Form 10-Q
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 September 30, 1996
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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 ___
---
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 November 8, 1996
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Common Stock, Par Value $.01 24,393,056 shares
THE EXHIBIT INDEX IS LOCATED ON PAGE 13
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Statements of Income--
Three and Nine Months ended September 30, 1996 and 1995................... 3
Consolidated Balance Sheets--
September 30, 1996 and December 31, 1995.................................. 4
Consolidated Statements of Cash Flows--
Nine months ended September 30, 1996 and 1995............................. 5
Notes to Consolidated Financial Statements................................ 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 7-10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................... 11
SIGNATURES.......................................................................... 12
EXHIBITS........................................................................ 14-15
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Renal Treatment Centers, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
1996 1995 1996 1995
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Net patient revenue $63,114,969 $41,996,034 $169,247,919 $119,812,073
Patient care costs 30,942,641 20,010,157 82,425,019 58,802,286
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Operating profit 32,172,328 21,985,877 86,822,900 61,009,787
General and administrative expense 15,676,053 10,275,270 42,308,770 30,190,916
Provision for doubtful accounts 1,653,055 1,304,330 4,961,562 3,164,431
Depreciation and amortization 4,729,964 3,032,272 12,375,082 8,673,796
Merger expenses 1,100,000 500,000 2,808,247 2,087,542
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Income from operations 9,013,256 6,874,005 24,369,239 16,893,102
Interest expense, net 1,424,222 655,274 2,977,655 1,965,600
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Income before income taxes 7,589,034 6,218,731 21,391,584 14,927,502
Provision for income taxes 3,107,943 2,672,669 8,300,236 5,004,880
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Net income $4,481,091 $3,546,062 $13,091,348 $9,922,622
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Weighted average number of common and
common stock equivalents outstanding 28,890,274 22,865,321 26,499,138 22,365,263
Net income per common and common
stock equivalent $0.19 $0.16 $0.55 $0.44
See accompanying notes to consolidated financial statements.
Renal Treatment Centers, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1996 1995
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ASSETS
Current assets:
Cash $ 3,782,862 $ 8,231,421
Investments 40,593,199 ---
Accounts receivable (net of allowance for
doubtful accounts of $1,958,560 in 1996 and
$3,503,744 in 1995) 70,970,502 51,996,618
Inventories 3,950,426 2,869,019
Deferred taxes 1,414,311 819,835
Prepaid expenses and other current assets 1,197,655 1,396,893
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Total current assets 121,908,955 65,313,786
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Property and equipment (net of accumulated depreciation of $17,912,215 in 1996
and $10,746,557 in 1995.) 35,578,136 21,442,421
Intangibles (net of accumulated amortization of $26,925,574 in 1996 and
$22,263,385 in 1995.) 131,339,214 86,341,433
Deferred taxes, non-current 1,749,754 1,749,754
Other assets 371,149 20,842
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Total assets $290,947,208 $174,868,236
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 11,235,598 $ 4,766,262
Accounts payable 8,547,609 4,495,087
Accrued compensation 4,361,675 2,790,121
Accrued expenses 3,685,842 6,576,600
Accrued income taxes 431,449 2,218,692
Accrued interest 1,644,976 1,087,415
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Total current liabilities 29,907,149 21,934,177
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Long-term debt, net 130,698,684 42,576,100
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 24,412,588 and 22,209,689 shares in 1996 and 1995, respectively. 244,126 222,097
Additional paid-in capital 87,689,237 83,257,068
Retained earnings 42,802,088 27,272,870
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130,735,451 110,752,035
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Less treasury stock, 37,202 shares in 1996 and 1995, at cost (394,076) (394,076)
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130,341,375 110,357,959
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Total liabilities and stockholders' equity $290,947,208 $174,868,236
===========================================================================================================================
See accompanying notes to consolidated financial statements.
