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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 22, 1998
-----------------------------
Total Renal Care Holdings, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-4034 51-0354549
- -------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
21250 Hawthorne Boulevard, Suite 800, Torrance, California 90503-5517
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 792-2600
----------------------------
Not Applicable
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBIT.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of South Brooklyn Nephrology Center, Inc. F-1
(b) PRO FORMA FINANCIAL INFORMATION.
Unaudited Pro Forma Financial Statements F-11
(c) EXHIBITS.
23.1 Consent of Maier Markey & Menashi LLP.
</TABLE>
2
<PAGE>
- ------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TOTAL RENAL CARE HOLDINGS, INC.
(Registrant)
Dated: January 21, 1998 By:/s/ John E. King
-----------------------------
John E. King
Vice President and Chief Financial Officer
3
<PAGE>
SOUTH BROOKLYN NEPHROLOGY
CENTER, INC.
December 31, 1996 and 1995
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
South Brooklyn Nephrology Center, Inc.
Brooklyn, New York
We have audited the accompanying balance sheets of South Brooklyn Nephrology
Center, Inc. (a Subchapter S Corporation) as of December 31, 1996 and 1995 and
the related statements of operations, changes in stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of South Brooklyn Nephrology
Center, Inc. as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Maier Markey & Menashi LLP
March 14, 1997
Larchmont, New York
F-2
<PAGE>
SOUTH BROOKLYN NEPHROLOGY CENTER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------ September 30,
1996 1995 1997
----------- ----------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash $ - $ - $ 76,895
Accounts receivable, less allowance
for doubtful accounts of $67,824 in
1996 and $65,692 in 1995 1,095,738 1,065,052 1,443,510
Medical and pharmacy supplies 100,180 95,189 114,239
Prepaid expenses 69,312 108,291 113,150
Deferred income taxes 2,959 1,744 2,959
Other receivables 476,200 416,815 -
---------- ----------- -----------
Total current assets 1,744,389 1,687,091 1,750,753
Property, plant and equipment 469,822 646,952 349,727
Deposits 4,895 4,895 4,895
----------- ----------- -----------
$ 2,219,106 $ 2,338,938 $ 2,105,375
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Cash overdraft $ 37,944 $ 85,965 $ -
Accounts payable 883,652 945,735 876,849
Loans payable to stockholders 100,500 110,500 100,500
Accrued expenses and other current
liabilities 293,559 241,449 272,895
----------- ----------- -----------
Total current liabilities 1,315,655 1,383,649 1,250,244
----------- ----------- -----------
Deferred income taxes payable - noncurrent - 3,871 -
Commitments - - -
Stockholders' equity:
Common stock, no par value, 200 shares
authorized, issued and outstanding 40,216 40,216 40,216
Retained earnings 863,235 911,202 814,915
----------- ----------- -----------
Total stockholders' equity 903,451 951,418 855,131
----------- ----------- -----------
$ 2,219,106 $ 2,338,938 $ 2,105,375
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
SOUTH BROOKLYN NEPHROLOGY CENTER, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- --------------------------
1996 1995 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(unaudited) (unaudited)
Revenue:
Net patient service revenue $6,932,486 $6,661,552 $4,898,888 $5,699,331
Interest revenue - - - 3,220
---------- ---------- ---------- -----------
Total revenue 6,932,486 6,661,552 4,898,888 5,702,551
---------- ---------- ---------- -----------
Operating expenses:
Staff salaries and contract labor 2,035,555 1,799,952 1,477,437 1,645,512
Officers' salaries 479,000 674,900 104,000 180,000
Employee benefits and payroll taxes 457,345 347,042 317,434 339,407
Purchased diagnostic services 78,372 41,164 56,172 20,000
Medical and pharmacy supplies 2,686,615 2,423,640 1,973,605 2,194,654
Lab and pharmacy fees 13,096 10,773 9,974 6,446
Equipment repairs and maintenance 128,247 84,480 97,347 88,653
Rent, real estate and commercial rent tax 191,714 223,182 147,868 181,322
Depreciation and amortization 233,621 223,275 175,722 167,400
Interest expense 485 23,035 485 -
Bad debt expense 60,000 60,000 45,000 45,000
Health facility assessment fees 40,958 39,538 28,972 31,560
Accounting and legal fees 54,946 43,211 51,599 28,195
Insurance 43,439 39,075 32,312 33,136
Utilities 64,870 51,913 49,980 46,438
Communications 35,811 29,724 25,571 30,883
Advertising 28,228 10,158 25,556 15,213
Office supplies 14,031 11,988 9,868 11,228
Repairs and maintenance 94,102 33,729 66,736 60,033
Rubbish removal 44,861 49,389 34,168 31,170
