<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarter ended June 30, 2000
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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 August 1, 2000, there were 81,672,770 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.
--------
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2000 and December
31, 1999..................................................... 2
Consolidated Statements of Income and Comprehensive Income
for the three months and six months ended June 30, 2000 and
June 30, 1999............................................... 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and June 30, 1999....................... 4
Notes to Condensed Consolidated Financial Statements......... 5
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations.................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 13
Risk Factors.......................................................... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 19
Item 6. Exhibits and Reports on Form 8-K............................. 19
Signatures............................................................ 20
</TABLE>
--------
Note: Items 2, 3, 4 and 5 of Part II are omitted because they are not
applicable.
1
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents............................. $ 190,672 $ 107,981
Accounts receivable, less allowance of $62,828, and
$67,315, respectively................................ 303,355 390,329
Inventories........................................... 19,865 32,916
Other current assets.................................. 21,700 32,082
Income tax receivable................................. 25,856 45,645
Deferred income taxes................................. 44,861 45,795
---------- ----------
Total current assets.............................. 606,309 654,748
Property and equipment, net........................... 248,033 285,449
Intangible assets, net................................ 957,322 1,069,672
Investments in third-party dialysis businesses........ 35,814 35,552
Deferred income taxes................................. 5,407 6,553
Other long-term assets................................ 2,264 4,744
---------- ----------
$1,855,149 $2,056,718
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable...................................... $ 72,888 $ 121,561
Accrued compensation and benefits..................... 50,104 47,647
Other liabilities..................................... 81,420 77,141
Current portion of long-term debt..................... 121,237 26,585
Long-term debt potentially callable under covenant
provisions........................................... 1,425,610
---------- ----------
Total current liabilities......................... 325,649 1,698,544
Long-term debt, less $0 and $1,425,610 potentially
callable classified as current....................... 1,188,134 5,696
Other long-term liabilities........................... 3,921 3,497
Minority interests.................................... 17,395 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; 81,565,215 and 81,193,011 shares issued
and outstanding)................................... 82 81
Additional paid-in capital.......................... 426,428 426,025
Notes receivable from shareholders.................. (160) (192)
Accumulated other comprehensive loss................ (4,718)
Accumulated deficit................................. (106,300) (94,792)
---------- ----------
Total shareholders' equity........................ 320,050 326,404
---------- ----------
$1,855,149 $2,056,718
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months Six months ended
ended June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net operating revenues ............... $378,908 $352,819 $751,021 $705,063
Operating expenses
Dialysis and lab facilities......... 267,714 250,548 527,012 480,188
General and administrative.......... 31,619 29,559 63,540 53,167
Depreciation and amortization....... 29,670 26,758 57,388 53,148
Provision for uncollectible
accounts........................... 12,648 35,707 25,507 46,185
Impairments and valuation
adjustments........................ 4,414 16,600 4,414 16,600
-------- -------- -------- --------
Total operating expenses.......... 346,065 359,172 677,861 649,288
-------- -------- -------- --------
Operating income (loss)............... 32,843 (6,353) 73,160 55,775
Other income (loss)................... (11,984) 1,934 (10,589) 3,264
Debt expense.......................... 34,482 24,905 67,647 48,208
Minority interests in income of
consolidated subsidiaries............ (1,023) (2,521) (2,021) (4,839)
-------- -------- -------- --------
Income (loss) before income taxes..... (14,646) (31,845) (7,097) 5,992
Income tax expense (benefit).......... 709 (9,786) 4,411 4,844
-------- -------- -------- --------
Net income (loss)................. $(15,355) $(22,059) $(11,508) $ 1,148
======== ======== ======== ========
Earnings (loss) per share............. $ (0.19) $ (0.27) $ (0.14) $ 0.01
======== ======== ======== ========
Earnings (loss) per share--assuming
dilution............................. $ (0.19) $ (0.27) $ (0.14) $ 0.01
======== ======== ======== ========
STATEMENTS OF COMPREHENSIVE INCOME
Net income (loss)..................... $(15,355) $(22,059) $(11,508) $ 1,148
