<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 June 30, 1999
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)
Delaware 62-1622383
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 August 10, 1999
----------------------------------------------------------------------
Common Stock, $.01 par value 44,508,364
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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
December 31, 1998 and June 30, 1999 (unaudited) 1
Consolidated Income Statements - (unaudited)
For the three months and six months ended
June 30, 1998 and 1999 2
Consolidated Statements of Cash Flows - (unaudited)
For the six months ended June 30, 1998 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 7
Risk Factors 13
PART II - OTHER INFORMATION
Item 2. Changes in Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
</TABLE>
Note: Item 3 of Part I, and items 1 and 3 of Part II are omitted because they
are not applicable
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
RENAL CARE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,943 $ 21,758
Accounts receivable, net 84,795 94,622
Inventories 8,553 9,664
Prepaid expenses and other current assets 8,329 12,937
Deferred income taxes 3,381 3,381
-------- --------
Total current assets 125,001 142,362
Property and equipment, net 96,256 111,273
Goodwill and other intangibles, net 205,765 215,559
Other assets 6,355 5,465
-------- --------
Total assets $433,377 $474,659
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,109 $ 20,111
Income taxes payable 1,579 944
Current portion of long-term debt 10,742 631
Other current liabilities 46,776 51,208
-------- --------
Total current liabilities 79,206 72,894
Long-term debt, net of current portion 79,507 94,716
Deferred income taxes 3,467 3,467
Minority interest 25,517 30,144
-------- --------
Total liabilities 187,697 201,221
Stockholders' equity:
Preferred stock, $.01 par value, 10,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 90,000 shares authorized,
43,995 and 44,487 shares issued and outstanding at
December 31, 1998 and June 30, 1999, respectively 440 445
Additional paid-in capital 183,817 190,567
Retained earnings 61,423 82,426
-------- --------
Total stockholders' equity 245,680 273,438
-------- --------
Total liabilities and stockholders' equity $433,377 $474,659
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
1
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RENAL CARE GROUP, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $102,549 $128,496 $194,091 $249,357
Operating costs and expenses:
Patient care costs 67,465 83,034 129,278 161,281
General and administrative expenses 9,858 11,844 18,985 23,138
Provision for doubtful accounts 3,119 3,425 5,839 6,626
Depreciation and amortization 5,218 6,527 9,831 12,690
Merger expenses 300 -- 1,000 4,300
-------- -------- -------- --------
Total operating costs and expenses 85,960 104,830 164,933 208,035
-------- -------- -------- --------
Income from operations 16,589 23,666 29,158 41,322
Interest expense, net 1,436 1,288 2,682 2,693
-------- -------- -------- --------
Income before minority interest and income taxes 15,153 22,378 26,476 38,629
Minority interest 608 1,744 1,155 3,244
-------- -------- -------- --------
Income before income taxes 14,545 20,634 25,321 35,385
Provision for income taxes 5,438 7,738 9,552 14,382
-------- -------- -------- --------
Net income $ 9,107 $ 12,896 $ 15,769 $ 21,003
======== ======== ======== ========
Net income per share:
Basic $ 0.21 $ 0.29 $ 0.37 $ 0.47
======== ======== ======== ========
Diluted $ 0.20 $ 0.28 $ 0.35 $ 0.45
======== ======== ======== ========
Weighted average shares outstanding:
Basic 43,274 44,480 42,938 44,336
======== ======== ======== ========
Diluted 45,860 46,600 45,488 46,500
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
2
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RENAL CARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1999
--------------------------
<S> <C> <C>
Operating activities
Net income $ 15,769 $ 21,003
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,831 12,690
Income applicable to minority interest 1,155 3,244
Change in assets and liabilities net of effects from acquisitions (15,456) (9,565)
-------- --------
Net cash provided by operating activities 11,299 27,372
INVESTING ACTIVITIES
Purchases of property and equipment (10,314) (23,685)
Cash paid for acquisitions, net of cash acquired (32,238) (10,198)
Investments, net 3,625 --
Change in other assets (580) 890
-------- --------
Net cash used in investing activities (39,507) (32,993)
FINANCING ACTIVITIES
Net borrowings under line of credit 36,194 5,098
Payments on long-term debt (4,917) --
Proceeds from exercise of stock options 4,069 3,755
Distributions to minority shareholders (250) (1,417)
-------- --------
Net cash provided by financing activities 35,096 7,436
-------- --------
Increase in cash and cash equivalents 6,888 1,815
Cash and cash equivalents, at beginning of period 9,138 19,943
-------- --------
Cash and cash equivalents, at end of period $ 16,026 $ 21,758
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,543 $ 2,649
======== ========
Income taxes $ 4,803 $ 15,017
======== ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Issuance of common stock in acquisition $ 1,846 $ 2,000
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 6
RENAL CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1999
(in thousands, except per share and operating data)
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
Overview
Renal Care Group, Inc. ("Renal Care Group" or the "Company") provides
dialysis services to patients with chronic kidney failure also known as
end-stage renal disease ("ESRD"). As of June 30, 1999, the Company provided
dialysis and ancillary services to approximately 13,900 patients through 179
outpatient dialysis centers in 22 states. In addition to its outpatient dialysis
center operations, the Company provides acute dialysis services through
contractual relationships with 102 hospitals. The Company also operates a
business providing wound care and diabetes services.
Renal Care Group's net revenue has been derived primarily from the
following sources:
- outpatient hemodialysis services;
- ancillary services associated with dialysis, primarily the
administration of erythropoietin ("EPO");
- home dialysis services;
- inpatient hemodialysis services provided pursuant to contracts with
acute care hospitals and skilled nursing facilities;
- management contracts with hospital-based and medical university
dialysis programs;
- laboratory services; and
- wound care and diabetes services.
ESRD patients typically receive three dialysis treatments each week,
with reimbursement for services provided primarily by the Medicare ESRD program
based on rates established by the Health Care Financing Administration ("HCFA").
For the six months ended June 30, 1999, approximately 61% of the Company's net
revenue was derived from reimbursement under the Medicare and Medicaid programs.
Medicare reimbursement is subject to rate and other legislative changes by
Congress and periodic changes in regulations, including changes that may reduce
payments under the ESRD program.
The Medicare ESRD composite rate applies to a designated group of
dialysis services, including the dialysis treatment, supplies used for such
treatment, certain laboratory tests and medications, and most of the home
dialysis services provided by Renal Care Group. Certain other services and drugs
are eligible for separate reimbursement under Medicare and are not part of the
ESRD composite rate,
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including specific drugs such as EPO and some physician-ordered tests provided
to dialysis patients. EPO is the commonly-used drug erythropoietin, which is
sold under the brand name EPOGEN(R).
For patients with private health insurance, dialysis was historically
reimbursed at rates higher than Medicare during the first 18 months of
treatment, and after that time Medicare became the primary payor. Effective
August 5, 1997, however, the Balanced Budget Act extended to 30 months of
treatment the health insurance coordination period during which private
insurance must pay for dialysis; after that period Medicare now becomes the
primary payor. Reimbursement for dialysis services provided pursuant to a
hospital contract is negotiated with the individual hospital and generally is
higher on a per treatment equivalent basis than the Medicare composite rate.
Because dialysis is a life-sustaining therapy used to treat this chronic
disease, utilization is predictable and is not subject to seasonal fluctuations.
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 representation 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.
The Company suggests that persons read these financial statements in conjunction
with the consolidated financial statements and the related notes thereto
included in the Company's Form 10-K, as filed with the SEC on March 31, 1999,
and the supplemental consolidated financial statements and the related notes
thereto included in the Company's Form 8-K, as filed with the SEC on April 22,
1999.
NOTE 2 - SIGNIFICANT EVENTS
In January 1999, Renal Care Group completed a merger with Dialysis
Centers of America, Inc. ("DCA"), an operator of 12 dialysis facilities located
in metropolitan Chicago. The facilities also provide acute, in-patient dialysis
treatment services to six area hospitals. Renal Care Group issued approximately
3,073 shares of common stock in the merger. The DCA Merger was accounted for as
a pooling-of-interests, and as such, the Company's consolidated financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations included herein give retroactive effect to the DCA merger
for all periods presented. The results of operations for the separate companies
and the combined results presented in the condensed consolidated financial
statements for prior periods follow:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1998
-------------- --------------
<S> <C> <C>
Net revenue
RCG $ 89,510 $169,973
DCA 13,039 24,118
-------- --------
$102,549 $194,091
======== ========
Net income
RCG $ 8,318 $ 15,391
DCA 789 378
------- --------
$ 9,107 $ 15,769
======= ========
</TABLE>
5
<PAGE> 8
On June 2, 1999, the stockholders of Renal Care Group voted to approve
the Renal Care Group, Inc. 1999 Long-Term Incentive Plan (the "Long-Term
Incentive Plan") and an amendment to the Renal Care Group, Inc. Certificate of
Incorporation to increase the number of authorized shares of $0.01 par value
Common Stock that the Company shall have authority to issue to 90,000 shares.