Renal Treatment Centers, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months ended
September 30,
1996 1995
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Cash flows from operating activities:
Net income $ 13,091,348 $ 9,922,622
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 12,423,835 8,723,032
Provision for doubtful accounts 4,961,562 3,164,437
Deferred tax asset (1,792) (9,170)
Changes in operating assets and liabilities,
net of effects of companies acquired:
Accounts receivable (20,592,485) (13,896,255)
Inventories (637,006) (11,830)
Prepaid expenses and other current assets 261,609 224,045
Accounts payable and accrued expenses (174,228) (4,154,794)
Accrued income taxes (1,787,243) 4,853,949
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Net cash provided by operating activities 7,545,600 8,816,036
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Cash flows from investing activities:
Capital expenditures (10,584,242) (5,692,441)
Purchase of businesses, net of cash acquired (49,907,502) (10,101,057)
Sale (Purchase) of investments, net (40,593,199) 2,661,944
Other (1,987,420) (2,054,438)
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Net cash used in investing activities (103,072,363) (15,185,992)
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Cash flows from financing activities:
Issuance of 5 5/8% convertible subordinated notes 125,000,000 ----
Proceeds from long-term debt borrowings 38,550,000 15,100,000
Repayments of debt (71,365,886) (7,045,602)
Proceeds from issuance of common stock 4,346,915 966,397
Payment of dividends (658,500) (1,388,331)
Debt issuance costs (3,750,000) ----
Payments on capital lease obligations (2,008,024) 43,481
Cash portion of consideration received for common stock 963,699 ----
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Net cash provided by financing activities 91,078,204 7,675,945
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Net increase (decrease) in cash and cash equivalents (4,448,559) 1,305,989
Cash and cash equivalents at beginning of period 8,231,421 2,782,781
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Cash and cash equivalents at end of period $ 3,782,862 $ 4,088,770
==============================================================================================================
Supplemental disclosures of cash flows information:
Noncash financing activities:
Reduction of note issued in connection with purchase of business ---- $ 135,900
Acquisition of treasury stock in connection with payroll taxes
resulting from exercise of stock options ---- $ 346,857
Capital lease obligations entered into $ 2,677,475 $ 388,200
Issuance of common stock in connection with purchase of business $ 89,137 $ 3,118,739
Noncash investing activities:
Net assets relating to pooling transactions $ 3,096,370
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 nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. The interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's Form 8-K
filed with the Securities and Exchange Commission on August 23, 1996.
2. 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.
3. SIGNIFICANT EVENTS:
POOLING TRANSACTIONS:
On February 20, 1996, the Company acquired Intercontinental Medical Services,
Inc. ("IMS"), which operated four dialysis facilities in Hawaii. The
transaction was accounted for as a pooling of interests. Accordingly, the
Company's financial statements include the results of IMS as of January 1, 1996.
In total, 1,047,464 shares of the Company's common stock were exchanged for all
outstanding shares of IMS.
On February 29, 1996, the Company acquired Midwest Dialysis Units and its
affiliates (collectively "MDU"), which operated 11 dialysis facilities in
Oklahoma. The transaction was accounted for as a pooling of interests.
Accordingly, the Company's financial statements include the results of MDU as of
January 1, 1996. In total, 767,168 shares of the Company's common stock were
exchanged for all outstanding shares of MDU.
Prior year financial statements have not been restated to reflect these
transactions because the impact on the Company's financial statements of such
transactions is not material.
On July 23, 1996 the Company consummated its acquisition of two dialysis centers
from Panama City Artificial Kidney Center, Inc. and North Florida Artificial
Kidney Center, Inc. ("the Group"). Both of the dialysis centers are located in
Florida. The transaction was accounted for as a pooling of interests.
Accordingly, the Company's financial statements have been restated to give
retroactive effect to the Group since this transaction, when combined with the
MDU and IMS pooling transactions, was deemed to be a material transaction. In
total, 482,377 shares of the Company's common stock were exchanged for all the
outstanding shares of the Group.
SIGNIFICANT PURCHASE TRANSACTIONS:
On May 29, 1996, with an effective date of May 31, 1996, the Company acquired
substantially all of the assets of Kidney Center of Delaware County, Ltd.
