SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Amendment No. 1
Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
May 29, 1996
----------------------------------------------------------------
Date of Report (Date of earliest event reported)
Renal Treatment Centers, Inc.
-----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 1-14142 23-2518331
- ---------------------------- ------------ --------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
1180 W. Swedesford Road, Building 2, Suite 300, Berwyn, PA 19312
- --------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 610-644-4796
------------
The Current Report on Form 8-K of Renal Treatment Centers, Inc. (the
"Company"), dated May 29, 1996 and filed on June 13, 1996, reported the
acquisition of certain assets of Kidney Center of Delaware County, Ltd.
("KCDC") and Kidney Center of Chester County, Ltd. ("KCCC"). Items 7(a) and 7(b)
of the report stated that the historical financial statements of KCDC and KCCC
required under Rule 3-05 of Regulation S-X and the pro forma financial
information required under Article 11 of Regulation S-X would be filed as soon
as practicable, but not later than August 13, 1996. The purpose of this
amendment is to file such financial statements and information.
Item 7. Financial Statements and Exhibits.
----------------------------------
(a) Financial Statements of Businesses Acquired.
--------------------------------------------
The following lists the historical financial statements of KCDC
and KCCC filed herewith:
Page
----
Report of Independent Accountants 4
Combined Balance Sheets
as of December 31, 1995 and as of March 31, 1996
(unaudited) 5
Combined Statements of Operations
for the year ended December 31, 1995 and
for the three months ended March 31, 1995 (unaudited)
and 1996 (unaudited) 6
Combined Statements of Stockholders' Equity
for the year ended December 31, 1995
and for the three months ended March 31, 1996
(unaudited) 7
Combined Statements of Cash Flows
for the year ended December 31, 1995
and for the three months ended March 31, 1995
(unaudited) and 1996 (unaudited) 8
Notes to Financial Statements 9-13
(b) Pro Forma Financial Information.
--------------------------------
The following lists the pro forma financial information
filed herewith:
Pro forma Consolidated Balance Sheets as of March 31,
1996 14
Pro forma Consolidated Statements of Operations for the
year ended December 31, 1995 and the three
months ended March 31, 1996 15
Notes to Pro Forma Consolidated Financial Statements 16-17
(c) Exhibits.
--------
The following exhibits are filed herewith: 18
Exhibit No. Document
----------- --------
2.1 Asset Purchase Agreement, Dated as of May 29,
1996, with an effective time of May
31, 1996 at 11:59 PM, between Renal
Treatment Centers Pennsylvania, Inc. and
KCCC Liquidating Trust (the exhibits and
schedules to this agreement have been
omitted pursuant to Item 601(b)(2) of
Regulation S-K and will be provided
supplementally to the Commission upon its
request). (previously filed with the
Company's current report on Form 8-K
dated May 29, 1996).
(c) Exhibits (continued)
2.2 Asset Purchase Agreement, Dated as of May 29,
1996, with an effective time of May 31, 1996
at 11:59 PM, between Renal Treatment Centers-
Pennsylvania, Inc. and KCDC Liquidating
Trust (the exhibits and schedules to this
agreement have been omitted pursuant to Item
601(b)(2) of Regulation S-K and will be
provided supplementally to the Commission
upon its request). (previously filed with
the Company's current report on Form 8-K
dated May 29, 1996).
23.1 Consent of Coopers & Lybrand.
99.1 Fourth Amended and Restated Loan Agreement
dated as of June 5, 1996 between Renal
Treatment Centers, Inc. and the various
lenders set forth therein. (previously
filed with the Company's current report on
Form 8-K dated May 29, 1996).
99.2 Press release dated June 10, 1996 issued by
Renal Treatment Centers, Inc. (previously
filed with the Company's current report on
Form 8-K dated May 29, 1996).
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to be signed on its behalf
by the undersigned hereunto duly authorized.
RENAL TREATMENT CENTERS, INC.
/s/Ronald H. Rodgers, Jr.
----------------------------------
By: Ronald H. Rodgers, Jr.
Vice President -Finance
Date:
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of KCDC/KCCC Group:
We have audited the accompanying combined balance sheet of KCDC/KCCC Group (the
"Group") as of December 31, 1995, and the related combined statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Group as of
December 31, 1995 and the combined results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/COOPERS & LYBRAND, L.L.P.