On June 23, 1999, the Company executed a Second Amendment to its First
Amended and Restated Loan Agreement with a group of banks. The Second Amendment
provides for an increase in the credit facility from $125.0 million to $185.0
million. Borrowings under the credit facility may be used for acquisitions,
capital expenditures, working capital and general corporate purposes. No more
than $25.0 million of the credit facility may be used for working capital
purposes. Within the working capital sublimit, the Company may borrow up to $5.0
million in swing line loans.
Renal Care Group 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 0.60% to 1.35%. Commitment fees
are also priced pursuant to leverage ratio tiers. Commitment fees range from
0.20% to 0.30% pursuant to leverage ratios ranging between 0.75 and 2.25. 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 $185.0
million through August 2000. Lender commitments are then reduced to $157.3
million through August 2001, $129.5 million through August 2002 and $101.8
million through August 2003. All loans under the loan agreement are due and
payable on August 4, 2003.
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
income per share in accordance with SFAS 128.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ---------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted income per share $ 9,107 $12,896 $15,769 $21,003
Denominator:
Denominator for basic net income per share -
weighted-average shares 43,274 44,480 42,938 44,336
Effect of dilutive securities:
Stock Options 2,054 1,604 2,024 1,641
Warrants 532 516 526 523
------- ------- ------- -------
Denominator for diluted net income per share -
adjusted weighted-average shares and assumed
conversions 45,860 46,600 45,488 46,500
======= ======= ======= =======
Net income per share:
Basic $ 0.21 $ 0.29 $ 0.37 $ 0.47
======= ======= ======= =======
Diluted $ 0.20 $ 0.28 $ 0.35 $ 0.45
======= ======= ======= =======
</TABLE>
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
As described in Note 2 to the condensed consolidated financial
statements, Renal Care Group merged with Dialysis Centers of America (DCA)
in January 1999 in a transaction accounted for as a pooling-of-interests.
Accordingly, the condensed consolidated financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations have
been restated to include DCA for all periods presented.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net revenue. Net revenue increased from $102.5 million for the three
months ended June 30, 1998 to $128.5 million for the three months ended June 30,
1999, an increase of $26.0 million, or 25.4%. This increase resulted primarily
from a 17.3% increase in the number of treatments from 450,378 in the 1998
period to 528,297 in the 1999 period. This growth in treatments is the result of
the acquisition and development of various dialysis facilities and an 8.7%
increase in same-center treatments for the 1999 period over the 1998 period. In
addition, average net revenue per dialysis treatment increased 6.3% from $222 in
the 1998 period to $236 in the 1999 period. The remaining revenue increase is a
result of wound care and diabetes revenues and higher management fees. The
increase in revenue per treatment was due to an improvement in Renal Care
Group's payor mix, increases in the utilization of EPO and other drugs,
increases in acute hospital services, the continued roll-out of Renal Care
Group's in-house laboratory services and the positive impact on commercial
payments of the Medicare secondary payor provisions of the Balanced Budget Act.
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
$67.5 million for the three months ended June 30, 1998 to $83.0 million for the
three months ended June 30, 1999, an increase of $15.5 million, or 23.0%. This
increase resulted primarily from an increase in the number of treatments
performed during the period, which caused a corresponding increase in the cost
of labor, drugs and supplies. Patient care costs as a percentage of net revenue
decreased from 65.8% in the 1998 period to 64.6% in the 1999 period primarily
due to an increase in net revenue per treatment. Patient care costs per
treatment increased from $150 in the 1998 period to $157 in the 1999 period, an
increase of $7, or 4.7%. This increase is due to costs associated with the
utilization of EPO and other drugs, the cost of providing acute hospital
services, the cost of providing in-house laboratory services and normal health
care inflation.
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 $9.9
million for the three months ended June 30, 1998 to $11.8 million for the three
months ended June 30, 1999, an increase of $1.9 million, or 19.2%. General and
administrative expenses as a percentage of net revenue decreased from 9.6% in
the 1998 period to 9.2% in the 1999 period, primarily as the result of the
increase of net revenue for the 1999 period.
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<PAGE> 10
Provision for Doubtful Accounts. The provision for doubtful accounts is
determined as a function of payor mix, billing practices, and other factors.
Renal Care Group reserves 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. Management estimates the net collectibility of
accounts receivable based upon a variety of analyses. These analyses include,
but are not limited to, analyzing revenues generated from payor sources,
performing subsequent collection testing and continually reviewing detailed
accounts receivable agings. The provision for doubtful accounts increased from
$3.1 million for the three months ended June 30, 1998 to $3.4 million for the
three months ended June 30, 1999. The provision for doubtful accounts as a
percentage of net revenue decreased from 3.0% in the 1998 period to 2.7% in the
1999 period. This decrease in provision for doubtful accounts as a percentage of
net revenue resulted primarily from improved collections of accounts receivable
that were assumed in the merger with Dialysis Centers of America, Inc. in
January 1999.
Depreciation and Amortization. Depreciation and amortization increased
from $5.2 million for the three months ended June 30, 1998 to $6.5 million for
the three months ended June 30, 1999, an increase of $1.3 million, or 25%. This
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
as purchases.
Income from Operations. Income from operations increased from $16.6
million for the three months ended June 30, 1998 to $23.7 million for the three
months ended June 30, 1999, an increase of $7.1 million, or 42.8%. Income from
operations as a percentage of net revenue increased from 16.2% in the 1998
period to 18.4% in the 1999 period as a result of the factors discussed above.
Interest Expense. Interest expense remained nearly constant at $1.4
million and $1.3 million for the three months ended June 30, 1998 and 1999,
respectively. Interest expense was the net result of increased average
borrowings offset by lower effective interest rates during the 1999 period. The
lower effective interest rates were a result of replacing debt assumed in the
DCA transaction with proceeds from Renal Care Group's credit facility combined
with generally lower market interest rates.
Minority Interest. Minority interest represents the proportionate
equity interest of other partners in the Renal Care Group's consolidated
entities which are not wholly-owned. Minority Interest as a percentage of net
revenue increased to 1.4% in 1999 from 0.6% in 1998. This is a result of
continued operational improvements primarily related to Renal Care Group's joint
ventures in Ohio and Oregon.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net revenue. Net revenue increased from $194.1 million for the six
months ended June 30, 1998 to $249.4 million for the six months ended June 30,
1999, an increase of $55.3 million, or 28.5%. This increase resulted primarily
from an 18.5% increase in the number of treatments from 868,241 in the 1998
period to 1,028,474 in the 1999 period. This growth in treatments is the result
of the acquisition and development of various dialysis facilities and an 8.9%
increase in same-center treatments for the 1999 period over the 1998 period. In
addition, average net revenue per dialysis treatment increased 7.8% from $218 in
the 1998 period to $235 in the 1999 period. The remaining revenue increase is a
result of wound care and diabetes revenues and higher management fees. The
increase in revenue per treatment was due
8
<PAGE> 11
to an improvement in Renal Care Group's payor mix, increases in the utilization
of EPO and other drugs, increases in acute hospital services, the continued
roll-out of Renal Care Group's in-house laboratory services and the positive
impact on commercial payments of the Medicare secondary payor provisions of the
Balanced Budget Act.
Patient Care Costs. Patient care costs increased from $129.3 million
for the six months ended June 30, 1998 to $161.3 million for the six months
ended June 30, 1999, an increase of $32.0 million, or 24.7%. This increase was
due to the increase in the number of treatments, which caused a corresponding
increase in the use of labor, drugs and supplies. Patient care costs as a
percentage of net revenue decreased from 66.6% in the 1998 period to 64.7% in
the 1999 period. Patient care costs per treatment increased from $149 in the
1998 period to $157 in the 1999 period, an increase of $8 or 5.4%. This increase
is due to greater EPO and other drug utilization costs, the cost of providing
in-house laboratory services and normal healthcare inflation.
General and Administrative Expenses. General and administrative
expenses increased from $19.0 million for the six months ended June 30, 1998 to
$23.1 million for the six months ended June 30, 1999, an increase of $4.1
million, or 21.6%. General and administrative expenses as a percentage of net
revenue decreased from 9.8% for the 1998 period to 9.3% in the 1999 period,
primarily as a result of the increase of net revenue for the 1999 period.
