<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 8, 1997
--------------------------
RENAL CARE GROUP, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 0-27640 62-1622383
- --------------- ------------ -------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
2100 West End Avenue, Suite 800, Nashville, Tennessee 37203
-----------------------------------------------------------------
(Address, including zip code, of principal executive offices)
(615) 345-5500
--------------------------------------------------
(Registrant's telephone number, including area code)
-1-
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On December 8, 1997, Renal Care Group, Inc. (the "Registrant") acquired
all of the issued and outstanding stock of STAT Dialysis Corporation and STAT
Management Corporation (collectively, the "STAT Companies"), the kidney dialysis
and wound care businesses of Laidlaw Inc., pursuant to a Stock Purchase
Agreement dated November 4, 1997 (the "Agreement") by and among the Registrant,
Laidlaw and STAT Healthcare, Inc., a wholly-owned subsidiary of Laidlaw
("STAT"). The consideration for the stock of the STAT Companies consisted of
2,135,730 shares of common stock of the Registrant, cash in the amount of
$3,000,000, and assumption of certain liabilities enumerated in the Agreement,
as determined based upon negotiations with Laidlaw and STAT. The Registrant
financed the cash portion of the purchase price from working capital.
The descriptions contained herein of the transaction are qualified in
their entirety by reference to the Agreement, which is incorporated herein by
reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K, dated
December 8, 1997.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired. The historical
combined financial statements of the STAT Companies required by this Item 7(a)
are incorporated by reference to Exhibit 99 attached hereto.
(b) Pro Forma Financial Information. The pro forma financial
information of the STAT Companies is incorporated by reference to Exhibit 99
attached hereto.
(c) Exhibits.
2.1 Stock Purchase Agreement, dated November 4, 1997 by and among Renal
Care Group, Inc., Laidlaw Inc., and STAT Healthcare, Inc. (Incorporated
by reference to Exhibit 2.1 of the Registrant's Current Report on Form
8-K, dated December 8, 1997)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG Peat Marwick LLP
99. Financial Information
-2-
<PAGE> 3
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 hereunto duly authorized.
RENAL CARE GROUP, INC.
/s/ Ronald Hinds
----------------------------------------
Executive Vice President and
Chief Financial Officer
Date: February 20, 1998
-3-
<PAGE> 4
RENAL CARE GROUP, INC.
EXHIBIT INDEX
Number and
Description of Exhibit
1. None
2.1 Stock Purchase Agreement, dated November 4, 1997 by and among Renal
Care Group, Inc., Laidlaw Inc., and STAT Healthcare, Inc. (Incorporated
by reference to Exhibit 2.1 of the Registrant's Current Report on Form
8-K, dated December 8, 1997)
4. None
16. None
17. None
21. None
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG Peat Marwick LLP
24. None
27. None
99. Financial Information
-4-
<PAGE> 5
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTHCARE
ENTITIES
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS'
REPORT THEREON)
<PAGE> 6
Independent Auditors' Report
The Boards of Directors/Partners
STAT Dialysis Corporation and
STAT Management Corporation
and their Related Health Care Entities:
We have audited the accompanying combined balance sheets of STAT Dialysis
Corporation and STAT Management Corporation and their related health care
entities (collectively referred to as the Corporations) as of December 31, 1996
and 1995, and the related combined statements of income, changes in
shareholders' equity and partners' capital, and cash flows for the years then
ended. These combined financial statements are the responsibility of the
Corporations' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of STAT Dialysis
Corporation and STAT Management Corporation and their related health care
entities as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
Houston, Texas
February 6, 1998
F-1
<PAGE> 7
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
COMBINED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Cash $1,114,000 775,000
Accounts receivable:
Patient accounts, net (notes 4 and 6) 1,184,000 918,000
Management services accounts 813,000 341,000
---------- ----------
Net accounts receivable 1,997,000 1,259,000
---------- ----------
Notes receivable 3,000 9,000
Due from third-party payors -- 57,000
Inventories (note 6) 115,000 103,000
Prepaid and other current assets 65,000 223,000
Deferred tax asset (note 8) 168,000 --
---------- ----------
Total current assets 3,462,000 2,426,000
Property and equipment, net (notes 5 and 6) 4,236,000 2,165,000
Organization and start-up costs, net 76,000 124,000
---------- ----------
Total assets $7,774,000 4,715,000
========== ==========
Liabilities and Equity/Capital
------------------------------
Current portion of long-term debt (note 6) $ -- 70,000
Current portion of capital lease obligations (note 7) 346,000 48,000
Notes payable 20,000 18,000
Accounts payable 628,000 618,000