Foreign currency translation........ 4,718 (3,723) 4,718 (4,059)
-------- -------- -------- --------
Comprehensive income (loss)........... $(10,637) $(25,782) $ (6,790) $ (2,911)
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------
2000 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)................................ $ (11,508) $ 1,148
Non-cash items included in net income (loss):
Depreciation and amortization.................. 57,388 53,148
Impairment and valuation losses................ 4,414 16,600
Deferred income taxes.......................... 6,057 (16,375)
Stock option expense and tax benefits.......... 941 855
Equity investment losses (income).............. 821 (657)
Foreign currency translation loss.............. 4,718
Minority interests in income of consolidated
subsidiaries.................................. 2,021 4,839
----------- -------------
64,852 59,558
(Gain) loss on sale of facility assets........... (2,107) 17
Changes in operating assets and liabilities, net
of acquisitions and divestitures:
Accounts receivable............................ 37,016 (31,885)
Inventories.................................... 9,959 (1,856)
Other current assets........................... 4,740 (136)
Other long-term assets......................... 2,200 (1,397)
Accounts payable............................... (30,236) 54,549
Accrued compensation and benefits.............. 6,175 (1,242)
Other liabilities.............................. (2,593) (29,858)
Income taxes................................... 19,789 (11,715)
Other long-term liabilities.................... 674 3,620
----------- -------------
Net cash provided by operating activities.... 110,469 39,655
----------- -------------
Cash flows from investing activities
Additions of property and equipment, net......... (24,651) (61,799)
Acquisitions and divestitures, net............... 147,300 (127,627)
Investments in affiliates, net................... (3,283) (35,915)
Intangible assets................................ (381) (3,906)
----------- -------------
Net cash provided by (used in) investing
activities.................................. 118,985 (229,247)
----------- -------------
Cash flows from financing activities
Borrowings....................................... 1,700,674
Payments on long-term debt....................... (143,117) (1,524,437)
Deferred financing costs......................... 628 1,071
Net proceeds from issuance of common stock....... 263 2,033
Distributions to minority interests.............. (4,537) (2,504)
----------- -------------
Net cash provided by (used in) financing
activities.................................. (146,763) 176,837
Foreign currency translation loss in comprehensive
income............................................ (4,059)
----------- -------------
Net increase (decrease) in cash.................... 82,691 (16,814)
Cash and cash equivalents at beginning of period... 107,981 41,487
----------- -------------
Cash and cash equivalents at end of period......... $ 190,672 $ 24,673
=========== =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Unless otherwise indicated in this Form 10-Q "we," "us," "our," "TRCH,"
"the Company," and similar terms refer to Total Renal Care Holdings, Inc. and
its subsidiaries.
1. Condensed consolidated interim financial statements
The condensed 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 three and six months ended
June 30, 2000 are not necessarily indicative of 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 Six months
------------------ -----------------
2000 1999 2000 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net Income (loss)....................... $(15,355) $(22,059) $(11,508) $ 1,148
======== ======== ======== =======
Applicable common shares:
Weighted average outstanding during the
period................................. 81,479 81,176 81,415 81,149
Reduction in shares in connection with
notes receivable from employees........ (41) (27) (39) (24)
-------- -------- -------- -------
Weighted average number of shares
outstanding for earnings per share..... 81,438 81,149 81,376 81,125
Incremental shares from stock option
plans.................................. 894
Weighted average number of outstanding
shares and incremental shares assumed
to be outstanding for earnings per
share-- assuming dilution.............. 81,438 81,149 81,376 82,019
======== ======== ======== =======
Earnings (loss) per share............... $ (0.19) $ (0.27) $ (0.14) $ 0.01
======== ======== ======== =======
Earnings (loss) per share--assuming
dilution............................... $ (0.19) $ (0.27) $ (0.14) $ 0.01
======== ======== ======== =======
</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 for the three months ended June 30, 2000 and 1999 and the six
months ended June 30, 2000 and 1999, respectively, totaled 9,728,570,
8,538,123, 9,728,570, and 8,063,359 shares, respectively, at exercise prices
ranging from $3.92, $13.73, $4.07, and $15.42 respectively, to $36.13 per
share. Additionally, all remaining outstanding stock options were excluded
from the computation of loss per share for the three months and six months
ended June 30, 2000 and the three months ended June 30, 1999 because the
effect would have been antidilutive. For all periods presented, 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.