Provision for Doubtful Accounts. The provision for doubtful accounts
increased from $5.8 million for the six months ended June 30, 1998 to $6.6
million for the six months ended June 30, 1999, an increase of $800,000, or
13.8%. The provision for doubtful accounts as a percentage of net revenue
decreased from 3.0% in the 1998 period to 2.7% in the 1999 period. This decrease
in provision for doubtful accounts as a percentage of net revenue resulted
primarily from improved collection of accounts receivable that were assumed in
the merger with DCA in January 1999.
Depreciation and Amortization. Depreciation and amortization increased
from $9.8 million for the six months ended June 30, 1998 to $12.7 million for
the six months ended June 30, 1999, an increase of $2.9 million, or 29.6%. 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 as purchases.
Merger Expenses. Merger expenses of $4.3 million for the six months
ended June 30, 1999 represent legal, accounting, employee severance costs and
related benefits and other costs associated with the assimilation and transition
of the merger with DCA.
Income from Operations. Income from operations increased from $29.2
million for the six months ended June 30, 1998 to $41.3 million for the six
months ended June 30, 1999, an increase of $12.1 million, or 41.4%. Income from
operations as a percentage of net revenue increased from 15.0% in the 1998
period to 16.6% in the 1999 period based on the factors discussed above.
Interest Expense, Net. Interest expense remained constant at $2.7
million for both six month periods ended June 30, 1998 and 1999. Interest
expense was the net result of increased average borrowings offset by lower
effective interest rates during the 1999 period. The lower effective interest
rates were a result of replacing debt assumed in the DCA transaction with
proceeds from Renal Care
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<PAGE> 12
Group's credit facility combined with generally lower market interest rates.
Minority Interest. Minority interest represents the proportionate
equity interest of other partners in the Renal Care Group's consolidated
entities which are not wholly-owned. Minority Interest as a percentage of net
revenue increased to 1.3% in 1999 from 0.6% in 1998. This is a result of
continued operational improvements primarily related to Renal Care Group's joint
ventures in Ohio and Oregon.
LIQUIDITY AND CAPITAL RESOURCES
Renal Care Group requires capital primarily to acquire and develop
dialysis facilities, to purchase property and equipment for existing facilities,
and to finance working capital needs. At June 30, 1999, Renal Care Group's
working capital was $69.5 million, cash and cash equivalents were $21.8 million,
and our current ratio was approximately 2.0 to 1.0.
Net cash provided by operating activities was $27.4 million for the six
months ended June 30, 1999. Cash provided by operating activities consists of
net income before depreciation and amortization expense, adjusted for changes in
components of working capital, primarily accounts receivable. Net cash used in
investing activities was $33.0 million for the six months ended June 30, 1999.
Cash used in investing activities consisted primarily of $10.2 million of cash
paid for acquisitions, net of cash acquired, and $23.7 million of purchases of
property and equipment. Cash provided by financing activities was $7.4 million
for the six months ended June 30, 1999. Cash provided by financing activities
resulted primarily from $5.1 million in net borrowings under the line of credit
to fund certain acquisitions and an aggregate of $3.8 million from the proceeds,
and the related income tax benefit, of stock option exercises and was partially
offset by distributions to minority shareholders of joint ventures.
On June 23, 1999, the Company executed a Second Amendment to its First
Amended and Restated Loan Agreement with a group of banks. The Second Amendment
provides for an increase in the credit facility from $125.0 million to $185.0
million. Borrowings under the credit facility may be used for acquisitions,
capital expenditures, working capital and general corporate purposes. No more
than $25.0 million of the credit facility may be used for working capital
purposes. Within the working capital sublimit, the Company may borrow up to $5.0
million in swing line loans.
Renal Care Group 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 0.60% to 1.35%. Commitment fees
are also priced pursuant to leverage ratio tiers. Commitment fees range from
0.20% to 0.30% pursuant to leverage ratios ranging between 0.75 and 2.25. Under
the loan agreement, commitments range in amounts and dates from the closing date
through August 2003. Renal Care Group has obtained total lender commitments of
$185.0 million through August 2000. Lender commitments are then reduced to
$157.3 million through August 2001, $129.5 million through August 2002 and
$101.8 million through August 2003. All loans under the loan agreement are due
and payable on August 4, 2003. On June 30, 1999, there was $93 million
outstanding under this agreement. In connection with the merger with Dialysis
Centers of America, Inc. in January 1999, Renal Care Group incurred
approximately $32.7 million in indebtedness under this agreement to repay
certain DCA indebtedness and to fund DCA's working capital needs.
10
<PAGE> 13
Under the loan agreement, each of Renal Care Group's subsidiaries has
guaranteed all of Renal Care Group's obligations under the loan agreement.
Further, Renal Care Group's obligations under the loan agreement, and the
obligations of each of its subsidiaries under its guaranty, are secured by a
pledge of the equity interests held by Renal Care Group in each of the
subsidiaries. Financial covenants are customary based on the amount and duration
of this commitment.
A significant component of Renal Care Group's growth strategy is the
acquisition and development of dialysis facilities. Management of Renal Care
Group believes that existing cash and funds from operations, together with funds
available under the line of credit, will be sufficient to meet Renal Care
Group's acquisition, expansion, capital expenditure and working capital needs
for the foreseeable future. However, in order to finance certain large strategic
acquisition opportunities, Renal Care Group 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 any future indebtedness or securities
will depend on market and other conditions. There can be no assurance that any
additional financing, if required, will be available on terms acceptable to
Renal Care Group.
Capital expenditures of approximately $38.5 million, primarily for
equipment replacement, expansion of existing dialysis facilities and
construction of de novo facilities are planned in 1999. Renal Care Group has
made capital expenditures of $23.7 million through June 30, 1999. The Company
expects that remaining capital expenditures in 1999 will be funded with cash
provided by operating activities and available lines of credit. The Company
believes that capital resources available to it will be sufficient to meet the
needs of its business, both on a short- and long-term basis.
IMPACT OF YEAR 2000
Introduction. The term "year 2000 issue" is a general term used to
describe various problems that may result from the improper processing of dates
and date-sensitive calculations by computers and other machinery as the year
2000 is approached and reached. These problems arise from hardware and software
unable to distinguish dates in the "2000's" from dates in the "1900's" and from
other sources such as the use of special codes and conventions in software that
make use of a date field.
Renal Care Group's State of Readiness. Renal Care Group's efforts in
addressing the year 2000 issue are focused in the following four areas:
- developing awareness and educating employees regarding the year
2000 issue;
- implementing procedures to determine whether Renal Care Group's
software systems and hardware platforms are year 2000 compliant
and communicating with suppliers and third party payors to
determine whether there will be any interruption in their systems
that could affect Renal Care Group's ability to receive timely
shipments of inventory or payment for services as a result of the
year 2000 issue;
- evaluating and making necessary modifications to Renal Care Group's
software and hardware systems and other systems that contain
imbedded chips, such as phone systems, which process dates and
date sensitive materials; and
- testing of systems for year 2000 compliance.
11
<PAGE> 14
The Company has substantially completed its assessment of key computer
systems and electronic devices and has also completed a detailed inventory of
each facility. The Company is developing and implementing plans to remediate
year 2000 issues identified in the assessment phase. Renal Care Group expects to
complete the remediation and testing phases by September 30, 1999. The education
phase will be an on-going process throughout 1999.
Renal Care Group has obtained written confirmation from the majority of
its vendors that Renal Care Group's software applications and hardware platforms
acquired from such vendors will correctly manipulate dates and date-related data
as the year 2000 is approached and reached. Based on an initial assessment of
its core clinical and financial systems, the Company has determined the
following: (1) over 90% of Renal Care Group's core systems are packaged
applications licensed from third-party vendors, thus less than 10% were
developed internally; and (2) substantially all of such third-party applications
have been certified to Renal Care Group by their manufacturers as either Year
2000 compliant or Year 2000 compliant with minor upgrades.
Furthermore, to improve its operating performance and efficiency, Renal
Care Group has undertaken a number of significant information system
initiatives. These initiatives include the selection and implementation of a new
laboratory system, a new human resources and payroll system, a new universal
patient index and registration system, and a new practice management system.
Renal Care Group expects these systems to be operational by the first quarter
2000. The manufacturers of these systems have certified that the systems are
year 2000 compliant. The Company currently believes that with upgrades or
replacements of certain software and hardware, Renal Care Group's internal
systems will be substantially year 2000 compliant. Nevertheless, there can be no
assurance that the software applications and hardware platforms on which Renal
Care Group's business relies will correctly manipulate dates and date-related
information as the year 2000 is approached and reached. Such failures could have
a material adverse effect on Renal Care Group's financial condition, results of
operations and business.
