purchase of businesses, net of cash acquired (71,138,095) (37,030,623)
Purchase of investments - (55,311,043)
Sale of investments 41,202,123 9,347,962
Other 1,137,712 (979,804)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (38,737,652) (90,162,001)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt borrowings 48,000,000 30,500,000
Repayments of debt (8,910,952) (70,420,804)
Issuance of 5 5/8% convertible subordinated notes - 125,000,000
Net borrowings under line of credit - (50,000)
Proceeds from issuance of common stock 827,118 2,137,012
Payment of dividends - (658,500)
Debt issuance costs - (3,750,000)
Increase in financing fees - -
Payments on capital lease obligations (604,426) (1,535,784)
Cash portion of consideration received for common stock - 963,699
- ------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities 39,311,740 82,185,623
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 7,683,340 (7,609,977)
Cash and cash equivalents at beginning of period 1,445,798 8,231,421
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 9,129,138 $ 621,444
==============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<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 six months ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. The interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K filed with the Securities
and Exchange Commission on March 28, 1997.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 establishes standards for computing and presenting earnings per share. Basic
earnings per share is calculated by dividing net income before extraordinary
items and net income by the weighted average number of shares of common stock
outstanding. Accordingly, earnings per common share--assuming dilution includes
the dilutive effects of stock options and warrants using the treasury stock
method, in determining the weighted average number of shares of common stock
outstanding. Earnings per share for all periods presented have been restated
following the provisions of SFAS 128.
3. SELECTED QUARTERLY FINANCIAL DATA
The financial information as previously presented for the three months ended
June 30, 1997 and 1996 and the six months ended June 30, 1997 and 1996 in the
Registrant's Form 10-Q as filed August 14, 1997 and August 5, 1996 has been
restated to correct net patient revenue and the provision for doubtful accounts
receivable and to correct the 1997 provision for income taxes primarily related
to the Company's foreign operations with the following effect (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
For the three months ended June 30,
1997 1996
----------------------- -----------------------
As As
Originally As Originally As
Reported Restated Reported Restated
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net patient revenue 77,273 74,963 55,583 53,137
Operating expenses 64,325 64,979 46,287 47,145
Income from operations 12,948 9,984 9,296 5,992
Provision for income taxes 4,048 3,223 3,009 1,745
Net income 6,746 4,606 5,431 3,390
Net income per common share 0.27 0.18 0.21 0.13
Net income per common share--assuming dilution 0.26 0.18 0.21 0.13
<CAPTION>
For the six months ended June 30,
1997 1996
----------------------- -----------------------
As As
Originally As Originally As
Reported Restated Reported Restated
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net patient revenue 148,381 143,871 106,133 101,392
Operating expenses 124,054 125,330 90,777 92,440
Income from operations 24,327 18,541 15,356 8,952
Provision for income taxes 7,583 5,993 5,000 2,550
Net income 12,765 8,569 8,803 4,849
Net income per common share 0.52 0.35 0.35 0.19
Net income per common share--assuming dilution 0.49 0.33 0.33 0.19
</TABLE>
4. 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 effect on the Company's results of
operations, financial condition or liquidity.
5. SIGNIFICANT EVENTS:
Business Acquisitions:
During the second quarter of 1997, the Company acquired thirteen dialysis
centers. Ten of the centers are located in the Republic of Argentina, two
centers are located in Texas and one center is located in Pennsylvania.
Combined, these centers provide care to an effective patient base of
approximately 800.
During the first quarter of 1997, the Company acquired twelve dialysis centers,
including one center operating under a management agreement. Eight of the
centers are located in Texas, two centers are located in the Republic of
Argentina and one center each is located in Nevada, Florida and Pennsylvania.
Combined, these centers provide care to an effective patient base of
approximately 830.
Other Events:
On May 2, 1997, the Company amended its revolving credit/term facility ("Credit
Agreement") to increase the amount available under the Credit Agreement from
$100,000,000 to $200,000,000 and to make certain other changes to the terms of
the Credit Agreement, including amendments to certain covenants, the
amortization schedule and the interest rates.
5
<PAGE>
Part II. Other Information
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K:
Exhibits
10.11 Fifth Amended and Restated Loan Agreement dated as of May 2,
1997 between the Company and First Union National Bank of North
Carolina and the other lenders set forth therein (previously
filed under the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997).