("KCDC") and Kidney Center of Chester County, Ltd. ("KCCC"). At the time of
acquisition, these two outpatient dialysis centers, located in the Philadelphia,
Pennsylvania area, provided care to approximately 400 patients and performed
acute treatments at nine area hospitals.
On September 16, 1996, with an effective date of September 1, 1996, the Company
acquired substantially all of the assets of Columbus Regional Dialysis Center,
Marion Dialysis Center, and Phenix City Nephrology Referral Center. Two of the
centers are located in Georgia and one is located in Alabama. At the time of
acquisition, these centers provided care to approximately 230 patients and
provided acute treatments to three area hospitals.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER EVENTS:
On June 5, 1996 the Company amended its revolving credit agreement with a
consortium of banks (the "Credit Agreement") to increase the amount available
under the line of credit from $68,125,000 to $100,000,000 and to make certain
other changes to the terms of the Credit Agreement, including amendments to
certain covenants, the amortization schedule, the interest rates and the events
of default.
On June 12, 1996 the Company issued $125,000,000 principal amount of 5 5/8%
Convertible Subordinated Notes due 2006. The Company is using the proceeds of
the offering for the repayment of indebtedness, acquisitions, development of
additional dialysis centers, capital expenditures and general corporate
purposes.
Item 2. Renal Treatment Centers, Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
Renal Treatment Centers, Inc. (the "Company") provides dialysis treatments and
ancillary services to patients suffering from chronic kidney failure, primarily
in its freestanding outpatient dialysis treatment centers or in the patient's
home. The Company also provides acute inpatient dialysis services to hospitals.
As of November 1, 1996, the Company operated 106 outpatient dialysis centers in
22 states, the District of Columbia and the Republic of Argentina and provided
dialysis services for approximately 7,700 patients. In addition, the Company
provided inpatient dialysis services at 80 hospitals.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected financial
information expressed as a percentage of net patient revenue and the period-to-
period percentage changes in such information.
Percentage of Percentage of
Net Patient Revenue Net Patient Revenue
Three Months Ended Period-to-Period Nine Months Ended Period-to-Period
September 30, Percentage Change September 30, Percentage Change
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1996 1995 1996 vs. 1995 1996 1995 1996 vs. 1995
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Net patient revenue 100.0% 100.0% 50.3% 100.0% 100.0% 41.3%
Patient care costs 49.0% 47.6% 54.6% 48.7% 49.1% 40.2%
Operating profit 51.0% 52.4% 46.3% 51.3% 50.9% 42.3%
General and administrative
expense 24.8% 24.5% 52.6% 25.0% 25.2% 40.1%
Provision for doubtful accounts 2.6% 3.1% 26.7% 2.9% 2.6% 56.8%
Depreciation and amortization
expense 7.5% 7.2% 56.0% 7.3% 7.2% 42.7%
Merger expenses 1.7% 1.2% 120.0% 1.7% 1.7% 34.5%
Income from operations 14.3% 16.4% 31.1% 14.4% 14.1% 44.3%
Interest expense, net 2.3% 1.6% 117.3% 1.8% 1.6% 51.5%
Income before income taxes 12.0% 14.8% 22.0% 12.6% 12.5% 43.3%
Provision for income taxes 4.9% 6.4% 16.3% 4.9% 4.2% 65.8%
Net income 7.1% 8.4% 26.4% 7.7% 8.3% 31.9%
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
NET PATIENT REVENUE. Net patient revenue for the nine months ended September 30,
1996 was $169,247,919 as compared to $119,812,073 for the same period in 1995,
representing an increase of 41.3%. Of this increase, $4,823,232 was attributable
to the revenue generated from the operations of nine centers and certain acute
care agreements acquired in four separate purchase transactions from March
through December 1995, and $27,026,579 was attributable to the acquisition of
various facilities and the development of new dialysis centers ("de novo"
developments) during the first nine months of 1996. Of the $17,586,035
remaining, $9,285,595 was attributable to an increase in same-center treatments
and $8,300,440 was attributable to an increase in the average same-center
revenue per treatment, which, in turn, was due to an increase in the
administration of EPO and an improvement in the Company's payor mix.