Renal Care Group's business relies heavily upon its ability to obtain
reimbursement from third party payors, including Medicare, Medicaid and private
insurers, and to obtain water, power and other supplies from vendors. Renal Care
Group has obtained written verification from the majority of its major
suppliers, and certain significant third party payors, in order to determine
whether there will be any interruption in the provision of supplies or
reimbursement for services performed resulting from the year 2000 issue. Renal
Care Group substantially completed this process during the second quarter of
1999. At this time, Renal Care Group has received confirmations from a number of
HCFA intermediaries and other third party payors stating that they are now, or
plan soon to be, year 2000 compliant. HCFA has publicly indicated that it plans
to be year 2000 compliant and to be able to process and pay claims without
interruption. HCFA has, however, also indicated that it still has year 2000
issues with third party systems and that it is working to address such issues.
The failure of HCFA, Medicare intermediaries, Medicaid payors or any of Renal
Care Group's other significant third party payors to remedy year 2000 related
problems could result in a delay in Renal Care Group's receipt of payments for
services which could have a material adverse impact on the Company's earnings,
financial condition and business. Furthermore, a delay in receiving supplies
from certain vendors could hinder Renal Care Group's ability to provide services
to patients which could have a material adverse impact on Renal Care Group's
earnings, financial condition and business.
12
<PAGE> 15
Renal Care Group is aware that certain of its systems, such as dialysis
and other medical equipment, phone systems, facsimile machines, heating and air
conditioning, security systems and other non-data processing oriented systems
may include imbedded chips that process dates and date-sensitive material. These
imbedded chips are both difficult to identify in all instances and difficult to
repair; often, total replacement of the chips is necessary. Renal Care Group is
performing an evaluation of its systems to determine whether Renal Care Group
needs to repair or replace any chips to avoid year 2000 problems. If Renal Care
Group fails to identify or remediate any imbedded chips (either on an individual
or an aggregate basis) on which significant business operations depend, such as
phone systems, there could be a material adverse impact on Renal Care Group's
earnings, financial condition and business.
Costs to Address Renal Care Group's Year 2000 Issues. Renal Care Group
will utilize both internal and external resources to complete its year 2000
project. Renal Care Group estimates that the cost to remediate year 2000 issues
that have been identified and to test systems to verify year 2000 compliance
will be between $500,000 and $700,000 and will be substantially incurred by the
end of the third quarter 1999. These costs are exclusive of contingency plan
costs as the total cost of the year 2000 effort is not known at this time.
Risks Presented by Year 2000 Issues. Renal Care Group is still in the
process of evaluating potential disruptions or complications that might result
from year 2000-related problems. At this time, Renal Care Group has not
identified any specific business functions that will suffer material disruption
as a result of year 2000-related events. The Company may, however, identify
business functions in the future that are specifically at risk of year 2000
disruption. Renal Care Group's failure at this point to identify year 2000 risks
should not be construed to mean that there is no risk of year 2000-related
disruption. Moreover, due to the unique and pervasive nature of the year 2000
issue, Renal Care Group cannot anticipate each of the wide variety of year 2000
events, particularly outside of the Company, that might arise in a worst case
scenario and might have a material adverse effect on Renal Care Group's results
of operations and business.
Renal Care Group's Contingency Plans. Renal Care Group is in the
process of developing and implementing specific contingency plans at all levels
of the Company. Completion of such contingency plans is expected by early fourth
quarter 1999.
RISK FACTORS
You should carefully consider the risks described below before
investing in Renal Care Group. The risks and uncertainties described below ARE
NOT the only ones facing Renal Care Group. Other risks and uncertainties that we
have not predicted or assessed may also adversely affect our company.
If any of the following risks occur, our earnings, financial condition
or business could be materially harmed, and the trading price of our common
stock could decline, resulting in the loss of all or part of your investment.
IF WE FAIL TO INTEGRATE ACQUIRED COMPANIES, WE WILL BE LESS PROFITABLE
Renal Care Group has grown significantly by acquisitions of other
dialysis providers since its formation in February 1996. We have completed some
of our acquisitions as recently as January and February of 1999, and we intend
to acquire more dialysis businesses in the future. After an acquisition, we face
the challenge of integrating the acquired company's management and other
personnel, clinical
13
<PAGE> 16
operations, and financial and operating systems with ours, often without the
benefit of continued services from key personnel of the acquired company. We may
be unable to integrate the businesses we acquire successfully or to achieve
anticipated benefits from an acquisition in a timely manner, which could lead to
substantial costs and delays or other operational, technical or financial
problems, including diverting management's attention from our existing business.
Any of these results could damage our profitability and our prospects for future
growth.
IF MEDICARE OR MEDICAID CHANGE THEIR PROGRAMS FOR DIALYSIS, OUR REVENUE AND
EARNINGS COULD DECREASE
If the government changes the Medicare, Medicaid or similar government
programs or the rates paid by those programs for our services, then our revenue
and earnings may decline. We estimate that approximately 62% of our net revenue
for 1997, 59% of our net revenue for 1998 and 56% of our net revenue for the six
months ended June 30, 1999 consisted of reimbursements from Medicare, including
the administration of EPO to treat anemia. EPO is the commonly-used name of the
drug erythropoietin, which is sold under the brand name Epogen(R). We also
estimate that approximately 7% of our net revenue for 1997, 5% of our net
revenue for 1998, and 5% of our net revenue for the six months ended June 30,
1999, consisted of reimbursements from Medicaid or comparable state programs.
Any of the following actions in connection with these programs could cause our
revenue and earnings to decline:
- a reduction of the amount paid to us under government programs;
- an increase in the costs associated with performing our services
that are subject to inflation, such as labor and supply costs,
without a corresponding increase in reimbursement rates;
- the inclusion of some or all ancillary services, for which we are
now reimbursed separately, in the flat composite rate for a standard
dialysis treatment; or
- changes in laws, or the interpretations of laws, which could cause
us to modify our operations.
IF REIMBURSEMENT FOR EPO DECREASES, ITS COST INCREASES OR IT BECOMES IN SHORT
SUPPLY, THEN WE COULD BE LESS PROFITABLE
If government or private payors decrease reimbursement rates for EPO,
for which we are currently reimbursed separately outside of the flat composite
rate, our revenue and earnings may decline. EPO is a bio-engineered hormone that
is used to treat anemia. Our revenues from EPO were approximately 20% of net
revenue for 1997, 23% of net revenue for 1998, and 25% of net revenue for the
six months ended June 30, 1999. Most of our payments for EPO come from
government programs. President Clinton has included a proposal to decrease the
reimbursement for EPO by $1 per thousand units in his fiscal year 2000 budget,
which would represent a 10% reduction from the current government reimbursement
rate. For the quarter ended June 30, 1999, government reimbursement represented
approximately 65% of the total revenue we derived from EPO. Because we are
unable to predict accurately the possible effect that the proposed reduction
would have on the cost of EPO or private reimbursement rates, we cannot quantify
what the net effect would be on our revenue and earnings. Further, EPO is
produced by a single manufacturer, and if the manufacturer or other factors
interrupt the supply of EPO or the manufacturer raises its prices, then our
revenue and earnings may decline.
14
<PAGE> 17
IF PAYMENTS BY PRIVATE INSURERS, HOSPITALS OR MANAGED CARE ORGANIZATIONS
DECREASE, THEN OUR REVENUE AND EARNINGS COULD DECREASE
If private insurers, hospitals or managed care organizations reduce
their rates or we experience a significant shift in our revenue mix toward
additional Medicare or Medicaid reimbursement, then our revenue and earnings may
decline. We estimate that approximately 31% of our net revenue for 1997, 36% of
our net revenue for 1998, and 39% of our net revenue for the six months ended
June 30, 1999, were derived from sources other than Medicare and Medicaid. In
general, payments we receive from private insurers and hospitals for our
services are at rates significantly higher than the Medicare or Medicaid rates.
As a result, any of the following events could have a material adverse effect on
our revenue and earnings:
- an increase in dialysis procedures reimbursed by private insurers,
hospitals or managed care companies could cause these payor
organizations to reduce the rates they pay us;
- a portion of our business that is currently reimbursed by private
insurers or hospitals may become reimbursed by managed care
organizations, which currently have lower rates for our services;
or
- the scope of coverage by Medicare or Medicaid under the flat
composite rate could expand and, as a result, reduce the extent of
our services being reimbursed at the higher private-insurance
rates.
IF WE ARE UNABLE TO MAKE ACQUISITIONS IN THE FUTURE, OUR RATE OF GROWTH WILL
SLOW
Much of our historical growth has come from acquisitions, and we expect
to continue to pursue growth through the acquisition and development of dialysis
centers. However, we may be unable to continue to identify and complete suitable
acquisitions or obtain the necessary financing. We also compete with other
companies to identify and complete suitable acquisitions. We expect this
competition to intensify, making it more difficult to acquire suitable companies
on favorable terms. Further, the businesses we acquire may not perform well
enough to justify our investment. If we are unable to make additional
acquisitions on suitable terms, we may not meet our growth expectations.
