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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 0-27640
RENAL CARE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1622383
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 West End Ave., Suite 1100, Nashville, Tennessee 37203
(Address of principal executive offices)
(615) 321-2333
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ ]
The aggregate market value of common stock, par value $.01 per share (the
"Common Stock") held by non-affiliates, based upon the closing sales price, was
approximately $82,552,000 as of May 10, 1996. In the determination of this
amount, affiliates include all of the Company's officers, directors, and
persons known to the Company to be beneficial owners of more than five percent
of the Company's Common Stock. This amount should not be deemed conclusive for
any other purpose. As of May 10, 1996, a total of 9,857,000 shares of the
Company's Common Stock were outstanding.
2
INDEX TO FINANCIAL STATEMENTS
Page
----
RENAL CARE GROUP, INC. (OF DELAWARE)
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet at December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statement of Operations and Retained Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
KIDNEY CARE, INC., ET AL.
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Combined Balance Sheets at January 31, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
Combined Statements of Revenues, Expenses, and Changes in Unrestricted
Net Assets for the years ended January 31, 1994, 1995, and 1996 . . . . . . . . . . . . . . . . . . . . . . . . F-11
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
F-1
3
Report of Independent Auditors
The Board of Directors and Stockholders
Renal Care Group, Inc.
We have audited the accompanying balance sheet of Renal Care Group, Inc. (of
Delaware) as of December 31, 1995 and the related statements of operations and
retained deficit and cash flows for the period from June 20, 1995 (date of
inception) through December 31, 1995. These financial statements are the
responsibility of the Company'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 balance sheets are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
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 financial position of Renal Care Group, Inc. (of
Delaware) at December 31, 1995 and the results of its operations and cash flows
for the period from June 20, 1995 (date of inception) through December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Nashville, Tennessee
May 17, 1996
F-2
4
Renal Care Group, Inc. (of Delaware)
Balance Sheet
December 31, 1995
(In thousands)
ASSETS
Current assets:
Cash $ 1,000
Related party receivable 100
------------
Total current assets 1,100
Other assets 280
------------
Total assets $ 1,380
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible senior subordinated promissory notes $ 1,380
Interest payable 6
------------
Total current liabilities 1,386
STOCKHOLDERS' EQUITY
Preferred stock. $.01 par value:
------------
Authorized shares--10,000; issued and outstanding--no shares _
Common Stock, $.01 par value:
Authorized shares--22,000; issued and outstanding--1 share _
Additional paid-in capital on Common Stock _
Retained deficit (6)
------------
Total stockholders' equity (6)
------------
Total liabilities and stockholders' equity $ 1,380
============
See accompanying notes.
F-3
5
Renal Care Group, Inc. (of Delaware)
Statement of Operations and Retained Deficit
For the period from June 20, 1995 (date of inception)
through December 31, 1995
(In thousands)
Interest expense $ 6
-----------
Net loss $ 6
===========
Retained deficit at June 20, 1995 (date of inception) $ _
-----------
Retained deficit at December 31, 1995 $ 6
===========
See accompanying notes.
F-4
6
Renal Care Group, Inc. (of Delaware)
Statement of Cash Flows
For the period from June 20, 1995 (date of inception)
through December 31, 1995
(In thousands)
OPERATING ACTIVITIES
Net loss $ (6)
Interest payable 6
----------
Net cash used in operating activities _
FINANCING ACTIVITIES
Proceeds from issuance of convertible senior
subordinated promissory notes 1,280
Changes in other assets (280)
----------
Net cash provided by financing activities 1,000
----------
Net increase in cash 1,000
Cash at June 20, 1995 (date of inception) _
----------
Cash at December 31, 1995 $ 1,000
==========
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS
Due from related party for issuance of convertible
senior subordinated promissory notes $ 100
==========
See accompanying notes.
