<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-27640
RENAL CARE GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 62-1622383
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
2100 West End Ave., Suite 800, Nashville, Tennessee 37203
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (615) 345-5500
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 7, 1997
- ----------------------------- -------------------------------
Common Stock, $.01 par value 22,760,260
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RENAL CARE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
Consolidated Balance Sheets
September 30, 1997 (unaudited) and December 31, 1996 1
Consolidated Income Statements - (unaudited)
For the three months and nine months ended
September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows - (unaudited)
For the nine months ended September 30, 1997 and 1996 3
Notes to the Consolidated Financial Statements 4
Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Risk Factors 13
PART II - OTHER INFORMATION
Item 2. Changes in Securities 18
Item 6. Exhibits and Reports on Form 8-K 18
Note: Items 1, 3, 4, and 5 of Part II are omitted because they are not applicable
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RENAL CARE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 47,624 $ 8,011
Investments, held-to-maturity 5,814 6,007
Accounts receivable, net 28,842 37,212
Inventories 2,658 3,475
Other current assets 1,540 1,734
-------- --------
Total current assets 86,478 56,439
Property and equipment, net 30,739 52,906
Goodwill, net 11,066 54,203
Intangible and other assets, net 3,529 8,382
-------- --------
Total assets $131,812 $171,930
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,984 $ 5,761
Income taxes payable 2,588 1,272
Other current liabilities 26,444 32,216
-------- --------
Total current liabilities 37,016 39,249
Minority interest -- 14,276
Deferred income taxes 1,471 1,571
-------- --------
Total liabilities 38,487 55,096
Stockholders' equity:
Preferred Stock, $.01 par value, 10,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 60,000 shares authorized,
21,273 and 22,742 shares issued and outstanding at
December 31, 1996 and September 30, 1997, respectively 213 227
Additional paid-in capital 89,328 98,885
Retained earnings 3,784 17,722
-------- --------
Total stockholders' equity 93,325 116,834
-------- --------
Total liabilities and stockholders' equity $131,812 $171,930
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE> 4
RENAL CARE GROUP, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1996 1997 1996 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenue $34,627 $54,038 $90,987 $151,813
Operating costs and expenses:
Patient care costs 24,251 36,468 63,397 104,037
General and administrative expenses 3,433 5,591 9,427 15,599
Provision for doubtful accounts 639 1,264 1,710 3,436
Depreciation and amortization 1,212 2,238 3,197 6,343
Merger expenses 1,280 - 1,960 300
------- ------- ------- --------
Total operating costs and expenses 30,815 45,561 79,691 129,715
------- ------- ------- --------
Income from operations 3,812 8,477 11,296 22,098
Interest, net 153 88 394 591
------- ------- ------- --------
Income before minority interest and income taxes 3,965 8,565 11,690 22,689
Minority interest - 290 - 508
------- ------- ------- --------
Income before income taxes 3,965 8,275 11,690 22,181
Provision for income taxes 2,517 3,062 4,609 8,242
------- ------- ------- --------
Net income $ 1,448 $ 5,213 $ 7,081 $ 13,939
======= ======= ======= ========
Earnings per share $ 0.07 $ 0.22 $ 0.39 $ 0.60
======= ======= ======= ========
Weighted average shares outstanding 20,370 24,115 18,358 23,310
======= ======= ======= ========
</TABLE>
See accompanying notes to the consolidated financial statements
2
<PAGE> 5
RENAL CARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1996 1997
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,081 $ 13,939
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,197 6,343
Other 3,783 (6,104)
-------- --------
Net cash provided by operating activities 14,061 14,178
INVESTING ACTIVITIES
Purchases of property and equipment (9,684) (14,721)
Cash paid for acquisitions, net of cash acquired - (44,078)
Held-to-maturity investments, net - (193)
Cash distributions to founders, net of cash contributions (35,796) -
Other 189 -
-------- --------
Net cash used in investing activities (45,291) (58,992)
FINANCING ACTIVITIES
Payments on long-term debt, net (10,182) (2,528)
Proceeds from line of credit - 6,000
Proceeds from exercise of stock options - 1,729
Proceeds from issuance of common stock 71,793 -
Distribution to owners (6,246) -
-------- --------
Net cash provided by financing activities 55,365 5,201
-------- --------
Increase (decrease) in cash and cash equivalents 24,135 (39,613)
Cash and cash equivalents, at beginning of period $ 1,341 $ 47,624
-------- --------
Cash and cash equivalents, at end of period $ 25,476 $ 8,011
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 588 $ 145
======== ========
Income taxes $ - $ 9,558
======== ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Issuance of common stock in acquisition $ - $ 6,008
======== ========
Common Stock to Founders $ 16,237 $ -
======== ========
Conversion of redeemable preferred stock to common stock $ 2,451 $ -
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 6
RENAL CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
(in thousands, except per share data)
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
Overview
Renal Care Group, Inc. is a nephrology services company that was founded in June
1995 to focus on the provision of care to patients with kidney disease,
including patients suffering from chronic kidney failure, primarily in its
freestanding outpatient dialysis centers or in the patient's home. The Company
also provides acute inpatient dialysis services to hospitals. The Company will
provide dialysis and ancillary services to approximately 7,900 patients through
117 owned outpatient dialysis centers in 15 states, in addition to providing
acute dialysis services in 64 hospitals, including the acquisitions more fully
discussed in Note 4.