Travel and entertainment 4,350 4,293 465 -
Patient transportation 135,498 26,325 97,161 77,898
Delivery and postage 16,561 29,493 13,283 7,854
Contributions 2,050 2,300 2,050 -
Patient insurance 4,759 1,146 - -
Miscellaneous expense 23,400 7,481 21,099 22,929
---------- ---------- ---------- -----------
Total operating expenses 6,971,914 6,291,206 4,863,864 5,264,931
---------- ---------- ---------- -----------
Net income (loss) before income taxes (39,428) 370,346 35,024 437,620
Provision for income taxes 8,539 36,565 8,000 54,800
---------- ---------- ---------- ----------
Net income (loss) $ (47,967) $ 333,781 $ 27,024 $ 382,820
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
SOUTH BROOKLYN NEPHROLOGY CENTER, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common
Stock Retained
(No Par) Earnings Total
-------- -------- -----
<S> <C> <C> <C>
Balance, December 31, 1994 $ 40,216 $ 577,421 $ 617,637
Net income - 333,781 333,781
-------- --------- ---------
Balance, December 31, 1995 40,216 911,202 951,418
Net loss - (47,967) (47,967)
-------- --------- ---------
Balance, December 31, 1996 $ 40,216 $ 863,235 $ 903,451
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
SOUTH BROOKLYN NEPHROLOGY CENTER, INC.
STATEMENTS OF CASH FLOWS
Year Ended Nine months ended
December 31, September 30, September 30,
1996 1995 1996 1997
----- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(47,967) $ 333,781 $ 27,024 $ 382,820
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 233,621 223,275 175,722 167,400
Deferred income taxes (5,086) 14,140 - -
(Increase) decrease in:
Accounts receivable (30,686) (60,307) (11,150) (347,772)
Medical and pharmacy supplies (4,991) (5,299) (49,484) (14,059)
Prepaid expenses 38,979 (751) 17,802 (43,838)
Other receivables (59,385) (76,587) (6,185) 45,060
Increase (decrease) in:
Accounts payable (62,083) 117,718 (15,964) (6,803)
Accrued expenses and other current liabilities 52,110 (192,475) 69,226 (20,664)
-------- --------- -------- --------
Net cash provided by operating activities 114,512 353,495 206,991 162,144
-------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (56,491) (101,399) (54,092) (47,305)
-------- --------- -------- --------
Net cash used by investing activities (56,491) (101,399) (54,092) (47,305)
-------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of stockholder loans payable (10,000) - (10,000) -
-------- --------- -------- --------
Net cash used by financing activities (10,000) - (10,000) -
-------- --------- -------- --------
Net increase in cash 48,021 252,096 142,899 114,839
Cash overdraft at beginning of period (85,965) (338,061) (85,965) (37,944)
-------- --------- -------- --------
Cash overdraft at end of period $(37,944) $ (85,965) $ 56,934 $ 76,895
======== ========= ======== ========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest $ 485 $ 23,304
======== =========
Income taxes $ 21,975 $ 23,190
======== =========
The accompanying notes are an integral part of these statements.
</TABLE>
F-6
<PAGE>
SOUTH BROOKLYN NEPHROLOGY CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies
- ---------------------------------------------------
The Company
- -----------
South Brooklyn Nephrology Center, Inc. (the "Company") provides end stage renal
disease dialysis services. The Company was incorporated in 1981.
Subchapter S
- ------------
The Company has elected for federal and state purposes to have its taxable
net income or loss reported by its stockholders. Therefore, the provision and
liability for income taxes is for the New York City general corporation tax and
the New York State surcharge tax on Subchapter S corporations.
Net patient service revenue
- ---------------------------
Patient service revenue is reported at the estimated net realizable amounts from
patients, third-party payers, and others for services rendered.
Current and prior years' payments under third-party payer agreements are subject
to audit and retroactive adjustment based on industry wide and Company specific
data. Provisions for estimated third-party payer rate adjustments are provided
in the period the related services are rendered. Differences between the
estimated amounts accrued and interim and final settlements are reported in
operations in the year of settlement.
Reclassifications
- -----------------
Certain accounts in the prior year-financial statements have been reclassified
for comparative purposes to conform with the presentation in the current year
financial statements.
Cash equivalents
- ----------------
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Medical and pharmacy supplies
- -----------------------------
Medical and pharmacy supplies are stated at the lower of cost (generally
determined on a first-in, first-out basis) or market.