Accrued wages and benefits 321,000 196,000
Due to third-party payors 45,000 --
Due to affiliate 1,320,000 --
Accrued expenses and other current liabilities 112,000 165,000
Income taxes payable (note 8) 575,000 --
Distributions payable to shareholders and partners -- 283,000
---------- ----------
Total current liabilities 3,367,000 1,398,000
Long-term debt, excluding current portion (note 6) -- 156,000
Long-term capital lease obligations, excluding current portion (note 7) 1,699,000 1,484,000
---------- ----------
Total liabilities 5,066,000 3,038,000
Minority interest in combined subsidiaries 64,000 --
Equity/capital (note 9) 2,644,000 1,677,000
Commitments and contingencies (notes 7,10 and 12)
---------- ----------
Total liabilities and equity/capital $7,774,000 4,715,000
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-2
<PAGE> 8
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
COMBINED STATEMENTS OF INCOME
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net service revenues (note 3) $ 14,135,000 9,455,000
Operating costs and expenses:
Patient care costs 4,417,000 3,282,000
General and administrative expenses 4,718,000 2,602,000
Provision for doubtful accounts 840,000 438,000
Depreciation and amortization 612,000 344,000
Merger expenses 331,000 --
Minority interest in net loss of combined subsidiaries (58,000) --
------------ ------------
Total operating costs and expenses 10,860,000 6,666,000
------------ ------------
Income from operations 3,275,000 2,789,000
Other income 24,000 29,000
Interest expense (269,000) (194,000)
------------ ------------
Income before income taxes 3,030,000 2,624,000
Income taxes (note 8) 407,000 --
------------ ------------
Net income 2,623,000 2,624,000
Pro forma income taxes (note 2) 847,000 971,000
------------ ------------
Pro forma net income (note 2) $ 1,776,000 1,653,000
============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE> 9
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND PARTNERS' CAPITAL
Years ended December 31, 1996 and 1995
<TABLE>
<S> <C>
Balances, December 31, 1994 $ 1,031,000
Sale of common stock and capital contributions 27,000
Distributions to shareholders and partners (2,005,000)
Net income for 1995 2,624,000
-----------
Balances, December 31, 1995 1,677,000
Distributions to shareholders and partners (1,656,000)
Net income for 1996 2,623,000
-----------
Balances, December 31, 1996 (note 9) $ 2,644,000
===========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 10
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,623,000 2,624,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 612,000 344,000
Provision for doubtful accounts 840,000 438,000
Deferred income tax benefit (168,000) --
Minority interest in net loss of combined subsidiaries 58,000 --
Changes in assets and liabilities:
Increase in net accounts receivable (1,578,000) (944,000)
Decrease (increase) in due from third-party payors 57,000 (57,000)
Increase in inventories (12,000) (40,000)
Decrease (increase) in prepaid and other current assets 158,000 (152,000)
Increase in organization and start-up costs (3,000) (68,000)
Increase in accounts payable 10,000 401,000
Increase in accrued wages and benefits 125,000 175,000
Increase in due to third-party payors 45,000 --
(Decrease) increase in accrued expenses and other
current liabilities (47,000) 55,000
Increase in income taxes payable 575,000 --
(Decrease) increase in distributions payable (283,000) 283,000
----------- -----------
Total adjustments 389,000 435,000
----------- -----------
Net cash provided by operating activities 3,012,000 3,059,000
----------- -----------
Cash flows from investing activities:
Decrease (increase) in notes receivable 6,000 (1,000)
Purchase of property and equipment (1,839,000) (436,000)
----------- -----------
Net cash used in investing activities (1,833,000) (437,000)
----------- -----------
Cash flows from financing activities:
Capital contributions -- 27,000
Distributions to shareholders and partners (1,656,000) (2,005,000)
Issuance of notes and long-term debt 547,000 278,000
Repayments of notes and long-term debt (346,000) (249,000)
Repayments of capital lease obligations (280,000) (209,000)
Cash advances from affiliate 895,000 --
----------- -----------
Net cash used in financing activities (840,000) (2,158,000)
----------- -----------
Net increase in cash 339,000 464,000
Cash at beginning of year 775,000 311,000
----------- -----------
Cash at end of year $ 1,114,000 775,000
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE> 11
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
(1) BUSINESS OF THE CORPORATIONS AND ORGANIZATION
BUSINESS OF THE CORPORATIONS
STAT Dialysis Corporation and STAT Management Corporation and their
related health care entities (collectively referred to as the
Corporations) operate in two business segments, kidney dialysis
services and healthcare management services. The Corporations own and
operate outpatient kidney dialysis centers, provide management services
for outpatient hyperbaric medicine units, and provide management and
personnel services to outpatient home health providers. The
Corporations operate in the Rio Grande Valley of southern Texas.