11.1 Computation of net income per common share and net income per
common share -- assuming dilution.
27.1 Amended Financial Data Schedule.
27.2 Amended Financial Data Schedule.
(b) Reports on Form 8-K
None.
<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.
By: /s/ John E. King
--------------------------
John E. King
Vice President Finance and
Chief Financial Officer
Date: May 18, 1998
7
<PAGE>
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.11 Fifth Amended and Restated Loan Agreement dated as of
May 2, 1997 between the Company and First Union
National Bank of North Carolina and the other lenders
set forth therein (previously filed under the Company's
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1997).
11.1 Computation of net income per common share and net
income per common share--assuming dilution.
27.1 Amended Financial Data Schedule.
27.2 Amended Financial Data Schedule.
</TABLE>
<PAGE>
Exhibit 11.1
Renal Treatment Centers, Inc. and Subsidiaries
COMPUTATION OF NET INCOME PER COMMON SHARE
AND NET INCOME PER COMMON SHARE--ASSUMING DILUTION
for the three and six months ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reconciliation of numerator:
Net income for use in computing net income per
common share $ 4,606,089 $ 3,390,066 $ 8,569,205 $ 4,848,663
Add back interest on note, tax effected 34,122 62,708 34,122 130,373
------------------------- -----------------------------
Adjusted net income for use in computing net
income per common share--assuming dilution $ 4,640,211 $ 3,452,774 $ 8,603,327 $ 4,979,036
========================= =============================
Reconciliation of denominator
Weighted average number of shares outstanding for
use in computing net income per common share 24,962,389 25,828,734 24,737,326 25,284,349
Weighted average shares assumed issued upon conversion
of note 54,771 661,501 246,914 661,501
Dilutive effect of outstanding stock options 827,610 766,102 805,580 766,102
------------------------- -----------------------------
Weighted average number of common shares and equivalents
outstanding--assuming dilution 25,844,770 27,256,337 25,789,820 26,711,952
========================= =============================
Net income per common share $ 0.18 $ 0.13 $ 0.35 $ 0.19
========================= =============================
Net income per common share--assuming dilution $ 0.18 $ 0.13 $ 0.33 $ 0.19
========================= =============================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 9,129,138 9,129,138
<SECURITIES> 0 0
<RECEIVABLES> 84,332,028 84,332,028
<ALLOWANCES> 9,109,321 9,109,321
<INVENTORY> 5,064,238 5,064,238
<CURRENT-ASSETS> 102,766,076 102,766,076
<PP&E> 76,723,807 76,723,807
<DEPRECIATION> 24,832,100 24,832,100
<TOTAL-ASSETS> 344,562,144 344,562,144
<CURRENT-LIABILITIES> 26,012,655 26,012,655
<BONDS> 175,629,792 175,629,792
0 0
0 0
<COMMON> 250,257 250,257
<OTHER-SE> 142,669,440 142,669,440
<TOTAL-LIABILITY-AND-EQUITY> 344,562,144 344,562,144
<SALES> 0 0
<TOTAL-REVENUES> 74,963,047 143,870,701
<CGS> 0 0
<TOTAL-COSTS> 36,672,989 70,998,558
<OTHER-EXPENSES> 25,604,583 48,816,116
<LOSS-PROVISION> 2,701,091 5,515,138
<INTEREST-EXPENSE> 2,154,831 3,978,874
<INCOME-PRETAX> 7,829,553 14,562,015
<INCOME-TAX> 3,223,464 5,992,810
<INCOME-CONTINUING> 4,606,089 8,569,205
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,606,089 8,569,205
<EPS-PRIMARY> 0.18 0.35
<EPS-DILUTED> 0.18 0.33
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 0
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 0 0
<TOTAL-REVENUES> 53,136,553 101,392,035
<CGS> 0 0
<TOTAL-COSTS> 26,997,151 51,482,378
<OTHER-EXPENSES> 17,552,283 35,986,082
<LOSS-PROVISION> 2,595,464 4,971,399
<INTEREST-EXPENSE> 856,313 1,553,433
<INCOME-PRETAX> 5,135,342 7,398,743
<INCOME-TAX> 1,745,276 2,550,080
<INCOME-CONTINUING> 3,390,066 4,848,663
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,390,066 4,848,663
<EPS-PRIMARY> 0.13 0.19
<EPS-DILUTED> 0.13 0.19
</TABLE>