Depreciation
- ------------
The cost of property, plant, and equipment is depreciated over the estimated
useful lives of the related assets pursuant to declining balance and
straight-line methods for financial reporting purposes.
F-7
<PAGE>
SOUTH BROOKLYN NEPHROLOGY CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Summary of significant accounting policies (continued)
- ----------------------------------------------------------------
Depreciation (continued)
- ------------------------
Expenditures for maintenance and repairs are charged to expense and renewals and
betterments are capitalized. Upon sale or retirement the cost of the asset and
the related accumulated depreciation are removed from the accounts, and the
remaining gain or loss is included in the results of operations.
Use of estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements, and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimated.
Unaudited financial statements
- ------------------------------
The information presented as of September 30, 1997, and for the nine months
ended September 30, 1997 and 1996, has not been audited. In the opinion of
management, the unaudited balance sheet and the unaudited statements of income
and cash flows include all adjustments, consisting solely of normal recurring
adjustments, necessary to present fairly the Company's balance sheet as of
September 30, 1997, and the Company's results of operations and cash flows for
the nine months ended September 30, 1997 and 1996. The interim results of
operations are not necessarily indicative of results which may occur for the
full year.
Note 2 - Concentrations of credit risk
- --------------------------------------
The Company has significant concentrations of receivables for patient care from
government related programs and Empire Blue Cross/Blue Shield.
Note 3 - Property, plant & equipment
- ------------------------------------
Following is a summary of property, plant, and equipment - at cost, less
accumulated depreciation and amortization:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Leasehold improvements $ 268,542 $ 261,584
Equipment 1,292,829 1,245,945
Furniture and fixtures 105,945 103,296
---------- ----------
1,667,316 1,610,825
Less: accumulated depreciation
and amortization (1,197,494) (963,873)
---------- ----------
$ 469,822 $ 646,952
========== ==========
</TABLE>
The property, plant, and equipment has been pledged as collateral to guarantee a
loan to the Company's stockholders (see Note 4).
F-8
<PAGE>
SOUTH BROOKLYN NEPHROLOGY CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
Note 4 - Loans payable to stockholders
- --------------------------------------
The Company pledged its property, plant and equipment as collateral for
guarantees on a revolving operating loan made by IBJ Schroder Bank & Trust
Company to the stockholders of the Company. The proceeds of the operating loan
were advanced by the stockholders to the Company for its capital investment and
working capital needs. The operating loan was repaid in 1996.
Following is a summary of the loans payable to stockholders:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revolving operating loan payable to stockholders
on demand with interest payable monthly at the
rate of prime plus 1.5% secured by property,
plant & equipment (see Note 3) $ - $ 10,000
Short-term loan payable to stockholders 100,500 100,500
--------- ---------
$ 100,500 $ 110,500
========= =========
</TABLE>
Note 5 - Income taxes
- ---------------------
Deferred taxes are computed based on the tax liability or benefit in future
years of the reversal of temporary differences in the recognition of income or
deduction of expenses between financial and tax reporting purposes. The
principal causes of the differences result from using the allowance method of
accounting for doubtful accounts for financial statement purposes and the direct
write-off method for income tax purposes and from the use of different
depreciation methods for financial reporting and for income tax purposes.
The components of income tax expense are:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current $ 13,625 $ 22,425
Deferred (5,086) 14,140
--------- ---------
$ 8,539 $ 36,565
========= =========
</TABLE>
F-9
<PAGE>
SOUTH BROOKLYN NEPHROLOGY CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6-Commitments:
- -------------------
The Company rents its operating facility under the terms of a lease expiring
June 30, 2001. Minimum future payments under the remaining lease terms as of
December 31, 1996 are:
1997 $ 221,246
1998 233,520
1999 242,861
2000 252,575
2001 132,186
-----------
$ 1,082,388
===========
In addition, the lease requires the Company to pay as additional rent a portion
of real estate tax escalation over the base year amount, which was
approximately $37,000 in 1996 and $39,000 in 1995.
The amount charged to operations for rent expense was $154,700 in 1996 and
$179,000 in 1995.
Note 7 - Subsequent events
- --------------------------
In 1997 the Company obtained a two year $250,000 revolving line of credit from
First Union National Bank. The revolving line of credit bears interest at a
variable rate equal to the bank's prime rate, is secured by a blanket lien on
all assets of the Company, and is personally guaranteed by the Company's
stockholders.
