<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(MARK ONE)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO __________________
COMMISSION FILE NUMBER: 1-4034
----------------
TOTAL RENAL CARE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
DELAWARE 51-0354549
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
21250 HAWTHORNE BLVD., SUITE 800
TORRANCE, CALIFORNIA 90503-5517
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 792-2600
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
----------------
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 [_]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [_] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT NOVEMBER 1, 1997
----- -------------------------------
<S> <C>
Common Stock, Par Value $0.001............ 44,577,565 shares
</TABLE>
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<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996...................................................... 1
Condensed Consolidated Statements of Income for the Three Months and
Nine Months Ended September 30, 1997 and September 30, 1996............ 2
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and September 30, 1996........................ 3
Notes to Condensed Consolidated Financial Statements.................... 4
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 6
Liquidity and Capital Resources........................................... 9
Risk Factors.............................................................. 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 15
Signatures.............................................................. 16
</TABLE>
- --------
Note: Items 1 through 5 of Part II are omitted because they are not applicable.
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
ASSETS
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......................... $ 15,455,000 $ 19,881,000
Patient accounts receivable, less allowance for
doubtful accounts of $10,980,000 and $7,911,000,
respectively...................................... 131,456,000 91,009,000
Receivable from Tenet, a related company........... 288,000 347,000
Other current assets............................... 24,778,000 20,049,000
------------ ------------
Total current assets............................. 171,977,000 131,286,000
Property and equipment, net.......................... 84,846,000 58,266,000
Notes receivable from related parties................ 2,101,000 1,919,000
Other long-term assets............................... 9,683,000 1,992,000
Intangible assets, net of accumulated amortization of
$21,566,000 and $12,844,000, respectively........... 286,210,000 180,617,000
------------ ------------
Total assets..................................... $554,817,000 $374,080,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities................................ $ 28,784,000 $ 31,987,000
Long term debt and other........................... 253,880,000 103,545,000
Deferred income taxes.............................. 2,856,000 2,868,000
Minority interests................................. 7,640,000 4,714,000
Stockholders' equity:
Preferred stock, ($0.001 par value; 55,000,000
shares authorized; none outstanding)............ -- --
Common stock, voting, ($0.001 par value;
55,000,000 shares authorized; 44,481,360 and
44,121,637 issued and outstanding,
respectively)................................... 44,000 44,000
Additional paid-in capital....................... 260,157,000 255,879,000
Notes receivable from stockholders............... (2,975,000) (2,827,000)
Retained earnings (deficit)...................... 4,431,000 (22,130,000)
------------ ------------
Total stockholders' equity..................... 261,657,000 230,966,000
------------ ------------
Total liabilities and stockholders' equity..... $554,817,000 $374,080,000
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
1
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------------------- --------------------------
1997 1996 1997 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net operating revenues.. $113,668,000 $73,333,000 $307,450,000 $188,153,000
------------ ----------- ------------ ------------
Operating expenses:
Facilities............ 75,505,000 49,474,000 205,512,000 126,121,000
General and
administrative....... 7,614,000 4,943,000 20,997,000 13,644,000
Provision for doubtful
accounts............. 2,411,000 1,559,000 6,292,000 3,892,000
Depreciation and
amortization......... 7,141,000 4,231,000 18,902,000 10,263,000
------------ ----------- ------------ ------------
Total operating
expenses........... 92,671,000 60,207,000 251,703,000 153,920,000
------------ ----------- ------------ ------------
Operating income........ 20,997,000 13,126,000 55,747,000 34,233,000
Interest expense........ (4,259,000) (1,719,000) (9,442,000) (5,869,000)
Interest income......... 733,000 394,000 1,704,000 2,007,000
------------ ----------- ------------ ------------
Income before income
taxes and minority
interests.............. 17,471,000 11,801,000 48,009,000 30,371,000
Income taxes............ 6,751,000 4,386,000 18,255,000 11,537,000
------------ ----------- ------------ ------------
Income before minority
interests.............. 10,720,000 7,415,000 29,754,000 18,834,000
Minority interests in
income of consolidated
subsidiaries........... 850,000 879,000 3,193,000 2,296,000
------------ ----------- ------------ ------------
Net income before
extraordinary item..... 9,870,000 6,536,000 26,561,000 16,538,000
Extraordinary loss
related to early
extinguisment of debt,
net of tax............. 0 7,700,000 0 7,700,000
------------ ----------- ------------ ------------
Net income (loss)....... $ 9,870,000 $(1,164,000) $ 26,561,000 $ 8,838,000
============ =========== ============ ============
Earning (loss) per
common share:
Income before
extraordinary item..... $ .22 $ .15 $ .59 $ .39
Extraordinary item...... 0 (.17) 0 (.18)
------------ ----------- ------------ ------------
Net income (loss)... $ .22 $ (.02) $ .59 $ .21
============ =========== ============ ============
Weighted average number
of common shares and
equivalents
outstanding............ 45,631,000 44,435,000 45,146,000 42,348,000
============ =========== ============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
2
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 26,561,000 $ 8,838,000
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization................ 18,902,000 10,263,000
Extraordinary item........................... 0 12,623,000
Noncash interest............................. 0 4,396,000
Provision for doubtful accounts.............. 6,292,000 3,892,000
Other........................................ (50,600,000) (38,039,000)
------------- -------------
Total adjustments.......................... (25,406,000) (6,865,000)
------------- -------------
Net cash provided by operating
activities.............................. 1,155,000 1,973,000