PATIENT CARE COSTS. Patient care costs increased 40.2% to $82,425,019 for the
nine months ended September 30, 1996 from $58,802,286 for the same period in
1995. The increase was principally the result of acquisitions that occurred
subsequent to the third quarter of 1995. However, as a percentage of net patient
revenue, patient care costs decreased to 48.7% for the nine months ended
September 30, 1996 from 49.1% for the same period in 1995. This percentage
decrease was primarily related to the increase in net revenue per treatment. The
increase in net revenue per treatment was offset in part by the additional costs
related to the increased administration of EPO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased
$12,117,854, or 40.1%, to $42,308,770 for the nine months ended September 30,
1996, as compared to $30,190,916 for the same period in 1995. This increase was
primarily the result of additional facility operating costs as well as
additional corporate and facility personnel required to support the centers
acquired and opened during 1995 and 1996. As a percentage of net patient
revenue, these expenses remained relatively constant at approximately 25.0% for
the nine months ended September 30, 1996, as compared to 25.2% for the nine
months ended September 30, 1995. The slight decrease as a percentage of net
patient revenue was attributable to the Company's ability to maintain certain
support costs, while increasing net revenues through acquisitions, internal
growth and de novo developments.
PROVISION FOR DOUBTFUL ACCOUNTS. Provision for doubtful accounts increased
$1,797,131, or 56.8%, to $4,961,562 for the nine months ended September 30,
1996, as compared to $3,164,431 for the same period in 1995. This increase was
principally a result of the additional net patient revenue generated from
acquisitions that occurred subsequent to the third quarter of 1995. As a
percentage of net patient revenue, the provision for doubtful accounts was 2.9%
for the nine months ended September 30, 1996 as compared to 2.6% for the same
period in 1995.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $3,701,286, or 42.7%, for the nine months ended September 30, 1996,
when compared to the same period in 1995. The increase was due to the
acquisition and start-up of various facilities since July 1995. As a percentage
of net patient revenue, depreciation and amortization expense was 7.3% for the
nine months ended September 30, 1996, as compared to 7.2% for the nine months
ended September 30, 1995.
MERGER EXPENSES. Merger expenses increased 34.5% to $2,808,247 for the nine
months ended September 30, 1996 from $2,087,542 for the same period in 1995. For
the nine months ended September 30, 1995, the merger expenses represent expenses
incurred in connection with the mergers with (i) Healthcare Corporation and its
affiliates and (ii) Wichita Dialysis Center, P.A., Southeast Kansas Dialysis
Center, P.A., Garden City Dialysis, P.A., and Wichita Dialysis Center, East,
P.A., (collectively "the Wichita Companies") which were completed on March 6,
1995 and August 1, 1995, respectively, and were accounted for under the pooling-
of-interests method of accounting. For the nine months ended September 30, 1996,
merger expenses were incurred as a result of the mergers with (i) IMS, (ii) MDU
and (iii) the Group which were completed on February 20, 1996, February 29, 1996
and July 23, 1996, respectively, and were accounted for under the pooling-of-
interests method of accounting. Merger expenses include fees for the investment
banker, attorneys and accountants and various other expenses incurred as a
result of combining the companies.
INCOME FROM OPERATIONS. Income from operations increased 44.3% to $24,369,239
for the nine months ended September 30, 1996 from $16,893,102 for the same
period in 1995. This increase was due to the increase in net revenues from
acquired businesses and same-center growth, which was greater than the increases
in patient care costs, general and administrative expense and depreciation and
amortization expense related to such acquired businesses.
INTEREST EXPENSE, NET. Interest expense net was $2,977,655 for the nine months
ended September 30, 1996 as compared to interest expense net of $1,965,600 for
the same period in 1995. The increase in interest expense net was attributable
to the additional borrowings for the funding of acquisitions that were completed
in 1995 and 1996 that remained outstanding through June 12, 1996, as well as the
additional interest expense net incurred as a result of the issuance of
$125,000,000 principal amount of 5 5/8% Convertible Subordinated Notes due 2006
("the Notes") by the Company on June 12, 1996.
