<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended MARCH 31, 2000
Commission File Number: 1-4034
TOTAL RENAL CARE HOLDINGS, INC.
21250 Hawthorne Blvd., Suite 800
Torrance, California 90503-5517
Telephone # (310) 792-2600
<TABLE>
<S> <C>
Delaware 51-0354549
(State of incorporation) (I.R.S. Employer
Identification No.)
</TABLE>
The Registrant 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
and has been subject to such filing requirements for the past 90 days.
As of May 1, 2000, there were 81,455,148 shares of common stock (par value
$0.001) issued and outstanding.
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<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Condensed Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 and December
31, 1999....................................................... 1
Consolidated Statements of Income and Comprehensive Income for
the three months ended March 31, 2000 and March 31, 1999....... 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and March 31, 1999.............................. 3
Notes to Condensed Consolidated Financial Statements............ 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 11
Risk Factors............................................................. 11
</TABLE>
PART II. OTHER INFORMATION
<TABLE>
<C> <S> <C>
Item 1. Legal Proceedings................................................. 17
Item 6. Exhibits and Reports on Form 8-K.................................. 17
Signatures................................................................. 18
</TABLE>
- --------
Note: Items 2, 3, 4 and 5 of Part II are omitted because they are not
applicable.
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents............................. $ 150,377 $ 107,981
Accounts receivable, less allowance of $70,489 and
$67,315.............................................. 366,100 390,329
Inventories........................................... 24,665 32,916
Other current assets.................................. 36,734 32,082
Income tax receivable................................. 19,667 45,645
Deferred income taxes................................. 46,958 45,795
---------- ----------
Total current assets.............................. 644,501 654,748
Property and equipment, net........................... 284,693 285,449
Intangible assets, net................................ 1,045,457 1,069,672
Investments in third-party dialysis businesses........ 37,350 35,552
Deferred taxes........................................ 5,234 6,553
Other long-term assets................................ 2,751 4,744
---------- ----------
$2,019,986 $2,056,718
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable...................................... $ 99,445 $ 121,561
Accrued compensation and benefits..................... 47,386 47,647
Other liabilities..................................... 75,140 77,141
Current portion of long-term debt..................... 23,904 26,585
Long-term debt potentially callable under covenant
provisions........................................... 1,413,737 1,425,610
---------- ----------
Total current liabilities......................... 1,659,612 1,698,544
Long-term debt, less $1,413,737 and $1,425,610
potentially callable classified as current........... 5,027 5,696
Other long-term liabilities........................... 3,289 3,497
Minority interests.................................... 20,852 22,577
Shareholders' equity
Preferred stock ($0.001 par value; 5,000,000 shares
authorized; none issued or outstanding)............
Common stock ($0.001 par value, 195,000,000 shares
authorized; 81,398,088 and 81,193,011 shares issued
and outstanding)................................... 81 81
Additional paid-in capital.......................... 426,944 426,025
Notes receivable from shareholders.................. (156) (192)
Accumulated other comprehensive loss................ (4,718) (4,718)
Accumulated deficit................................. (90,945) (94,792)
---------- ----------
Total shareholders' equity........................ 331,206 326,404
---------- ----------
$2,019,986 $2,056,718
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months
ended March 31
------------------
2000 1999
-------- --------
<S> <C> <C>
Net operating revenues...... $372,113 $352,244
Operating expenses
Dialysis and lab
facilities............... 259,298 229,640
General and
administrative........... 31,921 23,608
Depreciation and
amortization............. 27,718 26,390
Provision for
uncollectible accounts... 12,859 10,478
-------- --------
Total operating
expenses............... 331,796 290,116
-------- --------
Operating income............ 40,317 62,128
Other income................ 1,395 1,330
Debt expense................ 33,165 23,303
Minority interests in income
of consolidated
subsidiaries............... (998) (2,318)
-------- --------
Income before income taxes.. 7,549 37,837
Income tax expense.......... 3,702 14,630
-------- --------
Net income.................. $ 3,847 $ 23,207
======== ========
Earnings per share.......... $ .05 $ 0.29
======== ========
Earnings per share--assuming
dilution................... $ .05 $ 0.28
======== ========
STATEMENTS OF COMPREHENSIVE
INCOME
Net income.................. $ 3,847 $ 23,207
Foreign currency
translation.............. (336)
-------- --------
Comprehensive income........ $ 3,847 $ 22,871
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
-------------------
2000 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income............................................... $ 3,847 $ 23,207
Non-cash items included in net income:
Depreciation and amortization........................... 27,718 26,390
Deferred income taxes................................... 156 4,720
Stock option expense and tax benefits................... 88 (436)
Equity investment losses................................ 396
Minority interests in income of consolidated
subsidiaries........................................... 998 2,318
-------- ---------
33,203 56,199
Gain on sale of facility assets.......................... (2,107)
Changes in operating assets and liabilities, net of
acquisitions / divestitures:
Accounts receivable..................................... 24,031 (24,988)
Inventories............................................. 7,517 (3,790)
Other current assets.................................... (4,541) (1,216)
Other long-term assets.................................. 1,993 (2,615)
Accounts payable........................................ (22,116) 27,143
Accrued compensation and benefits....................... (261) 2,228
Other liabilities....................................... (2,001) (20,499)
Income taxes............................................ 25,978 8,929
Other long-term liabilities............................. (208) 1,008
-------- ---------
Net cash provided by operating activities............. 61,488 42,399
-------- ---------
Cash flows from investing activities
Additions of property and equipment, net................. (16,677) (38,638)
Acquisitions and divestitures, net....................... 15,643 (76,881)
Investments in affiliates, net........................... (2,194) (21,948)
-------- ---------
Net cash used in investing activities................. (3,228) (137,467)
-------- ---------
Cash flows from financing activities
Proceeds from bank credit facilities..................... 122,700
Payments on bank credit facilities, net of foreign
currency translation.................................... (15,223) (38,200)
Proceeds from other long-term borrowings................. 9,163
Net proceeds from issuance of common stock............... 867 1,992
Distributions to minority interests...................... (1,508) (1,833)
-------- ---------
Net cash provided (used) by financing activities...... (15,864) 93,822
Effect of exchange rate changes on cash................... (336)
-------- ---------
Net increase (decrease) in cash........................... 42,396 (1,582)
Cash and cash equivalents at beginning of period.......... 107,981 41,487
-------- ---------
Cash and cash equivalents at end of period................ $150,377 $ 39,905
======== =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Unless otherwise indicated in this Form 10-Q "we," "us," "our" and similar
terms refer to Total Renal Care Holdings, Inc. and its subsidiaries.