F-5
7
Renal Care Group, Inc. (of Delaware)
Notes to Financial Statements
December 31, 1995
(In thousands, except per share price)
1. ORGANIZATION AND BASIS OF PRESENTATION
Renal Care Group, Inc. (of Delaware) (the "Company") was formed in June 1995,
primarily for the purpose of acquiring four dialysis businesses and Renal Care
Group, Inc. (of Tennessee) ("Tennessee"), in exchange for shares of its Common
Stock, cash, notes payable and the assumption of certain debt (the
"Combination"). As discussed more fully in Note 6, on February 6, 1996, the
Company closed an initial public offering of 3,900 shares of its Common Stock
and simultaneously consummated the Combination. The four related businesses
acquired in the Combination, which are comprised of numerous legal entities,
conduct business as Kidney Care, Inc. and certain operating divisions of
Medical Enterprises, Ltd. and Health Care Suppliers, Inc. ("KCI"), Northeast
Indiana Kidney Center ("NEI"), Tyler Nephrology Associates, P.A. ("Tyler"), and
Kansas Nephrology Associates, P.A. ("KNA") and Kansas Dialysis Supply, Inc.
("KDS," combined, "Kansas"). Tennessee and the four unrelated businesses
acquired are based in Tennessee, Mississippi, Indiana, Texas, and Kansas.
As mentioned above, on February 6, 1996, the Company completed an initial
public offering of 3,900 shares of Common Stock and on February 20, 1996, the
underwriters of the offering fully exercised their over allotment option for an
additional 585 shares. The 4,485 shares were issued at the initial public
offering price of $18 per share.
2. OTHER ASSETS
Other assets is comprised of costs related to the Company's initial public
offering. These costs were capitalized and recorded as a reduction in proceeds
from the initial public offering in February 1996.
3. CONVERTIBLE SENIOR SUBORDINATED PROMISSORY NOTES
On December 7, 1995, the Company issued an aggregate of principal amount of
$1,380 of Convertible Senior Subordinated Promissory Notes to provide funds to
complete the initial public offering. Such notes bear interest at a rate of 7%
per annum, mature on the first
F-6
8
Renal Care Group, Inc. (of Delaware)
Notes to Financial Statements (continued)
(In thousands)
3. CONVERTIBLE SENIOR SUBORDINATED PROMISSORY NOTES (CONTINUED)
anniversary of their issuance, and the principal and accrued interest thereof
is convertible into shares of Common Stock of the Company, beginning 180 days
after the closing of the initial public offering, at a conversion price of
$7.50 per share. The Company offered such securities solely to "accredited
investors" (as defined in Regulation D promulgated under the Securities Act) in
a private placement exempt from registration under the Securities Act and state
securities laws.
4. STOCK OPTIONS
In April 1996, the Company registered approximately 1,892 shares of Common
Stock with the Securities and Exchange Commission on Form S-8 for the following
plans: Renal Care Group, Inc. Employee Stock Purchase Plan (300 shares); Renal
Care Group, Inc. 1996 Stock Option Plan (300 shares); Outstanding Options
Granted Outside of a Plan for 888 Shares Granted to Employees, Directors,
Medical Directors and Consultants (888 shares); Renal Care Group, Inc. 1996
Stock Option Plan for Outside Directors (100 shares); and Renal Care Group,
Inc. 1994 Stock Option Plan (approximately 304 shares). Options for the
purchase of approximately 1,192 shares (includes options and warrants assumed
from Tennessee in connection with the combination agreement) had been granted
as of the date of the Company's Registration Statement on Form S-8, at exercise
prices ranging from $2 to $18 with varying vesting provisions.
5. INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based upon
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax and laws that will be in effect when the
differences are expected to reverse.
F-7
9
Renal Care Group, Inc. (of Delaware)
Notes to Financial Statements (continued)
(In thousands)
5. INCOME TAXES (CONTINUED)
Significant components of the deferred tax assets and liabilities as of
December 31, 1995 are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 2
Valuation allowance (2)
-----------
Net deferred tax assets $ _
===========
6. SUBSEQUENT EVENTS
RECAPITALIZATION AND INITIAL PUBLIC OFFERING (UNAUDITED)
On February 6, 1996, the Company completed an initial public offering of 3,900
shares of Common Stock and on February 20, 1996, the underwriters of the
offering fully exercised their over allotment option for an additional 585
shares, all of which were issued at $18 per share. Simultaneously the Company
exchanged 4,831 shares of Common Stock, plus cash, notes payable and the
assumption of certain debt for either stock or selected assets and liabilities
of KCI, NEI, Tyler, Kansas and Tennessee in accordance with executed
combination agreements. The exchange is being accounted for utilizing the
historical cost basis in accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. 48 with the stock being valued at the historical
cost of the net assets exchanged. Cash consideration given in these
acquisitions is treated for accounting purposes as a dividend from the Company
to Tennessee and the four unrelated businesses acquired and their owners.