F-10
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Combined Balance Sheet of Total Renal Care
Holdings, Inc. as of September 30, 1997 gives effect to the acquisition by the
Company of the following businesses as if such businesses were acquired on
September 30, 1997: Dialysis Care of North Carolina, which was acquired on
November 1, 1997 (the "North Carolina Facilities"); the Renal Dialysis Business
of The Rogosin Institute Inc., which was acquired on December 2, 1997 (the
"Rogosin Facilities"); South Brooklyn Nephrology Center, Inc., which is expected
to be acquired during the first quarter of 1998 (the "South Brooklyn
Facilities"); and certain other individually insignificant acquisitions
consummated during the period from October 1, 1997 through January 22, 1998, and
individually insignificant acquisitions which were probable as of January 22,
1998.
The Unaudited Pro Forma Combined Statement of Income for the nine months
ended September 30, 1997 gives effect to the acquisition by the Company of the
following businesses as if such businesses were acquired on January 1, 1997: New
West Dialysis Clinics, Inc., which was acquired on April 1, 1997 (the "New West
Facilities"); Michigan Kidney Centers, which was acquired on May 1, 1997 (the
"Michigan Facilities"); the North Carolina Facilities; the Rogosin Facilities;
the South Brooklyn Facilities; and other individually insignificant acquisitions
consummated during the period January 1, 1997 through January 22, 1998, and
individually insignificant acquisitions which were probable as of January 22,
1998.
The Unaudited Pro Forma Combined Statement of Income for the nine months
ended September 30, 1996 gives effect to the acquisition by the Company of the
following businesses as if such businesses were acquired on January 1, 1996: the
Nephrology Services Business of Caremark International Inc., which was acquired
on March 15, 1996 (the "Caremark Facilities"); Upstate Dialysis, Inc., which was
acquired on March 15, 1996, and Greer Kidney Center, Inc., which was acquired on
November 1, 1996 (the "South Carolina Facilities"); the New West Facilities; the
Michigan Facilities; the North Carolina Facilities; the Rogosin Facilities; the
South Brooklyn Facilities; and other individually insignificant acquisitions
consummated during the period January 1, 1997 through January 22, 1998, and
individually insignificant acquisitions which were probable as of January 22,
1998. The Unaudited Pro Forma Combined Statement of Income for the nine months
ended September 30, 1996 also gives effect to the retirement of all outstanding
Senior Subordinated Discount Notes in July and September 1996 (the "Debt
Retirement") as if it occurred on January 1, 1996.
The Unaudited Pro Forma Combined Statement of Income for the year ended
December 31, 1996 gives effect to the acquisition by the Company of the
following businesses as if such businesses were acquired on January 1, 1996: the
Caremark Facilities; the South Carolina Facilities; the New West Facilities; the
Michigan Facilities; the North Carolina Facilities; the Rogosin Facilities; the
South Brooklyn Facilities; and other individually insignificant acquisitions
consummated during the period January 1, 1997 through January 22, 1998, and
individually insignificant acquisitions which were probable as of January 22,
1998. The Unaudited Pro Forma Combined Statement of Income for the year ended
December 31, 1996 also gives effect to the Debt Retirement as if it occurred on
January 1, 1996.
The Unaudited Pro Forma Combined Financial Statements are presented for
informational purposes only and do not purport to represent what the Company's
financial position as of September 30, 1997 or the Company's results of
operations for the nine month periods ended September 30, 1997 and 1996 or for
the year ended December 31, 1996 would actually have been had the applicable
acquisitions and Debt Retirement, in fact, occurred on September 30, 1997,
January 1, 1997 or January 1, 1996, respectively, or what the Company's
financial position or results of operations will be for any future period. The
Unaudited Pro Forma Information should be read in conjunction with the
consolidated financial statements and related notes thereto included elsewhere
in this Prospectus and the information set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company"
included in the Total Renal Care Holdings, Inc. Form 10-K for the year ended
December 31, 1996.