5
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands except per share data)
3. Debt Covenants
As of December 31, 1999, the Company was not in compliance with certain
covenants in its credit facilities. As a result of this non-compliance, all
debt outstanding under the credit facilities and the convertible subordinated
notes as of December 31, 1999 was potentially callable and due within one
year, and therefore had been reclassified from long-term debt to a current
classification. On July 14, 2000 a restructuring of the credit facilities was
completed, and the Company is now in compliance with all credit facility
covenants. Accordingly, the long-term portion of our debt was not classified
as a current liability as of June 30, 2000.
The major terms of the restructured credit facilities include the
collateralization of the debt with substantially all of the Company's assets,
reduction in the revolving credit availability to $150,000 together with
conversion of $299,000 of the revolving facility into a term loan, and a new
quarterly amortization schedule beginning September 30, 2000. In conjunction
with the restructuring a permanent pay down of $50,000 was made and the
associated interest rates were returned to the lower LIBOR-based rate formulas
in effect prior to the non-compliance. The new financial covenants reflect the
Company's current financial position and projected operating results and
plans.
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Credit facilities................................. $ 819,996 $ 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... 12,986 21,482
Capital lease obligations......................... 6,389 6,799
---------- -----------
1,309,371 1,457,891
Less current portion.............................. (121,237) (1,452,195)
---------- -----------
$1,188,134 $ 5,696
========== ===========
</TABLE>
4. Sale of non-continental U.S. operations
During the fourth quarter of 1999, the Company announced its intention to
sell its dialysis operations outside the continental U.S. and recorded an
impairment loss of $83,000 associated with the non-continental U.S.
operations. The Company completed the sales of its operations outside the
continental U.S. on June 19, 2000, with the exception of operations in Puerto
Rico and Guam. The completed sales represent approximately 90% of the total
value of the non-continental U.S. operations being divested. An additional
impairment loss of $5,200 was recognized as of June 30, 2000, principally
attributable to the completion of these sales. The definitive sale agreement
for the Puerto Rico operations has been signed. The sale of the Puerto Rico
operations will be completed upon receipt of required regulatory approvals and
third-party consents. Net cash proceeds from the completed sales totaled
$134,000, of which $125,000 was immediately applied to our credit facilities
debt in accordance with the conditions under which we received consent from
the lenders to consummate the sales. The Company also recognized $4,718 of
foreign currency translation loss associated with non-continental U.S.
operations divested during the quarter. The foreign currency translation loss
had previously been recognized in comprehensive income.
6
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands except per share data)
5. Impairments and valuation adjustments
The $4,400 of impairments and valuation adjustments in the second quarter
of 2000 consisted of impairment losses of $5,200 principally associated with
the completed sales of the non-continental U.S. operations, and reversal of
previously recognized stock option expense of $800 associated with the
cancellation of medical director stock options. The $16,600 of impairments and
valuation adjustments recorded in the second quarter of 1999 consisted
principally of valuation losses on loans and investments in third-party
dialysis related businesses that had experienced serious operating
difficulties and liquidity problems.
6. Income tax provision
The tax expense for the three months and six months ended June 30, 2000
included: a) a deferred tax valuation loss of $3,000 associated with the sale
of the non-continental U.S. operations and the corresponding capital loss
carryforwards and; b) a deferred tax valuation loss of $2,700 associated with
the cancellation of medical director stock options.
7. 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 carrier has also asserted that
$16,100 of the withheld billings for the period April 1998 to August 1999 were
not properly supported by the prescribing physicians' medical justifications.
The carrier has recently requested additional billing records for the period
from August 1999 to May 2000. As of June 30, 2000 the accounts receivable
balance for withheld billings was approximately $38,300.
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 of this decision to a
federal administrative law judge. The hearing regarding the second review
period from May 1996 to March 1998 was held in April 2000. In July 2000 the
hearing officer issued a decision regarding the second review period upholding
substantially all of the overpayment determination of $14,200. The Company has
also filed an appeal of this decision to a federal administrative law judge,
and moved to consolidate this appeal with the appeal on the first review
period. No provisions or allowances have been recorded for this matter. A
determination adverse to the Company could have a material impact on the
Company's 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 now former officers in the U.S. District Court for the Central
District of California. The lawsuits were consolidated into a single action.