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment............ (23,901,000) (18,118,000)
Cash paid for acquisitions, net of cash
acquired...................................... (135,162,000) (120,495,000)
Additions to intangible assets................. (4,359,000) (2,880,000)
Issuance of long-term notes receivable......... (5,489,000) (472,000)
Other.......................................... (1,821,000) 746,000
------------- -------------
Net cash used by investing activities.... (170,732,000) (141,219,000)
------------- -------------
Cash flows from financing activities:
Borrowings from bank credit facility........... 165,000,000 84,335,000
Payments on bank credit facility............... 0 (51,000,000)
Net proceeds from sale of common stock......... 1,866,000 110,079,000
Cash paid to retire bonds...................... 0 (28,499,000)
Distributions to minority interests............ (1,786,000) (1,488,000)
Other.......................................... 71,000 1,078,000
------------- -------------
Net cash provided by financing
activities.............................. 165,151,000 114,505,000
------------- -------------
Net decrease in cash............................. (4,426,000) (24,741,000)
Cash at beginning of period...................... 19,881,000 30,181,000
------------- -------------
Cash at end of period............................ $ 15,455,000 $ 5,440,000
============= =============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
3
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments consisting only of normal recurring
adjustments which are necessary to state fairly the consolidated financial
position, results of operations, and cash flows of Total Renal Care Holdings,
Inc., ("TRCH" or the "Company") as of and for the periods indicated. TRCH
presumes that users of the interim financial information herein have read or
have access to the Company's audited consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the preceding fiscal year and that the adequacy of additional
disclosure needed for a fair presentation, except in regard to material
contingencies or recent significant events, may be determined in that context.
Accordingly, footnote and other disclosures which would substantially
duplicate the disclosures contained in Form 10-K for the year ended December
31, 1996 filed on March 11, 1997 by the Company have been omitted. Certain
reclassifications of prior period amounts have been made to conform to current
period classifications. The financial information herein is not necessarily
representative of a full year's operations.
2. During the quarter ended March 31, 1997, the Company purchased
substantially all of the assets and assumed certain liabilities of three
centers for total cash consideration of approximately $8.1 million. Goodwill
of approximately $4.5 million was recorded in connection with these
transactions in accordance with the Company's existing accounting policies.
During the quarter ended June 30, 1997, the Company purchased substantially
all of the assets and assumed certain liabilities of 18 centers for a total
cash consideration of approximately $72.6 million. Goodwill of approximately
$51.3 million was recorded in connection with these transactions in accordance
with the Company's existing accounting policies.
Additionally, during the quarter ended June 30, 1997, the Company acquired a
controlling interest in the operations of a vascular access management company
and acquired a clinical research company specializing in renal and renal
related studies for a combined consideration of $2.1 million, including cash
of approximately $800,000. Goodwill of approximately $1.5 million was recorded
in connection with these transactions in accordance with the Company's
existing accounting policies.
During the quarter ended September 30, 1997, the Company purchased
substantially all of the assets, including certain accounts receivable, and
assumed certain liabilities of six centers for a total cash consideration of
approximately $41.1 million. Goodwill of approximately $33.8 million was
recorded in connection with these transactions in accordance with the
Company's existing accounting policies.
The results of operations on a pro forma basis as though the above
acquisitions had been combined with the Company at the beginning of each
period presented for the nine months ended September 30, are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Pro forma net operating revenues (in 000's)..... $323,129,000 $227,316,000
============ ============
Pro forma net income (in 000's)................. $ 27,879,000 $ 10,661,000
============ ============
Pro forma earnings per share.................... $ 0.62 $ 0.25
============ ============
</TABLE>
3. In February 1997, Statement of Financial Accounting Standards No. 128,
Earnings per Share (SFAS 128), was issued. This pronouncement modifies the
calculation and disclosure of earnings per share (EPS) and will be adopted by
the Company in its financial statements for the year ending December 31, 1997.
Although early adoption is not permitted, proforma disclosure is permitted
(see Exhibit 11). After the adoption date, EPS data for all periods presented,
including quarterly financial data, is required to be restated to conform with
the provisions of SFAS 128.
4
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. The Company entered into an additional forward interest swap agreement in
the notional amount of $200 million for a ten-year period beginning September
30, 1997. The terms include a fixed interest rate of 6.52%, plus an applicable
margin based upon the Company's leverage ratio. Currently the effective
interest rate for this interest swap is 7.77%.
5. On August 12, 1997, the Company filed a registration statement with the
Securities and Exchange Commission for an offering of 2,595,524 shares of
common stock to be offered by affiliates of DLJ Merchant Banking Partners,
L.P., as well as certain officers of the Company. Of the shares being sold,
2,024,234 were offered by the DLJ Merchant Banking affiliates, representing
their entire remaining interest in the Company. Donaldson, Lufkin & Jenrette
Securities Corporation was the sole underwriter of the offering. The Company
did not receive any of the proceeds from the sale of the shares being sold by
the selling stockholders.
6. On August 5, 1997, the Balanced Budget Act was signed by President
Clinton which included provisions: (1) providing for a permanent extension of
the ESRD coordination period from eighteen to thirty months of the Medicare
secondary payor requirement for items and services furnished to ESRD patients
by their existing Employer Group Health Plan; and (2) specifying that where
payment for drugs (other than EPO) is not made on a cost or prospective
payment basis, the payment would equal 95% of the Average Wholesale Price (as
defined in federal laws and regulations).