1. Condensed consolidated interim financial statements
The consolidated interim financial statements included in this report have
been prepared by the Company without audit. In the opinion of management, all
adjustments necessary for a fair presentation are reflected in the interim
financial statements. These adjustments are of a normal and recurring nature.
The results of operations for the period ended March 31, 2000 are not
necessarily indicative of the operating results for the full year. The interim
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
1999 Form 10-K. Certain reclassifications have been made to prior periods to
conform with current reporting.
2. Earnings per share
The reconciliation of the numerators and denominators used to calculate
earnings per share for all periods presented is as follows:
<TABLE>
<CAPTION>
Three months
ended March 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net income............................................... $ 3,847 $23,207
Interest, net of tax resulting from dilutive effect of
convertible debt........................................ 1,088
-------- --------
Income assuming dilution................................. $ 3,847 $24,295
======== ========
Applicable common shares:
Weighted average outstanding during the period........... 81,352 81,123
Reduction in shares in connection with notes receivable
from employees.......................................... (37) (21)
-------- --------
Weighted average number of shares outstanding for
earnings per share...................................... 81,315 81,102
Incremental shares from stock option plans............... 429 477
Incremental shares from convertible debt................. 4,879
-------- --------
Weighted average number of outstanding shares and
incremental shares assumed to be outstanding for
earnings per share--assuming dilution................... 81,744 86,458
======== ========
Earnings per share....................................... $ 0.05 $ 0.29
======== ========
Earnings per share--assuming dilution.................... $ 0.05 $ 0.28
======== ========
</TABLE>
Stock options with exercise prices greater than the average market price of
shares outstanding during the period were not included in the computation of
earnings per share assuming dilution. The stock options not included in the
computation totaled 10,428,517 and 8,119,446 shares at exercise prices ranging
from $4.23 to $36.13 per share and $17.26 to $36.13 per share for the three
months ended March 31, 2000 and 1999, respectively. Additionally, assumed
conversions of the 7% convertible subordinated notes and the 5 5/8%
convertible subordinated notes were anti-dilutive and therefore not included
in the computation of earnings per share assuming dilution for the three
months ended March 31, 2000. The 7% convertible subordinated notes were also
anti-dilutive for the three months ended March 31, 1999.
4
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
3. Debt Covenants
As of December 31, 1999 and March 31, 2000, the Company was not in
compliance with certain formula-based covenants in its credit facilities. If
the lenders do not waive this failure to comply, a majority of the lenders
could declare an event of default, which would allow the lenders to accelerate
payment of all amounts due under the credit facilities. Additionally, this
noncompliance results in higher interest costs, and the lenders may require
additional concessions from the Company before giving a waiver. In the event
of default under the credit facilities, the holders of the convertible
subordinated notes could also declare the Company to be in default. The
Company is highly leveraged and would be unable to pay the accelerated amounts
that would become immediately payable if default were declared. As a result of
this non-compliance, all debt outstanding under the credit facility and the
convertible subordinated notes as of December 31, 1999 and March 31, 2000 that
is potentially due within one year has been reclassified from long-term debt
to a current classification. Under these conditions, the Company is currently
unable to draw additional amounts under the credit facilities.
The Company is currently in discussions with the lenders regarding
obtaining a waiver of these violations or restructuring the credit facilities.
Actions the Company has taken and is taking to ensure its ongoing ability to
cover scheduled debt service include divestiture of operations outside the
continental U.S., curtailment of new facility acquisitions and developments,
improvements in billing and cash collections processes, increased management
controls over expenditures, and evaluations of alternative capital sources, as
well as pursuing debt restructuring with the current lenders. Prior to March
2000, the Company focused its attention primarily on those actions that would
improve operating performance and cash flows, as well as filling key senior
management positions. Given the progress made in these areas, the Company has
now entered into more active discussions with its lenders for an acceptable
restructuring arrangement. Management believes it is unlikely that an event of
default will be declared because of the Company's substantial cash balance and
because cash flows are expected to be sufficient to cover operating
requirements and scheduled debt service through 2001.
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
Credit facilities................................ $ 947,737 $ 959,610
Convertible subordinated notes, 7%, due 2009..... 345,000 345,000
Convertible subordinated notes, 5 5/8%, due
2006............................................ 125,000 125,000
Acquisition obligations and other notes payable.. 18,829 21,482
Capital lease obligations........................ 6,102 6,799
----------- -----------
1,442,668 1,457,891
Less current portion and long-term debt
potentially callable under covenant provisions.. (1,437,641) (1,452,195)
----------- -----------
$ 5,027 $ 5,696
=========== ===========
</TABLE>
4. Valuation estimates
During the fourth quarter of 1999, the Company announced its intention to
sell its dialysis operations outside the continental United States and
recorded an impairment loss of $83,000 associated with the non-continental
U.S. operations. Definitive agreements to sell substantially all of the
Company's principal operations outside the continental U.S. were signed in
January 2000, and more than 80% of the sales, in terms of proceeds and asset
values, are currently expected to close by the third quarter of 2000. The
sales are subject to required bank and regulatory approvals. Impairment and
valuation losses were also recorded in the fourth quarter of 1999 for planned
closures of facilities in the continental U.S. and for investments in third-
party dialysis businesses.