Wayne, Pennsylvania
June 26,1996
KCDC/KCCC GROUP
COMBINED BALANCE SHEET
December 31, 1995 and
March 31, 1996 (unaudited)
December 31, March 31,
1995 1996
(Unaudited)
- -------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 518,323 $ 395,319
Accounts receivable, net of allowance for
doubtful accounts of $623,392 and $754,980
(unaudited) at December 31, 1995 and at
March 31, 1996, respectively 3,538,720 3,686,084
Prepaid expenses 10,716 5,674
- -------------------------------------------------------------------------------------
Total current assets 4,067,759 4,087,077
=====================================================================================
Property and equipment (net of accumulated depreciation
of $1,138,345 and $1,208,233 (unaudited) at December 31,
1995 and March 31, 1996, respectively) 1,776,129 1,729,033
- -------------------------------------------------------------------------------------
Total assets $5,843,888 $5,816,110
=====================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 307,319 $ 309,402
Accounts payable 532,251 472,466
Pension liability 2,119,639 2,119,639
Accrued compensation 364,426 599,432
Accrued expenses 61,725 7,232
- -------------------------------------------------------------------------------------
Total current liabilities 3,385,360 3,508,171
=====================================================================================
Long-term debt, net 1,550,800 1,471,888
Stockholders' equity:
Common stock, $1 par value, 2000 shares authorized:
issued and outstanding 600 shares at December 31,
1995 and March 31, 1996 (unaudited), respectively 600 600
Additional paid-in capital 32,677 32,677
Retained earnings 874,451 802,774
- -------------------------------------------------------------------------------------
Total stockholders' equity 907,728 836,051
=====================================================================================
Total liabilities and stockholders' equity $5,843,888 $5,816,110
=====================================================================================
See accompanying notes to combined financial statements.
KCDC/KCCC GROUP
COMBINED STATEMENT OF OPERATIONS
for the year ended December 31, 1995 and the
Unaudited three months ended March 31, 1995 and 1996
December 31, March 31, March 31,
1995 1995 1996
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------
Net patient revenue $13,391,407 $3,477,419 $3,270,606
Patient care costs 10,362,247 2,141,548 2,384,816
- ------------------------------------------------------------------------------------
Operating profit 3,029,160 1,335,871 885,790
General and administrative 1,973,516 548,180 584,405
Provision for doubtful accounts 1,393,595 361,774 131,588
Depreciation 148,754 38,085 69,871
- ------------------------------------------------------------------------------------
Income (loss) from operations (486,705) 387,832 99,926
Interest expense, net of interest
income of $19,767 for the year ended
December 31, 1995 26,720 19,000 32,803
- ------------------------------------------------------------------------------------
Net income (loss) $(513,425) $368,832 $67,123
====================================================================================
See accompanying notes to combined financial statements.
KCDC/KCCC GROUP
Combined Statements of Stockholders' Equity
for the year ended December 31, 1995 and the
Unaudited three months ended March 31, 1996
COMMON STOCK Additional
------------ Paid-in Retained
Shares Amount Capital Earnings Total
- ----------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 600 $600 $32,677 $2,792,676 $2,825,953
Net loss (513,425) (513,425)
S Corporation distribution (1,404,800) (1,404,800)
- ----------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 600 $600 $32,677 $874,451 $907,728
Net income 67,123 67,123
S Corporation distribution (138,800) (138,800)
- ----------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 600 $600 $32,677 $802,774 $836,051
==========================================================================================================
See accompanying notes to combined financial statements.