PROVISION FOR INCOME TAXES. Provision for income taxes increased 65.8% to
$8,300,236 from $5,004,880 for the nine months ended September 30, 1996 and
1995, respectively. For the nine months ended September 30, 1996, the Company's
effective tax rate was 38.8%, compared to an effective tax rate of 33.5% during
the same period in 1995. The increase in the effective tax rate was primarily
attributable to the one-time tax benefit of $325,000 recorded in the first
quarter of 1995 as a result of the merger with Healthcare Corporation and its
affiliates offset by a one-time tax charge of $540,000 related to the merger
with the Wichita Companies as recorded in the third quarter of 1995. In the nine
months ended September 30, 1996, the Company incurred a one-time tax charge of
$85,350 related to the merger with MDU recorded in the first quarter of 1996 as
well as a one-time tax charge of $300,000 related to the merger with the Group
recorded in the third quarter of 1996.
NET INCOME. Net income increased 31.9% to $13,091,348 for the nine months ended
September 30, 1996 from $9,922,622 for the same period in 1995. The increase was
due to each of the items discussed above.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
NET PATIENT REVENUE. Net patient revenue for the three months ended September
30, 1996 was $63,114,969 as compared to $41,996,034 for the same period in 1995,
representing an increase of 50.3%. Of this increase, $492,375 was attributable
to the revenue generated from the operations of four centers and certain acute
care agreements acquired in two separate purchase transactions from July through
December 1995, and $12,640,410 was attributable to the acquisition of various
facilities and de novo
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
developments during the first six months of 1996. Of the $7,986,150 remaining,
$3,652,629 was attributable to an increase in same-center treatments and
$4,333,521 was attributable to an increase in the average same-center revenue
per treatment, which, in turn, was due to an increase in the administration of
EPO and an improvement in the Company's payor mix.
PATIENT CARE COSTS. Patient care costs increased 54.6% to $30,942,641 for the
three months ended September 30, 1996 from $20,010,157 for the same period in
1995. The increase was principally the result of acquisitions that occurred
subsequent to the third quarter of 1995. However, as a percentage of net patient
revenue, patient care costs increased to 49.0% for the three months ended
September 30, 1996 from 47.6% for the same period in 1995. This increase was
primarily related to the additional costs related to the increased
administration of EPO.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased
$5,400,783, or 52.6%, to $15,676,053 for the three months ended September 30,
1996, as compared to $10,275,270 for the same period in 1995. This increase was
primarily the result of additional facility operating costs as well as
additional corporate and facility personnel required to support the centers
acquired and opened during 1995 and 1996. As a percentage of net patient
revenue, these expenses were approximately 24.8% for the three months ended
September 30, 1996, as compared to 24.5% for the three months ended September
30, 1995.
PROVISION FOR DOUBTFUL ACCOUNTS. Provision for doubtful accounts increased
$348,725 , or 26.7%, to $1,653,055 for the three months ended September 30,
1996, as compared to $1,304,330 for the same period in 1995. This increase was
principally a result of the additional net patient revenue generated from
acquisitions that occurred subsequent to the third quarter of 1995. As a
percentage of net patient revenue the provision for doubtful accounts was 2.6%
for the three months ended September 30, 1996 as compared to 3.1% for the same
period in 1995.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $1,697,692, or 56.0%, for the three months ended September 30, 1996,
when compared to the three months ended September 30, 1995. The increase was due
to the acquisition and startup of various facilities since October 1995. As a
percentage of net patient revenue, depreciation and amortization expense was
7.5% for the three months ended September 30, 1996, as compared to 7.2% for the
three months ended September 30, 1995.
INCOME FROM OPERATIONS. Income from operations increased 31.1% to $9,013,256 for
the three months ended September 30, 1996 from $6,874,005 for the same period in
1995. This increase was due to the increase in net revenues from acquired
businesses and same-center growth, which was greater than the increases in
patient care costs, general and administrative expense and depreciation and
amortization expense related to such acquired businesses.