The consolidated complaint alleged 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. In July 2000, the Company signed a
Stipulation of Settlement with the plaintiffs. Under the terms of this
agreement, a total settlement fund of $25,000 has been established. The
Company contributed $10,800 as of June 30, 2000, and its insurance carriers
contributed the balance of the settlement fund. In addition, the Company has
agreed to implement corporate governance principles and procedures to ensure
the accountability of the
7
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands except per share data)
Company's Board and management to its shareholders. The settlement is subject
to preliminary approval by the United States District Court, notice to the
members of the class, which consists of purchasers of the Company's common
stock between March 11, 1997 and July 18, 1999, and final approval of the
settlement by the Court at a hearing. Final approval is anticipated to take
place in the fourth quarter of 2000. The Company admits to no wrongdoing or
liability in the stipulation of settlement. As a result of this settlement a
pre-tax charge of $10,800 was recorded in the second quarter, and is included
in other income (loss).
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 resolutions of these additional pending
proceedings, whether or not the underlying claims are covered by insurance,
will not have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
8. 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 of 5 5/8% convertible subordinated notes due 2006. These
notes are convertible into common stock, at the option of the holder, at any
time through maturity, unless previously redeemed or repurchased. The
conversion price is $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.
Balances as of June 30, 2000 reflect the divestiture of RTC's international
operations, principally in Argentina. The following is summarized financial
information of RTC:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Cash and cash equivalents.............................. $ 1,818 $ 4,118
Accounts receivable, net............................... 63,182 115,442
Other current assets................................... 7,524 11,946
-------- --------
Total current assets................................. 72,524 131,506
Property and equipment, net............................ 65,898 86,572
Intangible assets, net................................. 290,685 346,756
Other assets........................................... 813 167
-------- --------
Total assets......................................... $429,920 $565,001
======== ========
Current liabilities, principally intercompany.......... $127,407 $274,144
Long-term debt......................................... 125,000 125,000
Other long-term liabilities............................ 1,504
Stockholder's equity................................... 177,513 164,353
-------- --------
Total liabilities and stockholder's equity .......... $429,920 $565,001
======== ========
</TABLE>
8
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three months Six months ended
ended June 30, June 30,
----------------- -----------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net operating revenues.................. $127,123 $125,900 $251,857 $246,302
Total operating expenses................ 122,237 112,119 236,664 226,360
-------- -------- -------- --------
Operating income ....................... 4,886 13,781 15,193 19,942
Interest expense, net................... 2,403 1,745 4,083 3,547
-------- -------- -------- --------
Income before income taxes.............. 2,483 12,036 11,110 16,395
Income taxes............................ 1,881 4,814 5,305 8,855
-------- -------- -------- --------
Net income............................ $ 602 $ 7,222 $ 5,805 $ 7,540
======== ======== ======== ========
</TABLE>
9. Recent accounting pronouncements
In March 2000, the Financial Accounting Standard Board (FASB) issued FASB
Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions involving
Stock Compensation, an interpretation of APB Opinion No. 25". FIN 44 clarifies
the application of Opinion 25 for certain issues such as the definition of
"employee", criteria for determining non-compensatory plans, as well as
accounting for modifications to fixed stock options and the exchange of stock
compensation awards in a business combination. FIN 44 became effective on July
1, 2000. Management believes that FIN 44 will have no transitional impact on
the Company's financial reporting.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition", which provides
guidance on the recognition, presentation and disclosures of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies, and will be effective starting from
the fourth quarter of 2000. Management believes that SAB 101 will have no
material impact on the Company's financial position and results of operations.
9
<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 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 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
The Company completed the sales of its operations outside the continental
U. S. on June 19, 2000, with the exception of operations in Puerto Rico and
Guam. The completed sales represent approximately 90% of the total value of
the non-continental U. S. operations being divested. The sale agreement for
the Puerto Rico operations has been signed. Net cash proceeds from the
completed sales totaled $134 million, of which $125 million was immediately
applied to our credit facilities debt in accordance with the conditions under
which we received consent from the lenders to consummate the sales. Because of
the divestiture of the non-continental U.S. operations, the revenue and
operating cost trends discussed below address only the continuing (continental
U.S.) operations.
Operating results for our continuing operations were as follows:
Continuing Operations (Continental U.S.)