IF WE COMPLETE FUTURE ACQUISITIONS, WE MAY DILUTE EXISTING STOCKHOLDERS BY
ISSUING MORE OF OUR COMMON STOCK OR WE MAY INCUR ADDITIONAL EXPENSES RELATED TO
DEBT AND GOODWILL, WHICH COULD REDUCE OUR EARNINGS
We may issue equity securities in future acquisitions that could be
dilutive to our shareholders. We also may incur additional debt and amortization
expense related to goodwill and other intangible assets in future acquisitions.
We have used the pooling-of-interests accounting method for many of our
acquisitions, which does not result in recording goodwill (the excess of
acquisition cost over identifiable tangible assets). In those instances where we
have used the "purchase" accounting method in acquisitions, we have recorded
goodwill and other intangible assets, which are then amortized yearly against
our earnings at a blended average life of 35 years. We had approximately $216
million of goodwill and other intangibles, net as of June 30, 1999. The SEC and
accounting policy makers have announced that they are considering substantially
or completely curtailing the pooling-of-interests
15
<PAGE> 18
method, which would result in more goodwill and associated amortization expense
for future and, possibly, prior acquisitions. Further, the SEC and accounting
policy makers have announced that they may reduce the allowable life over which
goodwill may be amortized, which would thereby increase amortization expense in
each year. Interest expense on additional debt and amortization expense from
acquisitions may significantly reduce our profitability.
IF ACQUIRED BUSINESSES HAVE UNKNOWN LIABILITIES THAT ARE NOT COVERED BY AN
INDEMNIFICATION OBLIGATION, THEN WE COULD BE EXPOSED TO LIABILITIES THAT COULD
HARM OUR BUSINESS AND PROFITABILITY
Businesses we acquire may have unknown or contingent liabilities,
including liabilities for failure to comply with health care laws. Although we
generally attempt to identify any practices that may give rise to unknown or
contingent liabilities and conform them to our standards after the acquisition,
private plaintiffs or governmental agencies may still assert claims. Even though
we generally seek to obtain indemnification from prospective sellers, unknown
and contingent liabilities may not be covered by indemnification or may exceed
contractual limits or the financial capacity of the indemnifying party.
IF OUR REFERRING PHYSICIANS WERE TO CEASE REFERRING TO OUR CENTERS OR WERE
PROHIBITED FROM REFERRING FOR REGULATORY REASONS, OUR REVENUE AND EARNINGS WOULD
DECLINE
Our dialysis centers depend on referrals from local nephrologists.
Typically, one or a few physicians account for all or a significant portion of
the patient base at a center, and the loss of one or more referring physicians
could have a material adverse effect on the operations of that center. The loss
of a significant number of referring physicians could cause our revenue and
earnings to decline. In many instances, the primary referral sources for our
centers are physicians who are also stockholders and serve as medical directors
of our centers. If stock ownership or the medical director relationship were
deemed to violate applicable federal or state law, including fraud and abuse
laws and laws prohibiting self-referrals, the physicians owning our stock or
acting as medical directors may be forced to stop referring to our centers.
Further, we may not be able to renew or renegotiate our medical director
agreements successfully, which could result in a loss of patients as physicians
typically have their patients treated at a center where they serve as a medical
director.
IF OUR BUSINESS IS ALLEGED OR FOUND TO VIOLATE HEATH CARE OR OTHER APPLICABLE
LAWS, OUR REVENUE AND EARNINGS COULD DECREASE
We are subject to extensive federal, state and local regulation
regarding the following:
- fraud and abuse prohibitions under health care reimbursement
laws;
- prohibitions and limitations on patient referrals;
- false claims prohibitions under health care reimbursement laws;
- facility licensure;
- health and safety requirements;
- environmental compliance; and
- medical and toxic waste disposal.
Much of this regulation, particularly in the areas of fraud and abuse and
patient referral, is complex and open to differing interpretations. Due to the
broad application of the statutory provisions and the absence in many instances
of regulations or court decisions addressing the specific arrangements by which
we
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<PAGE> 19
conduct our business, including our medical director and physician stockholder
arrangements, governmental agencies could challenge some of our practices under
these laws. If any of our operations are found to violate these laws, we may be
subject to severe sanctions or be required to alter or discontinue the
challenged conduct. If we are required to alter our practices, we may not be
able to do so successfully. The occurrence of any of these events could cause
our revenue and earnings to decline.
CHANGES IN THE HEALTH CARE DELIVERY, FINANCING OR REIMBURSEMENT SYSTEMS COULD
ADVERSELY AFFECT OUR BUSINESS
The health care industry in the United States is in a period of rapid
change and uncertainty. Health care organizations, public or private, may
dramatically change the way they operate and pay for services. Our business is
designed to function within the current health care financing and reimbursement
system. During the past several years, the health care industry has been subject
to increasing levels of government regulation of, among other things,
reimbursement rates and capital expenditures. In addition, proposals to reform
the health care system have been considered by Congress. These proposals, if
enacted, may further increase government regulation of or other involvement in
health care, lower reimbursement rates and otherwise change the operating
environment for health care companies. We cannot predict the likelihood of those
events or what impact they may have on our business.
THE DIALYSIS BUSINESS IS HIGHLY COMPETITIVE AND IF WE DO NOT COMPETE EFFECTIVELY
IN OUR MARKET, WE COULD LOSE MARKET SHARE AND OUR RATE OF GROWTH COULD SLOW
The dialysis industry is fragmented and rapidly consolidating. There
are several large dialysis companies that compete for the acquisition of
existing dialysis centers and the development of relationships with referring
physicians. Several of our competitors are part of larger companies that also
manufacture dialysis equipment, which allows them to lower equipment costs.
Several of our competitors, including these equipment manufacturers, are much
larger than we are and have substantially greater financial resources and more
established operations and infrastructure than us. We also experience
competition from referring physicians who open their own dialysis centers. There
can be no assurance that we will be able to compete effectively with any of our
competitors.
IF WE LOSE ANY OF OUR EXECUTIVE OFFICERS, OR ARE UNABLE TO ATTRACT AND RETAIN
QUALIFIED MANAGEMENT PERSONNEL AND MEDICAL DIRECTORS, OUR ABILITY TO RUN OUR
BUSINESS COULD BE ADVERSELY AFFECTED AND OUR REVENUE AND EARNINGS COULD DECLINE
We are dependent upon the services of our executive officers Sam A.
Brooks, Jr., our Chairman, Chief Executive Officer and President, and Raymond
Hakim, M.D., Ph.D., Ronald Hinds and Gary Brukardt, each an Executive Vice
President, each of whom has been with Renal Care Group since its formation. We
have entered into employment agreements with Messrs. Brooks, Hinds and Brukhardt
and Dr. Hakim. The employment agreements for each of these executive officers
other than Dr. Hakim contain restrictive covenants prohibiting the officer from
competing with Renal Care Group for a period of one year following the end of
the officer's employment term. The services of these individuals would be very
difficult to replace. We do not carry key-man life insurance on any of our
officers. Further, our growth will depend in part upon our ability to attract
and retain skilled employees, for whom competition is intense. We also believe
that our future success will depend on our ability to attract and retain
qualified physicians to serve as medical directors of our dialysis centers. We
have entered into medical
17
<PAGE> 20
director agreements with the physicians serving as medical directors of our
dialysis centers, most of which contain noncompetition covenants of varying
durations.
IF OUR BOARD OF DIRECTORS DOES NOT APPROVE AN ACQUISITION OR CHANGE IN CONTROL
OF RENAL CARE GROUP, OUR STOCKHOLDERS MAY NOT REALIZE THE FULL VALUE OF THEIR
STOCK
Our certificate of incorporation and bylaws contain a number of
provisions that may delay, deter or inhibit a future acquisition or change in
control of Renal Care Group that is not first approved by our board of
directors. This could occur even if our stockholders are offered an attractive
value for their shares or if a substantial number or even a majority of our
stockholders believe the takeover may be in their best interest. These
provisions are intended to encourage any person interested in acquiring Renal
Care Group to negotiate with and obtain approval from our board of directors
prior to pursuing the transaction. Provisions that could delay, deter or inhibit
a future acquisition or change in control of Renal Care Group include the
following:
- a staggered board of directors that would require two annual
meetings to replace a majority of the board of directors;
- restrictions on calling special meetings at which an acquisition
or change in control might be brought to a vote of the
stockholders;
- blank check preferred stock that may be issued by our board of
directors without stockholder approval and that may be
substantially dilutive or contain preferences or rights
objectionable to an acquiror; and
- a poison pill that would substantially dilute the interest sought
by an acquiror.