Interim Financial Statements
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statement of such operations. All such adjustments are of a normal
recurring nature. Operating results for interim periods are not necessarily
indicative of results which may be expected for the year as a whole. It is
suggested that these financial statements be read in conjunction with the
consolidated financial statements and the related notes thereto included in the
Company's Form 10-K as filed with the Securities and Exchange Commission on
March 31, 1997.
NOTE 2 - SHAREHOLDER RIGHTS PLAN
On May 2, 1997, the Company's Board of Directors approved a Shareholder
Protection Rights Agreement (the "Rights Plan"), which provides for one
preferred stock purchase right (a "Right") in respect of each share of the
Company's Common Stock. When exercisable, each right would entitle the holder to
purchase from the Company 1/150th of a share of Series A Junior Participating
Preferred Stock at an exercise price of $93.33, subject to certain adjustments,
as adjusted for the stock split discussed more fully in Note 3. The Rights are
generally not exercisable until ten business days after an announcement by the
Company that a person or group of affiliated persons (an "Acquiring Person") has
acquired, obtained the right to acquire or has commenced a tender or exchange
offer to acquire beneficial ownership of 15% or more of the Company's then
outstanding shares of Common Stock.
In the event the Rights become exercisable, each Right will enable the owner
thereof, other than the Acquiring Person, to purchase at the Right's then
current exercise price a number of shares of Common Stock with a market value
equal to twice the exercise price. Further, after the Rights become exercisable,
the Company may not consolidate or merge with, or sell 50% or more of its assets
or earnings power to, any person if the Company's Board of Directors is
controlled by the Acquiring Person, unless provision is made for each Right to
become a right to purchase a number of shares of common stock of such other
person having twice the market value of the exercise price of the Rights. In
addition, unless the Acquiring Person owns more than 50% of the outstanding
shares of Common Stock,
4
<PAGE> 7
RENAL CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Board of Directors may elect to exchange all outstanding Rights (other than
those owned by such Acquiring Person) at an exchange ratio of one share of
Common Stock per each Right. All Rights that are owned by any person on or after
the date such person becomes an Acquiring Person will be null and void.
The Board of Directors may terminate the Rights at any time prior to the Rights
becoming exercisable and, unless extended, the Rights will terminate by their
terms effective May 2, 2007. The Board of Directors adopted the Rights Plan to
protect the Company's stockholders from coercive or abusive takeover tactics and
to give the Board of Directors more negotiating leverage in dealing with
prospective acquirers.
NOTE 3 - SIGNIFICANT EVENTS
On June 13, 1997, the Board of Directors approved a three-for-two stock split to
be effected in the form of a 50% stock dividend. One additional share of Common
Stock was issued for every two shares held by shareholders of record at the
close of business on July 7, 1997. The additional shares were distributed on
July 25, 1997. All financial data included in this filing has been retroactively
adjusted for the stock split.
On August 5, 1997, the Company executed a First Amended and Restated Loan
Agreement for a $125,000,000 credit facility. Borrowings under the credit
facility may be used for acquisitions, capital expenditures, working capital and
general corporate purposes. No more than $25,000,000 of the credit facility may
be used for working capital purposes. Within the working capital sublimit, the
Company may borrow up to $5,000,000 in swing line loans.
The Company has negotiated loan pricing based on a LIBO rate margin pursuant to
leverage tiers. These leverage tiers extend from 0.75 to 2.25 times and are
priced at a LIBO rate margin of .60% to 1.35%, respectively. Commitment fees are
also priced pursuant to leverage ratio tiers. Commitment fees range from .20% to
.30% pursuant to leverage ratios ranging between 0.75 and 2.25 respectively.
Under the loan agreement, commitments range in amounts and dates from the
closing date through August 2003. The Company has obtained total lender
commitments of $125,000,000 through August 2000. Lender commitments are then
reduced to $106,250,000 through August 2001, $87,500,000 through August 2002 and
$68,750,000 through August 2003. All loans under the loan agreement are due and
payable on August 4, 2003.
Pursuant to the loan agreement, each of the Company's subsidiaries is required
to provide a joint and several unconditional guarantee of all obligations of the
Company under the loan agreement, including all loans thereunder. Further, the
Company's obligations under the loan agreement, and the obligations of each of
the subsidiaries under their guaranty are secured by a pledge of the equity
interests held by the Company in each of the subsidiaries. Financial covenants
are those customary for the amount and duration of this commitment.
5
<PAGE> 8
RENAL CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 - SUBSEQUENT EVENTS
On October 30, 1997, the Company executed a definitive agreement with Dialysis
Corporation of America, Inc. ("DCA"), Dialysis Services of Florida, Inc.
("DSF"), DCA Medical Services, Inc. ("DCAMS"), Dialysis Medical, Inc ("DMI") and
Henry M. Haire, M.D. ("Haire") to provide dialysis services to patients with End
Stage Renal Disease. The Company will acquire substantially all of the assets of
DSF and DMI and the In-Patient Agreement from DCAMS in exchange for cash and
shares of the Company's common stock and the assumption of certain specified
liabilities. The facility currently serves approximately 90 patients.
On November 4, 1997, the Company entered into an agreement to purchase the
assets of STAT Healthcare ("STAT"), a division of Laidlaw, Inc. for
approximately $58 million, excluding working capital acquired and assumed debt.