(dollars in millions)
<TABLE>
<CAPTION>
Six months ended
Quarter ended June 30,
------------------------------- ------------------
June 30, March 31, June 30,
2000 2000 1999 2000 1999
-------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net operating revenues... $345 100% $ 339 100% $323 100% $684 100% $646 100%
Operating expenses:
Dialysis and lab
facilities ........... 240 70% 235 69% 224 69% 475 69% 430 67%
General and
administrative........ 30 9% 30 9% 29 9% 60 9% 51 8%
Depreciation and
amortization.......... 26 8% 24 7% 25 8% 50 7% 48 7%
Provision for
uncollectible
accounts.............. 12 3% 12 4% 34 11% 24 4% 43 7%
---- ----- ---- ---- ----
308 89% 301 89% 312 97% 609 90% 572 89%
---- ----- ---- ---- ----
Operating income--
excluding impairments... 37 11% 38 11% 11 3% 75 11% 74 11%
Impairment and valuation
adjustments............. 4 -- 17 4 17
---- ----- ---- ---- ----
Operating income (loss)--
including impairment
losses ................. 33 38 (6) 71 57
</TABLE>
Net operating revenues for the continental U.S. operations were $684
million for the first half of 2000, or approximately 6% higher than in the
first half of 1999 reflecting an increase in dialysis revenues of
approximately $46 million and a reduction in other revenues of approximately
$8 million. The dialysis revenue increase was principally attributable to a
nearly 7% increase in the number of equivalent hemodialysis treatments.
Approximately 5% of this increase in treatments represented internal growth,
with 2% attributable to other newly opened or acquired facilities. The average
dialysis revenue per treatment (excluding lab and pharmacy revenue
10
<PAGE>
and management fee income) was approximately $248 for the first half of 2000,
compared with $247 for the same period in 1999.
Second quarter 2000 operating revenues were $345 million, compared with
$339 million in the first quarter of 2000. The number of treatments in the
second quarter was approximately 1.4% higher than in the first quarter of
2000, with the same number of treatment days in each quarter. Net dialysis
revenue per treatment increased approximately $2 from the first quarter to the
second quarter of 2000, or approximately 1%.
Lab and other revenue and management fee income represented approximately
3% of total continental U.S. operating revenues in the second quarter and
approximately 4% in the first quarter of 2000, compared with approximately 5%
for the first half of 1999. Second quarter lab and other revenue was
approximately $2 million lower than in the first quarter of 2000 due to the
sale of our pharmacy at the end of the first quarter.
Facility operating expenses were approximately 69% of operating revenues
for continental U.S. operations in the first half of 2000, compared with 67%
for the same period of 1999. The increase in facility operating costs is
primarily attributable to higher labor and medical supply costs. The 2000
facility operating costs include a net price increase in erythropoietin, or
EPO, a pharmaceutical used to treat anemia which is administered in dialysis
and represents a material cost component. The EPO price increase became
effective on March 1, 2000.
General and administrative expense was approximately 9% of operating
revenues for continental U.S. operations in the first half of 2000, compared
with 8% in the first half of 1999. The increase in general and administrative
expense is primarily attributable to increased staffing levels and
compensation expense.
Depreciation and amortization expense was approximately 7% of revenue for
the first six months of both 2000 and 1999. Depreciation expense was higher in
the second quarter of 2000, principally due to a reduction in the estimated
useful lives of personal computer equipment, generally from five years to
three years.
The provision for uncollectible accounts receivable for the first half of
2000 was approximately 3.5% of operating revenues, compared with approximately
7% for the same period of 1999. Bad debt write-offs were unusually high in
1999, primarily due to deficiencies in the billing and cash collection
operations. Other than the uncertainty associated with our Florida lab
receivables, as discussed in Note 7 to the condensed consolidated interim
financial statements, we believe the level of the provision for uncollectible
accounts receivable recorded in the first half 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.
The $4.4 million of impairments and valuation adjustments in the second
quarter of 2000 consisted of impairment losses of $5.2 million, principally
associated with the completed sales of the non-continental U.S. operations,
and the reversal of previously recognized stock option expense of $0.8 million
associated with the cancellation of medical director stock options. The $16.6
million of impairments and valuation adjustments recorded in the second
quarter of 1999 consisted principally of valuation losses on loans and
investments in third-party dialysis related businesses that had experienced
serious operating difficulties and liquidity problems.
Other income (loss) for the second quarter of 2000 included a $10.8 million
charge related to the settlement of the shareholder class action lawsuit and
recognition of the $4.7 million foreign currency translation loss associated
with the non-continental U.S. operations divested during the quarter. The
foreign currency translation loss had previously been recognized in
comprehensive income.