KCDC/KCCC GROUP
COMBINED STATEMENTS OF CASH FLOWS
for the year ended December 31, 1995 and the unaudited
three months ended March 31, 1995 and 1996
December 31, March 31, March 31,
1995 1995 1996
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss) income $ (513,425) $ 368,832 $ 67,123
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 148,754 38,085 69,871
Provision for doubtful
accounts 1,393,595 361,774 131,588
Changes in operating assets
and liabilities:
Accounts receivable (426,252) 112,854 (278,935)
Prepaid expenses (4,385) (9,834) 5,042
Accounts payable and
accrued expenses 903,443 524,261 120,728
- -------------------------------------------------------------------------------------------
Net cash provided by
operating activities 1,501,730 1,395,972 115,417
- -------------------------------------------------------------------------------------------
Cash flows from investing activities: (978,417) (241,207) (22,792)
Capital expenditures
- -------------------------------------------------------------------------------------------
Net cash used in investing (978,417) (241,207) (22,792)
activities
- -------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt
borrowings 1,060,521
Repayments of debt (71,731) (53,025)
Payment of S corporation
distribution (1,404,800) (308,800) (138,800)
Repayments of capital lease
obligations (87,554) (21,889) (23,804)
- -------------------------------------------------------------------------------------------
Net cash used by financing
activities (503,564) (330,689) (215,629)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 19,749 824,076 (123,004)
Cash and cash equivalents at beginning
of period 498,574 498,574 518,323
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 518,323 $1,322,650 $ 395,319
===========================================================================================
See accompanying notes to combined financial statements.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Description of Business
KCDC/KCCC Group (the "Group") consists of Kidney Center of Delaware County, Ltd.
("KCDC") and Kidney Center of Chester County, Ltd. ("KCCC"). The Group provides
dialysis treatments for End Stage Renal Disease ("ESRD") patients in an
outpatient environment or in the patient's home. Additionally, the Group has
entered into inpatient dialysis service agreements with hospitals to provide
dialysis treatments on an inpatient basis.
For the year ended December 31, 1995, approximately 53% of the Company's net
patient revenue was received from Medicare. Accordingly, the Company's
operations and cash flows are dependent upon the rate and manner of payment for
patient services from third party payors and, in particular, federal and state
administered programs.
2. Summary of Significant Accounting Policies
Basis of Presentation:
The combined financial statements of the Group include the accounts and results
of operations of KCDC and KCCC. KCDC is owned by James Clark, M.D. and Richard
R. Soricelli, M.D. and KCCC is owned by James Clark, M.D., Richard R. Soricelli,
M.D., Hardy Sorkin, M.D. and George Randolph Westby, M.D.
Certain amounts included in the accompanying combined financial statements and
related footnotes reflect the use of estimates based on assumptions made by
management. Actual amounts could differ from these estimates.
Principles of Combination:
The combined financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of KCDC and
KCCC. All significant intercompany accounts and transactions have been
eliminated in combination.
Patient Revenue and Allowances:
Patient revenue is recorded at established rates on the accrual basis in the
period during which the service is provided. Appropriate allowances to give
recognition to third-party arrangements are also recorded on the accrual basis.
Payments to the Group under Medicare and Medicaid and other state administered
programs are based upon a predetermined specific fee per treatment.
The Group does not believe there are any significant credit risks associated
with receivables from Medicare and Medicaid and other state administered
programs. The allowance for doubtful accounts consists of management's estimate
of amounts that may prove uncollectible from secondary insurers or patients.
Patient Care Costs:
Patient care costs include medical supplies, including Erythropoietin ("EPO")
supplies, and direct patient care salaries and benefits.
Dialysis Supplies:
Dialysis supplies, including EPO, are expensed at the time of purchase.
Property and Equipment and Depreciation and Amortization:
Property and equipment are stated at cost or respective fair market value at the
time of acquisition. Equipment under capital lease is stated at the lower of
the fair market value or net present value of the minimum lease payments at
inception of the lease. Depreciation and amortization are provided by the
straight-line method over the estimated useful lives of the related assets or
lease terms for leasehold improvements and equipment under capital lease. The
estimated useful life is five to seven years for furniture, fixtures and
equipment. Costs of maintenance and repairs are charged to expense as incurred.
Sales and retirements of depreciable assets are recorded by removing the related
cost and accumulated depreciation from the accounts. Gains and losses on sales
and retirements of assets are reflected in results of operations.
Income Taxes:
KCDC and KCCC have elected to have their income taxed as S Corporations under
the provisions of the Internal Revenue Code. Therefore, taxable income or loss
is reported for all of the Group's entities to the individual stockholders for
inclusion in their respective tax returns, and no provision for federal or state
income taxes is included in these statements.
Prepaid Expenses:
Prepaid expenses consist of prepaid insurance and real estate taxes.