These provisions could also discourage bids for our common stock at a premium
and cause the market price of our common stock to decline.
OUR STOCK PRICE IS VOLATILE AND AS A RESULT, THE VALUE OF YOUR INVESTMENT MAY GO
DOWN FOR REASONS UNRELATED TO THE PERFORMANCE OF OUR BUSINESS
Our common stock is traded on the Nasdaq National Market. The market
price of our common stock has been volatile, ranging from a low of $14.875 per
share to a high of $34.375 per share during the first six months of 1999, and
could fluctuate substantially based on a variety of factors, including the
following:
- future announcements concerning us, our competitors or the health
care market;
- changes in government regulations; and
- changes in earnings estimates by analysts.
Furthermore, stock prices for many companies fluctuate widely for
reasons that may be unrelated to their operating results. These fluctuations,
coupled with changes in demand or reimbursement levels for our services and
general economic, political and market conditions, could cause the market price
of our common stock to decline.
YEAR 2000 ISSUES MAY RESULT IN LOSS OF REVENUE OR INCREASE IN COSTS
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the
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<PAGE> 21
century and, if not corrected, could fail or create erroneous results by or at
the year 2000. We have undertaken, but not completed, an assessment of our year
2000 issues. Until we have completed our assessment, we cannot be sure that our
efforts to address our year 2000 issues are appropriate, adequate or complete.
Our year 2000 issues could reside in our own systems and in the systems of third
parties with whom we have relationships that are material to our operations,
such as reimbursement to us from fiscal intermediaries and governmental agencies
and the provision of significant utilities and supplies to our centers. Year
2000 issues could cause significant disruptions in our cash flow and operations,
which could cause our costs to increase and our revenue and earnings to decline.
Matters related to our year 2000 issues are discussed in further detail under
the heading "Supplemental Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Impact of Year 2000" in our current
report on Form 8-K filed with the SEC on April 22, 1999.
FORWARD LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "intend," "estimate" and "continue" or similar words.
You should read statements that contain these words carefully for the following
reasons:
- the statements discuss our future expectations;
- the statements contain projections of our future earnings or of
our financial condition; and
- the statements state other "forward-looking" information.
We believe it is important to communicate our expectations to our
investors. There may be events in the future, however, that we are not
accurately able to predict or over which we have no control. The risk factors
listed above, as well as any cautionary language in or incorporated by reference
into this prospectus, provide examples of risks, uncertainties and events that
may cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. The SEC allows us to "incorporate by
reference" the information we file with them, which means we can disclose
important information to you by referring you to those documents. Before you
invest in our common stock, you should be aware that the occurrence of any of
the events described in the above risk factors, elsewhere in or incorporated by
reference into this prospectus and other events that we have not predicted or
assessed could have a material adverse effect on our earnings, financial
condition and business. If the events described above or other unpredicted
events occur, then the trading price of our common stock could decline and you
may lose all or part of your investment.
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<PAGE> 22
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
(a) See Note 2 to Financial Statements concerning the increase in
authorized shares of Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 2, 1999, the Annual Meeting of Stockholders of Renal Care Group, Inc.
was held in Nashville, Tennessee for the following purposes and with the
following results:
1. To elect John D. Bower, M.D., Kenneth E. Johnson, Jr., M.D. and W. Tom
Meredith, M.D. as Class III Directors, each to serve for a term of
three (3) years and until his successor is elected:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
Election of John D. Bower, M.D.
as Class III Director 36,258,955 -- 427,415
Election of Kenneth E. Johnson, Jr., M.D.
as Class III Director 36,258,955 -- 427,415
Election of W. Tom Meredith, M.D.
as Class III Director 36,268,680 -- 417,690
</TABLE>
2. To elect Harry R. Jacobson, M.D. as Class II Director to serve for a term
of two (2) years and until his successor is elected:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
Election of Harry R. Jacobson, M.D.
as Class II Director 36,020,655 -- 665,715
</TABLE>
3. To approve the Renal Care Group, Inc. 1999 Long-Term Incentive Plan (the
"Long-Term Incentive Plan"):
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
22,315,770 14,004,094 66,556
</TABLE>
4. To approve an amendment to the Renal Care Group, Inc. Certificate of
Incorporation to increase the number of authorized shares of $0.01 par
value Common Stock that the Company shall have authority to issue to
90,000,000 shares:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
36,281,774 370,807 33,289
</TABLE>
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<PAGE> 23
ITEM 5. OTHER INFORMATION
STOCKHOLDER PROPOSALS
The proxy statement solicited by management of the Company with respect
to the 2000 Annual Meeting of Stockholders will confer discretionary authority
to vote on proposals of stockholders of the Company intended to be presented for
consideration at such Annual Meeting that are submitted to the Company after
December 26, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1.4 Certificate of Amendment of Certificate of Incorporation of
the Company
10.46 Renal Care Group, Inc. 1999 Long-Term Incentive Plan
(incorporated herein by reference to Appendix A to the
Company's Proxy Statement relating to the 1999 Annual Meeting
of Stockholders, filed on April 27, 1999)
10.47 Second Amendment to First Amended and Restated Loan Agreement,
dated as of June 23, 1999, among the Company, First American
National Bank, First Union National Bank, and NationsBank,
N.A., SunTrust Bank, Nashville, N.A., AmSouth Bank, and
NorWest Bank Arizona, N.A.
27.1 Financial Data Schedule for the six months ended June 30, 1999
(filed via Edgar on August 16, 1999)
(b) Reports on Form 8-K
Form 8-K filed April 22, 1999 with Supplemental Financial
Statements, Supplemental Selected Financial Data, Supplemental
Management's Discussion and Analysis of Financial Condition
and Results of Operations, and Supplemental Financial
Statement Schedule, which give effect to the pooling of
interests with Dialysis Centers of America, Inc. on January
29, 1999.
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<PAGE> 24
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)
August 16, 1999 BY: /s/ Ronald Hinds
-----------------------------------------
Ronald Hinds
Executive Vice President, Chief Financial
Officer, and Principal Financial Officer
and Principal Accounting Officer
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<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- ------ -----------------------
<S> <C>
3.1.4 Certificate of Amendment of Certificate of Incorporation of
the Company
10.46 Renal Care Group, Inc. 1999 Long-Term Incentive Plan (incorporated
herein by reference to Appendix A to the Company's Proxy Statement
relating to the 1999 Annual Meeting of Stockholders, filed on
April 27, 1999)
10.47 Second Amendment to First Amended and Restated Loan Agreement,
dated as of June 23, 1999, among the Company, First American
National Bank, First Union National Bank, and NationsBank, N.A.,
SunTrust Bank, Nashville, N.A., AmSouth Bank, and NorWest Bank
Arizona, N.A.
27.1 Financial Data Schedule for the six months ended June 30, 1999
(filed via Edgar on August 16, 1999)
</TABLE>
23
<PAGE> 1
EXHIBIT 3.1.4
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RENAL CARE GROUP, INC.
RENAL CARE GROUP, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That on April 16, 1999 the Board of Directors of the Corporation
approved a proposed amendment of the Amended and Restated Certificate of
Incorporation of the Corporation, declaring said amendment to be in the best
interests of the Corporation and its stockholders and directing that the
proposed amendment be submitted to the stockholders of the Corporation for their
consideration and approval at the next annual meeting of stockholders. The
proposal amended Section 4.1 of Article IV of the Amended and Restated
Certificate of Incorporation of the Corporation by deleting such Section 4.1 in
its entirety and inserting in lieu thereof the following:
"Section 4.1. Total Number of Shares of Stock. The total
number of shares of stock of all classes that the Company shall have
authority to issue is 100,000,000. The authorized capital stock is
divided into 10,000,000 shares of Preferred Stock, $.01 par value per
share (the `Preferred Stock'), and 90,000,000 shares of Common Stock,
$.01 par value per share (the `Common Stock')."
SECOND: That thereafter on June 2, 1999, the stockholders of the
Corporation approved the proposed amendment at the annual meeting of
stockholders.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Renal Care Group, Inc. has caused this Certificate
of Amendment of Amended and Restated Certificate of Incorporation to be signed
by its duly authorized officer this 8th day of June, 1999
RENAL CARE GROUP, INC.