Consideration will include $3 million in cash with the remaining payable in
restricted common stock of the Company. The parties intend to consummate the
transaction as soon as possible after satisfaction or waiver of the conditions
set forth in the Stock Purchase Agreement. STAT owns and operates 11 dialysis
facilities located in eastern Texas serving approximately 850 patients suffering
from end stage renal disease (ESRD). In addition to providing acute dialysis
services, STAT also provides wound care services to ten hospitals.
NOTE 5 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected to
result in an increase in primary earnings per share as follows:
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE
THREE MONTHS NINE MONTHS
AS RESTATED FOR AS RESTATED FOR
PERIOD ENDED REPORTED FASB NO. 128 REPORTED FASB NO. 128
- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
September 30, 1996 $.07 $.08 $.39 $.42
September 30, 1997 $.22 $.23 $.60 $.63
</TABLE>
6
<PAGE> 9
RENAL CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income". Statement No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. Statement 130 is effective for interim and annual periods
beginning after December 15, 1997. Comprehensive income encompasses all changes
in shareholders' equity (except those arising from transactions with owners) and
includes net income, net unrealized capital gains or losses on available for
sale securities and foreign currency translation adjustments. Management of the
Company does not expect the adoption of Statement No. 130 to have a material
impact on the Company's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information". Statement No. 131 establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those enterprises
to report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
Statement No. 131 is effective for periods beginning after December 15, 1997.
Management of the Company does not expect the adoption of Statement No. 131 to
have a material impact on the Company's financial statement disclosures.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
In February 1996, Renal Care Group, Inc. (the "Company") commenced its business
with the simultaneous acquisition of the five Founding Companies
("Combination"). As a result of this Combination, a comparison of the current
operations of the Company to its historical operations is not considered
meaningful. Therefore, the results of operations for 1996 in the table below
reflect the historical operations of the Company combined with the operations of
the Founding Companies on a pro forma basis as if the Combination occurred
January 1, 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1996 1997 1996 1997
ACTUAL ACTUAL PROFORMA ACTUAL
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenue $34,627 100.0% $54,038 100.0% $97,363 100.0% $151,813 100.0%
Operating costs and expenses:
Patient care costs 24,251 70.0 36,468 67.5 68,124 70.0 104,037 68.5
General and administrative
expenses 3,433 9.9 5,591 10.4 9,858 10.1 15,599 10.3
Provision for doubtful accounts 639 1.9 1,264 2.3 1,837 1.9 3,436 2.3
Depreciation and amortization 1,212 3.5 2,238 4.1 3,370 3.4 6,343 4.2
------- ----- ------- ----- ------- ----- -------- -----
Total operating costs and expenses 29,535 85.3 45,561 84.3 83,189 85.4 129,415 85.3
------- ----- ------- ----- ------- ----- -------- -----
Income from operations 5,092 14.7 8,477 15.7 14,174 14.6 22,398 14.7
Interest income, net 153 0.6 88 0.1 300 0.3 591 .4
------- ----- ------- ----- ------- ----- -------- -----
Income before merger costs, minority
interest and income taxes 5,245 15.3 8,565 15.8 14,474 14.9 22,989 15.1
Minority interest - - 290 .5 - - 508 .3
------- ----- ------- ----- ------- ----- -------- -----
Income before merger costs
and income taxes 5,245 15.3 8,275 15.3 14,474 14.9 22,481 14.8
Income taxes 1,942 5.6 3,062 5.7 5,402 5.6 8,353 5.5
------- ----- ------- ----- ------- ----- -------- -----
Net income before merger costs $ 3,303 9.7% $ 5,213 9.6% $ 9,072 9.3% $ 14,128 9.3%
======= ===== ======= ===== ======= ===== ======== =====
Earnings per share before merger costs $ .16 $ .22 $ .46 $ .61
======= ======= ======= ========
Net income after merger costs $ 1,448 $ 5,213 $ 7,837 $ 13,939
======= ======= ======= ========
Earnings per share after merger costs $ .07 $ .22 $ .40 $ .60
======= ======= ======= ========
</TABLE>
8
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RENAL CARE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Net revenue. Net revenue increased from $34,627,000 for the three months ended
September 30, 1996 to $54,038,000 for the three months ended September 30, 1997,
an increase of $19,411,000, or 56.1%. This increase resulted primarily from a
47.7% increase in the number of treatments from 179,080 in the 1996 period to
264,420 in the 1997 period. This growth in treatments is the result of the
acquisition and development of various dialysis facilities and a 8.0% increase
in same-center treatments for the 1997 period over the 1996 period. In addition,
average revenue per treatment increased 7.4% from $189 in the 1996 period to
$203 in the 1997 period. The remaining revenue increase is a result of higher
management fees and earnings of 50% owned partnerships in the 1997 period
compared to the 1996 period. The revenue per treatment increase is due to an
improvement in the Company's payor mix, increases in erythropoietin (EPO) and
other chargeable drug utilization, and the implementation of the Company's
in-house laboratory services.
Patient Care Costs. Patient care costs consist of costs directly related to the
care of patients, including direct labor, drugs and other medical supplies, and
operational costs of facilities. Patient care costs increased from $24,251,000
for the three months ended September 30, 1996 to $36,468,000 for the three
months ended September 30, 1997, an increase of $12,217,000, or 50.4%. This
increase was due to the increase in the number of treatments performed during
the period. Patient care costs as a percent of net revenue decreased from 70.0%
in the 1996 period to 67.5% in the 1997 period primarily due to the increase in
net revenue per treatment. Patient care costs per treatment increased from $135
in the 1996 period to $138 in the 1997 period, or 2.2%. This increase is due to
greater EPO and other drug utilization costs and the cost of providing in-house
laboratory services.