5
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
Our assessment of and estimates for impairment and valuation losses
recorded as of December 31, 1999 remain unchanged at this time. The 1999
impairment loss of $83,000 recorded for our planned disposition of our
operations outside the continental U.S. and valuation losses associated with
investments in third-party dialysis businesses were based on estimates of
final net sales values and net realizable values. The actual values may vary
from these estimates. Additionally, not included in the 1999 impairment loss
was a cumulative foreign currency translation loss of $4,700 included in the
Statement of Comprehensive Income that cannot be recognized in the
Consolidated Statement of Income until actually realized with the completion
of the related divestitures. Operating results for the non-continental U.S.
will continue to be included in the Consolidated Statement of Income until the
divestitures are completed.
5. Contingencies
The Company's Florida-based laboratory subsidiary is the subject of a
third-party carrier review relating to claims for Medicare reimbursement. The
carrier has issued formal overpayment determinations in the amount of $5,600
for the period from January 1995 to April 1996 and $14,200 for the period from
May 1996 to March 1998. The carrier has also suspended all payments of claims
related to this laboratory since May 1998. The cumulative amount withheld was
approximately $34,000 as of March 31, 2000. Subsequent to March 31, 2000, the
carrier notified the Company of the results of its review for the period April
1998 to August 1999. The carrier has alleged that $16,100 of the withheld
billings for the period April 1998 to August 1999 were not properly supported
by the prescribing physician's medical justifications. The carrier has also
informed the Company that it will be requesting additional billing records for
the period from August 1999 to May 2000.
The Company is disputing the overpayment determinations and has provided
supporting documentation of its claims. The Company has initiated the process
of a formal review of each of the carrier's determinations. The first step in
this formal review process is a hearing before a hearing officer at the
carrier. The hearing regarding the initial review period from January 1995 to
April 1996 was held in July 1999. In January 2000 the hearing officer issued a
decision regarding the initial review period upholding the overpayment
determination of $5,600. The Company has filed an appeal to a federal
administrative law judge. The hearing regarding the second review period from
May 1996 to March 1998 was held in April 2000. The hearing officer has yet to
issue a decision. No provisions or allowances have been recorded for this
matter. Any determination adverse to the Company could have an adverse impact
on the Company's business, results of operations or financial condition.
Following the announcement on February 18, 1999 of the Company's
preliminary results for the fourth quarter of 1998 and the full year then
ended, several class action lawsuits were filed against the company and
several of its officers in the U.S. District Court for the Central District of
California. The lawsuits have been consolidated into a single action. The
consolidated complaint alleges violations of the federal securities laws
arising from allegedly false and misleading statements during a class period
of March 11, 1997 to July 18, 1999 and seeks unspecified monetary damages. The
primary allegations of this complaint are that the Company booked revenues at
inflated amounts, failed to disclose that a material portion of accounts
receivable were uncollectible, reported excessive non-Medicare revenues,
billed for treatments that were never provided, failed to disclose accurately
the basis for the suspension of payments to the Company's Florida-based
laboratory subsidiary on Medicare claims, accounted for goodwill to overstate
income, and manipulated the value of intangible assets. On January 24, 2000,
all defendants responded to this complaint by filing a motion to dismiss. The
motion is set to be heard on August 7, 2000, and all discovery is stayed
pending the court's hearing and decision on the motion. Management believes
that all of the claims are without merit. It is anticipated that the
attorneys' fees and related costs of defending these lawsuits will be covered
primarily under insurance policies. Any determination adverse to the Company
could have an adverse impact on the Company's business, results of operations,
cash flows or financial condition.
6
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
In addition, TRCH is subject to claims and suits in the ordinary course of
business for which the Company is believed to be covered by insurance.
Management believes that the ultimate resolution of these additional pending
proceedings, whether the underlying claims are covered by insurance or not,
will not have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
6. Financial information for 5 5/8% convertible subordinated notes
Prior to the merger with Renal Treatment Centers, Inc. (RTC) in 1998, RTC
had issued $125,000,000 of 5 5/8% convertible subordinated notes due 2006.
These notes are convertible, at the option of the holder, at any time after
August 12, 1996 through maturity, unless previously redeemed or repurchased,
into common stock at a conversion price of $25.62 principal amount per share,
subject to certain adjustments. These notes are redeemable at our option on at
least 15 and not more than 60 days' notice as a whole or, from time to time,
in part at redemption prices ranging from 103.94% to 100% of the principal
amount thereof, depending on the year of redemption, together with accrued
interest up to but excluding the date fixed for redemption. TRCH has
guaranteed these notes.
The following is summarized financial information of RTC:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Cash and cash equivalents.............................. $ 4,298 $ 4,118
Accounts receivable, net............................... 106,058 115,442
Other current assets................................... 9,986 11,946
-------- --------
Total current assets................................. 120,342 131,506
Property and equipment, net............................ 86,843 86,572
Intangible assets, net................................. 341,875 346,756
Other assets........................................... 1,198 167
-------- --------
Total assets......................................... $550,258 $565,001
======== ========
Current liabilities, principally intercompany.......... $248,191 $274,144
Long-term debt potentially callable under covenant
provisions............................................ 125,000 125,000
Other long-term liabilities............................ 1,407 1,504
Stockholder's equity................................... 175,660 164,353
-------- --------
Total liabilities and stockholders' equity........... $550,258 $565,001
======== ========
</TABLE>
<TABLE>
<CAPTION>
Three months
ended March 31,
-----------------
2000 1999
-------- --------
<S> <C> <C>
Net operating revenues....................................... $124,734 $120,402
Total operating expenses..................................... 114,427 114,240
-------- --------
Operating income (loss)...................................... 10,307 6,162
Interest expense, net........................................ 1,680 1,802
-------- --------
Income before income taxes................................... 8,627 4,360
Income taxes................................................. 3,424 1,665
-------- --------
Net income................................................. $ 5,203 $ 2,695
======== ========
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Forward-looking statements
This Form 10-Q contains statements that are forward-looking statements
within the meaning of the federal securities laws. These included statements
about our expectations, beliefs, intentions or strategies for the future,
which we indicate by words or phrases such as "anticipate," "expect,"
"intend," "plan," "will," "believe" and similar language. These statements
involve known and unknown risks, including risks resulting from economic and
market conditions, the regulatory environment in which we operate, competitive
activities and other business conditions, and are subject to uncertainties and
assumptions set forth elsewhere in this Form 10-Q. Our actual results may
differ materially from results in these forward-looking statements. We base
our forward-looking statements on information currently available to us, and
we assume no obligation to update these statements.