7. On September 30, 1997 the Company announced a common stock dividend to
all shareholders of record as of October 7, 1997, to be paid on October 20,
1997. Each shareholder is to receive 2 additional shares of common stock for
each 3 shares held. Fractional shares calculated as a result of the stock
dividend were paid out in cash in the amount of approximately $14,000. As
such, all share and per share amounts presented in the financial statements
and related notes thereto have been retroactively restated to reflect this
dividend which was accounted for as a stock split.
On October 24, 1997, the Company refinanced its existing $400 million TRCH
Credit Facility with an aggregate of $1,050,000,000 in two senior bank
facilities ("Senior Credit Facilities"). The Senior Credit Facilities consist
of a seven-year $800 million revolving senior credit facility and a ten-year
$250 million senior term facility. The terms and rates are comparable to those
in effect with the previous TRCH Credit Facility and allow for an expansion of
the leverage ratio.
Subsequent to September 30, 1997, the Company completed acquisitions, signed
definitive agreements, or entered into agreements in principle, to acquire
facilities or to manage operations of 35 dialysis clinics for consideration of
approximately $141 million, which have been or will primarily be funded by
additional borrowings under the TRCH Credit Facility or the Senior Credit
Facilities.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Such statements relating to
future events and financial performance are forward-looking statements
involving risks and uncertainties that are detailed from time to time in the
Company's various Securities and Exchange Commission filings.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared to the Three Months Ended
September 30, 1996
Net Operating Revenues. Net operating revenues for the three months ended
September 30, 1997 (Third Quarter of 1997) increased $40,335,000 to
$113,668,000 from $73,333,000 for the three months ended September 30, 1996
(Third Quarter of 1996) representing a 55.0% increase. This increase was due
to increased treatments from acquisitions, existing facility growth and de
novo developments.
Facility Operating Expenses. Facility operating expenses consist of cost and
expenses specifically attributable to the operation of dialysis facilities,
including operating and maintenance cost of such facilities, equipment, direct
labor, and supply and service costs relating to patient care. Facility
operating expense increased $26,031,000 to $75,505,000 in the Third Quarter of
1997 from $49,474,000 in the Third Quarter of 1996 and as a percentage of net
operating revenues, facility operating expenses decreased to 66.4% in the
Third Quarter of 1997 from 67.5% in the Third Quarter of 1996. This decrease
is mostly due to improvements in labor and pharmaceutical costs as a
percentage in revenues partially offset by an increase in other facility
expenses, consisting primarily of rent and medical director fees. In December
1996, the Company implemented its best demonstrated practices program which
focuses primarily upon costs incurred in labor and supplies.
General and Administrative Expenses. General and administrative expenses
include headquarters expenses and administrative, legal, quality assurance,
information systems and centralized accounting support functions. General and
administrative expenses increased $2,671000 to $7,614,000 in the Third Quarter
of 1997 from $4,943,000 in the Third Quarter of 1996. As a percentage of net
operating revenues, general and administrative expenses remained at 6.7% in
the Third Quarter of 1997 and in the Third Quarter of 1996. The Company did
not achieve any economies of scale relative to its revenue growth because it
has recently added resources in the areas of quality management, information
systems and business development in support of its managed care quality
outcomes and acquisitions programs.
Provision for Doubtful Accounts. The provision for doubtful accounts is
influenced by the amount of net operating revenues generated from non-
governmental payor sources in addition to the relative percentage of accounts
receivable by aging category. The provision for doubtful accounts increased
$852,000 to $2,411,000 in the Third Quarter of 1997 from $1,559,000 in the
Third Quarter of 1996. As a percentage of net operating revenues, the
provision for doubtful accounts remained at 2.1% in the Third Quarter of 1997
and in the Third Quarter of 1996.
Depreciation and Amortization. Depreciation and amortization increased
$2,910,000 to $7,141,000 in the Third Quarter of 1997 from $4,231,000 in the
Third Quarter of 1996. As a percentage of net operating revenues, depreciation
and amortization increased to 6.3% in the Third Quarter of 1997 from 5.8% in
the Third Quarter of 1996. The increase was primarily attributable to
increased amortization due to acquisition activity and increased depreciation
from new center leaseholds and routine capital expenditures.
Operating Income. Operating income increased $7,871,000 to $20,997,000 in
the Third Quarter of 1997 from $13,126,000 in the Third Quarter of 1996. As a
percentage of net operating revenues, operating income increased to 18.5% in
the Third Quarter of 1997 from 17.9% in the Third Quarter of 1996.
6
<PAGE>
Interest Expense. Interest expense, net of interest income, increased
$2,201,000 to $3,526,000 in the Third Quarter of 1997 from $1,325,000 in the
Third Quarter of 1996. As a percentage of net operating revenues, interest
expense, net of interest income, increased to 3.1% in the Third Quarter of
1997 from 1.8% in the Third Quarter of 1996. Cash interest expense during the
Third Quarter of 1997 was $4,259,000 versus cash interest expense of $551,000
and non-cash interest of $1,168,000 in the Third Quarter of 1996. Non-cash
interest in the Third Quarter of 1996 was related to the Company's Discount
Notes which were completely retired through an early extinguishment during the
third quarter of 1996. The increase in cash interest expense was due primarily
to an increase in borrowings made under the TRCH Credit Facility to fund the
Company's acquisitions.