2. Summary of Significant Accounting Policies (continued)
Estimated Medical Professional Liability Claims:
The Company is insured for medical professional liability claims through a
commercial insurance policy. It is the Group's policy that provision for
estimated premium adjustments to medical professional liability costs be made
for asserted and unasserted claims and based upon the Group's experience.
Provision for such professional liability claims includes estimates of the
ultimate costs of such claims. To date, the Group's experience with such claims
has not been significant. Accordingly, no such provision has been made.
Cash Equivalents:
For the purpose of reporting cash flows, the Group considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents. The cash of the Group is principally held by one financial
institution.
Interim Financial Information:
The financial statements and accompanying financial information in the notes to
the combined financial statements as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 are unaudited but, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments and
accruals) which the Group considers necessary for a fair presentation of the
financial position of the Group at such dates and the operating results and cash
flows for those periods. Results for interim periods are not necessarily
indicative of results for the entire year.
3. Property and Equipment:
A summary of property and equipment and related accumulated depreciation as of
December 31, 1995 is as follows:
December 31, 1995
- --------------------------------------------------------------------------------
Furniture, fixtures and equipment $1,513,215
Capital leases 1,401,259
- --------------------------------------------------------------------------------
2,914,474
- --------------------------------------------------------------------------------
Less accumulated depreciation 1,138,345
- --------------------------------------------------------------------------------
$1,776,129
================================================================================
Depreciation expense was $148,754 for the year ended December 31, 1995.
4. Long-Term Debt: December 31, 1995
- --------------------------------------------------------------------------------
Long-term debt as of December 31, 1995 consists of:
Term loan payable in monthly principal
installments of $6,830 through August 1, 2000 at an
interest rate equal to prime, 8.5% at December 31,
1995 $ 375,705
Term loan payable in monthly principal installments
of $7,511 through August 1, 2000 at an interest
rate equal to prime, 8.5% at December 31, 1995 413,105
Term loan payable in monthly principal
installments of $3,333 through January 1, 2001
at an interest rate equal to prime, 8.5% at December 31,
1995 199,980
Capital lease obligation 869,329
Less current portion (307,319)
----------
$1,550,800
==========
4. Long-Term Debt (continued)
Maturities of long-term debt outstanding, excluding capital leases, as of
December 31, 1995 for each of the next five years, is as follows:
Year
------------------------
1996 $212,100
1997 212,100
1998 212,100
1999 212,100
2000 140,390
The loans are collateralized by a lien on all of the Group's assets. The
agreements require the Group to comply with certain covenants and maintain
certain financial ratios. There was a covenant violation during the year ended
December 31, 1995. The loans are not classified as a current liability since
the debt was subsequently paid off. The carrying amount of the long-term debt
is a reasonable estimate of its fair value utilizing interest rates based on the
prevailing market rates.
5. Leasing Arrangements:
The Group leases certain of its operating facilities, corporate office and
furniture and equipment under non-cancelable leases for terms ranging from three
to fifteen years with certain renewal options. Certain facilities and equipment
are leased by the Group from stockholders.
Future minimum lease payments are as follows:
Third-party Operating Leases
Capital Operating with
Lease Leases Stockholders
- --------------------------------------------------------------------------------
1996 $ 157,500 $23,170 $286,572
1997 157,500 4,678 286,572
1998 157,500 1,548
1999 157,500
2000 and thereafter 472,500
- --------------------------------------------------------------------------------
Total minimum lease payments 1,102,500 $29,396 $573,144
- ------------------------------------------------- =============================
Less amount representing interest 233,171
Present value of net minimum
payments under capital lease 869,329
Less current portion 95,219
- -------------------------------------------------
$ 774,110
=================================================
The capital lease represents a lease for a dialysis facility with companies
owned in whole by the Group's stockholders. Rent expense paid to stockholders
under operating leases was $286,572 for the year ended December 31, 1995.
6. Benefit Plans:
KCDC and KCCC each maintain a defined benefit pension plan covering
substantially all employees. KCDC and KCCC failed to timely amend the plan for
the Tax Reform Act of 1986 in 1995, which subjects the plan to disqualification
by the Internal Revenue Service. The plan has been amended to cure the
disqualification prospectively and KCDC and KCCC each filed an application with
the IRS under the Voluntary Closing Agreement Program to cure the
disqualification for the years 1989 through 1994. This program can impose a
sanction between $1,000 and 40% of the maximum payment amount (which equals
approximately $140,000). At the current time management cannot predict the
ultimate outcome. KCDC's and KCCC's funding policy, consistent with statutory
requirements, is based on actuarial computations.