Results of operations
During the fourth quarter of 1999, the Company announced its intention to
sell its dialysis operations outside the continental United States as an
important first step in reducing its debt burden and allowing management to
focus its attention on the core operations in the continental U.S. Definitive
agreements to sell the principal operations outside the U.S. were signed in
January 2000. More than 80% of the divestitures, in terms of proceeds and
asset values, are currently expected to close by the third quarter of 2000.
The sales are subject to required bank and regulatory approvals.
Operating results for the non-continental U.S. operations, which the
Company has committed to selling or otherwise discontinuing, were as follows
(in millions):
Non-continental U.S. operations
<TABLE>
<CAPTION>
Three months
ended
March 31,
--------------
2000 1999
------ ------
<S> <C> <C>
Net operating revenues...................................... $ 33 $ 29
Operating expenses:
Dialysis and lab facilities............................... 25 24
General and administrative................................ 2 2
Depreciation and amortization............................. 3 3
Provision for uncollectible accounts...................... 1 1
------ ------
31 30
------ ------
Operating income (loss)..................................... $ 2 $ (1)
====== ======
</TABLE>
Consolidated operating results, excluding the non-continental U.S.
operations to be divested and excluding impairment losses in the fourth
quarter of 1999, were as follows (in millions):
Continental U.S. operations
<TABLE>
<CAPTION>
4th
1st Quarter Quarter
------------------ ---------
2000 1999 1999
-------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net operating revenues..................... $339 100% $323 100% $341 100 %
Operating expenses:
Dialysis and lab facilities.............. 235 69% 206 64% 239 70 %
General and administrative............... 30 9% 22 7% 42 12 %
Depreciation and amortization............ 24 7% 23 7% 27 8 %
Provision for uncollectible accounts..... 12 4% 9 3% 69 20 %
---- --- ---- --- ---- ---
301 89% 260 81% 377 111 %
Operating income (loss)--excluding
impairment losses......................... $ 38 11% $ 63 19% $(36) (11)%
==== === ==== === ==== ===
</TABLE>
8
<PAGE>
Because all operations outside the continental U.S. are being divested, the
non-continental U.S. operating results are excluded from the revenue and cost
trends discussed below.
Net operating revenues for the continental U.S. operations were $339
million for the first quarter of 2000, or approximately 5% higher than in the
first quarter of 1999. The increase was principally attributable to a nearly
9% increase in the number of equivalent hemodialysis treatments, offset by a
lower average revenue rate per treatment. Approximately half of the increase
in the number of treatments represented internal growth, with the balance
attributable to new facilities either acquired or newly opened. The average
dialysis revenue rate per treatment (excluding lab and pharmacy revenue and
management fee income) was $247 for the first quarter of 2000, compared with
$253 for the same period of 1999.
First quarter 2000 operating revenues were at approximately the same level
as in the fourth quarter of 1999. The number of treatments in the first
quarter were down approximately 1.6%, principally because of one less
treatment day in the quarter. Recent sales and closures of certain facilities
accounted for the balance of the reduction in treatments in the first quarter
of 2000. Net dialysis revenue per treatment increased approximately $2 from
fourth quarter 1999 to first quarter of 2000, or approximately 1%. The first
quarter 2000 average revenue rate reflects a 1.2% increase in the Medicare
composite reimbursement rate that became effective on January 1, 2000.
Lab, pharmacy and management fee income represented approximately 4% of
total continental U.S. operating revenues for both the first quarter of 2000
and the fourth quarter of 1999, compared with approximately 5.5% for the first
quarter of 1999.
Facility operating expenses were approximately 69% of operating revenues
for continental U.S. operations in the first quarter of 2000, compared with
70% in the fourth quarter of 1999 and 64% in the first quarter of 1999. On a
per treatment basis, first quarter 2000 facility operating expenses were
essentially the same as in the prior quarter, and averaged approximately $8
per treatment higher than in the first quarter of 1999. The higher average
cost per treatment is primarily attributable to higher labor and medical
supply costs. The first quarter 2000 facility operating costs include a net
price increase in erythropoietin, or EPO, a dialysis pharmaceutical that
represents a material cost component. The EPO price increase became effective
on March 1, 2000, and is expected to result in higher ongoing dialysis
operating expense of up to $2 million per quarter.
General and administrative expense was approximately 9% of operating
revenues for continental U.S. operations in the first quarter of 2000,
compared with 7% in the first quarter of 1999. Nearly half of the increase
over the first quarter of 1999, measured as a percentage of revenue, was
attributable to the lower average revenue rate per treatment in the first
quarter of 2000. Staffing levels and compensation expense accounted for most
of the remainder of the increase in general and administrative expense.
General and administrative expense for the fourth quarter of 1999 was
approximately 12% of operating revenues, reflecting higher than normal expense
levels primarily for special retention and severance compensation costs and
professional consulting fees.
The provision for uncollectible accounts receivable for the first quarter
of 2000 was approximately 3.5% of operating revenues, compared with
approximately 3% for the same period for 1999. Other than the uncertainty
associated with our Florida lab receivables, as discussed below, we believe the
level of the provision for uncollectible accounts receivable recorded in the
first quarter of 2000 is indicative of the level that will be required for the
balance of the year. Collection trends associated with current billings continue
to track as anticipated.
Debt expense of $33 million for the first quarter of 2000 was approximately
$10 million higher than the same period of 1999 due to higher effective
interest rates, including the higher rates in effect because of the
noncompliance with debt covenants as discussed below, and higher debt
balances.