INTEREST EXPENSE, NET. Interest expense net was $1,424,222 for the three months
ended September 30, 1996 as compared to interest expense net of $655,274 for the
same period in 1995. The increase in interest expense net was attributable to
the additional borrowings for the funding of acquisitions that were completed in
1995 and 1996 that remained outstanding through June 12, 1996, as well as the
additional interest expense net incurred as a result of the issuance of the
Notes by the Company on June 12, 1996.
PROVISION FOR INCOME TAXES. Provision for income taxes increased 16.3% to
$3,107,943 from $2,672,669 for the three months ended September 30, 1996 and
1995, respectively. For the three months ended September 30, 1996, the Company's
effective tax rate was 41.0% compared to an effective tax rate of 43.0% during
the same period last year. This decrease in the effective tax rate was
attributable to the one-time tax charge of $540,000 related to the merger with
the Wichita Companies which was recorded in the third quarter of 1995 as
compared to a one-time tax charge of $300,000 relating to the merger with the
Group which was recorded in the third quarter of 1996.
NET INCOME. Net income increased 26.4% to $4,481,091 for the three months ended
September 30, 1996 from $3,546,062 for the same period in 1995. The increase was
due to each of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital for the acquisition of dialysis centers, for the
expansion of operations of its existing dialysis centers, including the
replacement of equipment and addition of leasehold improvements, for the
integration of new centers into its network of existing dialysis services and
for meeting working capital requirements.
During the nine months ended September 30,1996, expenditures for acquisitions
totalled $49,907,502, compared to $10,101,057 for acquisitions for the nine
months ended September 30, 1995. The expenditures in 1996 resulted from the
acquisition of one center in March 1996, one center in April 1996, three centers
in May 1996, one center in June 1996 and five centers in September 1996,as
compared to the expenditures in 1995, which resulted from the acquisition of
five centers in March 1995, two centers in July 1995, one center in September
1995, and the payout of certain earnout notes related to acquisitions that were
completed in 1994. For the nine months ended September 30, 1996 and 1995,
capital expenditures were $10,584,242 and $5,692,441, respectively. Cash from
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
operations before investing and financing activities was $7,545,600 and
$8,816,036 for the nine months ended September 30, 1996 and 1995, respectively.
The principal sources of the Company's liquidity during the first nine months of
1996 were earnings, additional borrowings under the Credit Agreement and the
issuance of $125,000,000 of convertible subordinated notes on June 12, 1996. The
Company had cash and cash equivalents of $3,782,862 at September 30, 1996.
The Credit Agreement provides for a $100,000,000 revolving credit term facility
available to fund acquisitions and general working capital requirements, of
which $0 and $33,675,000 were outstanding as of September 30, 1996 and December
31, 1995, respectively. Prior to the amendment of the Credit Agreement on June
5, 1996, the Credit Agreement also provided for a term loan payable in quarterly
installments, of which $3,750,000 was outstanding as of December 31, 1995. On
June 5, 1996, the Company's Credit Agreement was amended to increase the amount
available under the line of credit from $68,125,000 to $100,000,000 and to make
certain other changes to the terms of the Credit Agreement, including amendments
to certain covenants, the amortization schedule, the interest rates and the
events of default. In connection with this amendment, the $3,125,000 principal
amount outstanding under the term loan as of June 5, 1996 was repaid through
borrowings under the line of credit under the Credit Agreement. The line of
credit converts into a term loan in September 1999 that is payable in 16 equal
quarterly installments commencing December 1999 through September 2003.
Borrowings under the Credit Agreement bear interest, at the Company's option, at
either (i) the agent bank's base rate plus 0.25% if the Applicable Margin, which
is determined by the Company's ratio of senior debt to annualized cash flow, is
not less than 2.25 to 1, payable on a quarterly basis or (ii) a one-, two-,
three-, or six-month period LIBOR rate plus 0.75% to 1.75% depending upon the
Applicable Margin, payable at maturity. The weighted average interest rate of
all loans outstanding at December 31, 1995 was 7.4%. Loans under the Credit
Agreement are collateralized by the pledge of all stock of the Company's
subsidiaries and the assignment of all intercompany notes.