F-8
10
Report of Independent Auditors
The Board of Directors
Kidney Care, Inc.
We have audited the accompanying combined balance sheets of Kidney Care, Inc.,
et al. (see Note 1) as of January 31, 1995 and 1996, and the related combined
statements of revenues, expenses and changes in net assets and cash flows for
the three years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audits provide 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 Kidney Care, Inc., et
al. as of January 31, 1995 and 1996, and the combined results of their
operations and cash flows for each of the three years then ended in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Nashville, Tennessee
May 15, 1996
F-9
11
Kidney Care, Inc., et al.
Combined Balance Sheets
(In thousands)
JANUARY 31
1995 1996
-------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,050 $ 3,895
Short-term government securities 1,000 512
Accounts receivable, net 7,814 8,348
Inventories 861 1,039
Due from related parties 771 728
Prepaid expenses 135 177
Deferred income taxes 65 23
-------------------------------
Total current assets 11,696 14,722
Property, plant and equipment, net 3,027 2,539
Other assets 120 837
-------------------------------
Total assets $ 14,843 $ 18,098
===============================
LIABILITIES AND UNRESTRICTED NET ASSETS
Current liabilities:
Current portion of long-term debt $ 669 $ 389
Accounts payable 1,208 1,838
Due to related parties 1,236 1,105
Accrued wages and benefits 928 908
Other accrued expenses 105 272
-------------------------------
Total current liabilities 4,146 4,512
Long-term debt, net of current portion 76 200
-------------------------------
Total liabilities 4,222 4,712
Unrestricted net assets 10,621 13,386
-------------------------------
Total liabilities and unrestricted net assets $ 14,843 $ 18,098
===============================
See accompanying notes.
F-10
12
Kidney Care, Inc., et al.
Combined Statements of Revenues, Expenses
and Changes in Unrestricted Net Assets
(In thousands)
YEAR ENDED JANUARY 31
1994 1995 1996
----------------------------------------------------
Net revenue $ 31,366 $ 36,294 $ 38,862
Operating costs and expenses:
Patient care costs 24,255 28,357 29,890
General and administrative expenses 1,129 930 927
Provision for doubtful accounts 716 770 851
Depreciation and amortization 872 919 903
----------------------------------------------------
Total operating costs and expenses 26,972 30,976 32,571
----------------------------------------------------
Income from operations 4,394 5,318 6,291
Interest expense, net 185 183 167
----------------------------------------------------
Income before taxes 4,209 5,135 6,124
Provision for income taxes 1,074 944 1,213
----------------------------------------------------
Net income 3,135 4,191 4,911
Unrestricted net assets not retained
by the entity (1,447) (2,508) (2,146)
Unrestricted net assets at
beginning of period 7,250 8,938 10,621
----------------------------------------------------
Unrestricted net assets at end of year $ 8,938 $ 10,621 $ 13,386
====================================================
See accompanying notes.
F-11
13
Kidney Care, Inc., et al.