The pension cost for the year ended December 31, 1995 included the following
components:
1995
--------
Service cost - benefits earning
during the year $395,334
Interest cost on projected benefit
obligation 300,208
Return on assets (627,197)
Net amortization and deferral 381,346
--------
Total pension cost $449,691
========
The funded status of the pension plan at December 31, 1995, using a valuation
date of January 1, 1995, for the plan assets and liabilities was:
Actuarial present value of
benefit obligations:
Accumulated benefit obligations:
Vested $4,087,273
Effect of projected future
increases in compensation 1,435,875
----------
Projected benefit obligation
5,523,148
Plan assets at fair value
4,808,529
Deficiency of plan assets over projected benefit obligation ----------
Unrecognized net gain 714,619
Unrecognized transition asset 338,408
Pension liability 1,066,612
----------
Major Assumptions: $2,119,639
==========
Discount rate
Average rate of increase in compensation
Expected long-term rate of return on plan assets
6%
3%
7%
The accumulated benefit obligation represents the actuarial present value
(including the discount rate noted above) of accumulated plan benefits, while
the projected benefit obligation assumes future increases in compensation.
7. Commitment and Contingencies:
KCDC has an employment agreement with an officer which provides for total annual
compensation of approximately $150,000. In the event of a merger or an
acquisition, the agreement entitles the officer to a payout of approximately
$150,000.
KCCC has been named in an action related to a medical malpractice claim. While
the ultimate disposition of this contingency cannot be determined at this
time, management believes that their insurance is adequate to cover the claim.
8. Supplemental Cash Flow Information:
Supplemental disclosure of cash flow information for the year ended December
31,1995 and for the three months ended March 31, 1995 and March 31, 1996 is
as follows:
December 31, March 31, March 31,
1995 1995 1996
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------
Cash paid for:
Interest $40,155 $16,000 $36,207
===========================================================================
9. Subsequent Event:
On May 29, 1996 the Group sold substantially all assets except accounts
receivable and cash to Renal Treatment Centers, Inc. for $26,622,396, effective
11:59 PM May 31, 1996. As part of this transaction the Group retained all
liabilities.
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996
Historical
Renal Historical
Treatment Acquired Pro forma
Centers, Inc. company adjustments (1) Pro forma
(unaudited) (unaudited) (unaudited) (unaudited)
-------------- ----------- --------------- -------------
ASSETS
Current assets:
Cash $ 2,657,638 $ 395,319 $ (595,319) $ 2,457,638
Accounts receivable, net 56,090,971 3,686,084 (3,686,084) 56,090,971
Inventories 3,522,878 198,491 3,721,369
Deferred taxes 1,412,519 1,412,519
Prepaid expenses and other current assets 1,023,065 5,674 (5,674) 1,023,065
------------ ---------- ----------- ------------
Total current assets 64,707,071 4,087,077 (4,088,586) 64,705,562
Property and equipment, net 24,952,573 1,729,033 (525,780) 26,155,826
Intangibles, net 86,055,057 25,420,652 111,475,709
Deferred taxes, non-current 1,749,754 1,749,754
------------ ---------- ----------- ------------
Total assets $177,464,455 $5,816,110 $20,806,286 $204,086,851
============ ========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,742,845 $ 309,402 $ (309,402) $ 4,742,845
Accounts payable 5,416,174 472,466 (472,466) 5,416,174
Pension liability 2,119,639 (2,119,639)
Accrued compensation 3,300,300 599,432 (599,432) 3,300,300
Accrued expenses 4,469,349 7,232 (7,232) 4,469,349
Accrued income taxes 2,320,777 2,320,777
Accrued interest 745,647 745,647
------------ ---------- ------------- ------------
Total current liabilities 20,995,092 3,508,171 (3,508,171) 20,995,092
Long term debt, net 40,503,340 1,471,888 25,150,508 (2) 67,125,736
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized; none issued
Common stock, $.01 par value, 45,000,000 shares
authorized; 23,619,076 shares issued and