General and Administrative Expenses. General and administrative expenses include
corporate office costs and facility costs not directly related to the care of
patients, including facility administration, accounting, billing, and
information systems. General and administrative expenses increased from
$3,433,000 for the three months ended September 30, 1996 to $5,591,000 for the
three months ended September 30, 1997, an increase of $2,158,000, or 62.9%.
General and administrative expenses as a percent of net revenue increased from
9.9% in the 1996 period to 10.4% in the 1997 period. This increase is due to the
continued development of the corporate office, including information systems.
Provision for Doubtful Accounts. The provision for doubtful accounts is a
function of patient mix, billing practices, and other factors. It is the
Company's practice to reserve for doubtful accounts in the period in which the
revenue is recognized based on management's estimate of the net collectibility
of the accounts receivable. The provision for doubtful accounts increased from
$639,000 for the three months ended September 30, 1996 to $1,264,000 for the
three months ended September 30, 1997. The provision for doubtful accounts as a
percent of net revenue increased from 1.9% in the 1996 period to 2.3% in 1997,
or 0.4%. The increase in provision for doubtful accounts was influenced by the
amount of net operating revenues generated from non-governmental payor sources.
9
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RENAL CARE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
Depreciation and Amortization. Depreciation and amortization increased from
$1,212,000 for the three months ended September 30, 1996 to $2,238,000 for the
three months ended September 30, 1997, an increase of $1,026,000, or 84.7%. This
net increase was due to the start-up of dialysis facilities, the normal
replacement costs of dialysis facilities and equipment, the purchase of
information systems, and the amortization of the goodwill associated with
acquisitions accounted for under the purchase method of accounting.
Income from Operations. Income from operations increased from $5,092,000 for the
three months ended September 30, 1996 to $8,477,000 for the three months ended
September 30, 1997, an increase of $3,385,000, or 66.5%. Income from operations
as a percent of net revenue increased from 14.7% in the 1996 period to 15.7% in
the 1997 period. Income from operations increased due to the increase in net
revenue in excess of patient care costs, which was primarily due to an increase
in the number of treatments performed during the period.
Interest Income, Net. Interest income decreased from $153,000 for the three
months ended September 30, 1996 to $88,000 for the three months ended September
30, 1997, a net decrease of $65,000. This decrease is primarily due to the use
of cash in acquisitions and de novo facilities, the replacement of dialysis
facilities and equipment, and the purchase of information systems.
RESULTS OF OPERATIONS (PRO FORMA)
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net revenue. Net revenue increased from $97,363,000 for the nine months ended
September 30, 1996 to $151,813,000 for the nine months ended September 30, 1997,
an increase of $54,450,000, or 55.9%. This increase resulted primarily from a
44.6% increase in the number of treatments from 510,360 in the 1996 period to
737,727 in the 1997 period. This growth in treatments is the result of the
acquisition and development of various dialysis facilities and an increase of
approximately 8% in same-center treatments for the 1997 period over the 1996
period. In addition, average revenue per treatment increased 9.6% from $187 in
the 1996 period to $205 in the 1997 period. The remaining revenue increase is a
result of higher management fees and earnings of 50% owned partnerships in the
1997 period compared to the 1996 period. The revenue per treatment increase is
due to an improvement in the Company's payor mix, greater than expected EPO and
other drug utilization, and the implementation of the Company's in-house
laboratory services.
Patient Care Costs. Patient care costs increased from $68,124,000 for the nine
months ended September 30, 1996 to $104,037,000 for the nine months ended
September 30, 1997, an increase of $35,913,000, or 52.7%. This increase was due
to the increase in the number of treatments performed during the period. Patient
care costs as a percent of net revenue decreased from 70.0% in the 1996 period
to 68.5% in the 1997 period primarily related to the increase in net revenue per
treatment. Patient care costs per treatment increased from $133 in the 1996
period to $141 in the 1997 period, or 6.0%. This increase is due to greater EPO
and other drug utilization costs and the cost of providing in-house laboratory
services.
General and Administrative Expenses. General and administrative expenses
increased from $9,858,000 for the nine months ended September 30, 1996 to
$15,599,000 for the nine months ended September 30,
10
<PAGE> 13
RENAL CARE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
1997, an increase of $5,741,000, or 58.2%. General and administrative expenses
as a percent of net revenue increased from 10.1% for the 1996 period to 10.3% in
the 1997 periods. This increase is due to the continued development of the
corporate office, including information systems.
Provision for Doubtful Accounts. The provision for doubtful accounts increased
from $1,837,000 for the nine months ended September 30, 1996 to $3,436,000 for
the nine months ended September 30, 1997, an increase of $1,599,000, or 87.0%.
The provision for doubtful accounts as a percent of net revenue increased from
1.9% for the nine months ended September 30, 1996 to 2.3% for the nine months
ended September 30, 1997, or 0.4%. The increase in the provision for doubtful
accounts was influenced by the amount of net operating revenues generated from
non-governmental payor sources.