Our assessment of and estimates for impairment and valuation losses
recorded as of year-end 1999 remain unchanged at this time. The year-end
impairment loss of $83 million recorded for our planned disposition of our
operations outside the continental U.S. and valuation losses associated with
investments in third-party dialysis businesses were based on estimates of
final net sales values and net realizable values. The actual values may vary
from these estimates. Additionally, not included in the year-end impairment
loss was a cumulative foreign
9
<PAGE>
currency translation loss of $4.7 million previously included only in the
statement of comprehensive income that cannot be recognized in the regular
income statement until actually realized with the completion of the related
divestitures. More than 80% of the divestitures, in terms of proceeds and
asset values, are currently expected to close by the third quarter of 2000.
The sales are subject to required bank and regulatory approvals. Operating
results for the non-continental U.S. will continue to be included in the
Consolidated Statement of Income until the divestitures are completed.
Other potential future losses or write-offs include the write-off of
deferred financing costs associated with long-term debt that is refinanced or
otherwise restructured and the write-off of a $2.8 million deferred tax asset
associated with stock option expense recognized for medical directors to the
extent that such options are cancelled.
Based on current conditions and recent experience, our current projections
for the year 2000 are for normal operating earnings before non-cash
depreciation and amortization expense, debt expense and taxes to be in the
range of $240 million to $260 million for our ongoing operations in the
continental U.S. These projections assume minimal acquisitions, an internal
annual growth rate in the number of dialysis treatments of approximately 5%,
limited opportunities to improve the mix of non-Medicare treatments, and cost
growth trends for medical supplies and labor costs consistent with recent
years. These and other underlying assumptions involve significant risks and
uncertainties, and actual results may vary significantly from these current
projections. Refer to the liquidity and capital resources discussion,
contingencies discussion, and the risk factors included elsewhere in this Form
10-Q regarding additional risks and uncertainties that may impact these
forward-looking estimates.
Liquidity and capital resources
As of December 31, 1999 and March 31, 2000, the Company was not in
compliance with certain formula-based covenants in the credit facilities. If
the lenders do not waive this failure to comply, a majority of the lenders
could declare an event of default, which would allow the lenders to accelerate
payment of all amounts due under the credit facilities. Additionally, this
noncompliance results in higher interest costs, and the lenders may require
additional concessions from the Company before giving a waiver. In the event
of default under the credit facilities, the holders of the convertible
subordinated notes could also declare the Company to be in default. The
Company is highly leveraged and would be unable to pay the accelerated amounts
that would become immediately payable if a default were declared. As a result
of this non-compliance, all debt outstanding under our credit facilities and
the convertible subordinated notes as of December 31, 1999 and March 31, 2000
that is potentially due within one year has been reclassified from long-term
debt to a current classification. Under these conditions, we are currently
unable to draw additional amounts under the credit facilities.
We are currently in discussions with the lenders regarding obtaining a
waiver of these violations or restructuring our credit facilities. Actions we
have taken and are taking to ensure our ongoing ability to cover scheduled
debt service include divestiture of operations outside the continental U.S.,
curtailment of new facility acquisitions and developments, improvements in
billing and cash collections processes, increased management controls over
expenditures, and evaluations of alternative capital sources, as well as
pursuing debt restructuring with the current lenders. Prior to March 2000, we
focused our attention primarily on those actions that would improve operating
performance and cash flows, as well as filling key senior management
positions. Given the progress made in these areas, we have now entered into
more active discussions with our lenders regarding an acceptable restructuring
arrangement. We believe it is unlikely that an event of default will be
declared because of the company's substantial cash balance and because cash
flows are expected to be sufficient to cover operating requirements and
scheduled debt service through 2001.
The cash balance at March 31, 2000 was $150 million, an increase of $42
million during the quarter. The principal positive cash flow items included
earnings of $33 million adjusted for non-cash items, a $24 million reduction
in accounts receivable, a $26 million reduction in income taxes receivable,
and $15 million from divestitures. The principal net cash outflows included a
$22 million reduction in accounts payable, $17 million in net capital asset
additions, and $15 million in long-term debt payments.
10
<PAGE>
The continental U.S. accounts receivable balance at March 31, 2000,
exclusive of the Florida lab withhold balance of approximately $34 million,
was $277 million, or a reduction of $34 million during the quarter. The first
quarter continental U.S. accounts receivable balance excluding the Florida lab
withhold represents approximately 75 days of revenue, an improvement of
approximately 9 days for the quarter.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in our market risk exposure from that
reported in our Form 10-K for the fiscal year ended December 31, 1999.
RISK FACTORS
In addition to the other information set forth in this Form 10-Q, you
should note the following risks related to our business.
If our lenders accelerate payment of the amounts we owe them, we could become
insolvent or be forced to file for bankruptcy.
We are not in compliance with several financial covenants in our credit
facilities. Due to our failure to comply with these covenants a majority of
our lenders could declare us in default under our credit facilities, which
would allow them to accelerate payment of all amounts we owe them. If they
accelerated payment, it would force us to file for bankruptcy or reorganize
our business. In addition, we are paying penalties of approximately $12
million annually to our banks for being out of compliance with these
covenants. We cannot predict what actions our lenders will take while we are
out of compliance with these covenants.
We may not have sufficient cash flow from our business to pay our debt.
The amount of our outstanding debt is large compared to our cash flows and
the net book value of our assets. We have substantial repayment obligations
under our outstanding debt. As of March 31, 2000 we had:
. Total consolidated debt of approximately $1.443 billion, including $948
million outstanding under our credit facilities;
. Shareholders' equity of approximately $331 million; and
. A ratio of earnings to fixed charges of 1.2:1
The following chart shows our aggregate interest and principal payments due
on all of our currently outstanding debt for each of the next five fiscal
years, assuming our lenders do not accelerate payment of the amounts due under
our credit facilities. Also, because the interest rate under our credit
facilities is based upon a variable market rate plus a margin determined by
the amount of debt we incur relative to our earnings before income taxes,
depreciation and amortization, the amount of these interest payments could
fluctuate in the future. In addition, as a result of our failure to comply
with several financial covenants, our lenders could accelerate payment of
substantially all of these amounts.