ORGANIZATION
For fiscal year 1995 and prior to the merger with STAT Healthcare, Inc.
on June 24, 1996 (see below), the combined financial statements include
the accounts of the AmHealth Corporations and the AmHealth Partnerships
(collectively referred to as the AmHealth entities). The entities,
their pre-merger structure and their dates of inception are as follows:
<TABLE>
<CAPTION>
Entity Structure Date of inception
------ --------- -----------------
<S> <C> <C>
Management operations:
AmHealth Corporation S Corporation October 1992
Kidney dialysis center operations:
AmHealth Enterprises of the Valley, Inc. S Corporation October 1992
AmHealth Kidney Center of the Valley,
Ltd. Partnership April 1993
Starr Dialysis Center, Ltd. Partnership November 1993
Weslaco Kidney Center, Ltd. Partnership June 1994
Mission Kidney Center, Ltd. Partnership August 1995
Brownsville Kidney Center, Ltd. Partnership April 1996
Healthcare management operations:
Southwestern Infusion Healthcare, Ltd. Partnership June 1994
AmHealth Ambulatory Services, Inc. C Corporation April 1995
AmHealth Ambulatory Healthcare, Ltd. Partnership April 1995
Brownsville Hyperbaric Healthcare, Ltd. Partnership May 1995
AmHealth Medical Management, Ltd. Partnership June 1995
</TABLE>
(Continued)
F-6
<PAGE> 12
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
On June 24, 1996, pursuant to the terms of a reorganization agreement,
the AmHealth Corporations were merged into STAT Healthcare, Inc., and
all the general and limited partners of the AmHealth Partnerships
(excluding limited partners representing a 25% interest in Brownsville
Kidney Center, Ltd.) received STAT Healthcare, Inc. common stock in
exchange for their partnership interests in the AmHealth Partnerships.
This transaction was accounted for as a pooling of interests. The
AmHealth entities were organized into STAT Dialysis Corporation and
STAT Management Corporation and their related health care entities. The
post-merger entities, including those formed after the merger, are as
follows:
STAT Dialysis Corporation:
Brownsville Kidney Center, Ltd.
El Paso Kidney Center, Ltd.
Mission Kidney Center
McAllen Kidney Center
Starr Dialysis Center
Weslaco Kidney Center
STAT Management Corporation:
STAT Management Corporation - McAllen
STAT Management Corporation - Corpus Christi
STAT Hypberbaric Centers
STAT Healthcare, Inc. - San Antonio
On December 10, 1996, pursuant to the terms of a merger agreement, STAT
Health-care, Inc. became a wholly-owned subsidiary of American Medical
Response, Inc. Subsequently, on February 18, 1997, American Medical
Response, Inc. became a wholly-owned subsidiary of Laidlaw, Inc. The
Corporations continued their existing operations within their new
parent companies.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Corporations' combined financial statements have been prepared
using the accrual method of accounting. All significant inter-entity
balances and transactions have been eliminated in the combined
financial statements.
(Continued)
F-7
<PAGE> 13
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
PATIENT ACCOUNTS RECEIVABLE, NET
Patient accounts receivable are reduced to an estimated realizable
value taking into consideration contractual adjustments mandated by
payors (Medicare, Medicaid and private insurers) and expected
write-offs of uncollectible accounts. These estimates are based on
management judgments and historical experience.
INVENTORIES
Inventories, consisting primarily of dialysis and pharmacy supplies,
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line depreciation method over the estimated useful lives of
the assets by class; minor equipment, 3 years; major equipment, 5
years; improvements, 5 years.
Equipment under capital lease is stated at the lesser of the present
value of the minimum lease payments or the fair value of the leased
property at the inception of the lease. Equipment under capital lease
is amortized using the straight-line method over the term of the leases
which is 4 to 7 years. Buildings and land under capital lease are
stated at the fair value of the properties and are amortized using the
straight-line method over the term of the leases which is 10 years.
ORGANIZATION AND START-UP COSTS
Organization and start-up costs have been capitalized and are being
amortized using the straight-line method over five years.
IMPAIRMENT OF LONG-LIVED ASSETS
When events or changes in circumstances indicate that the carrying
amount of property and equipment, and intangible or other long-lived
assets related to specifically acquired assets may not be recoverable,
an evaluation of the recoverability of currently recorded costs is
performed. When an evaluation is performed, the estimated value of
undiscounted future net cash flows associated with the asset is
compared to the asset's carrying value to determine if a write-down to
fair value is required.
(Continued)
F-8
<PAGE> 14
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
INCOME TAXES
The Corporations utilize the asset and liability method of accounting
for income taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
Prior to consummation of the merger with STAT Healthcare, Inc. (see
note 1), each of the AmHealth entities (except AmHealth Ambulatory
Services, Inc.) was a partnership or had elected to be treated as an S
Corporation. Accordingly, each entity's income or loss was allocated to
that entity's shareholders or partners for inclusion in their personal
federal income tax returns. No federal income taxes were assessed to
any of the entities (except AmHealth Ambulatory Services, Inc.), and
accordingly, no provision for federal income taxes for these entities
has been reflected in the accompanying combined statements of income
prior to consummation of the merger with STAT Healthcare, Inc. AmHealth
Ambulatory Services, Inc. began operations in April 1995. Taxable
income of this corporation from its date of inception through December
31, 1995 was not material.
PRO FORMA INCOME TAXES AND PRO FORMA NET INCOME
Pro forma income taxes are calculated to reflect the effect of income
taxes not otherwise payable by the AmHealth entities which were
partnerships or S Corporations prior to consummation of the merger with
STAT Healthcare, Inc. on June 24, 1996. The pro forma income taxes are
based on an effective rate of 37%. Pro forma net income includes the
effect of pro forma income taxes.