Combined Statements of Cash Flows
(In thousands)
YEAR ENDED JANUARY 31
1994 1995 1996
------------------------------------------
OPERATING ACTIVITIES
Net income $ 3,135 $ 4,191 $ 4,911
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 872 919 903
Gain on disposal of equipment _ (6) (25)
Deferred income tax credit (23) (28) 42
Changes in assets and liabilities:
Accounts receivable (1,416) (1,048) (491)
Inventories (90) (7) (178)
Prepaid expenses and other assets (136) 25 (778)
Recoverable sales tax (570) 1,727 _
Accounts payable 662 (534) 630
Other accrued expenses and other liabilities 371 (645) 16
------------------------------------------
Net cash provided by operating activities 2,805 4,594 5,030
INVESTING ACTIVITIES
Maturities of short-term government securities _ _ 3,095
Purchases of short-term government securities _ (1,000) (2,608)
Proceeds from sales of property, plant and equipment 10 19 25
Purchases of property, plant and equipment (810) (761) (395)
------------------------------------------
Net cash provided by (used in) investing activities (800) (1,742) 117
FINANCING ACTIVITIES
Proceeds from long-term borrowings 406 428 483
Principal payments on long-term debt and
capital lease obligations (448) (497) (639)
Decrease in unrestricted net assets not retained
by the entity (1,447) (2,508) (2,146)
------------------------------------------
Net cash used in financing activities (1,489) (2,577) (2,302)
------------------------------------------
Net increase in cash and cash equivalents 516 275 2,845
Cash and cash equivalents at beginning of year 259 775 1,050
------------------------------------------
Cash and cash equivalents at end of year $ 775 $ 1,050 $ 3,895
==========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 106 $ 70 $ 50
==========================================
See accompanying notes.
F-12
14
Kidney Care, Inc., et al.
Notes to Combined Financial Statements
(In thousands)
January 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Kidney Care, Inc., et al. ("KidneyCare") consists of Kidney Care, Inc. ("KC")
and certain operating divisions of its affiliates, Medical Enterprises, Ltd.
("MEL") and Health Care Suppliers, Inc. ("HSI"). KidneyCare operates dialysis
treatment centers and provides outpatient and home patient dialysis services in
the southern United States. The combined financial statements present the
operating results and financial position of the divisions of those entities
affiliated with KC that became part of a combination referred to in Note 12.
KC, MEL and HSI have common management and members of the Boards of Directors.
All significant intercompany transactions between KC and the operating
divisions of MEL and HSI have been eliminated in the combination.
MEL and HSI provide various administrative services to KidneyCare including
data processing, accounting, personnel, purchasing and customer service. It is
KidneyCare's policy to charge the expenses of MEL and HSI first on the basis of
direct usage when identifiable, with the remainder allocated on the basis of
time spent by the service departments on KidneyCare matters.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NET REVENUE
Net revenue is recorded as services are rendered at established rates net of
contractual adjustments. During the years ended January 31, 1994, 1995, and
1996, KidneyCare received approximately 86% of its net revenue from Medicare
and Medicaid reimbursement programs which reimburse dialysis services on a
prospective payment system. Contractual adjustments arise due to the terms of
certain reimbursement and managed care contracts. Such adjustments represent
the difference between charges at established rates and estimated amounts to be
reimbursed to KidneyCare and are recognized when the services are rendered.
Any differences between estimated contractual adjustments and actual final
settlements under reimbursement contracts are recognized when the final
settlements are made.
KidneyCare provides charity care to certain patients who are identified based
on financial information provided. Charity care patient service revenue, which
is not material, is recorded when payment is received.
F-13
15
Kidney Care, Inc., et al.
Notes to Combined Financial Statements (continued)
(In thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments with original maturity of three
months or less.
SHORT-TERM GOVERNMENT SECURITIES
Short-term government securities are stated at cost, which approximates market,
and consist of U.S. Government agencies securities with maturities of one year
or less.
INVENTORIES
Inventories are stated at cost (first-in, first-out method) and consist of
kidney dialysis supplies, drugs and raw materials and supplies used in the
production of dialysis concentrate.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided on the straight-line method over the
estimated useful lives of the assets which range from five to ten years for
furniture, fixtures and equipment and five to thirty-one years for leasehold
improvements and buildings. Repairs and maintenance costs are expensed as they
are incurred, while costs of betterments and renewals are capitalized.
ESTIMATED MEDICAL PROFESSIONAL LIABILITY CLAIMS
KidneyCare is insured for medical professional liability claims through a
retrospectively rated commercial insurance policy. It is KidneyCare's policy
that provision for estimated premium adjustments to medical professional
liability costs be made for asserted and unasserted claims and based upon
KidneyCare's experience. Provision for such professional liability claims
includes estimates of the ultimate costs of such claims. To date, KidneyCare's
experience with such claims has not been significant. Accordingly, no such
provision has been made.