Provision for Income Taxes. Provision for income taxes increased $2,365,000
to $6,751,000 in the Third Quarter of 1997 from $4,386,000 in the Third
Quarter of 1996, and the effective tax rate after minority interest increased
to 40.6% in the Third Quarter of 1997 from 40.2% in the Third Quarter of 1996.
The overall increase in the effective tax rate is due to an increase in the
blended state rates in the current quarter relative to last year's quarter.
Minority Interest. Minority interests represent the pretax income earned by
physicians who directly or indirectly own minority interests in the Company's
partnership affiliates and the net income in two of the Company's corporate
subsidiaries. Minority interest decreased $29,000 to $850,000 in the Third
Quarter of 1997 from $879,000 in the Third Quarter of 1996. As a percentage of
net operating revenues, minority interest decreased to 0.8% in the Third
Quarter of 1997 from 1.2% in the Third Quarter of 1996.
Nine Months Ended September 30, 1997 Compared to the Nine Months Ended
September 30, 1996
Net Operating Revenues. Net operating revenues for the nine months ended
September 30, 1997 increased $119,297,000 to $307,450,000 from $188,153,000
for the nine months ended September 30, 1996 representing a 63.4% increase.
This increase, $118,713,000 was due to increased treatments from acquisitions,
existing facility growth and de novo developments.
Facility Operating Expenses. Facility operating expenses increased
$79,391,000 to $205,512,000 in the first nine months of 1997 from $126,121,000
in the first nine months of 1996 and as a percentage of net operating
revenues, facility operating expenses decreased to 66.8% in the first nine
months of 1997 from 67.0% in the first nine months of 1996. This decrease is
mostly due to improvements in labor and pharmaceutical costs as a percentage
in revenues partially offset by an increase in other facility expenses,
consisting primarily of rent and medical director fees. In December 1996, the
Company implemented its best demonstrated practices program which focuses
primarily upon costs incurred in labor and supplies.
General and Administrative Expenses. General and administrative expenses
increased $7,353,000 to $20,997,000 in the first nine months of 1997 from
$13,644,000 in the first nine months of 1996. As a percentage of net operating
revenues, general and administrative expenses declined to 6.8% in the first
nine months of 1997 from 7.3% in the first nine months of 1996. This decline
as a percentage of net revenue is a result of revenue growth and economies of
scale achieved through the leveraging of corporate staff across a higher
revenue base.
Provision for Doubtful Accounts. The provision for doubtful accounts
increased $2,400,000 to $6,292,000 in the first nine months of 1997 from
$3,892,000 in the first nine months of 1996. As a percentage of net operating
revenues, the provision for doubtful accounts remained the same at 2.1% for
both periods.
Depreciation and Amortization. Depreciation and amortization increased
$8,639,000 to $18,902,000 in the first nine months of 1997 from $10,263,000 in
the first nine months of 1996. As a percentage of net operating revenues,
depreciation and amortization increased to 6.2% in the first nine months of
1997 from 5.5% in the first nine months of 1996. The increase was primarily
attributable to increased amortization due to acquisition activity and
increased depreciation from new center leaseholds and routine capital
expenditures.
7
<PAGE>
Operating Income. Operating income increased $21,514,000 to $55,747,000 in
the first nine months of 1997 from $34,233,000 in the first nine months of
1996. As a percentage of net operating revenues, operating income decreased
slightly to 18.1% in the first nine months of 1997 from 18.2% in the first
nine months of 1996. This decrease in operating income is primarily due to an
increase in depreciation and amortization partially offset by a decrease in
facility operating costs and general and administrative expenses all as a
percentage of net operating revenue.
Interest Expense. Interest expense, net of interest income, increased
$3,876,000 to $7,738,000 in the first nine months of 1997 from $3,862,000 in
the first nine months of 1996. As a percentage of net operating revenues,
interest expense, net of interest income, increased to 2.5% in the first nine
months of 1997 from 2.1% in the first nine months of 1996. Cash interest
expense during the first nine months of 1997 was $9,442,000 versus cash
interest expense of $1,473,000 and non-cash interest of $4,396,000 in the
first nine months of 1996. Non-cash interest in the first nine months of 1996
was related to the Company's Discount Notes which were completely retired
through an early extinguishment during the third quarter of 1996. The increase
in cash interest expense was due primarily to an increase in borrowings made
under the TRCH Credit Facility to fund the Company's acquisitions.
Provision for Income Taxes. Provision for income taxes increased $6,718,000
to $18,255,000 in the first nine months of 1997 from $11,537,000 in the first
nine months of 1996, and the effective tax rate after minority interest
decreased to 40.7% in the first nine months of 1997 from 41.1% in the first
nine months of 1996. The overall decrease in the effective tax rate is due to
a reduction in the blended state rates and a reduction in nondeductible
amortization as a percentage of total amortization expense.