NET SERVICE REVENUES
Net patient service revenue is reported at the net realizable amounts
from patients, third-party payors and others for services rendered.
Amounts reimbursed for services rendered to patients covered under the
Medicare and Medicaid programs are generally less than the established
billing rates. The Corporations also provide services to beneficiaries
of certain other third-party payor programs at amounts less than their
established rates based on contractual arrangements. Differences
between the established billing rates and amounts reimbursed are
contractual adjustments.
Management services revenue for hospital and home health agency
accounts are recorded at the contractually established billing rates.
(Continued)
F-9
<PAGE> 15
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
Methods and assumptions used to estimate the fair value of each class
of financial instruments are as follows:
- Trade accounts receivable, notes receivable and payables The
carrying amounts approximate fair value because of the short
maturity of these instruments.
- Notes payable and long-term debt - The carrying amounts
approximate fair value because the notes generally have an
adjustable interest rate which is updated based on the prime
rate.
RECLASSIFICATIONS
Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
(3) NET SERVICE REVENUES
Gross patient service revenue, based on the Corporations' established
rates, and management services revenue during the years ended December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Gross patient service revenue $ 9,848,000 7,290,000
Contractual adjustments (1,314,000) (590,000)
----------- ---------
Net patient service revenue 8,534,000 6,700,000
Management services revenue 5,601,000 2,755,000
----------- ---------
Net service revenues $14,135,000 9,455,000
=========== =========
</TABLE>
For the years ended December 31, 1996 and 1995, one management services
agreement accounted for 25% and 21%, respectively, of net service
revenues.
(Continued)
F-10
<PAGE> 16
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(4) PATIENT ACCOUNTS RECEIVABLE
Patient accounts receivable at December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Gross patient accounts receivable $2,301,000 1,244,000
Allowance for contractual adjustments (546,000) (228,000)
---------- ---------
Estimated patient accounts receivable 1,755,000 1,016,000
Allowance for doubtful accounts (571,000) (98,000)
---------- ---------
Patient accounts receivable, net $1,184,000 918,000
========== =========
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment, by major category, at December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and buildings $1,459,000 969,000
Equipment 3,531,000 1,593,000
Improvements 359,000 155,000
---------- ---------
5,349,000 2,717,000
Less accumulated depreciation and amortization (1,113,000) (552,000)
---------- ---------
Property and equipment, net $4,236,000 2,165,000
========== =========
</TABLE>
Depreciation and amortization of property and equipment charged to
operations was $561,000 and $322,000 for the years ended December 31,
1996 and 1995, respectively.
(Continued)
F-11
<PAGE> 17
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(6) LONG-TERM DEBT
Long-term debt at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1995
----
<S> <C>
Revolving credit payable to bank, due in quarterly
installments of $9,375 plus interest through March 1999;
interest
at prime plus .5% $122,000
Note payable to bank, due October 30,
1997, interest at prime plus 1% 6,000
Note payable to bank, due June 15, 1998;
interest at prime plus 1% 48,000
Note payable to bank, due November 6, 1999;
interest at prime plus 1% 50,000
--------
Total debt 226,000
Less current portion (70,000)
--------
Long-term debt $156,000
========
</TABLE>
The revolving credit payable to bank and notes payable to bank are
secured by the Corporations' accounts receivable, inventories and
equipment. Long-term debt was repaid in 1996.
Cash paid for interest was $273,000 and $179,000 for the years ended
December 31, 1996 and 1995, respectively.
During the year ended December 31, 1996, an affiliate made an advance
to the Corporations of $425,000 through direct payments of long-term
debt of the Corporations. This noncash financing activity has been
excluded from the combined statements of cash flows.
(Continued)
F-12
<PAGE> 18
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(7) LEASE OBLIGATIONS
Future minimum lease payments under capital leases, together with the
present value of the net minimum lease payments, at December 31, 1996
are as follows:
<TABLE>
<S> <C>
1997 $ 609,000
1998 523,000
1999 443,000
2000 357,000
2001 294,000
Later years 1,055,000
-----------
Total minimum lease payments 3,281,000
Less amount representing interest (1,236,000)
-----------
Present value of net minimum
lease payments 2,045,000
Less current portion (346,000)
-----------
Long-term capital lease obligations $ 1,699,000
===========
</TABLE>
Obligations under capital leases incurred for property and equipment
were $793,000 and $605,000 during the years ended December 31, 1996 and
1995, respectively. These noncash investing and financing transactions
have been excluded from the consolidated statements of cash flows.
Future minimum rental payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one
year at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $260,000
1998 166,000
1999 127,000
2000 66,000
--------
Total minimum lease payments $619,000
========
</TABLE>
Rental expense under operating leases was $246,000 and $60,000 for the
years ended December 31, 1996 and 1995, respectively.