Depreciation and Amortization. Depreciation and amortization increased from
$3,370,000 for the nine months ended September 30, 1996 to $6,343,000 for the
nine months ended September 30, 1997, an increase of $2,973,000, or 88.2%. This
net increase was due to the start-up of dialysis facilities, the normal
replacement costs of dialysis facilities and equipment, the purchase of
information systems, and the amortization of the goodwill associated with the
acquisitions accounted for under the purchase method of accounting.
Income from Operations. Income from operations increased from $14,174,000 for
the nine months ended September 30, 1996 to $22,398,000 for the nine months
ended September 30, 1997, an increase of $8,224,000, or 58.0%. Income from
operations increased due to the increase in net revenue in excess of patient
care costs, which was primarily due to an increase in the number of treatments
performed during the period.
Interest Income, Net. Interest income increased from $300,000 for the nine
months ended September 30, 1996 to $591,000 for the nine months ended September
30, 1997, a net increase of $291,000. This net increase is primarily due to
investment earnings derived from the proceeds of the Company's secondary
offering completed during November 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for the acquisition and the development
of dialysis facilities, the purchase of property and equipment for existing
facilities and to finance working capital requirements. At September 30, 1997,
the Company's working capital was $17,190,000, cash and cash equivalents were
$14,018,000 and the Company's current ratio was 1.4 to 1. The working capital of
the Company has decreased during the year primarily attributable to goodwill
recorded as a result of acquisitions accounted for under the purchase method,
construction of start-up dialysis facilities and the purchase of information
systems.
The Company's net cash provided by operating activities was $14,178,000 in the
nine months ended September 30, 1997. Cash provided by operating activities
consists of net income before depreciation and amortization expense primarily
offset by increases in accounts receivable and the payment of approximately
$5,700,000 as full satisfaction of the contingent obligation with Kidney Care
Inc. as a result of the Combination. The Company's net cash used in investing
activities was $58,992,000 in the nine months ended September 30, 1997. Cash
used in investing activities resulted primarily from $44,078,000 of cash paid
for acquisitions, net of cash acquired, and $14,721,000 of capital expenditures.
11
<PAGE> 14
RENAL CARE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
Cash provided by financing activities was $5,201,000 for the nine months ended
September 30, 1997. Cash provided by financing activities resulted from
$2,528,000 in payments on long-term debt in connection with certain
acquisitions, offset by $1,729,000 in proceeds from the exercise of stock
options and $6,000,000 in proceeds from the line of credit.
On August 5, 1997, the Company executed a First Amended and Restated Loan
Agreement for a $125,000,000 credit facility. Borrowings under the credit
facility may be used for acquisitions, capital expenditures, working capital and
general corporate purposes. No more than $25,000,000 of the credit facility may
be used for working capital purposes. Within the working capital sublimit, the
Company may borrow up to $5,000,000 in swing line loans.
The Company has negotiated loan pricing based on a LIBO rate margin pursuant to
leverage tiers. These leverage tiers extend from 0.75 to 2.25 times and are
priced at a LIBO rate margin of .60% to 1.35%, respectively. Commitment fees are
also priced pursuant to leverage ratio tiers. Commitment fees range from .20% to
.30% pursuant to leverage ratios ranging between 0.75 and 2.25 respectively.
Under the loan agreement, commitments range in amounts and dates from the
closing date through August 2003. The Company has obtained total lender
commitments of $125,000,000 through August 2000. Lender commitments are then
reduced to $106,250,000 through August 2001, $87,500,000 through August 2002 and
$68,750,000 through August 2003. All loans under the loan agreement are due and
payable on August 4, 2003. On September 30, 1996, there were $6,000,000
outstanding under this agreement.
Pursuant to the loan agreement, each of the Company's subsidiaries is required
to provide a joint and several unconditional guarantee of all obligations of the
Company under the loan agreement, including all loans thereunder. Further, the
Company's obligations under the loan agreement, and the obligations of each of
the subsidiaries under their guaranty are secured by a pledge of the equity
interests held by the Company in each of the subsidiaries. Financial covenants
are those customary for the amount and duration of this commitment.
A significant component of the Company's growth strategy is the acquisition and
development of dialysis facilities. The Company believes that existing cash and
funds from operations, together with funds available under the line of credit,
will be sufficient to meet the Company's acquisition, expansion, capital
expenditure and working capital needs for the foreseeable future. However, in
order to finance certain large strategic acquisition opportunities, the Company
may incur from time to time additional short and long-term bank indebtedness and
may issue equity or debt securities, the availability and terms of which will
depend on market and other conditions. There can be no assurance that such
additional financing, if required, will be available on terms acceptable to the
Company.
12
<PAGE> 15
RENAL CARE GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
RISK FACTORS
In evaluating the Company and its business, prospective investors should
carefully consider the following risk factors in addition to the other
information contained herein. This quarterly report contains statements that
constitute "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements relate
to future events or the future financial performance of the Company and involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those discussed below, and such factors could cause actual results to
differ materially from those indicated by such forward-looking statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this quarterly
report or the materials incorporated herein by reference will in fact transpire.
Limited Combined Operating History. The Company has conducted operations as a
combined entity only since February 1996, upon the closing of its initial public
offering. Since the initial public offering, the Company has made several
additional acquisitions of entities that, in some cases, have been part of the
Company's combined operations for only a few weeks or months. There can be no
assurance that the Company will be able to integrate the dialysis centers,
information systems and related operations of the entities acquired by it or to
continue operating them profitably. Nor can there be any assurance that the
Company's management group will be able to implement effectively the Company's
operating and growth strategy while it is engaged in acquisition activity.