F-11
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
Unaudited Pro Forma Combined Balance Sheet
September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
The North South Other
Company Carolina Rogosin Brooklyn Insignificant
(Historical) Facilities Facilities Facilities Acquisitions
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 15,455 $ 72 $ 4 $ 77 $ 222
Accounts receivable, net 131,744 2,636 5,519 1,444 1,784
Other current assets 24,778 488 219 230 4
-------- ------- ------- ------- -------
Total current assets 171,977 3,196 5,742 1,751 2,010
Property & equipment, net 84,846 4,876 2,911 349 3,731
Intangible assets, net 286,210 - - - -
Other assets 11,784 626 - 5 -
-------- ------- ------- ------- -------
$554,817 $ 8,698 $ 8,653 $ 2,105 $ 5,741
======== ======= ======= ======= =======
Current liabilities $ 28,784 $ 3,970 $ 2,190 1,250 915
Long-term debt 253,880 304 - - 2,598
-
Other long-term liabilities 2,856 1,483 814 - 100
Minority interest 7,640 - - - -
Common stock 44 - - 40 120
Additional paid-in capital 260,157 - - - 1,510
Notes receivable from
stockholders (2,975) - - - -
Retained earnings 4,431 2,941 5,649 815 498
-------- ------- ------- ------- -------
$554,817 $ 8,698 $ 8,653 $ 2,105 $ 5,741
======== ======= ======= ======= =======
<CAPTION>
Pro Forma
Adjustments Combined
<S> <C> <C>
Cash and cash equivalents $ (375) (b) $ 15,455
Accounts receivable, net (9,752) (b) 133,375
Other current assets (941) (b) 24,778
-------- --------
Total current assets (11,068) 173,608
Property & equipment, net (1,680) (b) 95,033
Intangible assets, net 108,327 (a) 394,537
Other assets (631) (b) 11,784
-------- --------
$ 94,948 $674,962
======== ========
Current liabilities (8,110) (b) $ 28,999
Long-term debt (2,902) (b) 371,164
117,284 (a)
Other long-term liabilities (2,397) (b) 2,856
Minority interest 2,646 (c) 10,286
Common stock (160) (d) 44
Additional paid-in capital (1,510) (d) 260,157
Notes receivable from
stockholders - (2,975)
Retained earnings (9,903) (d) 4,431
-------- --------
$ 94,948 $674,962
======== ========
</TABLE>
F-12
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
1. BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Balance Sheet of Total Renal Care Holdings,
Inc. as of September 30, 1997 gives effect to the acquisition of the North
Carolina Facilities, the Rogosin Facilities, the South Brooklyn Facilities and
other Insignificant Acquisitions, in each case as if such acquisitions were
consummated on September 30, 1997. The pro forma adjustments are based on
consideration exchanged, including the estimated fair value of assets acquired
and liabilities assumed. The actual adjustments, which will be based on
valuations of fair value as of the date of acquisition, may differ from those
made herein. The Company does not believe the effect of any adjustments would
be material.
2. PRO FORMA ADJUSTMENTS
a) To record the acquisition of the North Carolina Facilities, the Rogosin
Facilities, the South Brooklyn Facilities and the other Insignificant
Acquisitions as follows (in thousands):
<TABLE>
<CAPTION>
NORTH SOUTH OTHER
CAROLINA ROGOSIN BROOKLYN INSIGNIFICANT
FACILITIES FACILITIES FACILITIES ACQUISITIONS TOTAL
<S> <C> <C> <C> <C> <C>
Purchase Price $49,300 $18,290 $10,500 $39,194 $117,284
Net book value of assets acquired 3,000 1,912 949 3,096 8,957
------- ------- ------- ------- --------
Purchase price allocated to intangible assets $46,300 $16,378 $ 9,551 $36,098 $108,327
======= ======= ======= ======= ========
</TABLE>
The purchase prices of the North Carolina Facilities, the Rogosin Facilities,
the South Brooklyn Facilities and the other Insignificant Acquisitions were
assumed to be borrowed under the Senior Credit Facility (or will be borrowed, in
the case of those acquisitions which are considered probable at January 22,
1998.)
b) To reflect assets and liabilities not acquired by the Company.
c) The Company purchased a less than 100% interest in two partnerships which are
consolidated for financial reporting purposes. This entry is to record the
minority interest in such partnerships.
d) To eliminate the equity of the acquired businesses.