(Continued)
F-13
<PAGE> 19
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(8) INCOME TAXES
For federal income tax purposes, each of the entities whose financial
statements are included in these combined financial statements prior to
the consummation of the merger with STAT Healthcare, Inc. on June 24,
1996 (except AmHealth Ambulatory Services, Inc.) is a partnership or
has elected to be treated as an S Corporation. Accordingly, each
entity's income or loss was allocated to the entity's shareholders or
partners for inclusion in their personal federal income tax returns. No
federal income taxes will be assessed to any of the entities (except
AmHealth Ambulatory Services, Inc.), and accordingly, no provision for
federal income taxes for these entities has been reflected in the
accompanying combined statements of income for the period prior to
consummation of the merger with STAT Healthcare, Inc.
AmHealth Ambulatory Services, Inc. began operations in April 1995.
Taxable income of this corporation from its date of inception through
December 31, 1995 was not material.
Income taxes from the date of merger, June 24, 1996, through December
31, 1996 are as follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Federal $ 516,000
State 59,000
---------
Current income tax expense 575,000
Deferred income tax benefit (168,000)
---------
Total income tax expense $ 407,000
=========
</TABLE>
(Continued)
F-14
<PAGE> 20
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
The actual 1996 income tax expense differs from the amount of income
taxes determined by applying the U.S. corporate rate of 34% to income
before income taxes as follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Computed "expected" tax expense $1,030,000
Taxes on income earned and reported by
shareholders of S corporations and partners
of partnerships (778,000)
Increase in tax resulting from nondeductible
merger expenses 113,000
Increase in tax resulting from other nondeductible
expenses 3,000
State tax provision, net of federal benefit 39,000
----------
Actual income tax expense $ 407,000
==========
</TABLE>
The net deferred tax asset of $168,000 at December 31, 1996 is due to
allowances on receivables not currently deductible for tax purposes
($194,000) offset by depreciation taken for these purposes in excess of
book depreciation ($26,000). No valuation allowance has been provided
for the net deferred tax asset at December 31, 1996 as management
believes it is more likely than not that such assets will be realized.
(9) EQUITY/CAPITAL
The combined financial statements of the Corporations include its eight
corporations and two partnerships. The equity/capital account balance
by entity at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1996
Equity/
capital
-------
<S> <C>
Brownsville Kidney Center, Ltd. $ 222,000
El Paso Kidney Center, Ltd. 45,000
Mission Kidney Center 217,000
McAllen Kidney Center 996,000
Starr Dialysis Center 98,000
Weslaco Kidney Center 371,000
STAT Management Corporation - McAllen 418,000
STAT Management Corporation - Corpus Christi (33,000)
STAT Hyperbaric Centers 579,000
STAT Healthcare, Inc. - San Antonio 26,000
----------
2,911,000
Elimination of inter-entity balances (267,000)
----------
$2,644,000
==========
</TABLE>
(Continued)
F-15
<PAGE> 21
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Disclosure of changes in the separate equity/capital accounts has not
been included in the financial statements because, in the opinion of
management, such disclosure would not be meaningful.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
The Corporations have certain pending and threatened litigation and
claims incurred in the ordinary course of business; however, management
believes that the probable resolution for such contingencies will not
materially affect the liquidity, the financial position, or the results
of the Corporations' operations.
The Corporations have entered into compensation agreements with doctors
who serve as medical directors for the dialysis centers and the
hyperbaric units. The agreements range in length from three to seven
years. Amounts paid under these agreements totaled $150,000 and
$134,000 for the years ended December 31, 1996 and 1995, respectively.
Future payments required under the compensation agreements at December
31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 272,000
1998 285,000
1999 331,000
2000 362,000
2001 356,000
Later years 463,000
----------
$2,069,000
==========
</TABLE>
All of the agreements allow for renewal at the same or similar terms.
Effective October 1, 1995, the AmHealth entities established the
Employees 401(k) Plan (the Plan). The Plan allows participants with at
least one year of prior service to make elective deferrals from 0% to
15% of their compensation. The Plan also allows discretionary matching
employer contributions as well as additional discretionary
contributions which shall be allocated to each eligible employee in
proportion to his or her compensation as a percentage of the
compensation of all eligible employees. Employer contributions vest at
the rate of 20% per year of service. The Corporations have not elected
to make discretionary contributions to the Plan for fiscal years 1996
and 1995.