By: /s/ Douglas B. Chappell
----------------------------------------------
Name: Douglas B. Chappell
-------------------------------------------
Title: Senior Vice President and Secretary
-------------------------------------------
<PAGE> 1
EXHIBIT 10.47
SECOND AMENDMENT TO
FIRST AMENDED AND RESTATED LOAN AGREEMENT
This Second Amendment to First Amended and Restated Loan Agreement
("Amendment") is entered into as of the 23rd day of June, 1999 by and among
RENAL CARE GROUP, INC. ("Borrower"), a Delaware corporation; FIRST AMERICAN
NATIONAL BANK ("FANB"), a national banking corporation, FIRST UNION NATIONAL
BANK ("FUNB"), a national banking association, NATIONSBANK, N.A.,
("NationsBank"), a national banking association formerly known as NationsBank of
Tennessee, N.A., AND SUNTRUST BANK, NASHVILLE, N.A. ("SunTrust"), a national
banking association (collectively the "Original Lenders"); AMSOUTH BANK
("AmSouth"), an Alabama banking corporation, and NORWEST BANK ARIZONA, N.A.
("Norwest"), a national banking association (collectively the "Additional
Lenders"); and NationsBank, in its capacity as Agent for the Original Lenders
and the Additional Lenders ("Agent").
R E C I T A L S:
WHEREAS, the Original Lenders, Agent and Borrower have previously
entered into that First Amended and Restated Loan Agreement dated as of August
4, 1997, as amended by that First Amendment to First Amended and Restated Loan
Agreement dated as of October 7, 1997 (as amended, the "Loan Agreement"); and
WHEREAS, the parties wish to include the Additional Lenders as Lenders
under the Loan Agreement and to further amend the Loan Agreement in certain
other respects (the Original Lenders and the Additional Lenders are referred to
herein collectively as the "Lenders," and other capitalized terms used in this
Amendment that are not defined herein shall have the meanings assigned in the
Loan Agreement);
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are acknowledged, the parties agree as follows:
1. Article I of the Loan Agreement is hereby amended by adding the
following definition between the definitions of CMLTD and Collateral:
"CO-AGENTS" means First Union and SunTrust.
2. Article I of the Loan Agreement is hereby amended by revising the
definition of "Commitment" therein to provide in full as follows:
"COMMITMENT" means the amount of each Lender's commitment to
fund the Revolving Credit Loan. Each Lender's several Commitment for
the Revolving Credit Loan shall vary from time to time in accordance
with the two tables set forth below. The table first appearing below
sets forth the
<PAGE> 2
Commitments that shall remain in effect until and unless Borrower pays
the additional commitment fee described in Section 2.16 of this
Agreement on or before December 31, 1999, in which case the
Commitments shall be increased up to the maximum amounts set forth in
the second following table:
COMMITMENTS AS OF JUNE 23, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Lender Commitment from Commitment from Commitment from Commitment from
June 23, 1999 August 4, 2000 August 4, 2001 August 4, 2002
through through through through
August 3, 2000 August 3, 2001 August 3, 2002 August 3, 2003
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AmSouth $10,135,135.14 $8,614,864.87 $7,094,594.60 $5,574,324.32
- ----------------------------------------------------------------------------------------------------
FANB $20,270,270.28 $17,229,729.73 $14,189,189.19 $11,148,648.65
- ----------------------------------------------------------------------------------------------------
FUNB $23,648,648.65 $20,101,351.35 $16,554,054.06 $13,006,756.76
- ----------------------------------------------------------------------------------------------------
NationsBank $30,405,405.40 $25,844,594.58 $21,283,783.78 $16,722,972.98
- ----------------------------------------------------------------------------------------------------
Norwest $13,513,513.51 $11,486,486.49 $9,459,459.46 $7,432,432.43
- ----------------------------------------------------------------------------------------------------
SunTrust $27,027,027.02 $22,972,972.98 $18,918,918.92 $14,864,864.86
- ----------------------------------------------------------------------------------------------------
Total $125,000,000.00 $106,250,000.00 $87,500,000.00 $68,750,000.00
- ----------------------------------------------------------------------------------------------------
</TABLE>
MAXIMUM INCREASED COMMITMENTS
UPON PAYMENT OF ADDITIONAL COMMITMENT FEE
AS REQUIRED BY SECTION 2.16 OF THIS AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Lender Commitment from Commitment from Commitment from Commitment from
June 23, 1999 August 4, 2000 August 4, 2001 August 4, 2002
through through through through
August 3, 2000 August 3, 2001 August 3, 2002 August 3, 2003
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AmSouth $15,000,000.00 $12,750,000.00 $10,500,000.00 $8,250,000.00
- ----------------------------------------------------------------------------------------------------
FANB $30,000,000.00 $25,500,000.00 $21,000,000.00 $16,500,000.00
- ----------------------------------------------------------------------------------------------------
FUNB $35,000,000.00 $29,750,000.00 $24,500,000.00 $19,250,000.00
- ----------------------------------------------------------------------------------------------------
NationsBank $45,000,000.00 $38,250,000.00 $31,500,000.00 $24,750,000.00
- ----------------------------------------------------------------------------------------------------
Norwest $20,000,000.00 $17,000,000.00 $14,000,000.00 $11,000,000.00
- ----------------------------------------------------------------------------------------------------
SunTrust $40,000,000.00 $34,000,000.00 $28,000,000.00 $22,000,000.00
- ----------------------------------------------------------------------------------------------------
Total $185,000,000.00 $157,250,000.00 $129,500,000.00 $101,750,000.00
- ----------------------------------------------------------------------------------------------------
</TABLE>
- 2 -
<PAGE> 3
Borrower may also reduce the amount of the Commitments in accordance with
Section 2.13 of this Agreement; provided, however, Borrower may not increase the
amount of the Commitments in any amount after such a reduction has occurred.
3. Article I of the Loan Agreement is hereby amended by adding the
following definition in Article I thereof between the definitions of Interest
Period and of IRC:
"INTEREST RATE SWAP OBLIGATIONS" means the present and future
obligations of Borrower to any Lender or Lenders arising from
Borrower's entering into an interest rate swap, collar, hedge or
other like transaction for the management of interest rates with
respect to the Revolving Credit Loan.
4. Article I of the Loan Agreement is hereby amended by revising the
definition of "Lenders" therein to read in full as follows:
"LENDERS" means FANB, FUNB, NationsBank, SunTrust, AmSouth Bank
("AmSouth"), an Alabama banking corporation, and Norwest Bank
Arizona, N.A. ("Norwest"), a national banking association, and
their respective successors and assigns as permitted under this
Agreement.
5. Article I of the Loan Agreement is hereby amended by revising
subsections (d) and (e) of the definition of "Permitted Acquisition" therein to
read in full as follows:
(d) If at the time of the closing of the acquisition the
outstanding principal balance under the Revolving Credit
Loan is equal to or greater than Thirty-Five Million and
No/100 Dollars ($35,000,000.00), the consent of the Required
Lenders shall be required as to any acquisition for which
the Cash Consideration exceeds Fifteen Million and No/100
Dollars ($15,000,000.00).
(e) The consent of the Required Lenders shall be required as to
any acquisition for which the Cash Consideration exceeds
Five Million and No/100 Dollars ($5,000,000.00) if either
(i) at the time of the closing of the acquisition, the total
Commitment is less than One Hundred Forty Million and No/100
Dollars ($140,000,000.00) and the outstanding principal
balance under the Revolving Credit Loan is equal to or
greater than Seventy Million and No/100 Dollars
($70,000,000.00), or (ii) at the time of the closing of the
acquisition, the total Commitment is equal to or greater
than One Hundred Forty Million and No/100 Dollars
($140,000,000.00) and the outstanding principal balance
under the
- 3 -
<PAGE> 4
Revolving Credit Loan is equal to or greater than One
Hundred Forty Million and No/100 Dollars ($140,000,000.00).
6. Article I of the Loan Agreement is hereby amended by revising the
definition of "Obligations" to read in full as follows:
"OBLIGATIONS" means (i) the present and future obligations of
Borrower to Lenders to repay the Revolving Credit Loan, the
Swingline Loans, and all other obligations of Borrower and the
other Borrower Entities to Lenders and to Agent under this
Agreement and the other Loan Documents, and (ii) the present
and future obligations of Borrower to any Lender with respect
to any Interest Rate Swap Obligations.
7. Article I of the Loan Agreement is hereby amended by revising the
definition of "'Pro Rata' or 'Pro Rata Share'" therein to read in full as
follows:
"PRO RATA" OR "PRO RATA SHARE" refer to the apportionment
among Lenders according to their respective Commitments at the
time of determination; provided, however, only for the purpose
of making distributions of funds received after the maturity
of the Revolving Credit Loan (by acceleration or otherwise),
APro Rata@ or "Pro Rata Share" shall refer to the
apportionment among Lenders according to their respective
Commitments and also taking into account any Interest Rate
Swap Obligations that may then be due to them from Borrower.