Debt expense of $68 million for the first half of 2000 was approximately
$20 million higher than the same period in 1999 due to higher effective
interest rates. Debt expense for the second quarter of 2000 was $1.3 million
higher than the level in the first quarter because of higher effective
interest rates, partially offset by the approximately 9% reduction in debt
late in the second quarter.
The tax expense for the three months and six months ended June 30, 2000
included: a) a deferred tax valuation loss of $3.0 million associated with the
sale of the non-continental U.S. operations and the
11
<PAGE>
corresponding capital loss carryforwards, and b) a deferred tax valuation loss
of $2.7 million associated with the cancellation of medical director stock
options.
As a result of the restructuring of our revolving and term loan credit
facilities in July 2000, our third quarter results will include the write-off
of certain related financing costs. These write-offs will be reflected
principally as an extraordinary loss of $3.5 million, net of tax.
Additionally, there will be $1.2 million of pre-tax costs written-off which
will be included in debt expense. Other previously disclosed potential future
charges and expenses include charges related to the unwinding of poor-
performing contracts, partnerships or investments in dialysis-related
companies, and any potential losses related to unfavorable resolution of the
ongoing payment suspension of Medicare claims at our Florida laboratory.
Based on current conditions and recent experience, our current projections
for the remainder of the year 2000 are for normal operating earnings before
non-cash depreciation and amortization expense, impairments and valuation
adjustments, debt expense and income taxes to be in the same general range as
our first half of 2000 results for our ongoing operations in the continental
U.S. These projections assume minimal acquisitions or continental U.S.
divestitures, 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 that of 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, the Company was not in compliance with certain
covenants in its credit facilities. As a result of this non-compliance, all
debt outstanding under the credit facility and the convertible subordinated
notes as of December 31, 1999 was potentially callable and due within one
year, and therefore had been reclassified from long-term debt to a current
classification. On July 14, 2000 a restructuring of the credit facilities was
completed, and the Company is now in compliance with all credit facility
covenants. Accordingly, the long-term portion of our debt was not classified
as a current liability as of June 30, 2000.
The major terms of the restructured credit facilities include the
collateralization of the debt with substantially all of the Company's assets,
reduction in the revolving credit availability to $150 million together with
conversion of $299 million of the revolving facility into a term loan, and a
new quarterly amortization schedule beginning September 30, 2000. In
conjunction with the restructuring a permanent paydown of $50 million was made
and the associated interest rates were returned to the lower Libor-based rate
formulas in effect prior to the non-compliance. The new financial covenants
reflect the Company's current financial position and projected operating
results and plans.
The cash balance at June 30, 2000 was $191 million, an increase of $83
million during the first half of 2000. The principal positive cash flow items
included earnings of $65 million adjusted for non-cash items, a $37 million
reduction in accounts receivable, a $20 million reduction in income taxes
receivable, and $147 million from divestitures. The principal net cash
outflows included a $30 million reduction in accounts payable, $25 million in
net capital asset additions, and $143 million in long-term debt payments.
The June 30, 2000 continental U.S. accounts receivable balance, excluding
the Florida lab withhold balance of approximately $38 million, represents
approximately 71 days of revenue, an improvement of approximately 4 days
during the second quarter, following a 9 day reduction during the first
quarter of 2000.
12
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest rate sensitivity
The table below provides information about our derivative financial
instruments and other financial instruments, primarily borrowings under our
credit facilities, that are sensitive to changes in interest rates. The
interest rates of our financial instruments that are sensitive to changes in
interest rates are partially hedged through interest rate swap agreements for
fixed rates.
For our debt obligations, the table presents principal repayments and
current weighted average interest rates on these obligations as of June 30,
2000. For our debt obligations with variable interest rates, the rates
presented reflect the current rates in effect following the credit facilities
restructuring. These rates are based on LIBOR plus a margin of 3.50% and 3.75%
for the revolver (including the new term portion of the revolver) and the term
debt, respectively.