F-13
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
Unaudited Pro Forma Combined Statement of Income
Nine months ended September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
New West Michigan North Carolina
The Company Facilities Facilities Facilities
Nine months ended Three months ended Four months ended Nine months ended
September 30, 1997 March 31, 1997 April 30, 1997 September 30, 1997
(Historical) (Historical) (Historical) (Historical)
<S> <C> <C> <C> <C>
Net operating revenues $307,450 $5,990 $4,800 $16,485
Operating expenses 251,703 5,730 4,125 15,454
-------- ------ ------ -------
Operating income 55,747 260 675 1,031
Interest expense, net 7,738 16 68 160
-------- ------ ------ -------
Income before income taxes,
minority interests and extraordinary item 48,009 244 607 871
Income taxes 18,255 4 21 -
-------- ------ ------ -------
Income before minority interest and
extraordinary item 29,754 240 586 871
Minority interest in income of
consolidated subsidiaries 3,193 - - -
-------- ------ ------ -------
Income before extraordinary item $ 26,561 $ 240 $ 586 $ 871
======== ====== ====== =======
Income per share before extraordinary item $ 0.59
========
Weighted average number of common shares and
equivalents outstanding 45,146
========
<CAPTION>
Rogosin Facilities South Brooklyn Facilities
Nine months ended Nine months ended
September 30, 1997 September 30, 1997
(Historical) (Historical)
<S> <C> <C>
Net operating revenues $13,254 $5,703
Operating expenses 13,351 5,265
------ ------
Operating income (97) 438
Interest expense, net - -
------ ------
Income before income taxes,
minority interests and extraordinary item (97) 438
Income taxes - 55
------ ------
Income before minority interest and
extraordinary item (97) 383
Minority interest in income of
consolidated subsidiaries - -
------ ------
Income before extraordinary item $ (97) $ 383
====== ======
Income per share before extraordinary item
Weighted average number of common shares and
equivalents outstanding
<CAPTION>
Other
Insignificant
Acquisitions Pro Forma
(Historical) Adjustments Combined
<S> <C> <C> <C>
Net operating revenues $28,653 $ (1,534) (b) $380,801
Operating expenses 25,445 4,657 (c) 325,730
------ -------- --------
Operating income 3,208 (6,191) 55,071
Interest expense, net 10 (593) (d) 18,098
10,699 (e)
------ -------- --------
Income before income taxes,
minority interests and extraordinary item 3,198 (16,297) 36,973
Income taxes 512 (5,092) (f) 13,755
------ -------- --------
Income before minority interest and
extraordinary item 2,686 (11,205) 23,218
Minority interest in income of
consolidated subsidiaries - (17) (g) 3,176
------ -------- --------
Income before extraordinary item $2,686 $(11,188) $ 20,042
====== ======== ========
Income per share before extraordinary item
$ 0.44
========
Weighted average number of common shares and
equivalents outstanding 45,146
========
</TABLE>
F-14
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
Unaudited Pro Forma Combined Statement of Income
Nine months ended September 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Caremark South Carolina New West
The Company Facilities Facilities Facilities
Nine months ended Two months ended Two months ended Nine months ended
September 30, 1996 Debt February 28, 1996 February 28, 1996 September 30, 1996
(Historical) Retirement (a) (Historical) (Historical) (Historical)
<S> <C> <C> <C> <C> <C>
Net operating revenues $188,153 $ -- $7,805 $1,133 $17,162
Operating expenses 153,920 -- 8,250 1,055 15,501
-------- ------ ------ ------ -------
Operating income 34,233 -- (445) 78 1,661
Interest expense, net 3,862 (804) 127 (1) 37
-------- ------ ------ ------ -------
Income before income taxes,
minority interests and
extraordinary item 30,371 804 (572) 79 1,624
Income taxes 11,537 -- (232) -- 26
-------- ------ ------ ------ -------
Income before minority interest
and extraordinary item 18,834 804 (340) 79 1,598
Minority interest in income of
consolidated subsidiaries 2,296 -- -- -- --
-------- ------ ------ ------ -------
Income before extraordinary item $ 16,538 $ 804 $ (340) $ 79 $ 1,598
======== ====== ====== ====== =======
Income per share before
extraordinary item $ 0.39
========
Weighted average number of common
shares and equivalents outstanding 42,348
========
</TABLE>
<TABLE>
<CAPTION>
Michigan North Carolina Rogosin South Brooklyn
Facilities Facilities Facilities Facilities
Nine months ended Nine months ended Nine months endedended Nine months ended
September 30, 1996 September 30, 1996 September 30, 1996, 1996 September 30, 1996
(Historical) (Historical) (Historical) ) (Historical)
<S> <C> <C> <C> <C>
Net operating revenues $10,298 $15,020 $12,493 $4,899
Operating expenses 9,108 13,090 11,277 4,864
------- ------- ------- --------
Operating income 1,190 1,930 1,216 35
Interest expense, net 18 216 -- --
------- ------- ------- --------
Income before income taxes,
minority interests and
extraordinary item 1,172 1,714 1,216 35
Income taxes 35 -- -- 8
------- ------- ------- --------
Income before minority interest
and extraordinary item 1,137 1,714 1,216 27
Minority interest in income of
consolidated subsidiaries -- -- -- --
------- ------- ------- --------
Income before extraordinary item $ 1,137 $ 1,714 $ 1,216 $ 27