Minority Interest. Minority interest increased $897,000 to $3,193,000 in the
first nine months of 1997 from $2,296,000 in the first nine months of 1996. As
a percentage of net operating revenues, minority interest decreased to 1.0%
for the first nine months of 1997 from 1.2% in the first nine months of 1996.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1,155,000 for the first nine
months of 1997 and $1,973,000 for the first nine months of 1996. Net cash used
by operating activities consists of the Company's net income, increased by
non-cash expenses such as depreciation, amortization, non-cash interest and
the provision for doubtful accounts, and adjusted by changes in components of
working capital, primarily accounts receivable, in the first nine months of
1997. Net cash used in investing activities was $170,732,000 and $141,219,000
for the first nine months of 1997 and 1996, respectively. The Company's
principal uses of cash in investing activities have been related to
acquisitions, purchases of new equipment and leasehold improvements for the
Company's outpatient facilities, as well as the development of new outpatient
facilities. For the first nine months of 1997 net cash provided by financing
activities was $165,151,000 as compared to $114,505,000 for the first nine
months of 1996. The primary source of cash for the first nine months of 1997
consisted of borrowings from the bank credit facility and were used to finance
acquisitions, de novo developments and working capital needs.
As of September 30, 1997, the Company had working capital of $143,193,000,
including cash of $15,455,000.
The Company anticipates that its aggregate capital requirements for
purchases of equipment and leasehold improvements for outpatient facilities,
including de novo facilities after September 30, 1997 through December 31,
1997 will be approximately $12.3 million.
The Company's strategy is to continue to expand its operations both through
development of de novo centers and through acquisitions. The development of a
typical outpatient facility generally requires $800,000 for initial
construction and equipment and $200,000 for working capital. Based on the
Company's experience, a de novo facility typically achieves operating
profitability, before depreciation and amortization, by the 12th to 15th month
of operation. However, the period of time for a development facility to break
even is dependent on many factors which can vary significantly from facility
to facility, and, therefore, the Company's past experience may not be
indicative of the performance of future developed facilities. The Company is
currently developing twenty new facilities and plans to open 7 de novo
facilities during the remaining three months of this year.
In October 1997 the Company refinanced its $400 million bank credit facility
with an aggregate of $1,050,000 in two senior bank facilities ("Senior Credit
Facilities"). The Senior Credit Facilities consist of a seven-year $800
million revolving senior credit facility and a ten-year $250 million senior
term facility. The terms and rates are comparable to those in effect with
previous TRCH Credit Facility and allow for an expansion of the leverage
ratio.
During the period January 1, 1997 through September 30, 1997, the Company
paid cash of approximately $122.6 million for the acquisition of 27
facilities, a vascular access management company and an ESRD clinical research
company, in 13 separate transactions. Also, upon closure of an acquisition of
two facilities the related letters of credit of $12.6 million were cancelled.
Subsequent to September 30, 1997, the Company completed acquisitions of or
entered into letters of intent to acquire 35 facilities for consideration of
approximately $141 million, which will primarily be funded by additional
borrowings under the TRCH Credit Facility or Senior Credit Facilities.
The TRCH Credit Facility contains financial and operating covenants
including, among other things, requirements that the Company maintain certain
financial ratios and satisfy certain financial tests, and imposes limitations
on the Company's ability to make capital expenditures, to incur other
indebtedness and to pay dividends. As of the date hereof, the Company is in
compliance with all such covenants.
The Company entered into an additional forward interest swap agreement in
the notional amount of $200 million for a ten-year period beginning September
30, 1997. The terms include a fixed interest rate of 6.52% plus an applicable
margin based upon the Company leverage ratio. Currently, the effective
interest rate for this interest swap is 7.77%.
9
<PAGE>
The Company believes that the borrowings under the various credit
facilities, cash generated from operations and other current sources of
financing will be sufficient to meet the Company's need for capital for the
foreseeable future, including working capital, purchases of additional
property and equipment for the operation of its existing facilities and
interest on the TRCH Senior Credit Facility. To continue its growth strategy,
however, the Company may need to issue additional debt or equity securities.
There can be no assurance that additional financing and capital, if and when
required, will be available on terms acceptable to the Company or at all.
10
<PAGE>
RISK FACTORS
In evaluating the Company and its business, prospective investors should
carefully consider the following risk factors in addition to the other
information contained herein. This quarterly report contains statements that
constitute "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
relate to future events or the future financial performance of the Company and
involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, those discussed below, and such factors could cause actual
results to differ materially from those indicated by such forward-looking
statements. The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, there can be
no assurance that the forward-looking information contained in this quarterly
report or the materials incorporated herein by reference will in fact
transpire.
DEPENDENCE ON MEDICARE, MEDICAID AND OTHER SOURCES OF REIMBURSEMENT
The Company is reimbursed for dialysis services primarily at fixed rates
established in advance under the Medicare End Stage Renal Disease program.
Under this program, once a patient becomes eligible for Medicare
reimbursement, Medicare is responsible for payment of 80% of the composite
rates determined by the Health Care Financing Administration ("HCFA") for
dialysis treatments. Since 1972, qualified patients suffering from ESRD have
been entitled to Medicare benefits regardless of age or financial
circumstances. The Company estimates that approximately 61% of its net patient
revenues during its fiscal year ended December 31, 1996, and approximately 59%
during the nine months ended September 30, 1997 were funded by Medicare. Since
1983, numerous Congressional actions have resulted in changes in the Medicare
composite reimbursement rate from a national average of $138 per treatment in
1983 to a low of $125 per treatment on average in 1986 and to approximately
$126 per treatment on average at present. The Company is not able to predict
whether future rate changes will be made. Reductions in composite rates could
have a material adverse effect on the Company's revenues and net earnings.
Furthermore, increases in operating costs that are subject to inflation, such
as labor and supply costs, without a compensating increase in prescribed
rates, may adversely affect the Company's earnings in the future. The Company
is also unable to predict whether certain services, as to which the Company is
currently separately reimbursed, may in the future be included in the Medicare
composite rate.
