Form 10-Q/A
Amendment No. 1
SECURITIES AND EXCHANGE COMMISSION
(Mark One) Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 1-14142
Renal Treatment Centers, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 23-2518331
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1180 W. Swedesford Road
Building 2, Suite 300
Berwyn, PA 19312
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 610-644-4796
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at May 8, 1997
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Common Stock, Par Value $.01 24,973,035 shares
INTRODUCTORY STATEMENT
Renal Treatment Centers, Inc. ("RTC") was acquired by Total Renal Care
Holdings, Inc. ("TRCH") on February 27, 1998. On April 1, 1998, TRCH announced
(i) that it had undertaken a detailed review of RTC's accounts receivable and
other balance sheet accounts in connection with the completion of the audit of
RTC's financial statements for the fiscal year ended December 31, 1997, and (ii)
that as a result of such review, it expected to recognize between $25 million
and $30 million of non-cash charges related to prior periods which would require
a revision of RTC's previously announced results of operations. On April 30,
1998, TRCH announced that RTC might be required to correct previously audited
financial statements.
The analysis of RTC's financial statements was completed on May 15, 1998. In
order to correct certain errors discovered through such analysis, TRCH has
determined to (i) restate RTC's financial statements for the fiscal year ended
December 31, 1996, (ii) revise RTC's financial statements for the quarterly
periods ended March 31, 1997, June 30, 1997 and September 30, 1997 and (iii)
revise RTC's previously announced results of operations for the fiscal quarters
ended March 31, 1996 and 1997, June 30, 1996 and 1997, September 30, 1996 and
1997 and December 31, 1996 and 1997 and the fiscal years ended December 31, 1996
and 1997. This Form 10-Q/A is being filed to correct the financial statements
included in the Form 10-Q for the quarterly period ended March 31, 1997 which
was filed on May 14, 1997 (the "First Quarter 10-Q"). RTC is concurrently filing
(i) separate Form 10-Q/A's to correct the financial statements included in the
Form 10-Q's previously filed for the quarterly periods ended June 30, 1997 and
September 30, 1997 and (ii) a Form 10-K/A to correct the financial statements
included in the Form 10-K for the year ended December 31, 1996 which was filed
on March 29, 1997.
The balance sheets included in the First Quarter 10-Q are being amended
hereby to reflect a reduction of accounts receivable at March 31, 1997 and at
December 31, 1996 and to reflect the balance sheet impact of (i) the restatement
of RTC's financial statements for the year ended December 31, 1996 and (ii) the
revision of the statement of income for the three months ended March 31, 1997.
The statements of income included in the First Quarter 10-Q are being amended
hereby to reflect related reductions of net patient revenue, related increases
in the provision for doubtful accounts and related reductions in the provision
for income taxes. For the interim period ended March 31, 1997, the reduction in
the provision for income taxes was offset, in part, by an increase in the
provision for income taxes primarily related to RTC's foreign operations. (See
Note 2 of the financial statements filed herewith.)
Approximately one half of the charges described above relate to untimely
billing and subsequent requests for information by RTC with governmental payors
(primarily state medicaid programs) and contracted private payors. The remainder
relates primarily to improper contractual allowances related to revenue
recognition at the time of billing and to uncollectible accounts. TRCH believes
that the causes of such problems have been appropriately addressed and that
systems and processes are now in place to ensure accurate contractual
allowances related to revenue recognition and timely account resolution,
including all appropriate collection efforts.
Information included in Item 2 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) under the captions "Results of
Operations" and "Three Months Ended March 31, 1997 Compared to Three Months
Ended March 31, 1996" of the First Quarter 10-Q was based on RTC's unaudited
consolidated financial statements prior to the amendments described above.