<TABLE>
<CAPTION>
Scheduled payments
------------------
Interest Principal
-------- ---------
(in thousands)
<S> <C> <C>
For the year ending December 31:
2000...................................................... $135,779 $ 26,585
2001...................................................... 135,255 4,876
2002...................................................... 131,931 109,702
2003...................................................... 110,538 466,986
2004...................................................... 72,784 4,217
</TABLE>
Due to the large amount of these principal and interest payments, we may
not generate enough cash from our operations to meet these obligations.
11
<PAGE>
The large amount and terms of our outstanding debt may prevent us from taking
actions we would otherwise consider in our best interest.
Our credit facilities contain numerous financial and operating covenants
that limit our ability, and the ability of most of our subsidiaries, to engage
in activities such as incurring additional senior debt, disposing of our
assets, or repurchasing our common stock. These covenants require that we meet
financial ratios including interest coverage, net worth and leverage tests.
Additionally, we are highly leveraged and we are not in compliance with our
covenants. We may be required to renegotiate the terms of our credit
facilities on terms that are more unfavorable, including: higher interest
rates, shorter maturities or more restrictive borrowing terms; all of which
may have an adverse impact on our business prospects and our financial
results. Our lenders may require additional concessions from us before giving
us a waiver or providing us with a new credit facility.
Our current level of debt and the limitations our credit facilities impose
on us could have other important consequences, including:
. Based upon the preceding table, we will have to use much of our cash
flow, approximately $162 million in 2000 and $140 million in 2001, for
scheduled debt service rather than for our operations;
. We may not be able to increase our borrowings under the credit
facilities or obtain other additional debt financing for future working
capital, capital expenditures, acquisitions or other corporate purposes;
and
. We could be less able to take advantage of significant business
opportunities, including acquisitions, and react to changes in market or
industry conditions.
If we do not further improve our internal systems and controls soon, our
revenues, cash flows and net income may be adversely affected.
We have experienced rapid growth in the last five years, especially in 1998
and the first half of 1999, as a result of our business strategy to acquire,
develop and manage a large number of dialysis centers. This historical growth
and business strategy has led to a number of adverse consequences, including:
. Our billing and collection processes, systems and personnel were at
times inadequate to collect all amounts owed to us for services we have
rendered, resulting in a failure to achieve expected cash flow and
significant charges for uncollectible accounts receivable;
. A need for additional management, administrative and clinical personnel
to manage and support our expanded operations. We may not be able to
attract and retain sufficient additional personnel to meet these needs;
. Our assessment of the requirements of our growth on our information
systems underestimated our needs, and we have spent, and may continue to
spend, substantial amounts to enhance and replace our information
systems;
. Our expanded operations required cash expenditures in excess of the cash
available to us after paying our debt service obligations and required
us to increase our debt balances;
. We inaccurately assessed the historical and projected results of
operations of some acquired businesses, which caused us to overpay for
these acquisitions; and
. In retrospect we have not integrated acquired facilities as quickly or
smoothly as we expected, which prevented us from achieving the results
of operations expected for these acquired facilities.
12
<PAGE>
If we fail to improve our performance in these areas, it will have a
negative impact on our cash flow and could impact our ability to meet our
substantial debt obligations.
If the percentage of our patients that pay at or near our list prices
declines, then our revenues, cash flows and net income would be substantially
reduced.
Approximately 41% of our net operating revenues in 1999 was generated from
patients who had domestic private payors as the primary payor. A minority of
these patients have insurance policies that reimburse us at or near our list
prices, which are substantially higher than Medicare rates. Domestic private
payors, particularly managed care payors, have become more aggressive in
demanding contract rates approaching or at Medicare reimbursement rates. We
believe that the financial pressures on private payors to decrease the rates
at which they reimburse us will continue to increase. If the percentage of
patients who have insurance that reimburses us at or near our list prices
changes significantly, it will have a material impact on our revenues, cash
flows and net income.
Future declines, or the lack of further increases, in Medicare reimbursement
rates could substantially decrease our net income and cash flows.
Approximately 54% of our net operating revenues in 1999 were generated from
patients who had Medicare as the primary payor. We are reimbursed for dialysis
services primarily at fixed rates established in advance under the Medicare
ESRD program. Unlike many other Medicare programs, the Medicare ESRD program
has not provided periodic inflation increases in its reimbursement rates.
Congress recently enacted two increases of 1.2% each, effective January 1,
2000 and January 1, 2001, to the Medicare composite reimbursement rate for
dialysis. These were the first increases since 1991, and are significantly
less than the cumulative inflation since 1991. Increases in operating costs
that are subject to inflation, such as labor and supply costs, have occurred
and are expected to continue to occur without a compensating increase in
reimbursement rates. In addition, if Medicare should begin to include in its
composite reimbursement rate any ancillary services that it currently
reimburses separately, our revenue would decrease to the extent there was not
a corresponding increase in that composite rate. We cannot predict the nature
or extent of future rate changes, if any.
HHS has recommended, and the Clinton administration has included in its
fiscal year 2001 budget proposal to the Congress, a 10% reduction in Medicare
reimbursement for erythropoietin, or EPO. We cannot predict whether Congress
will enact this proposal, or whether other future rate or reimbursement method
changes will be made. Approximately 14% of our net operating revenues in 1999
was generated from EPO reimbursement through Medicare and Medicaid programs.
Consequently, any reduction in the rate of EPO reimbursement through Medicare
and Medicaid programs could materially reduce our revenues, cash flows and net
income.
Medicare separately reimburses us for other outpatient prescription drugs
that we administer to dialysis patients at the rate of 95% of the average
wholesale price of each drug. The Clinton administration has also included in
its fiscal year 2001 budget proposal to the Congress a reduction in the
reimbursement rate for outpatient prescription drugs to 83% of the average
wholesale price. We cannot predict whether Congress will enact this proposal,
or whether other reductions in reimbursement rates for outpatient prescription
drugs will be made. If such changes are implemented, they could have a
material adverse effect on our revenues, cash flows and net income.
If Medicare changes its ESRD program to a capitated reimbursement system, our
revenues, cash flows and profits could be materially reduced.