Since June 1, 1989, the Medicare ESRD program has provided reimbursement for
the administration to dialysis patients of erythropoietin ("EPO"). EPO is
beneficial in the treatment of anemia, a medical complication frequently
experienced by dialysis patients. Many of the Company's dialysis patients
receive EPO. Revenues from EPO (the substantial majority of which are
reimbursed through Medicare and Medicaid programs) were approximately $55.1
million, or 20% of net patient revenues, in its fiscal year ended December 31,
1996, and were $61.4 million, or 20% of net patient revenues, during the nine
months ended September 30, 1997. EPO reimbursement significantly affects the
Company's net income. Medicare reimbursement for EPO was reduced from $11 to
$10 per 1,000 units for services rendered after December 31, 1993. EPO is
produced by a single manufacturer, and any interruption of supply or product
cost increases could adversely affect the Company's operations. Prices paid
for EPO by the Company, its public competitors, and other dialysis providers
are presently the subject of a pricing survey being conducted on behalf of
HCFA. It is our understanding that HCFA is considering a decrease in the rate
of reimbursement from $10 to $9 per 1,000 units of EPO. If enacted, this
decrease would reduce the Company's revenues by approximately 1.5% to 2% and
therefore, would have a material effect on the Company's profitability.
All of the states in which the Company currently operates dialysis
facilities provide Medicaid (or comparable) benefits to qualified recipients
to supplement their Medicare entitlement. The Company estimates that
approximately 6% of its net patient revenues during the fiscal year ended
December 31, 1996 and 7% of its net patient revenues during the nine month
period ended September 30, 1997 were funded by Medicaid or comparable state
programs. The Medicaid programs are subject to statutory and regulatory
changes,
11
<PAGE>
administrative rulings, interpretations of policy and governmental funding
restrictions, all of which may have the effect of decreasing program payments,
increasing costs or modifying the way the Company operates its dialysis
business.
Approximately 33% of the Company's net patient revenues during the fiscal
year ended December 31, 1996, and 34% of the Company's net patient revenues
during the nine months ended September 30, 1997 were from sources other than
Medicare and Medicaid. These sources include payments from third-party, non-
government payors, at rates that generally exceed the Medicare and Medicaid
rates, and payments from hospitals with which the Company has contracts for
the provision of acute dialysis treatments. Any restriction or reduction of
the Company's ability to charge for such services at rates in excess of those
paid by Medicare would adversely affect the Company's net operating revenues
and net income. The Company is unable to quantify or predict the degree, if
any, of the risk of reductions in payments under these various payment plans.
The Company is a party to non-exclusive agreements with certain third-party
payors and termination of such third-party agreements could have an adverse
effect on the Company.
OPERATIONS SUBJECT TO GOVERNMENT REGULATION
The Company is subject to extensive regulation by both the federal
government and the states in which the Company conducts its business. The
Company is subject to the illegal remuneration provisions of the Social
Security Act and similar state laws, which impose civil and criminal sanctions
on persons who solicit, offer, receive or pay any remuneration, directly or
indirectly, for referring a patient for treatment that is paid for in whole or
in part by Medicare, Medicaid or similar state programs. In July 1991 and
November 1992, the federal government published regulations that provide
exceptions or "safe harbors" for certain business transactions. Transactions
that are structured within the safe harbors are deemed not to violate the
illegal remuneration provisions. Transactions that do not satisfy all elements
of a relevant safe harbor do not necessarily violate the illegal remuneration
statute, but may be subject to greater scrutiny by enforcement agencies.
Neither the arrangements between the Company and the physician directors of
its facilities ("Medical Directors") nor the minority ownership interests of
referring physicians in certain of the Company's dialysis facilities meet all
of the necessary requirements to obtain full protection afforded by these safe
harbors. Although the Company has never been challenged under these statutes
and believes it complies in all material respects with these and all other
applicable laws and regulations, there can be no assurance that the Company
will not be required to change its practices or relationships with its Medical
Directors or with referring physicians holding minority ownership interests or
that the Company will not experience material adverse effects as a result of
any such challenge.
The Omnibus Budget Reconciliation Act of 1989 includes certain provisions
("Stark I") that restrict physician referrals for clinical laboratory services
to entities with which a physician or an immediate family member has a
"financial relationship." In August 1995, HCFA published regulations
interpreting Stark I. The regulations specifically provide that services
furnished in an ESRD facility that are included in the composite billing rate
are excluded from the coverage of Stark I. The Company believes that the
language and legislative history of Stark I indicate that Congress did not
intend to include laboratory services provided incidental to dialysis services
within the Stark I prohibition; however, laboratory services not included in
the Medicare composite rate could be included within the coverage of Stark I.
Violations of Stark I are punishable by civil penalties which may include
exclusion or suspension of a provider from future participation in Medicare
and Medicaid programs and substantial fines. Due to the breadth of the
statutory provisions, it is possible that the Company's practices might be
challenged under this law. A broad interpretation of Stark I would apply to
the Company's competitors as well.