8. Article II of the Loan Agreement is hereby amended by adding a new
Section 2.16, providing in full as follows:
2.16 Commitment Fees With Respect to Amendment; Conditionality
of Commitment Increase. In connection with the execution of
that Second Amendment to First Amended and Restated Loan
Agreement (the "Second Amendment") dated as of June 23, 1999,
Borrower has paid the following commitment fees to the
following Lenders as compensation for the establishment or
increase of their respective Commitments as of that date:
AmSouth Bank $26,250
FANB $17,500
FUNB no fee due
NationsBank $17,500
Norwest $17,500
SunTrust $26,250
- 4 -
<PAGE> 5
Borrower may increase the Commitments in increments of Ten
Million and No/100 Dollars ($10,000,000.00) each from the
amounts set forth in the first table in the definition of
Commitments up to the amounts set forth in the second table
set forth therein, which increase(s) shall become effective
three (3) days following both written notice of the increase
to Agent and the payment to Agent, for the account of all of
the Lenders who received compensation above in this Section,
of an additional commitment fee equal to fifteen basis points
(.15%) of the total amount by which the Commitments are
increased. For example, if Borrower wished to increase the
Commitments from an aggregate total of One Hundred Twenty-Five
Million and No/100 Dollars ($125,000,000.00) to One Hundred
Thirty-Five Million and No/100 Dollars ($135,000,000.00),
Borrower would give the required notice and pay to Agent for
the account of the appropriate Lenders the total sum of
Fifteen Thousand and No/100 Dollars ($15,000.00). All such
increases shall be allocated among the Commitments for the
respective Lenders on a Pro Rata basis. Notwithstanding the
foregoing, Borrower may not increase the Commitments at any
time following Borrower's election to reduce the amount of the
Commitments under Section 2.13 of this Agreement.
9. The Loan Agreement is hereby amended by adding a new Section 2.17,
providing in full as follows:
2.17 Co-Agents. The Co-Agents shall make themselves available
upon reasonable notice to consult with Agent as to matters for
which Agent deems such consultation advisable and shall be
recognized as the Co-Agents under this Agreement. The
designation of Co-Agents does not limit the rights, duties or
authority of Agent as set forth in this Agreement.
10. Lenders hereby waive any Event of Default or Unmatured Event of
Default that may exist due to Borrower's failure to deliver consolidating
financial statements as provided by Section 5.3 of the Loan Agreement, and
Borrower agrees to hereafter provide such consolidating statements on a timely
basis in accordance with the terms of the Loan Agreement.
11. Borrower agrees to pay all expenses incurred by Agent in connection
with the preparation, negotiation and execution of this Amendment, including,
but not limited to, the fees and expenses of Agent's counsel and all filing
fees.
- 5 -
<PAGE> 6
12. Borrower warrants and represents that attached hereto as Exhibit A
is a complete organizational chart listing Borrower and all of its Affiliates as
of the date hereof.
13. Upon the effectiveness of this Agreement, Agent shall arrange
transfers of funds as necessary to apportion the then outstanding principal
balance of the Revolving Credit Loan in accordance with the revised Commitments.
The periodic commitment fee described in Section 2.16 of the Loan Agreement
shall be apportioned among the Lenders to reflect the date on which these
reapportioned accounts are settled.
14. The effectiveness of this Amendment is subject to Borrower's
delivery to Lender of each of the following documents, in form and substance
acceptable to Agent:
(a) First Amended and Restated Revolving Credit Notes payable
to each of the Lenders other than AmSouth and Norwest executed by
Borrower.
(b) Revolving Credit Notes payable to each of AmSouth and
Norwest executed by Borrower.
(c) First Amended and Restated Unconditional Joint and Several
Guaranty executed by all guarantors for the Obligations.
(d) First Amended and Restated Equity Interests Security
Agreement executed by all Persons required to grant security interests
in equity interests in affiliated entities pursuant to the Loan
Agreement.
(e) Such additional documents as may be required under the
Loan Agreement to assure that Borrower is in full compliance therewith
in all respects, and including, but not limited to, the additional
documentation required in connection with all acquisitions made by
Borrower.
(f) UCC-1 financing statement to be filed in the office of the
Tennessee Secretary of State covering all securities encumbered by the
Equity Interests Security Agreement described in the Loan Agreement.
(g) Secretary's Certificates issued by the secretaries of
Borrower and all Guarantors authorizing the actions required in this
Amendment and including other customary representations.
(h) Certificates or existence or good standing issued by the
secretaries of state for the states of incorporation of Borrower and
all guarantors of the Obligations.
(i) An opinion letter from Borrower's counsel.
(j) Closing Statement evidencing the disbursement of funds.
- 6 -
<PAGE> 7
15. Borrower warrants and represents that (a) the Loan Documents are
valid, binding and enforceable against Borrower according to their terms,
subject to principles of equity and laws applicable to the rights of creditors
generally, including bankruptcy laws, (b) no Unmatured Default or Event of
Default presently exists under the Loan Documents. Borrower acknowledges that,
to the best of Borrower's knowledge, information and belief, Borrower's
obligations evidenced by the Loan Documents are not subject to any counterclaim,
defense or right of setoff, and Borrower hereby releases Agent and Lenders from
any claim of which Borrower is aware as of the execution of this Amendment.
16. As amended hereby, the Loan Agreement remains in full effect, and
all agreements among the parties with respect to the subject hereof are
represented fully in this Amendment and the other written documents among the
parties. The validity, construction and enforcement hereof shall be determined
according to the substantive laws of the State of Tennessee, and all matters of
venue, dispute resolution and other general matters respecting this Amendment
shall be governed by the provisions of the Loan Agreement.
17. This Amendment may be executed in counterparts, each of which shall
constitute an original hereof. This Amendment shall be effective, subject to the
conditions stated herein, upon the parties' exchange by telecopier of copies
hereof showing the signatures of the other parties; provided, however, each
party shall immediately forward an executed original hereof to Agent. The
failure of any party to so provide Agent with an original hereof shall not
impair the validity of this Amendment, but shall entitle Agent to obtain
specific performance of the obligation to provide an executed original of this
Amendment.
[the remainder of this page intentionally left blank]
- 7 -
<PAGE> 8
Executed as of the date first written above.
RENAL CARE GROUP, INC.,
a Delaware corporation, as Borrower
By: /s/ Ronald Hinds
------------------------------------------------
Ronald Hinds, Chief Financial Officer
NATIONSBANK, N.A.,
a national banking association, as a Lender,
Swingline
Lender and Agent
By: /s/ S. Walker Choppin
------------------------------------------------
S. Walker Choppin, Senior Vice President
AMSOUTH BANK,
an Alabama banking corporation, as a Lender
By: /s/ Cathy M. Wind
------------------------------------------------
Cathy M. Wind, Vice President
FIRST UNION NATIONAL BANK,
a national banking association, as a Lender and
Co-Agent
By: /s/ Joseph H. Towell
------------------------------------------------
Joseph H. Towell, Senior Vice President
NORWEST BANK ARIZONA, N.A.,
a national banking association, as a Lender
By: /s/ Carolyn L. Ashby
-------------------------------------------------
Carolyn L. Ashby, Vice President
- 8 -
<PAGE> 9
SUNTRUST BANK, NASHVILLE, N.A.,
a national banking association, as a Lender and Co-Agent
By: /s/ Mark D. Mattson
----------------------------------------------------
Mark D. Mattson, Vice President
FIRST AMERICAN NATIONAL BANK, a national
banking association, as a Lender
By: /s/ Sandra G. Hamrick
----------------------------------------------------
Sandra G. Hamrick, Vice President
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF RENAL CARE GROUP, INC. FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 21,758
<SECURITIES> 0
<RECEIVABLES> 94,622
<ALLOWANCES> 0
<INVENTORY> 9,664
<CURRENT-ASSETS> 142,362
<PP&E> 111,273
<DEPRECIATION> 0
<TOTAL-ASSETS> 474,659
<CURRENT-LIABILITIES> 72,894
<BONDS> 0
0
0
<COMMON> 445
<OTHER-SE> 272,993
<TOTAL-LIABILITY-AND-EQUITY> 474,659
<SALES> 0
<TOTAL-REVENUES> 249,357
<CGS> 0
<TOTAL-COSTS> 161,281
<OTHER-EXPENSES> 43,372
<LOSS-PROVISION> 6,626
<INTEREST-EXPENSE> 2,693
<INCOME-PRETAX> 35,385
<INCOME-TAX> 14,382
<INCOME-CONTINUING> 21,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,003
<EPS-BASIC> 0.47
<EPS-DILUTED> 0.45
</TABLE>