(Continued)
F-16
<PAGE> 22
STAT DIALYSIS CORPORATION AND
STAT MANAGEMENT CORPORATION
AND THEIR RELATED HEALTH CARE ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(11) BUSINESS SEGMENTS
The Corporations operate in two business segments; kidney dialysis
services and health care management services. Information by business
segment as of and for the years ended December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net service revenues:
Kidney dialysis $ 8,534,000 6,700,000
Health care management 5,601,000 2,755,000
------------ ------------
Total $ 14,135,000 9,455,000
============ ============
Income from operations:
Kidney dialysis $ 1,368,000 1,715,000
Health care management 2,179,000 1,120,000
General corporate (272,000) (46,000)
------------ ------------
Total $ 3,275,000 2,789,000
============ ============
Identifiable assets:
Kidney dialysis $ 5,052,000 3,642,000
Health care management 2,532,000 970,000
General corporate 216,000 103,000
------------ ------------
Total $ 7,800,000 4,715,000
============ ============
Depreciation and amortization:
Kidney dialysis $ 447,000 301,000
Health care management 152,000 40,000
General corporate 13,000 3,000
------------ ------------
Total $ 612,000 344,000
============ ============
Capital expenditures:
Kidney dialysis $ 494,000 137,000
Health care management 1,345,000 282,000
General corporate -- 17,000
------------ ------------
Total $ 1,839,000 436,000
============ ============
</TABLE>
(12) SUBSEQUENT EVENT
On December 8, 1997, Laidlaw, Inc. entered into an agreement with Renal
Care Group, Inc. (RCG). Under the terms of the agreement, RCG acquired
the assets of the Corporations' for cash and common stock of RCG.
F-17
<PAGE> 23
RENAL CARE GROUP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
The Company Acquisition Pro Forma
(Historical) (Historical) Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,011 $ 1,145 $ (1,145) a $ 5,011
$ (3,000) c
Investments, held to maturity 6,007 - 6,007
Accounts receivable, net 37,212 6,466 (2,000) b 41,678
Inventories 3,475 279 3,754
Prepaid Expenses and other current assets 1,734 108 1,842
---------- -------- -------- ----------
Total current assets 56,439 7,998 (6,145) 58,292
Property and equipment, net 52,906 5,927 c 58,833
Goodwill, net 54,203 26,210 52,825 107,028
(26,210) a
Intangible assets, net 7,410 7,410
Other long term assets 972 - 972
---------- -------- -------- ----------
Total assets $ 171,930 $ 40,135 $20,470 $ 232,535
========== ======== ======== ==========
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 5,761 $ 19 $ $ 5,780
Accrued wages and benefits 9,415 2,365 11,780
Due to third party payors 6,269 - 6,269
Due to related parties 24,012 (24,012) a -
Accrued expenses and other current liabilities 10,381 108 10,489
Income taxes payable 1,272 - 1,272
---------- -------- -------- ----------
Total current liabilities 33,098 26,504 (24,012) 35,590
Minority interest 14,276 14,276
Long Term Debt 6,151 3,849 10,000
Deferred income taxes 1,571 350 1,921
---------- -------- -------- ----------
Total liabilities 55,096 30,703 (24,012) 61,787
Stockholders' equity
Common stock 227 - 21 c 248
Additional paid-in capital 98,885 - 51,237 c 150,122
Retained earnings 17,722 9,432 (6,776) b 20,378
---------- -------- -------- ----------
Total stockholders' equity 116,834 9,432 44,482 170,748
---------- -------- -------- ----------
Total liabilities and stockholders' equity $ 171,930 $ 40,135 $ 20,470 $ 232,535
========== ======== ======== ==========
</TABLE>
F-23
<PAGE> 24
RENAL CARE GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
1. Basis of Presentation
The Unaudited Pro Forma Combined Balance Sheet of Renal Care Group,
Inc. as of September 30, 1997 gives effect to the acquisition of STAT Dialysis
Corporation and STAT Management Corporation and Their Related Healthcare
Entities ("STAT") as if such acquisition was consummated on January 1, 1996. The
Pro Forma adjustments are based on consideration exchanged, including the
estimated fair value of assets acquired and liabilities assumed. The actual
adjustments, which will be based on valuations of fair value as of the date of
acquisition, may differ from those made herein.
2. Pro Forma Adjustments
(a) To reflect assets and liabilities not acquired by the Company
(b) To record patient accounts receivable at net realizable value
(c) To record the acquisition as follows:
Purchase Price 54,258
Net Book Value of Assets Acquired 901
------
Purchase Price allocated to intangible assets 53,357
======
The purchase price of the acquisition, including working capital
acquired, will be paid with cash of $3,000 and stock of $51,258.
F-24
<PAGE> 25
RENAL CARE GROUP, INC.
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
The Company Acquisition Pro Forma
(Historical) (Historical) Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net Revenue $ 151,813 $ 21,480 (2,000) d $ 171,293
Operating costs and expenses:
Patient care costs 104,037 7,800 111,837
General and administrative expenses 15,599 6,327 21,926
Provision for doubtful accounts 3,436 - 3,436
Depreciation and amortization 6,343 1,187 657 a 8,187
Merger expenses 300 - 300
--------- --------- ---------
Total operating costs and expenses 129,715 15,314 145,686
--------- --------- ---------
Income from operations 22,098 6,166 25,607
Interest, net 591 (309) (155) b 127
--------- --------- ---------
Income before minority interest
and income taxes 22,689 5,857 25,734
Minority interest 508 - 508
--------- --------- ---------
Income before income taxes 22,181 5,857 25,226
Provision for income taxes 8,242 2,176 (1,045) c 9,373
--------- --------- ---------
Net Income $ 13,939 $ 3,681 $ 15,853
========= ========= =========
Earnings per Share $ 0.60 $ 0.62
========= =========
Weighted average shares outstanding 23,310 2,135 e 25,445
========= ====== =========
</TABLE>
F-25
<PAGE> 26
RENAL CARE GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
1. Basis of Presentation
The Unaudited Pro Forma Combined Income Statement for the nine months
ended September 30, 1997 gives effect to the acquisition by the Company of STAT
as if the acquisition was consummated on January 1, 1996.