<TABLE>
<CAPTION>
Expected maturity Average
---------------------------------------- Fair interest
2000 2001 2002 2003 2004 2005 Thereafter Total value rate
---- ---- ---- ---- ---- ---- ---------- ----- ----- --------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt
Fixed rate .... $470 $470 $380 6.63%
Variable rate
.............. $96 $51 $55 $342 $70 $70 $155 $839 $839 10.40%
</TABLE>
For our interest rate swap agreements, the table below presents the
expiration of the notional amounts of these swaps at maturity, the weighted
average fixed interest rates we must pay the swap holders according to the
swap agreements, and the weighted average variable interest rates we will
receive from the swap holders, based upon the current LIBOR. Notional amounts
are used to calculate the contracted payments we will exchange with the swap
holders under the swap agreements. The interest rates we will receive from the
swap holders are variable, and are based on the LIBOR. The fair value of the
swap agreements was approximately $18 million at June 30, 2000.
Some of our swaps have a one-time cancellation provision for our
counterparty at varying times based upon the maturity of the underlying swaps
as presented in the table below.
<TABLE>
<CAPTION>
Weighted average
----------------
Swap Cancellation Notional Fixed Variable
maturity date Option date amount pay rate receive rate
------------- ------------ -------- -------- ------------
(in
millions)
<S> <C> <C> <C> <C>
May 2008 May 2005 $200 5.84% 6.70%
May 2008 May 2003 200 5.67% 6.70%
June 2005 June 2002 100 5.61% 6.87%
June 2005 June 2001 100 5.52% 6.87%
---- ---- ----
$600 5.69% 6.76%
==== ==== ====
</TABLE>
The average interest rate on our variable rate long-term debt has decreased
from 1999 because of changes recently made in the terms of our amended and
restated credit facilities. In addition, during the first half of 2000 two of
our swap agreement counterparties exercised their right to cancel agreements
in the aggregate notional amount of $100 million. The cancelled swap
agreements would have otherwise matured in 2003. The total outstanding amount
of our debt obligations exceeds the aggregate notional amount of our swap
agreements.
Exchange rate sensitivity
As of June 30, 2000, we have divested all of our operations in Argentina,
Germany, Italy and the United Kingdom and are not currently exposed to
significant foreign exchange rate risk. We also recognized a foreign currency
translation loss of $4.7 million associated with these divestitures.
13
<PAGE>
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.
We may not have sufficient cash flow from our business to pay our substantial
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 June 30, 2000 we had:
. Total consolidated debt of approximately $1.309 billion, including $820
million outstanding under our credit facilities;
. Shareholders' equity of approximately $320 million; and
. A ratio of earnings to fixed charges of 0.91:1.
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. 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.
<TABLE>
<CAPTION>
Scheduled payments
------------------
Interest Principal
-------- ---------
(in thousands)
<S> <C> <C>
For the year ending December 31:
2001.................................................... $107,000 $ 50,680
2002.................................................... 102,000 55,084
2003.................................................... 96,000 342,090
2004.................................................... 60,000 70,173
2005.................................................... 53,000 70,156
</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.
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 debt, acquiring and developing new
dialysis facilities, disposing of our assets, and repurchasing our common
stock. These covenants require that we meet financial ratios including
interest coverage, net worth and leverage tests.
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 $158 million in 2001 and $157 million in 2002, 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.
14
<PAGE>
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 40% of our net operating revenues in the first six months of
2000 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
equivalent to Medicare reimbursement rates. We believe that the financial
pressures on private payors to decrease the rates at which they reimburse us
will continue. Additionally, the number of patients which typically pay at or
near our list prices may decline. 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.
More than 50% of our net operating revenues in the first six months of 2000
was 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 the composite rate. We cannot
predict the nature or extent of future rate changes, if any.
Health and Human Services, or 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 the first six months of 2000 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. HCFA, or the Health Care Finance Administration, has also
proposed reductions in the average wholesale prices that it uses for many
outpatient prescription drugs should be reduced. We cannot predict whether
Congress will enact the Clinton 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 a 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 our 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.
15
<PAGE>
Over the long-term, we expect 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
may include increases in labor and supply costs at a faster rate than
reimbursement rate increases, the potential for Medicare reimbursement cuts
for pharmaceuticals and ancillary services, an inability to achieve future
pricing increases for both private pay and managed care patients and any
reduction in the number of patients who have insurance plans that pay at or
near our usual and customary rates.
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 43% of our assets and 255% of our shareholders' equity at June 30,
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, the 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 in
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.