Failure to integrate successfully the centers and other operations acquired by
the Company or to implement effectively the Company's operating and growth
strategy could have a material adverse effect on the Company's results of
operations, financial condition or business.
Dependence On Government Reimbursement. The Company is reimbursed for dialysis
services primarily at fixed rates established under the ESRD program
administered by Health Care Financing Administration ("HCFA"). Under this
program, once a patient becomes eligible for Medicare reimbursement, Medicare is
responsible for payment of 80% of the composite rate determined by HCFA for
dialysis treatments. Since 1972, qualified patients with ESRD have been entitled
to Medicare benefits regardless of age or financial circumstances. The Company
estimates that approximately 68% of its net revenue for the years ended December
31, 1995 and 1996, and 66% of its revenues for the nine months ended September
30, 1997 consisted of reimbursements from Medicare under the ESRD program,
including revenue for the reimbursement of the administration of a
bio-engineered hormone, EPO, to treat anemia. Since 1983, Congressional actions
have resulted in occasional changes in the Medicare composite reimbursement
rate, and the Company is not able to predict whether future rate changes will be
made. In August 1996, HCFA announced that an increase in the composite rate may
be appropriate within the next few years. However, in making this announcement,
HCFA also noted that any rate increase must be considered in the context of
Medicare budgetary concerns. HCFA stated that it may recommend an update to the
composite rate for fiscal year 1998. Legislation or regulations may be enacted
in the future that may significantly modify the ESRD program or otherwise affect
the amount paid for the Company's services. Any such action could have a
material adverse effect on the Company's results of operations, financial
condition and business. Furthermore, increases in operating costs that are
13
<PAGE> 16
subject to inflation, such as labor and supply costs, without a compensating
increase in prescribed rates, may have a material adverse effect on the
Company's earnings in the future. The Company is also unable to predict whether
certain ancillary services, for which the Company currently is reimbursed
separately, may in the future be included in the Medicare composite rate.
Since June 1, 1989, the Medicare ESRD program has provided reimbursement for the
administration of EPO to dialysis patients. EPO is beneficial in the treatment
of anemia, a medical complication frequently experiences by dialysis patients.
The Company believes that in excess of 80% of its patients receive EPO. Revenues
from the administration of EPO (the substantial majority of which are reimbursed
through Medicare and Medicaid programs) were approximately 17%, 19%, and 20% of
the net revenue of the Company for the years ended December 31, 1995 and 1996,
and the nine months ended September 30, 1997, respectively. EPO reimbursement
significantly affects the Company's earnings. Any reduction in reimbursement
rates for EPO could have a material adverse effect on the Company's results of
operations, financial condition or business. EPO is produced by a single
manufacturer, and any interruption of supply or product cost increases could
have a material adverse effect on the Company's results of operations, financial
condition or business.
All of the states in which the Company currently operates dialysis centers
provide Medicaid (or comparable) benefits to qualified recipients to supplement
their Medicare entitlement. The Company estimates that approximately 7%, 6%, and
6% of the Company's net revenue for the years ended December 31, 1995 and 1996,
and the nine months ended September 30, 1997, respectively, were funded by
Medicaid or comparable state programs. The Medicaid programs are subject to
statutory and regulatory changes, administrative rulings, interpretations of
policy and governmental funding restrictions, all of which may have the effect
of decreasing program payments, increasing costs or modifying the way the
Company operates its dialysis business.
Dependence On Other Sources Of Reimbursement. The Company estimates that
approximately 25%, 26%, and 28% of its net revenue for the years ended December
31, 1995 and 1996, and the nine months ended September 30, 1997, respectively,
were derived from sources other than Medicare and Medicaid. Substantially all of
this revenue comes from private insurance for chronic dialysis treatments and
payments from hospitals with which the Company has contracts for the provision
of acute dialysis services. In general, private insurance reimbursement and
payments for treatments performed at hospitals are at rates significantly higher
than Medicare and Medicaid rates. The Company believes that if Medicare
reimbursement for dialysis treatment is reduced in the future, these private
payors may be required to assume a greater percentage of the costs of dialysis
care and, as a result, may focus on reducing dialysis payments as their overall
costs increase. In addition, the Company believes that health maintenance
organizations (HMOs") and other managed care providers may have a strong
incentive to reduce further the costs of specialty care and may seek to reduce
amounts paid for dialysis. The Company is unable to predict whether and to what
extent changes in these private reimbursement rates may be made in the future.
Any reduction in the rates paid by private insurers and hospitals or a
significant change in the Company's payor mix toward additional Medicare or
Medicaid reimbursement could have a material adverse effect on the Company's
results of operations, financial condition and business. Similarly, increases in
operating costs that are subject to inflation, such as labor and supply costs,
without a compensating increase in private reimbursement rates, could have a
material adverse effect on the Company's results of operations, financial
condition or business.
Risks Associated With Growth Strategy. The Company's strategy includes expanding
its dialysis business through the acquisition and development of dialysis
centers and the acquisition and management of nephrology practices. Competition
for acquisitions in the dialysis industry has increased significantly in recent
years and, as a result, the cost of acquiring dialysis centers has increased.