The pro forma adjustments are based on consideration exchanged,
including the estimated fair value of assets acquired, liabilities assumed and
common stock issued. The actual adjustments, which will be based on valuations
of fair value as of the date of acquisition, may differ from those made herein.
Earnings per share and weighted average shares outstanding for the
nine months ended September 30, 1997 assume that any shares issued in connection
with the acquisition were outstanding for the period presented.
2. Pro Forma Adjustments
(a) To adjust amortization of goodwill from the acquisition on a
straight-line basis over 35 years.
(b) To record interest expense as a result of the cash portion of
the purchase price.
(c) To record income taxes as a result of the earnings from the
acquisition.
(d) To record patient accounts receivable at net realizable value.
(e) Earnings per share and weighted average shares outstanding assume
that all shares issued in connection with the acquisition were
outstanding for the period presented.
F-26
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the inclusion of our report dated February 6, 1998, with respect
to the combined balance sheets of STAT Dialysis Corporation and STAT Management
Corporation and their related health care entities as of December 31, 1996 and
1995, and the related combined statements of income, changes in shareholders'
equity and partners' capital, and cash flows for KPMG Peat Marwick LLP the years
then ended, which report appears in the Form 8-K of Renal Care Group, Inc. dated
February 20, 1998.
Houston, Texas
February 20, 1998
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the registration statements
(Registration No. 333-33949) on Form S-3 and (Registration No. 333-37299) on
Form S-8 of Renal Care Group, Inc. of our report dated February 6, 1998 with
respect to the combined balance sheets of STAT Dialysis Corporation and STAT
Management Corporation and their related health care entities as of December 31,
1996 and 1995, and the related combined statements of income, changes in
shareholders' equity and partners' capital, and cash flows for the years then
ended, which report appears in the Form 8-K/A of Renal Care Group, Inc. dated
December 8, 1997.
KPMG Peat Marwick LLP
Houston, Texas
[February 20, 1998]
<PAGE> 1
RENAL CARE GROUP, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited pro forma Combined Financial Statements include the
[consolidated] [combined] financial statements of Renal Care Group, Inc. and
subsidiaries (the "Company") which include the results of operations of STAT
Dialysis Corporation and STAT Management Corporation (collectively, "STAT")
which the Company acquired in December 1997 and Indiana Dialysis Services P.C.,
Indiana Kidney Center, St. Vincent Dialysis Center, St. Joseph Dialysis Center,
Indiana Kidney Center South, LLC and Eastern Indiana Kidney Center
(collectively, "Indiana Facilities") which the Company acquired in March 1997.
The STAT and the Indiana Facilities transactions have been accounted for under
the purchase method of accounting.
The Unaudited Pro Forma Combined Balance Sheet of the Company as of
December 31, 1996, which includes the balance sheet of the Indiana Facilities
filed previously on the Company's Form 8-K/A dated June 10, 1997, gives effect
to the acquisition of STAT as if such acquisition was consummated on January 1,
1996.
The Unaudited Pro Forma Combined Balance Sheet of the Company as of
September 30, 1997 gives effect to the acquisition of STAT as of such
acquisition was consummated on January 1, 1996.
The Unaudited Pro Forma Combined Income Statement for the year ended
December 31, 1996 of Renal Care Group, Inc. which includes the results of
operations of the Indiana Facilities filed previously on the Company's Form
8-K/A dated June 10, 1997, and the nine months ended September 30, 1997 give
effect to the acquisition by the Company of STAT as if the acquisition was
consummated on January 1, 1996.
The Pro Forma adjustments are based on consideration exchanged, including
the estimated fair value of assets acquired and liabilities assumed. The actual
adjustments, which will be based on valuation of fair value as of the date of
acquisition, may differ from those made herein.
Earnings per share and weighted average shares outstanding for the year
ended December 31, 1996 and the nine months ended September 30, 1997 assume that
any shares issued in connection with the acquisition were outstanding for the
period presented.
These Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the respective historical combined financial statements and
notes thereto of the Company, STAT and the Indiana Facilities. These Unaudited
Pro Forma Combined Financial Statements were prepared utilizing the accounting
policies of the respective entities as outlined in their historical financial
statements except as described in the accompanying notes. The unaudited pro
forma combined results of operations do not necessarily reflect actual results
which would have occurred if the acquisitions had taken place on the assumed
dates, nor are they necessarily indicative of the results of future combined
operations.