======= ======= ======= ========
Income per share before
extraordinary item
Weighted average number of common
shares and equivalents outstanding
<CAPTION>
Other
Insignificant
Acquisitions Pro Forma
(Historical) Adjustments Combined
<S> <C> <C> <C>
Net operating revenues $39,527 $ (67) (b) $296,423
Operating expenses 36,587 6,912 (c) 260,564
------- -------- --------
Operating income 2,940 (6,979) 35,859
Interest expense, net 62 (606) (d) 17,284
-- 14,373 (e) --
------- -------- --------
Income before income taxes,
minority interests and
extraordinary item 2,878 (20,746) 18,575
Income taxes 370 (5,052) (f) 6,692
------- -------- --------
Income before minority interest
and extraordinary item 2,508 (15,694) 11,883
Minority interest in income of
consolidated subsidiaries -- (2) (g) 2,294
------- -------- --------
Income before extraordinary item $ 2,508 $(15,692) $ 9,589
======= ======== ========
Income per share before
extraordinary item $ 0.22
========
Weighted average number of common
shares and equivalents outstanding 800 (h) 43,148
======== ========
</TABLE>
F-15
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
Unaudited Pro Forma Combined Statement of Income
Year ended December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Caremark South Carolina
Facilities Facilities
The Company Two months ended Two months ended
December 31, 1996 Debt February 28, 1996 February 28, 1996
(Historical) Retirement(a) (Historical) (Historical)
<S> <C> <C> <C> <C>
Net operating revenues $272,947 $ - $7,805 $1,133
Operating expenses 224,118 - 8,250 1,055
-------- ----- ------ ------
Operating income 48,829 - (445) 78
Interest expense, net 5,175 (804) 127 (1)
-------- ----- ------ ------
Income before income taxes,
minority interests and extraordinary item 43,654 804 (572) 79
Income taxes 16,351 - (232) -
-------- ----- ------ ------
Income before minority interest and
extraordinary item 27,303 804 (340) 79
Minority interest in income of
consolidated subsidiaries 3,578 - - -
-------- ----- ------ ------
Income before extraordinary item $ 23,725 $ 804 $ (340) $ 79
======== ===== ====== ======
Income per share before extraordinary item $ .55
========
Weighted average number of common shares and
equivalents outstanding 42,988
========
<CAPTION>
New West Michigan North Carolina
Facilities Facilities Facilities
December 31, 1996 December 31, 1996 December 31, 1996
(Historical) (Historical) (Historical)
<S> <C> <C> <C>
Net operating revenues $22,883 $13,730 $17,301
Operating expenses 20,668 12,144 16,179
------- ------- -------
Operating income 2,215 1,586 1,122
Interest expense, net 48 24 215
------- ------- -------
Income before income taxes,
minority interests and extraordinary item 2,167 1,562 907
Income taxes 34 47 -
------- ------- -------
Income before minority interest and
extraordinary item 2,133 1,515 907
Minority interest in income of
consolidated subsidiaries - - -
------- ------- -------
Income before extraordinary item $ 2,133 $ 1,515 $ 907
======= ======= =======
Income per share before extraordinary item
Weighted average number of common shares and
equivalents outstanding
<CAPTION>
Rogosin South Brooklyn Other
Facilities Facilities Insignificant
December 31, 1996 December 31, 1997 Acquisitions
(Historical) (Historical) (Historical)
<S> <C> <C> <C>
Net operating revenues $16,816 $ 6,932 $ 52,702
Operating expenses 15,476 6,972 48,782
------- -------- --------
Operating income 1,340 (40) 3,920
Interest expense, net - - 82
------- -------- --------
Income before income taxes,
minority interests and extraordinary item 1,340 (40) 3,838
Income taxes - 8 493
------- -------- --------
Income before minority interest and
extraordinary item 1,340 (48) 3,345
Minority interest in income of
consolidated subsidiaries - - -
------- -------- --------
Income before extraordinary item $ 1,340 $ (48) $ 3,345
====== ======== ========
<CAPTION>
Pro Forma
Adjustments Combined
<S> <C> <C>
Net operating revenues $ (66) (b) $412,183
Operating expenses 9,047 (c) 362,691
-------- --------
Operating income (9,113) 49,492
Interest expense, net (764) (d) 23,266
19,164 (e)
-------- --------
Income before income taxes,
minority interests and extraordinary item (27,513) 26,226
Income taxes (7,458) (f) 9,243
-------- --------
Income before minority interest and
extraordinary item (20,055) 16,983
Minority interest in income of
consolidated subsidiaries (9) (g) 3,569
-------- --------
Income before extraordinary item $(20,046) $ 13,414
======== ========
Income per share before extraordinary item $ 0.31
========
Weighted average number of common shares and
equivalents outstanding 800 (h) 43,788
======== ========
</TABLE>
F-16
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
1. BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Statement of Income for the nine months ended
September 30, 1997 gives effect to the acquisition by the Company of the New
West Facilities, the Michigan Facilities, the North Carolina Facilities, the
Rogosin Facilities, the South Brooklyn Facilities and other individually
insignificant acquisitions consummated during the period January 1, 1997
through January 22, 1998, and individually insignificant acquisitions which
were probable as of January 22, 1998, in each case as if such acquisitions
were consummated on January 1, 1997.