F-14
16
Kidney Care, Inc., et al.
Notes to Combined Financial Statements (continued)
(In thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
KC is a not-for-profit corporation as described in Section 501(c)(3) of the
Internal Revenue Code, as amended (the "Code") and is exempt from federal and
state income taxes on related income pursuant to Section 501(a) of the Code.
Consequently, the accompanying combined statements of revenues, expenses and
changes in net assets do not include provisions for income taxes from KC's
operations. Income taxes have been provided by the liability method on
earnings of the operating divisions of MEL and HSI included therein in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes."
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE
Accounts receivable, net at January 31, 1995 and 1996 of $7,814 and $8,348,
respectively, includes an allowance for contractual adjustments of $9,284 and
$10,724, respectively, and an allowance for doubtful accounts of $2,616 and
$1,855, respectively.
4. RECOVERABLE SALES TAX
On January 5, 1994, the Mississippi State Tax Commission principally granted
KidneyCare an exemption from Mississippi sales taxes. KidneyCare recovered
sales tax of $1,727 principally applicable to supply purchases from February 1,
1990 through December 31, 1994. Supplies and drugs expense included in patient
care costs in the accompanying combined statements of revenues, expenses and
changes in net assets is included net of the sales taxes recovered applicable
to the respective fiscal years.
F-15
17
Kidney Care, Inc., et al.
Notes to Combined Financial Statements (continued)
(In thousands)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the following:
JANUARY 31
1995 1996
-------------------------------
Land $ 29 $ 29
Building 78 78
Furniture, fixtures and equipment 8,629 8,143
Leasehold improvements 2,528 2,549
-------------------------------
11,264 10,799
Less accumulated depreciation (8,237) (8,260)
-------------------------------
Property, plant and equipment, net $ 3,027 $ 2,539
===============================
F-16
18
Kidney Care, Inc., et al.
Notes to Combined Financial Statements (continued)
(In thousands)
6. CREDIT FACILITIES, LONG-TERM DEBT AND CAPITAL LEASES
JANUARY 31
1995 1996
-----------------------------
Notes payable to a bank, due in monthly installments, bearing
interest at 8.75%, matured in fiscal 1996 $ 151 $ _
Notes payable to a bank, due in monthly installments, bearing
interest at 8.75%, maturing in fiscal 1999 169 152
Equipment notes payable, due in monthly installments, bearing
interest at rates from 5.9% to 8.75%, maturing in fiscal
1997 and 2000 10 35
Notes payable to insurance companies, due in monthly
installments, bearing interest at 6.4% to 7.4%, maturing in
fiscal 1997 _ 330
Notes payable to insurance companies, matured in fiscal 1996
318 _
Capital lease obligation, due in monthly installments, including
interest at 10.8% 97 72
-----------------------------
$ 745 $ 589
=============================
F-17
19
Kidney Care, Inc., et al.
Notes to Combined Financial Statements (continued)
(In thousands)
6. CREDIT FACILITIES, LONG-TERM DEBT AND CAPITAL LEASES (CONTINUED)
At January 31, 1996, the aggregate maturities of long-term debt and capital
leases are as follows:
LONG-TERM CAPITAL LEASE
DEBT OBLIGATION
-------------------------------
1997 $360 $ 35
1998 29 35
1999 122 12
2000 6 _
------------------------
Total aggregate payments $517 82
====
Less amount representing interest (10)
--------
Present value of net minimum lease payments
72
Less amount due in one year 29
--------
Long-term portion of capital lease obligations $ 43
========
KidneyCare has a $1,200 line of credit with a bank, all of which was available
at January 31, 1996, with a bank that matures June 30, 1996. Interest on
borrowings under the line of credit bear an interest rate of prime plus 1% and
borrowings are collateralized by accounts receivable. Accounts receivable,
land, building and certain furniture, fixtures and equipment and leasehold
improvements collateralize the notes payable to a bank. Certain equipment
collateralize the equipment notes payable.
KidneyCare leases certain computer equipment under a capitalized lease. The
cost of such equipment at January 31, 1995 and 1996 was $134. Accumulated
amortization was $47 and $74, respectively.