The Omnibus Budget Reconciliation Act of 1993 includes certain provisions
("Stark II") that restrict physician referrals for certain "designated health
services" to entities with which a physician or an immediate family member has
a "financial relationship." The Company believes that the language and
legislative history of Stark II indicate that Congress did not intend to
include dialysis services and the services and items provided incident to
dialysis services within the Stark II prohibitions; however, certain services,
including the provision of, or arrangement and assumption of financial
responsibility for, outpatient prescription drugs, including EPO,
12
<PAGE>
and clinical laboratory services, could be construed as designated health
services within the meaning of Stark II. Violations of Stark II are punishable
by civil penalties, which may include exclusion or suspension of the provider
from future participation in Medicare and Medicaid programs and substantial
fines. Due to the breadth of the statutory provisions and the absence of
regulations or court decisions addressing the specific arrangements by which
the Company conducts its business, it is possible that the Company's practices
might be challenged under these laws. A broad interpretation of Stark II to
include dialysis services and items provided incident to dialysis services
would apply to the Company's competitors as well.
A California statute that became effective January 1, 1995 makes it unlawful
for a physician who has, or a member of whose immediate family has, a
financial interest with or in an entity to refer a person to that entity for,
among other services, laboratory services. The Company currently operates
centers in California, which account for a significant percentage of net
operating revenues. Although the Company does not believe that the statute is
intended to apply to laboratory services that are provided incident to
dialysis services, it is possible that the statute could be interpreted to
apply to such laboratory services. If the California statute were so
interpreted, the Company would be required to restructure some or all of its
relationships with referring physicians who serve as Medical Directors of the
Company's facilities and with the physicians who hold minority interests in
certain of the Company's facilities. So-called "fraud and abuse" statutes
which regulate the Company's relationships with physicians are present in
Puerto Rico and in all the states, in which the Company operates.
At present, ESRD patients eligible for California's Medicaid program,
MediCal, are reimbursed for their transportation costs relating to ESRD
treatments. If this practice is deemed to violate applicable federal or state
law, the Company may be forced to halt this practice and the Company cannot
predict the effect the foregoing would have on the desire of such patients to
use the Company's services.
The Company's two licensed clinical laboratories are also subject to
extensive federal and state regulation of performance standards, including the
provisions of The Clinical Laboratory Improvement Act of 1967 and The Clinical
Laboratory Improvement Amendments of 1988 Act, as well as the federal and
state regulations described above. The Company's laboratory subsidiary is
presently the subject of a Medicare carrier review. The carrier has requested
medical and billing records for certain patients, and the Company has provided
the requested records. The carrier has not informed the Company of the reason
for or the nature or scope of its review.
A number of proposals for health care reform have been made in recent years,
some of which have included radical changes in the health care system. Health
care reform could result in material changes in the financing and regulation
of the health care business, and the Company is unable to predict the effect
of such changes on its future operations. It is uncertain what legislation on
health care reform, if any, will ultimately be implemented or whether other
changes in the administration or interpretation of governmental health care
programs will occur. There can be no assurance that future health care
legislation or other changes in the administration or interpretation of
governmental health care programs will not have a material adverse effect on
the results of operations of the Company.
RISKS INHERENT IN GROWTH STRATEGY
Beginning after the recapitalization in August 1994, which effected a change
in ownership, the Company has had an aggressive growth strategy. This growth
strategy is dependent on the continued availability of suitable acquisition
candidates and subjects the Company to the risks inherent in assessing the
value, strengths and weaknesses of acquisition candidates, the operations of
acquired companies and identifying suitable locations for additional
facilities. The Company's growth is expected to place significant demands on
the Company's financial and management resources. In recent years, acquisition
prices and competition for facilities has increased. To the extent the Company
is unable to acquire or develop facilities in a cost-effective manner, its
ability to expand its business and enhance results of operations would be
adversely affected. In addition, although the Company believes it has a
demonstrable track record of integrating the operations of acquired companies
with its historic operations, the process for integrating acquired operations,
particularly for newly acquired regional clusters,
13
<PAGE>
presents a significant challenge to the Company's management and may lead to
unanticipated costs or a diversion of management's attention from day-to-day
operations. There can be no assurance that the Company will be able to
continue its growth strategy or that this strategy will ultimately prove
successful. A failure to successfully continue its growth strategy could have
an adverse effect on the Company's results of operations.
COMPETITION
The dialysis industry is fragmented and highly competitive, particularly in
terms of acquisitions of existing dialysis facilities and developing
relationships with referring physicians. Certain of the Company's competitors
have substantially greater financial resources than the Company and may
compete with the Company for acquisitions of facilities in markets targeted by
the Company. Competition for acquisitions has increased the cost of acquiring
existing dialysis facilities. The Company has from time to time experienced
competition from referring physicians who have opened their own dialysis
facilities. A portion of the Company's business consists of monitoring and
providing supplies for ESRD treatments in patients' homes. Certain physicians
also provide similar services and, if the number of such physicians were to
increase, the Company could be adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the services and management experience of the
Company's executive officers, and accordingly has entered into employment
agreements with, and provided a variety of equity incentives to, each of these
executives. The Company's continued growth depends upon its ability to attract
and retain skilled employees, in particular highly skilled nurses, for whom
competition is intense. The Company believes that its future success will also
be significantly dependent on its ability to attract and retain qualified
physicians to serve as Medical Directors of its dialysis facilities. The
Company does not carry key-man life insurance on any of its officers.