Under the current Medicare demonstration project, Medicare is paying
managed care plans a capitated rate equal to 95% of Medicare's current average
cost of treating dialysis patients. Under a capitated plan we or managed care
plans would receive a fixed periodic payment for servicing all of our
Medicare-eligible ESRD patients regardless of fluctuations in the number of
services provided in that period or possibly even the number of patients
treated. If HCFA considers the pilot program successful, HCFA or Congress
could implement such a capitated program more broadly or could lower the
average Medicare reimbursement for dialysis.
13
<PAGE>
Over the long-term, we expect the profit margins in the dialysis industry to
decline, which will have a negative impact on our net income and cash flows.
During the past few years, industry operating margins have increased due to
. Increased provision of ancillary services, particularly the
administration of EPO;
. The extension of the period for which private payors remain the primary
insurer, until Medicare becomes the primary insurer; and
. Pricing increases for private pay patients.
We believe that some of these trends have reached a plateau, particularly
the increases in ancillary services intensity and the additional profits from
the extension of the private insurance coverage period. There are also market
forces that may result in long-term industry margin compression. These forces
include increases in labor and supply costs at a faster rate than
reimbursement rate increases, the potential for Medicare reimbursement cuts
for ancillary services and an inability to achieve future pricing increases
for both private pay and managed care patients.
If our assumptions regarding the beneficial life of our goodwill prove to be
inaccurate, or subsequently change, our current earnings may be overstated and
future earnings also may be affected.
Our balance sheet contains an amount designated as "goodwill" that
represents 44% of our assets and 268% of our shareholders' equity at March 31,
2000. Goodwill arises when an acquirer pays more for a business than the fair
value of the tangible and separately measurable intangible net assets.
Generally accepted accounting principles require the amortization of goodwill
and all other intangible assets over the periods benefited. The current
average useful life for our goodwill is 35 years. We have determined that most
acquisitions after December 31, 1996 will continue to provide a benefit to us
for no less than 40 years after the acquisition. In making this determination,
we have reviewed with our independent accountants the significant factors that
we considered in arriving at the consideration we paid for, and the expected
period of benefit from, acquired businesses.
We continuously review the appropriateness of the amortization periods we
are using and change them as necessary to reflect current expectations. This
information is also reviewed with our independent accountants. If the factors
we considered, and which give rise to a material portion of our goodwill,
result in an actual beneficial period shorter than our determined useful life,
earnings reported in periods immediately following some acquisitions would be
overstated. In addition, in later years, we would be burdened by a continuing
charge against earnings without the associated benefit to income. Earnings in
later years could also be affected significantly if we subsequently determine
that the remaining balance of goodwill has been impaired.
Interruption in the supply of, or cost increases in, EPO could materially
reduce our net income and cash flows and affect our ability to care for our
patients.
In the future, Amgen may be unwilling or unable to supply us with EPO.
Additionally, Amgen is the sole supplier of EPO, and may unilaterally decide
to increase its price for EPO. For example, Amgen unilaterally decided to
increase its price for EPO by 3.9% effective March 1, 2000. Interruptions of
the supply of EPO or additional increases in the price we pay for EPO could
have a material adverse effect on our financial condition as well as our
ability to provide appropriate care to our patients.
The cost of our medical supplies on a per treatment basis has been increasing,
and if this trend continues it could impact our net income and cash flows.
During the past two years we have seen an increase in the cost per
treatment of our medical supplies due to an increase in our utilization of
supplies and increases in pricing from suppliers. Two of our major competitors
are also major providers of medical supplies and equipment and our largest
supplier, Fresenius, is also the largest provider of dialysis services in the
world. The number of suppliers of dialysis-specific medical supplies has
14
<PAGE>
declined recently, due to consolidation among these suppliers. If we are not
able to manage our medical supply utilization better or to achieve cost
savings from our suppliers, we may have a reduction in our net income and
cash flows due to higher medical supply costs.
If we sell our non-continental U.S. operations for less than we expect, our
impairment loss of $83 million recorded in the fourth quarter of 1999 may be
understated.
We recently entered into agreements to sell most of our operations outside
of the continental U.S. to a competitor for approximately $160 million in
proceeds, subject to final closing adjustments. We recorded a charge of $83
million for the impairment of the value of our non-continental operations in
the the fourth quarter of 1999, which includes the cost of buying out minority
interests and direct transaction costs of completing the sales. If we do not
complete the sales as we anticipate, then our actual losses may prove higher
than the recorded charge. The agreements are conditioned on the consent of our
lenders under our credit facilities, regulatory approvals and other closing
conditions.
If we fail to adhere to all of the complex government regulations that apply
to our business, we could incur substantial fines or be excluded from
participating in government reimbursement programs.
Our dialysis operations are subject to extensive federal, state and local
government regulations. Any of the following could adversely impact our
revenues:
. Suspension of payments from government programs;
. Loss of required government certifications;
. Loss of authorizations to participate in or exclusion from government
reimbursement programs, such as the Medicare ESRD Program and Medicaid
programs; and
. Loss of licenses required to operate health care facilities in some of
the states in which we operate.
The regulatory scrutiny of healthcare providers, including dialysis
providers, has increased significantly in recent years. For example, the
Office of Inspector General of HHS has reported that it recovered $1.2 billion
in fiscal year 1997 and $480 million in fiscal year 1998 from health care
fraud investigations. Also, in January 2000 one of our competitors entered
into a $486 million settlement as a result of an Office of Inspector General
of HHS investigation into some of its practices. We expect this regulatory
scrutiny to continue, if not increase.
We may never collect the revenues from the payments suspended as a result of a
third-party carrier review of our laboratory subsidiary.
Our Florida-based laboratory subsidiary is the subject of a third-party
carrier review relating to claims the laboratory submitted for Medicare
reimbursement. In May 1998, the carrier suspended all further Medicare
payments to this laboratory. Medicare revenues from this laboratory represent
approximately 2% of our net revenues. The suspension of payments relates to
all payments due after the suspension started, regardless of when the
laboratory performed the tests. From the beginning of the suspension through
March 31, 2000, the carrier had withheld approximately $34 million, which has
adversely affected our cash flow. We may never recover the amounts withheld,
for which no reserves have been established.