Consequently, the information included in Item 2 under such captions overstates
both net patient revenue and the provision for income taxes and understates the
provision for doubtful accounts as described above. RTC believes that the
amendment of Item 2 to reflect such changes would provide no material additional
information not already presented in Item 2 of the First Quarter 10-Q or in this
Form 10-Q/A. Consequently, such Item 2 is not restated in this Form 10-Q/A.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Renal Treatment Centers, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1997 1996
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Assets
Current assets:
Cash $9,487,839 $ 1,445,798
Investments - 41,202,123
Accounts receivable, net of allowance for
doubtful accounts of $8,378,117 in 1997 and
$7,853,350 in 1996 70,299,673 65,198,524
Inventories 4,099,362 4,388,290
Deferred taxes 2,076,240 2,149,718
Prepaid expenses and other current assets 3,727,563 2,749,497
Income tax receivable 1,992,343 3,782,890
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Total current assets 91,683,020 120,916,840
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Property and equipment (net of accumulated depreciation of $21,698,808 in 1997
and $19,691,015 in 1996.) 47,031,379 39,578,245
Intangibles (net of accumulated amortization of $36,447,541 in 1997 and
$32,934,871 in 1996.) 167,439,151 130,645,378
Deferred taxes, non-current 2,807,064 2,807,064
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Total assets $308,960,614 $293,947,527
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Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $5,084,239 $ 12,369,365
Accounts payable 9,598,457 11,341,983
Accrued compensation 4,711,800 3,838,502
Accrued expenses 3,367,363 4,051,614
Accrued interest 1,661,394 3,638,874
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Total current liabilities 24,423,253 35,240,338
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Long-term debt, net 150,267,999 130,573,685
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized: none issued
Common stock, $.01 par value, 45,000,000 shares authorized: issued and
outstanding 24,654,419 and 24,430,256 shares in 1997 and 1996, respectively. 246,544 244,303
Additional paid-in capital 90,060,639 87,890,138
Retained earnings 44,356,255 40,393,139
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134,663,438 128,527,580
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Less treasury stock, 37,202 shares in 1997 and 1996, at cost (394,076) (394,076)
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Total stockholders' equity 134,269,362 128,133,504
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Total liabilities and stockholders' equity $308,960,614 $293,947,527
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See accompanying notes to consolidated financial statements.
Renal Treatment Centers, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three Months Ended March 31,
1997 1996
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Net patient revenue $68,907,654 $48,255,482
Patient care costs 34,325,569 24,485,227
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Operating profit 34,582,085 23,770,255
General and administrative expense 17,477,866 13,153,351
Provision for doubtful accounts 2,814,047 2,375,935
Depreciation and amortization expense 5,733,667 3,572,201
Merger expenses - 1,708,247
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Income from operations 8,556,505 2,960,521
Interest expense, net 1,824,043 697,120
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Income before income taxes 6,732,462 2,263,401
Provision for income taxes 2,769,346 804,804
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Net income $3,963,116 $1,458,597
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Net income per common share $ 0.15 $ 0.06
Weighted average number of common
shares outstanding 24,509,763 24,036,542
Net income per common share -- assuming dilution $ 0.15 $ 0.06
Weighted average number of common shares and
equivalents outstanding -- assuming dilution 25,702,611 25,464,145
See accompanying notes to consolidated financial statements.
Renal Treatment Centers, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
1997 1996
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Cash flows from operating activities:
Net income $3,963,116 $1,458,597
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,827,417 3,583,036
Provision for doubtful accounts 2,814,047 2,375,935
Equity in (earnings) losses from affiliates (82,865) 242,372
Changes in operating assets and liabilities, net of effects of
companies acquired:
Accounts receivable (7,915,196) (637,609)
Inventories 636,284 (813,448)
Prepaid expenses and other current assets (926,864) 431,081
Accounts payable and accrued expenses (3,768,643) (3,960,540)
Accrued income taxes 1,758,838 (1,083,318)
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Net cash provided by operating activities 2,306,134 1,596,106
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Cash flows from investing activities:
Capital expenditures (5,824,001) (2,005,302)
Purchase of businesses, net of cash acquired (42,841,882) (2,010,241)
Sale of investments 41,202,123 -
Other (711,466) (613,125)
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Net cash used in investing activities (8,175,226) (4,628,668)
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Cash flows from financing activities:
Proceeds from long-term debt borrowings 23,000,000 1,500,000
Repayments of debt (9,296,614) (3,587,473)
Proceeds from issuance of common stock 454,453 524,581
Payments on capital lease obligations (246,706) (793,671)
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Net cash (used in) provided by financing activities 13,911,133 (2,356,563)
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Net increase (decrease) in cash and cash equivalents 8,042,041 (5,389,125)
Cash and cash equivalents at beginning of period 1,445,798 8,231,421
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Cash and cash equivalents at end of period $9,487,839 $2,842,296
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See accompanying notes to consolidated financial statements.
Renal Treatment Centers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been prepared
by the Company in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. The interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's Form 10-K
filed with the Securities and Exchange Commission on March 28, 1997.
2. EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 establishes standards for computing and presenting earnings per share. Basic
earnings per share is calculated by dividing net income before extraordinary
items and net income by the weighted average number of shares of common stock
outstanding. Accordingly, earnings per common share--assuming dilution includes
the dilutive effects of stock options and warrants using the treasury stock
method, in determining the weighted average number of shares of common stock
outstanding. Earnings per share for all periods presented have been restated
following the provisions of SFAS 128.
3. SELECTED QUARTERLY FINANCIAL DATA:
The financial information as previously presented for the three months ended
March 31, 1997 and 1996 in the Registrant's Form 10-Q as filed on May 14, 1997
and Form 10-Q/A filed on June 6, 1996 has been restated to correct net patient
revenue and the provision for doubtful accounts receivable in 1997 and 1996 and
to correct the 1997 provision for income taxes primarily related to the
Company's foreign operations with the following effect (in thousands, except per
share amounts):
For the three months ended March 31,
1997 1996
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As As
Originally As Originally As
Reported Restated Reported Restated
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Net patient revenue 71,107 68,907 50,550 48,255
Operating expenses 59,729 60,352 44,490 45,294
Income from operations 11,378 8,555 6,060 2,961
Provision for income taxes 3,535 2,769 1,990 805
Net income 6,019 3,963 3,372 1,459
Net income per common share 0.25 0.15 0.14 0.06
Net income per common share--
assuming dilution 0.24 0.15 0.13 0.06
4. COMMITMENTS AND CONTINGENCIES:
The Company is a party to certain legal actions arising in the ordinary course
of business. The Company believes it has adequate legal defenses and/or
insurance coverage for these actions and that the ultimate outcome of these
actions will not have a material adverse impact on the Company's results of
operations, financial condition or liquidity.
5. SIGNIFICANT EVENTS:
Purchase Transactions:
During the first quarter of 1997, the Company acquired substantially all of the
assets of twelve dialysis centers, inclusive of one center operating under a
management agreement. Eight of the centers are located in Texas, two centers are
located in the Republic of Argentina and one center each is located in Nevada,
Florida and Pennsylvania. Combined, these centers provide care to an effective
patient base of approximately 830, including patients covered under inpatient
dialysis service agreements with eight hospitals.
Subsequent Event:
On May 2, 1997, the Company amended its revolving credit/term facility ("Credit
Agreement") to increase the amount available under the Credit Agreement from
$100,000,000 to $200,000,000 and to make certain other changes to the terms of
the Credit Agreement, including amendments to certain covenants, the
amortization schedule and the interest rates.
Part II. Other Information
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Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
The following exhibits are filed herewith:
Exhibit No. Document
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10.1 Renal Treatment Centers, Inc. Amended and Restated
1990 Stock Plan (incorporated herein by reference
to Exhibit No. 10.1 filed under the Company's
Annual Report on Form 10-K for the year ended
December 31, 1996). *
10.12.6 Fifth Amendment to Lease dated November 26, 1996
(previously filed under the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
March 31, 1997).
11.1 Computation of net income per common share and net
income per common share -- assuming dilution.
27 Amended Financial Data Schedule.
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*Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
Form 8-K dated February 5, 1997 filed to report under Item 5
consolidated selected financial data, management's discussion and
analysis and consolidated financial statements and financial
statement schedule as of December 31, 1993, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995 giving
retroactive effect to the merger with Panama City Artificial Kidney
Center, Inc. and North Florida Artificial Kidney Center, Inc.
(collectively, the "Group"). The Company previously filed this
information as supplemental financial statements in a Current Report
on Form 8-K dated August 23, 1996. After that time, the Company filed
post- combination results of operations including the Group.
Accordingly, the financial statements in the Form 8-K dated February
5, 1997 were filed as the historical financial statements of the
Company.
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.
RENAL TREATMENT CENTERS, INC.
By: /s/John E. King
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Vice President, Finance and
Chief Financial Officer
Date: May 18, 1998
Renal Treatment Centers, Inc. and Subsidiaries
Exhibit Index
Exhibit No. Description
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10.1 Renal Treatment Centers, Inc. Amended and Restated 1990 Stock Plan (incorporated
herein by reference to Exhibit No. 10.1 filed under the Company's Annual Report
on Form 10-K for the year ended December 31, 1996).
10.12.6 Fifth Amendment to Lease dated November 26, 1996 (previously
filed under the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1997).
11.1 Computation of net income per common share and net income per
common share--assuming dilution.
27 Amended Financial Data Schedule.
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* Management contract or compensatory plan or arrangement.