The Company has historically expended the majority of its capital resources to
implement its growth strategy and the Company intends to pursue a strategy of
growth through the acquisition and development of dialysis centers. Management
estimates that the development of a new center, depending on its size, requires
approximately $500,000 to $1,000,000 for construction costs and the purchase of
certain furniture and equipment and approximately $75,000 to $150,000 in working
capital. Acquisition of a dialysis center with an existing patient base
typically requires more capital investment, but each investment varies based on
relative size and other factors. No assurance can be given that the Company will
be successful in implementing its growth strategy or that adequate sources of
capital will be available on terms acceptable to the Company to pursue its
growth strategy in the future.
The Company believes that capital resources available to it will be sufficient
to meet the needs of its business, both on a short- and long-term basis.
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:
10.30* Employment Agreement dated as of March 1, 1996 between the
Company and Mark A. Zawiski.
10.31* Executive Severance Agreement dated as of March 1, 1996
between the Company and Mark A. Zawiski.
10.32 Asset Purchase Agreement dated as of September 7, 1996
between Renal Treatment Centers - Georgia, Inc. and Columbus
Regional Dialysis Center, Inc. (incorporated herein by
reference to Exhibit No. 2.1 filed under the Company's
Current Report on Form 8-K dated September 16, 1996).
10.33 Asset Purchase Agreement dated as of September 7, 1996
between Renal Treatment Centers - Alabama, Inc. and Phenix
City Nephrology Referral Center, Inc. (incorporated herein
by reference to Exhibit No. 2.2 filed under the Company's
Current Report on Form 8-K dated September 16, 1996).
11.1 Computation of Primary and Fully Diluted Earnings Per Share.
27 Financial Data Schedule.
____________________________
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
Form 8-K/A Amendment No. 1 to Current Report dated May 29, 1996 filed
on July 15, 1996 to file pursuant to Item 7 (1) historical finacial
information for the year ended December 31, 1995 and the three months
ended March 31, 1996 and (2) pro forma financial information for the
Company for the year ended December 31, 1995 and the three months
ended March 31, 1996 related to the acquisition of KCDC and KCCC as
reported on Form 8-K dated May 29, 1996.
Form 8-K dated August 23, 1996 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 the Group.
Form 8-K dated September 16, 1996 filed to report under Item 5 the
condensed combined results of operations covering the one month period
ended August 31, 1996 following the merger with the Group.
Form 8-K dated September 16, 1996 filed to report under Item 2 the
acquisition of substantially all of the assets of Columbus Regional
Dialysis Center, Inc. and Phenix City Nephrology Referral Center, Inc.
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.
Date: 11/14/96
_________________________ By: /s/ Frederick C. Jansen
---------------------------------
Frederick C. Jansen
Executive Vice President and
Chief Financial Officer
Date: 11/14/96
_________________________ By: /s/ Ronald H. Rodgers, Jr.
---------------------------------
Ronald H. Rodgers, Jr.
Vice President - Finance and
Chief Accounting Officer
Renal Treatment Centers, Inc. and Subsidiaries
Exhibit Index
Exhibit No. Description
- ----------- -----------
10.30* Employment Agreement dated as of March 1, 1996 between the
Company and Mark A. Zawiski.
10.31* Executive Severance Agreement dated as of March 1, 1996
between the Company and Mark A. Zawiski.
10.32 Asset Purchase Agreement dated as of September 7, 1996
between Renal Treatment Centers - Georgia, Inc. and Columbus
Regional Dialysis Center, Inc. (incorporated herein by
reference to Exhibit No. 2.1 filed under the Company's
Current Report on Form 8-K dated September 16, 1996).
10.33 Asset Purchase Agreement dated as of September 7, 1996
between Renal Treatment Centers - Alabama, Inc. and Phenix
City Nephrology Referral Center, Inc. (incorporated herein
by reference to Exhibit No. 2.2 filed under the Company's
Current Report on Form 8-K dated September 16, 1996).
11.1 Computation of Primary and Fully Diluted Earnings Per Share.
27 Financial Data Schedule.
__________________________________
* Management contract or compensatory plan or arrangement.