Our failure to comply with federal and state fraud and abuse statutes could
result in sanctions.
Neither our arrangements with the medical directors of our facilities nor
the minority ownership interests of referring physicians in some of our
dialysis facilities meet all of the requirements of published safe harbors to
the anti-kickback provisions of the Social Security Act and similar state
laws. These laws impose civil and criminal sanctions on anyone who receives or
makes payments for referring a patient for any service reimbursed by Medicare,
Medicaid or similar federal and state programs. Arrangements within published
safe harbors are deemed not to violate these provisions. Enforcement agencies
may subject arrangements that do not fall within a
15
<PAGE>
safe harbor to greater scrutiny. If we are challenged under these statutes, we
may have to change our relationships with our medical directors and with
referring physicians holding minority ownership interests.
The laws of several states in which we do business prohibit a physician
from making referrals for laboratory services to entities with which the
physician, or an immediate family member, has a financial interest. We
currently operate a large number of facilities in these states, which account
for a significant percentage of our business. These state statutes could apply
to laboratory services incidental to dialysis services. If so, we may have to
change our relationships with referring physicians who serve as medical
directors of our facilities or hold minority interests in any of our
facilities.
Forward-looking statements
This Form 10-Q contains statements that are forward-looking statements
within the meaning of the federal securities laws. These include statements
about our expectations, beliefs, intentions or strategies for the future,
which we indicate by words or phrases such as "anticipate," "expect,"
"intend," "plan," "will," "believe" and similar language. These statements
involve known and unknown risks, including risks resulting from economic and
market conditions, the regulatory environment in which we operate, competitive
activities and other business conditions, and are subject to uncertainties and
assumptions set forth elsewhere in this Form 10-Q. Our actual results may
differ materially from results anticipated in these forward-looking
statements. We base our forward-looking statements on information currently
available to us, and we assume no obligation to update these statements.
16
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The information in Note 5 of the Notes to Condensed Consolidated Financial
Statements in Part I, Item 1 of this report is incorporated by this reference
in response to this item.
Items 2, 3, 4 and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<C> <S>
12.1 Ratio of earnings to fixed charges.X
Financial Data Schedule--three months ended March 31, 2000 and
27.1 1999.X
</TABLE>
- --------
X Filed herewith.
(b) Reports on Form 8-K
None.
17
<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.
/s/ Gary W. Beil
By: _________________________________
Gary W. Beil
Vice President and Controller*
Date: May 12, 2000
- --------
* Mr. Beil has signed both on behalf of the registrant as a duly authorized
officer and as the registrant's chief accounting officer.
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
12.1 Ratio of earnings to fixed charges.X
27.1 Financial Data Schedule--three months ended March 31, 2000 and 1999.X
- --------
X Filed herewith.
<PAGE>
EXHIBIT 12.1
TOTAL RENAL CARE HOLDINGS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing fixed
charges into earnings. Earnings is defined as pretax income from continuing
operations adjusted by adding fixed charges and excluding interest capitalized
during the period. Fixed charges means the total of interest expense and
amortization of financing costs, and the estimated interest component of
rental expense on operating leases.
<TABLE>
<CAPTION>
Three
months
ended Year ended December 31,
March 31, -----------------------------------------------
2000 1999 1998 1997 1996 1995
--------- --------- -------- -------- ------- -------
(in thousands, except for ratio data)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes,
extraordinary items and
cumulative effect of a
change in accounting
principle.............. $ 7,549 $(181,826) $ 48,641 $ 81,178 $54,563 $37,141
------- --------- -------- -------- ------- -------
Fixed charges:
Interest expense and
amortization of debt
issuance costs and
discounts on all
indebtedness......... 33,165 110,797 84,003 29,082 13,670 12,921
Interest portion of
rental expense....... 4,577 17,501 12,992 8,196 5,301 3,346
------- --------- -------- -------- ------- -------
Total fixed
charges............ 37,742 128,298 96,995 37,278 18,971 16,267
------- --------- -------- -------- ------- -------
Earnings (loss) before
income taxes,
extraordinary items,
cumulative effect of a
change in accounting
principle and fixed
charges................ $45,291 $ (53,528) $145,636 $118,456 $73,534 $53,408
======= ========= ======== ======== ======= =======
Ratio of earnings to
fixed charges.......... 1.20 (a) 1.50 3.18 3.88 3.28
======= ========= ======== ======== ======= =======
</TABLE>
- --------
(a) Due to the Company's loss in 1999, the ratio coverage was less than 1:1.
The Company would have had to generate additional earnings of $182 million
to achieve a coverage of 1:1.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 150,377,000 0
<SECURITIES> 0 0
<RECEIVABLES> 436,589,000 0
<ALLOWANCES> 70,489,000 0
<INVENTORY> 24,665,000 0
<CURRENT-ASSETS> 644,501,000 0
<PP&E> 436,761,000 0
<DEPRECIATION> 152,068,000 0
<TOTAL-ASSETS> 2,019,986,000 0
<CURRENT-LIABILITIES> 1,659,612,000 0
<BONDS> 470,000,000 0
0 0
0 0
<COMMON> 81,000 0
<OTHER-SE> 331,125,000 0
<TOTAL-LIABILITY-AND-EQUITY> 2,019,986,000 0
<SALES> 0 0
<TOTAL-REVENUES> 372,113,000 352,244,000
<CGS> 0 0
<TOTAL-COSTS> 331,796,000 290,116,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 12,859,000 10,478,000
<INTEREST-EXPENSE> 33,165,000 23,303,000
<INCOME-PRETAX> 7,549,000 37,837,000
<INCOME-TAX> 3,702,000 14,630,000
<INCOME-CONTINUING> 3,847,000 23,207,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,847,000 23,207,000
<EPS-BASIC> 0.05 0.29
<EPS-DILUTED> 0.05 0.28
</TABLE>