16
<PAGE>
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
declined recently, due to consolidation among these suppliers. If we are not
able to manage our medical supply utilization better or 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 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 healthcare 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, or OIG, has reported that it recovered
$1.2 billion in fiscal year 1997 and $480 million in fiscal year 1998 from
healthcare fraud investigations. Also, in January 2000 one of our competitors
entered into a $486 million settlement as a result of an OIG investigation
into some of its practices. Additionally, in June 2000 representatives of the
OIG testified before the Senate Special Committee on Aging regarding HCFA's
processes for external quality review of dialysis facilities. The OIG's
recommendations focused on strengthening the oversight of dialysis facilities
and the conditions of participation in the Medicare ESRD program. We expect
this regulatory scrutiny to continue, if not increase, in the near term.
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
June 30, 2000, the carrier had withheld approximately $38 million, which has
adversely affected our cash flow. We may never recover the amounts withheld,
for which no reserves have been established.
If we fail to comply with federal and state fraud and abuse statutes, it could
result in sanctions or require us to restructure our relationships with
referring physicians.
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
17
<PAGE>
deemed not to violate these provisions. Enforcement agencies may subject
arrangements that do not fall within a 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.
18
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The information in Note 7 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>
10.1 Amendment to Mr. Thiry's employment agreement, dated May 20, 2000.
10.2 Second Amended and Restated Revolving Credit Agreement, dated as of
July 14, 2000, by and among TRCH, the lenders party thereto, DLJ
Capital Funding, Inc., as Syndication Agent, First Union National
Bank, as Documentation Agent, and The Bank of New York, as
Administrative Agent.
10.3 Second Amended and Restated Term Loan Agreement, dated as of July 14,
2000, by and among, TRCH, the lenders party thereto, DLJ Capital
Funding, Inc., as Syndication Agent, and The Bank of New York, as
Administrative Agent.
10.4 Security Agreement, dated as of July 14, 2000, by and among TRCH,
subsidiaries of TRCH, The Bank of New York, as Collateral Agent, the
lenders under the Revolving Credit Agreement and their agent, the
lenders under the Term Loan Agreement and their agent, and the
Secured Interest Rate Exchangers (as defined therein).
10.5 Amended and Restated Subsidiary Guaranty entered into as of July 14,
2000 by subsidiaries of TRCH in favor of and for the benefit of The
Bank of New York, as Collateral Agent, the lenders under the
Revolving Credit Agreement and their agent, the lenders under the
Term Loan Agreement and their agent, and the Acknowledging Interest
Rate Exchangers (as defined therein).
12.1 Ratio of earnings to fixed charges.
27.1 Financial Data Schedule--three and six months ended June 30, 2000 and
1999.
</TABLE>
(b) Reports on Form 8-K
None.
19
<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: August 14, 2000
--------
* Mr. Beil has signed both on behalf of the registrant as a duly authorized
officer and as the registrant's chief accounting officer.
20
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.1 Amendment to Mr. Thiry's employment agreement, dated May 20, 2000.
10.2 Second Amended and Restated Term Loan Agreement, dated as of July 14,
2000, by and among, TRCH, the lenders party thereto, DLJ Capital
Funding, Inc., as Syndication Agent, and The Bank of New York, as
Administrative Agent.
10.3 Second Amended and Restated Revolving Credit Agreement, dated as of
July 14, 2000, by and among TRCH, the lenders party thereto, DLJ
Capital Funding, Inc., as Syndication Agent, First Union National
Bank, as Documentation Agent, and The Bank of New York, as
Administrative Agent.
10.4 Security Agreement, dated as of July 14, 2000, by and among TRCH,
subsidiaries of TRCH, The Bank of New York, as Collateral Agent, the
lenders under the Revolving Credit Agreement and their agent, the
lenders under the Term Loan Agreement and their agent, and the
Secured Interest Rate Exchangers (as defined therein).
10.5 Amended and Restated Subsidiary Guaranty entered into as of July 14,
2000 by subsidiaries of TRCH in favor of and for the benefit of The
Bank of New York, as Collateral Agent, the lenders under the
Revolving Credit Agreement and their agent, the lenders under the
Term Loan Agreement and their agent, and the Acknowledging Interest
Rate Exchangers (as defined therein).
12.1 Ratio of earnings to fixed charges.
27.1 Financial Data Schedule--three and six months ended June 30, 2000 and
1999.
</TABLE>