DEPENDENCE ON PHYSICIAN REFERRALS
The Company's facilities are dependent upon referrals of ESRD patients for
treatment by physicians specializing in nephrology and practicing in the
communities served by the Company's dialysis facilities. As is generally true
in the dialysis industry, at each facility one or a few physicians account for
all or a significant portion of the patient referral base. The loss of one or
more key referring physicians at a particular facility could have a material
adverse effect on the operations of that facility and could adversely affect
the Company's overall operations. Referring physicians own minority interests
in certain of the Company's dialysis facilities. If such interests are deemed
to violate applicable federal or state law, such physicians may be forced to
dispose of their ownership interests. The Company cannot predict the effect
such dispositions would have on its business. See "--Operations Subject to
Government Regulation."
14
<PAGE>
PART II
OTHER INFORMATION
ITEMS 1 THROUGH 5 ARE NOT APPLICABLE.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
11 Computation of per share earnings for the three and nine months ended
September 30, 1997 and September 30, 1996 and proforma computation of per
share earnings for the three and nine months ended September 30, 1997 and
September 30, 1996.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the nine months for which this
report was filed.
15
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
TOTAL RENAL CARE HOLDINGS, INC.
(Registrant)
/s/ John E. King
By: _________________________________
John E. King
Vice President, Finance and
Chief Financial Officer
Date: November 13, 1997
John E. King is signing in the dual capacities as (i) Chief Financial
Officer, and (ii) a duly authorized officer of the Company.
16
<PAGE>
EXHIBIT 11
TOTAL RENAL CARE HOLDINGS, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Applicable Common Shares
Average outstanding
during the period....... 44,453,000 43,247,000 44,382,000 41,167,000
Outstanding stock
options................. 1,290,000 1,312,000 896,000 1,313,000
Reduction in shares in
connection with notes
receivable
from employees.......... (112,000) (124,000) (132,000) (132,000)
----------- ----------- ----------- -----------
Weighted average number of
shares outstanding........ 45,631,000 44,435,000 45,146,000 42,348,000
=========== =========== =========== ===========
Net income before
extraordinary item........ $ 9,883,000 $ 6,536,000 $26,575,000 $16,538,000
Extraordinary loss......... (7,700,000) (7,700,000)
----------- ----------- ----------- -----------
Net income (loss).......... $ 9,883,000 $(1,164,000) $26,575,000 $ 8,838,000
=========== =========== =========== ===========
Net income per common share
before extraordinary item. $ 0.22 $ 0.15 $ 0.59 $ 0.39
Extraordinary item......... (0.17) (0.18)
----------- ----------- ----------- -----------
Net income (loss) per
common share.............. $ 0.22 $ (0.02) $ 0.59 $ 0.21
=========== =========== =========== ===========
</TABLE>
PRO FORMA COMPUTATION OF PER SHARE EARNINGS
In February 1997, Statement of Financial Accounting Standards No. 128,
Earnings per Share (SFAS 128), was issued. This pronouncement modifies the
calculation and disclosure of earnings per share (EPS) and will be adopted by
the Company in its financial statements for the year ending December 31, 1997.
The following discloses the earnings per share calculations in accordance with
the provisions of SFAS 128.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Applicable Common Shares
Average outstanding
during the period...... 44,453,000 43,247,000 44,382,000 41,167,000
Reduction in shares in
connection with notes
receivable from
employees.............. (112,000) (124,000) (132,000) (132,000)
----------- ----------- ----------- -----------
Weighted average number of
shares outstanding for
use in computing earnings
per share................ 44,341,000 43,123,000 44,250,000 41,035,000
Dilutive effect of
outstanding stock
options............... 1,290,000 1,312,000 896,000 1,313,000
----------- ----------- ----------- -----------
Weighted average number of
shares outstanding for
use in computing earnings
per share--assuming
dilution................. 45,631,000 44,435,000 45,146,000 42,348,000
=========== =========== =========== ===========
Net income before
extraordinary item....... $ 6,536,000 $16,538,000
Extraordinary loss........ (7,700,000) (7,700,000)
----------- -----------
Net income (loss) ........ $ 9,883,000 $(1,164,000) $26,575,000 $ 8,838,000
=========== =========== =========== ===========
Net income per common
share before
extraordinary item....... $ 0.22 $ 0.15 $ 0.60 $ 0.40
Extraordinary item........ (0.17) (0.18)
----------- ----------- ----------- -----------
Net income (loss) per
common share............. $ 0.22 $ (0.02) $ 0.60 $ 0.22
=========== =========== =========== ===========
Net income per common
share, assuming dilution,
before extraordinary
item..................... $ 0.22 $ 0.15 $ 0.59 $ 0.39
Extraordinary item........ (0.17) (0.18)
----------- ----------- ----------- -----------
Net income (loss) per
common share--assuming
dilution................. $ 0.22 $ (0.02) $ 0.59 $ 0.21
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,455,000
<SECURITIES> 0
<RECEIVABLES> 131,456,000
<ALLOWANCES> 0
<INVENTORY> 7,398,000
<CURRENT-ASSETS> 171,977,000
<PP&E> 84,846,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 554,817,000
<CURRENT-LIABILITIES> 28,784,000
<BONDS> 0
0
0
<COMMON> 44,000
<OTHER-SE> 260,157,000
<TOTAL-LIABILITY-AND-EQUITY> 554,817,000
<SALES> 0
<TOTAL-REVENUES> 307,450,000
<CGS> 0
<TOTAL-COSTS> 251,703,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,292,000
<INTEREST-EXPENSE> 9,442,000
<INCOME-PRETAX> 44,816,000
<INCOME-TAX> 18,255,000
<INCOME-CONTINUING> 26,561,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,561,000
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
</TABLE>