F-18
<PAGE> 2
RENAL CARE GROUP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Acquisition Pro Forma
The Company (Historical) Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 18,524 $ 1,114 $ (1,114) a $ 15,524
$ (3,000) c
Investments, held to maturity 5,814 - 5,814
Accounts receivable, net 28,842 1,997 30,839
Inventories 2,950 115 3,065
Prepaid Expenses and other current assets 1,578 236 1,814
---------- -------- -------- ----------
Total current assets 57,708 3,462 (4,114) 57,056
Property and equipment, net 33,452 4,236 37,688
Goodwill, net 42,883 - 53,357 c 96,240
Intangible assets, net 2,749 76 2,825
Other long term assets 780 - 780
---------- -------- -------- ----------
Total assets $ 137,572 $ 7,774 $ 49,243 $ 194,589
========== ======== ======== ==========
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 7,984 $ 628 $ $ 8,612
Accrued wages and benefits 6,263 321 6,584
Due to third party payors 6,593 45 6,638
Due to related parties 7,000 1,320 8,320
Accrued expenses and other current liabilities 6,588 478 7,066
Income taxes payable 2,588 575 3,163
---------- -------- -------- ----------
Total current liabilities 37,016 3,367 40,383
Long term debt - 1,699 1,699
Deferred income taxes 1,471 - 1,471
Minority interest - 64 64
---------- -------- -------- ----------
Total liabilities 38,487 5,130 43,617
Stockholders' equity
Common stock 213 21 c 234
Additional paid-in capital 95,088 146,325
51,237 c
Retained earnings 3,784 2,644 (2,015) b 4,413
---------- -------- -------- ----------
Total stockholders' equity 99,085 2,644 49,243 150,972
---------- -------- -------- ----------
Total liabilities and stockholders' equity $ 137,572 $ 7,774 $ 49,243 $ 194,589
========== ======== ======== ==========
</TABLE>
F-19
<PAGE> 3
RENAL CARE GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
1. Basis of Presentation
The Unaudited Pro Forma Combined Balance Sheet of Renal Care Group,
Inc. as of December 31, 1996, which includes the balance sheet of the Indiana
Facilities filed previously on the Company's Form 8-K/A dated June 10, 1997,
gives effect to the acquisition of STAT Dialysis Corporation and STAT Management
Corporation and Their Related Healthcare Entities ("STAT") as if such
acquisition was consummated on January 1, 1996. The Pro Forma adjustments are
based on consideration exchanged, including the estimated fair value of assets
acquired and liabilities assumed. The actual adjustments, which will be based on
valuations of fair value as of the date of acquisition, may differ from those
made herein.
2. Pro Forma Adjustments
(a) To reflect assets not acquired by the Company
(b) To eliminate the equity of the acquired business at the
beginning of the year.
(c) To record the acquisition as follows:
Purchase Price 54,258
Net Book Value of Assets Acquired 901
------
Purchase Price allocated to intangible assets 53,357
======
The purchase price of the acquisition was paid with cash of $3,000
and stock of $51,258.
F-20
<PAGE> 4
RENAL CARE GROUP, INC.
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Acquisition Pro Forma
The Company (Historical) Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net Revenue $ 146,460 $ 14,135 $ 160,595
Operating costs and expenses:
Patient care costs 100,812 4,417 105,229
General and administrative expenses 15,315 4,800 20,115
Provision for doubtful accounts 2,741 840 3,581
Depreciation and amortization 5,900 612 1,434 a 7,946
Merger expenses 1,960 331 2,291
--------- --------- ---------
Total operating costs and expenses 126,728 11,000 139,162
--------- --------- ---------
Income from operations 19,732 3,299 21,433
Interest, net (740) (269) (210) b (1,219)
--------- --------- ---------
Income before taxes 18,992 3,030 20,214
Provision for income taxes 7,464 1,254 (774) c 7,944
--------- --------- ---------
Net Income $ 11,528 $ 1,776 $ 12,270
========= ========= =========
Earnings per Share $ .59 $ 0.57
========= =========
Weighted average shares outstanding 19,433 2,135 d 21,568
========= ====== =========
</TABLE>
F-21
<PAGE> 5
RENAL CARE GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
1. Basis of Presentation
The Unaudited Pro Forma Combined Income Statement for the year ended
December 31, 1996 of Renal Care Group, Inc., which includes the results of
operations of the Indiana Facilities filed previously on the Company's Form
8-K/A dated June 10, 1997, gives effect to the acquisition by the Company of
STAT as if the acquisition was consummated on January 1, 1996.
The pro forma adjustments are based on consideration exchanged,
including the estimated fair value of assets acquired, liabilities assumed and
common stock issued. The actual adjustments, which will be based on valuations
of fair value as of the date of acquisition, may differ from those made herein.
Earnings per share and weighted average shares outstanding for the year
ended December 31, 1996 assume that any shares issued in connection with the
acquisition were outstanding for the period presented.
2. Pro Forma Adjustments
(a) To record amortization of goodwill from the acquisition on a
straight-line basis over 35 years.
(b) To record interest expense as a result of the cash portion of
the purchase price.
(c) To record income tax effects related to the pro forma
adjustments.
(d) Earnings per share and weighted average shares outstanding assume
that all shares issued in connection with the acquisition were
outstanding for the period presented.
F-22