The Unaudited Pro Forma Combined Statement of Income for the nine months ended
September 30, 1996 gives effect to the acquisition by the Company of the
Caremark Facilities, the South Carolina Facilities, the New West Facilities,
the Michigan Facilities, the North Carolina Facilities, the Rogosin
Facilities, the South Brooklyn Facilities and other individually insignificant
acquisitions consummated during the period January 1, 1997 through January 22,
1998, and individually insignificant acquisitions which were probable as of
January 22, 1998, in each case as if such acquisitions were consummated on
January 1, 1996. The Unaudited Pro Forma Combined Statement of Income for the
nine months ended September 30, 1996 also gives effect to the Debt Retirement
as if such transaction occurred on January 1, 1996.
The Unaudited Pro Forma Combined Statement of Income for the year ended
December 31, 1996 gives effect to the acquisition by the Company of the
Caremark Facilities, the South Carolina Facilities, the New West Facilities,
the Michigan Facilities, the North Carolina Facilities, the Rogosin
Facilities, the South Brooklyn Facilities and other individually insignificant
acquisitions consummated during the period January 1, 1997 through January 22,
1998, and individually insignificant acquisitions which were probable as of
January 22, 1998, in each case as if such acquisitions were consummated on
January 1, 1996. The Unaudited Pro Forma Combined Statement of Income for the
year ended December 31, 1996 also gives effect to the Debt Retirement as if
such transaction occurred on January 1, 1996.
The pro forma adjustments are based on consideration exchanged, including the
estimated fair value of assets acquired and liabilities assumed. The actual
adjustments, which will be based on valuations of fair value as of the date of
acquisition, may differ from those made herein. The Company does not believe
the effect of any adjustments would be material.
Net income per common share data and weighted average number of common shares
and equivalents outstanding for the nine month periods ended September 30,
1997 and 1996 and for the year ended December 31, 1996 have been retroactively
restated to reflect the five-for-three stock split which occurred in October
1997.
2. PRO FORMA ADJUSTMENTS
(a) To reflect the Debt Retirement as if it occurred on January 1, 1996 by
recording the pro forma effect of the reduction in interest expense. The
Company retired the remaining 12% senior subordinated discount notes for
$68,499,000 including consent payments of $1,100,000. These repurchases
resulted in an extraordinary loss of $7.7 million.
(b) To eliminate management fees earned by the combined entities.
(c) To amortize goodwill, non-compete agreements and patient charts resulting
from the acquisitions on a straight-line basis over 25 to 40, 10 and 7
years, respectively.
(d) To eliminate interest expense on borrowings not assumed by the Company.
(e) To record interest expense resulting from acquisitions funded by borrowings
from the senior credit facility with an assumed interest rate of 8% and
assuming that all acquisitions during the period were funded by borrowings
as discussed in Note a) in the Notes to Unaudited Proforma Combined Balance
Sheet.
F-17
<PAGE>
(f) To record income tax effects related to the pro forma adjustments.
(g) To record the minority interest in income from two partnerships acquired
(see note (c) to the Unaudited Pro Forma Combined Balance Sheet).
(h) Income per share and weighted average number of common shares and
equivalents outstanding assume that shares issued in the April 3, 1996
Secondary Offering (the "Secondary Offering"), to the extent that cash
generated from such shares, were used to purchase facilities and were
outstanding from January 1, 1996 to the date of the Secondary Offering as
follows:
Caremark Facilities 1,560,000
South Carolina Facilities 359,000
Share amounts were derived by taking the total purchase price of each
significant acquisition divided by the proceeds per share from the
Secondary Offering of $31.42 per share. As these acquisitions took place in
March 1996, these shares were factored into the weighted average number of
common shares and equivalents outstanding for an additional three months.
F-18
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
Number Description of Exhibit Page
Number
<S> <C>
23.1 Consent of Maier Markey & Menashi LLP.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-84610, No. 33-83018, No. 33-99862, No. 33-99864,
333-01620, No. 333-34693 and No. 333-34695) of Total Renal Care Holdings, Inc.
of our report dated March 14, 1997 relating to the financial statements of South
Brooklyn Nephrology Center, Inc. included in this Current Report on Form 8-K.
Maier Markey & Menashi LLP
January 22, 1998
Larchmont, New York
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