There can be no assurance that the Company will be able to identify, acquire or
profitably integrate acquired dialysis
14
<PAGE> 17
centers and nephrology practices. Acquisitions involve a number of risks related
to integration, including adverse short-term effects on the Company's reported
operating results, diversion of management's attention, dependence on retention,
hiring and training of key personnel, including Medical Directors for each
dialysis center, some or all of which could have a material adverse effect on
the Company's results of operations, financial condition or business. In
addition, there can be no assurance that acquired or managed dialysis centers
will achieve net revenue and earnings that justify the Company's investment
therein or expenses related thereto. In order to implement its growth strategy,
the Company may require substantial capital resources and need to incur, from
time to time, short- and long-term bank indebtedness. The Company also may need
to issue in public or private transactions, equity or debt securities, the terms
of which will depend on market and other conditions. There can be no assurance
that any such additional financing will be available on terms acceptable to the
Company, if at all. To the extent that the Company is unable to acquire dialysis
centers or acquire or manage nephrology practices, to integrate such centers and
practices successfully, or to obtain financing on terms acceptable to the
Company, its ability to expand its business could be reduced significantly.
Risks Associated With Liabilities Of Acquired Businesses. The Company has
acquired and will continue to acquire businesses with prior operating histories.
Acquired companies may have unknown or contingent liabilities, including
liabilities for failure to comply with health care laws and regulations, such as
billing and reimbursement, fraud and abuse and similar anti-referral laws. The
Company has from time to time identified certain past practices of acquired
companies that do not conform to its standards. Although the Company institutes
policies designed to conform such practices to its standards following
completion of acquisitions, there can be no assurance that the Company will not
become liable for past activities that may later be asserted to be improper by
private plaintiffs or government agencies. Although the Company generally seeks
to obtain indemnification from prospective sellers covering such matters, there
can be no assurance that any such matter will be covered by indemnification or,
if covered, that the liability sustained will not exceed contractual limits or
the financial capacity of the indemnifying party. In particular, in 1996, the
Company acquired the stock of a small clinic which recently was served with
action regarding certain Medicare billing and related activities which occurred
prior to the acquisition. Although these matters are in their early stages,
based on available information, the Company believes that any potential
liability from this acquired subsidiary, net of transaction proceeds held in
escrow, would not be material to the financial position or results of
operations of the Company.
Dependence On Physician Referrals. The Company's dialysis centers depend upon
local nephrologists for referrals of ESRD patients for treatment and one or a
few physicians typically account for all or a significant portion of the patient
referral base at a center. The loss of one or more referring physicians at a
particular center could have a material adverse effect on the operations of such
center, and the loss of a significant number of referring physicians could have
a material adverse effect on the Company's results of operations, financial
conditions and business. In many instances stockholders of the Company are the
primary referral sources for the dialysis centers operated by the Company. If
such ownership is deemed to violate applicable federal or state law such as the
illegal remuneration provisions of the Social Security Act and similar state
laws which prohibit the payment of remuneration to induce referrals, such
physician owners may be forced to dispose of their stock in the Company.
Operations Subject To Extensive Government Regulation. The Company is subject to
extensive federal, state and local regulation regarding, among other things,
fraud and abuse, patient referral, health and safety, environmental compliance
and toxic waste disposal. Much of this regulation, particularly in the area of
patient referral, is complex and open to differing interpretations. There are
two general frameworks under which patient referrals are regulated. First, the
illegal remuneration provisions of the Social Security Act make it illegal for
any person to, among other things, solicit, offer, receive or pay any
remuneration in exchange for referring, or to induce the referral of, a patient
for treatment which may be paid for by Medicare, Medicaid or a similar state
program. Second, certain provisions contained in the Omnibus Budget
Reconciliation Act of 1989 and the Omnibus Budget Reconciliation Act of 1993
("Stark I" and "Stark II," respectively) prohibit physician referrals for
clinical laboratory services and "designated health services" (including some of
the specific services offered by the Company) to entities with which a physician
or an immediate family member has a "financial relationship." These laws
15
<PAGE> 18
contain certain statutory exemptions, and federal agencies have promulgated
regulations clarifying certain of these provisions and exceptions and creating
certain additional exceptions, or "safe harbors," from such prohibitions. Many
states have enacted similar provisions of law, which may not have identical
prohibitions or exceptions, but which may apply regardless of whether Medicare
or Medicaid funds are involved. However, due to the breadth of the statutory
provisions and the absence in many instances of regulations or court decisions
addressing the specific arrangements by which the Company conducts its business,
it is possible that some of the Company's practices might be challenged under
these laws. Violations of the federal laws are punishable by civil sanctions,
including disqualification from participation in the Medicare or Medicaid
programs, and, in the case of the federal illegal remuneration provisions,
criminal sanctions. There can be no assurance that the Company's practices will
not be challenged by governmental authorities, or that the Company will not be
subject to sanctions under such laws or be required to alter or discontinue
certain of its practices. In addition, there can be no assurance that if the
Company is required to alter its practices, that it will be able to do so
successfully. The occurrence of any of these events could result in a material
adverse effect on the Company's results of operations, financial condition or
business.
A number of proposals for health care reform have been made recently to provide
greater governmental control of health care spending and to provide broader
access to health care services. For example, the Health Insurance Portability
and Accountability Act of 1996 was signed into law in August 1996. This law,
among other things, provides for insurance portability for individuals who lose
or change jobs, limit exclusions for pre-existing conditions, and establish a
pilot program for medical savings accounts. It is uncertain what additional
health care reform legislation, if any, ultimately will be implemented or
whether other changes in the administration or interpretation of governmental
health care programs will occur. The Company cannot predict what effect future
health care legislation or other changes in the administration or interpretation
of governmental health care programs may have on the Company's operations.