outstanding 236,191 600 (600)(3) 236,191
Additional paid-in capital 83,619,838 32,677 (32,677)(3) 83,619,838
Retained earnings 32,504,070 802,774 (802,774)(3) 32,504,070
------------ ---------- ------------- ------------
Less treasury stock, 37,202 shares at cost (394,076) (394,076)
------------ ---------- ------------- ------------
Total liabilities and stockholders' equity $177,464,455 $5,816,110 $20,806,286 $204,086,851
============ ========== ============= ============
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31, 1995 and the three months ended March 31, 1996
Historical Historical
---------- ----------
For the year ended December 31, 1995 For the three months ended March 31, 1996
Renal Renal
Treatment Acquired Pro forma Treatment Acquired Pro forma
Centers, Inc. company adjustments Pro forma Centers, Inc. company adjustments
------------- ----------- ------------ ----------- ------------- --------- ------------
Net patient revenue $158,697,471 $13,391,407 $172,088,878 $49,204,164 $3,270,606
Patient care costs 76,261,775 10,362,247 86,624,022 23,706,233 2,384,816
----------- ------------ ----------- ------------ ----------- ---------- --------
Operating profit 82,435,696 3,029,160 85,464,856 25,497,931 885,790
General and administrative 40,579,084 1,973,516 42,552,600 12,903,283 584,405
Provision for doubtful
accounts 4,324,541 1,393,595 5,718,136 1,535,944 131,588
Depreciation and
amortization 11,924,117 148,754 $1,866,187(A) 13,939,058 3,536,388 69,871 $ 433,863(A)
Merger expenses 2,087,542 $ 2,087,542 1,708,247
----------- ---------- ---------- ----------- ---------- ----------- --------
Income (loss) from
operations 23,520,412 (486,705) (1,866,187) 21,167,520 5,814,069 99,926 (433,863)
----------- ---------- ---------- ----------- ---------- ----------- --------
Interest expense, net 2,486,954 26,720 2,513,674 665,808 32,803
----------- ---------- ---------- ----------- ---------- ----------- --------
Income (loss) before
income taxes 21,033,458 (513,425) (1,866,187) 18,653,846 5,148,261 67,123 (433,863)
Income taxes 7,632,069 (690,489)(B) 6,941,580 1,990,207 (160,529)(B)
----------- ---------- ---------- ----------- ---------- ----------- --------
Net income $13,401,389 $(513,425) $(1,175,698) $11,712,266 $3,158,054 $67,123 $(273,334)
=========== ========== ========== =========== ========== =========== ========
Pro forma net income per
common and common
stock equivalent (C) $0.53
===========
Pro forma weighted average
common shares used in
computing earnings per
share 21,930,356
===========
Pro forma
---------
Net patient revenue $52,474,770
Patient care costs 26,091,049
-----------
Operating profit 26,383,721
General and administrative 13,487,688
Provision for doubtful
accounts 1,667,532
Depreciation and
amortization 4,040,122
Merger expenses 1,708,247
-----------
Income (loss) from
operations 5,480,132
-----------
Interest expense, net 698,611
-----------
Income (loss) before
income taxes 4,781,521
Income taxes 1,829,678
-----------
Net income $2,951,843
===========
Pro forma net income per
common and common
stock equivalent (C) $0.12
===========
Pro forma weighted average
common shares used in
computing earnings per
share 24,278,435
===========
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On May 29, 1996, Renal Treatment Centers, Inc. (the "Company") acquired
substantially all of the non-current and certain other assets of two affiliated
corporations, Kidney Center of Delaware County, Ltd. ("KCDC") and Kidney Center
of Chester County, Ltd. ("KCCC"), each of which operates a Medicare-certified
end-stage renal dialysis facility (collectively "the Seller") in the suburban
Philadelphia, Pennsylvania area. KCDC is owned by James Clark, M.D. and Richard
R. Soricelli, M.D. and KCCC is owned by James Clark, M.D., Richard R. Soricelli,
M.D., Hardy Sorkin, M.D. and George Randolph Westby, M.D. The parties made the
purchase and sale pursuant to two separate asset purchase agreements ("the
Agreements") dated May 29, 1996, with an effective time of May 31, 1996 at 11:59
PM, between a subsidiary of the Company and liquidating trusts into which KCDC
and KCCC, respectively, had transferred their assets.