Substantial Competition. The dialysis industry is fragmented and is
consolidating rapidly. Accordingly, the industry is highly competitive,
particularly from the standpoint of competition for the acquisition of existing
dialysis centers and the development of relationships with referring physicians.
Many of the Company's competitors have substantially greater financial resources
and more established operations and infrastructure than the Company and may
compete with the Company for acquisitions of dialysis centers and nephrology
practices. In addition, the Company may also experience competition from
referring physicians who open their own dialysis centers. There can be no
assurance that the Company will be able to compete effectively with any such
competitors.
Dependence On Key Personnel. The Company is dependent upon the services of
certain key executive officers and the Chairman of the Board. The Company's
growth will depend in part upon its ability to attract and retain skilled
employees, for whom competition is intense. The Company believes that its future
success will also depend on its ability to attract and retain qualified
physicians to serve as Medical Directors of its dialysis centers. The Company
does not carry key-man life insurance on any of its officers. The loss by the
Company of any of its executive officers or the Chairman of the Board, or the
inability to attract and retain qualified management personnel and Medical
Directors, could have a material adverse effect on the Company's results of
operations, financial condition or business.
16
<PAGE> 19
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
THIS REPORT, PRESS RELEASES AND OTHER PUBLIC STATEMENTS BY THE COMPANY CONTAIN
"FORWARD-LOOKING STATEMENTS," WITHIN THE MEANING OF VARIOUS PROVISIONS OF THE
FEDERAL SECURITIES LAWS, THAT ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS THAT
WILL OR MAY OCCUR IN THE FUTURE. THESE STATEMENTS ARE BASED ON ASSUMPTIONS AND
ANALYSES MADE BY THE COMPANY IN LIGHT OF ITS EXPERIENCE AND PERCEPTION OF
HISTORICAL TRENDS, CURRENT CONDITIONS AND EXPECTED FUTURE DEVELOPMENTS, AND
OTHER FACTORS BELIEVED APPROPRIATE IN THE CIRCUMSTANCES. ACTUAL RESULTS AND
DEVELOPMENTS ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, INCLUDING
GENERAL ECONOMIC, MARKET OR BUSINESS CONDITIONS; OPPORTUNITIES (OR LACK THEREOF)
THAT MAY BE PRESENTED TO AND PURSUED BY THE COMPANY; COMPETITIVE ACTIONS BY
OTHER COMPANIES; CHANGES IN LAWS OR REGULATIONS; AND OTHER FACTORS AS MAY BE
DISCUSSED FROM TIME TO TIME IN THE COMPANY'S SEC REPORTS AND OTHER FILINGS, MANY
OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. ACCORDINGLY, READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD LOOKING STATEMENTS, WHICH
SPEAK ONLY AS OF THE DATE MADE AND WHICH THE COMPANY UNDERTAKES NO OBLIGATION TO
REVISE TO REFLECT EVENTS AFTER THE DATE MADE.
17
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
(a) None
(b) See Note 3 to Financial Statements concerning the three-for-two
stock split in the form of a dividend.
(c) None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11 Statement Re: Computation of Earnings Per Share
27 Financial Data Schedule (filed via Edgar on November 14, 1997)
(b) Reports on Form 8-K
1. Form 8-K dated November 6, 1997 relating to the agreement to
purchase the assets of STAT Healthcare, a division of Laidlaw,
Inc.
18
<PAGE> 21
SIGNATURE
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 CARE GROUP, INC.
------------------------------------------------
(Registrant)
November 14, 1997 BY: /s/ Ronald Hinds
- ------------------- ---------------------------------------------
Ronald Hinds
Executive Vice President,
Chief Financial Officer, Secretary/Treasurer
and Principal Financial Officer and Principal
Accounting Officer
19
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page No.
- ------- ----------------------- --------
<S> <C> <C>
11 Statement Re: Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary:
Average Shares Outstanding 18,834 22,677 16,930 22,023
Net Effect of dilutive stock options -
based on treasury stock method
using average market price 1,536 1,438 1,428 1,287
------- ------- ------- -------
Totals 20,370 24,115 18,358 23,310
======= ======= ======= =======
Net Income $ 1,448 $ 5,213 $ 7,081 $13,939
======= ======= ======= =======
Earnings Per Share $ .07 $ .22 $ .39 $ .60
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RENAL CARE GROUP, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 8,011
<SECURITIES> 6,007
<RECEIVABLES> 37,212
<ALLOWANCES> 0
<INVENTORY> 3,475
<CURRENT-ASSETS> 56,439
<PP&E> 52,906
<DEPRECIATION> 0
<TOTAL-ASSETS> 171,930
<CURRENT-LIABILITIES> 39,249
<BONDS> 0
0
0
<COMMON> 227
<OTHER-SE> 116,607
<TOTAL-LIABILITY-AND-EQUITY> 171,930
<SALES> 151,813
<TOTAL-REVENUES> 151,813
<CGS> 104,037
<TOTAL-COSTS> 104,037
<OTHER-EXPENSES> 22,242
<LOSS-PROVISION> 3,436
<INTEREST-EXPENSE> 591
<INCOME-PRETAX> 22,181
<INCOME-TAX> 8,242
<INCOME-CONTINUING> 13,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,939
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