As part of the transaction, the Company entered into covenants not to compete
with each of the selling physicians and concurrently entered into new agreements
and received assignments of existing agreements to provide acute dialysis
services at an aggregate of nine area hospitals. In addition, the Company
entered into a physician director agreement with a physician group affiliated
with the selling physicians to act as Physician Director of the Facilities.
The Company paid total cash consideration of $26,622,396 and determined the
consideration based on negotiations with KCDC and KCCC and the fair market value
of the assets used in the facilities as a going concern.
The cash consideration was funded entirely through borrowings under the
Company's credit agreement with a consortium of banks.
Except as arising out of the acquisition, there is no material relationship
between KCDC or KCCC, on the one hand, and the Company or any of its directors,
officers, affiliates or by their associates, on the other hand.
The transaction has been accounted for as a business combination in
accordance with the purchase method of accounting.
Basis of Presentation
- ---------------------
The unaudited pro forma financial statements are presented to illustrate
(i) the pro forma effects on the Company's balance sheet as of March 31, 1996
and (ii) the pro forma effects on the Company's results of operations for the
year ended December 31, 1995 and for the three month period ended March 31, 1996
as if the transaction had occurred on January 1, 1995. The unaudited pro forma
financial statements include adjustments resulting from the purchase accounting
and bank financing and are not necessarily indicative of what the combined
financial position or results of operations would have been had the transaction
occurred on January 1, 1995, nor are they necessarily indicative of future
results of the combined entities.
Certain pro forma adjustments are based on preliminary estimates of the fair
values of assets acquired and are thus subject to change.
Adjustments to Pro Forma Consolidated Balance Sheets
- ----------------------------------------------------
(1) Adjusts assets to fair market value and eliminates certain assets not
assumed by the Company in connection with the acquisition.
(2) Reflects increase in liability to finance the acquisition.
(3) Eliminates ownership interest in the company whose assets were acquired
in the acquisition.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Adjustments to Pro forma Consolidated Statements of Operations
- --------------------------------------------------------------
(A) Reflects depreciation and amortization expense resulting from the
revaluation in purchase accounting of fixed assets and intangible assets of
$1,356,889 and $339,221 offset by historical Seller depreciation and
amortization of $148,754 and $69,871 for the year ended December 31, 1995
and for the three months ended March 31, 1996, respectively. Also reflects
additional amortization over a 25 year period of the excess cost over net
assets acquired of $658,052 and $164,513 for the year ended December 31,
1995 and for the three months ended March 31, 1996, respectively, as if the
Seller were acquired as of January 1, 1995.
(B) Reflects the adjustments to income taxes which would have been provided on
pro forma income before taxes.
(C) Pro forma net income per common and common stock equivalents is computed by
dividing net income by the weighted average number of common and common
stock equivalents outstanding during the period.
Exhibit Index
Exhibit Document Page
- ------- -------- ----
2.1 Asset Purchase Agreement, Dated as of May 29, 1996, with an
effective time of May 31, 1996 at 11:59 PM, between Renal
Treatment Centers-Pennsylvania, Inc. and KCCC Liquidating Trust
(the exhibits and schedules to this agreement have been omitted
pursuant to Item 601(b)(2) of Regulation S-K and will be
provided supplementally to the Commission upon its request).
(previously filed with the Company's current report on Form 8-K
dated May 29, 1996).
2.2 Asset Purchase Agreement, Dated as of May 29, 1996, with an
effective time of May 31, 1996 at 11:59 PM, between Renal
Treatment Centers-Pennsylvania, Inc. and KCDC Liquidating Trust
(the exhibits and schedules to this agreement have been omitted
pursuant to Item 601(b)(2) of Regulation S-K and will be
provided supplementally to the Commission upon its request).
(previously filed with the Company's current report on Form 8-K
dated May 29, 1996).
23.1 Consent of Coopers & Lybrand. 19
99.1 Fourth Amended and Restated Loan Agreement dated as of June 5,
1996 between Renal Treatment Centers, Inc. and the various
lenders set forth therein. (previously filed with the Company's
current report on Form 8-K dated May 29, 1996).
99.2 Press release dated June 10, 1996 issued by Renal Treatment
Centers, Inc. (previously filed with the Company's current
report on Form 8-K dated May 29, 1996).