7. BENEFIT PLANS
KidneyCare has a 403(b) defined contribution plan for its employees who elect
to participate in the plan. KidneyCare matches up to 5% of salaries of
participating employees. The retirement plan expense was $256, $316, and $330
for the years ended January 31, 1994, 1995, and 1996, respectively.
F-18
20
Kidney Care, Inc., et al.
Notes to Combined Financial Statements (continued)
(In thousands)
7. BENEFIT PLANS (CONTINUED)
KidneyCare provides employee health coverage for its employees for claims up to
$35 per employee and total aggregate claims of $1,000 per annum. Effective
June 1, 1994, KidneyCare provides dental coverage claims up to $1.5 per
employee per annum. KidneyCare has reinsurance coverage for amounts in excess
of the self-insured amounts.
8. INCOME TAXES
Provision for income taxes consists of the following:
YEAR ENDED JANUARY 31
1994 1995 1996
-----------------------------------------
Current:
Federal $ 950 $ 885 $ 1,067
State 147 87 104
-----------------------------------------
1,097 972 1,171
Deferred (credits):
Federal (20) (25) 39
State (3) (3) 3
-----------------------------------------
(23) (28) 42
-----------------------------------------
$ 1,074 $ 944 $ 1,213
=========================================
The difference between provision for income taxes at KidneyCare's effective tax
rate and income taxes (credits) at the statutory federal tax rate are as
follows:
YEAR ENDED JANUARY 31
1994 1995 1996
------------------------------------------
Statutory federal income taxes $ 1,431 $ 1,746 $ 2,082
State income taxes, net 95 83 107
Income reported in not-for-profit corporation (464) (900) (991)
Other 12 15 15
-----------------------------------------
$ 1,074 $ 944 $ 1,213
=========================================
F-19
21
Kidney Care, Inc., et al.
Notes to Combined Financial Statements (continued)
(In thousands)
8. INCOME TAXES (CONTINUED)
The components of deferred income tax assets are as follows:
JANUARY 31
1995 1996
------------------------------
Accounts receivable $ 64 $ 23
Accrued expenses 1 _
------------------------------
$ 65 $ 23
==============================
9. RELATED PARTY TRANSACTIONS
KidneyCare rents certain dialysis treatment facilities from one of its
directors. KidneyCare also obtained certain water and housekeeping services
from MEL and HSI. The following is a summary of these expenses.
YEAR ENDED JANUARY 31
1994 1995 1996
-----------------------------------------
Patient care costs:
Water services $ 70 $ 42 $ 99
Facility rent 338 338 333
Housekeeping services 425 551 477
-----------------------------------------
$ 833 $ 931 $ 909
=========================================
F-20
22
Kidney Care, Inc., et al.
Notes to Combined Financial Statements (continued)
(In thousands)
10. PRO FORMA INCOME TAXES (UNAUDITED)
The following unaudited pro forma information reflects income tax expense of
KidneyCare as if KC had been subject to federal and state income taxes:
YEAR ENDED JANUARY 31
1994 1995 1996
------------------------------------------
Current:
Federal $ 1,871 $ 1,840 $ 1,835
State 290 285 176
------------------------------------------
2,161 2,125 2,011
Deferred credits (578) (193) 289
------------------------------------------
Pro forma income taxes 1,583 1,932 2,300
Income taxes as reported 1,074 944 1,213
------------------------------------------
Pro forma income tax adjustment $ 509 $ 988 $ 1,087
==========================================
The pro forma income tax expense differs from the statutory federal income
taxes as follows:
YEAR ENDED JANUARY 31
1994 1995 1996
-----------------------------------------
Statutory federal income taxes $ 1,431 $ 1,746 $ 2,083
State income taxes, net 139 169 202
Other 13 17 15
-----------------------------------------
$ 1,583 $ 1,932 $ 2,300
=========================================
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23
Kidney Care, Inc., et al.
Notes to Combined Financial Statements (continued)
(In thousands)
11. COMMITMENTS AND CONTINGENCIES
KidneyCare leases certain facilities and computer equipment. Rent expense for
the years ended January 31, 1994, 1995, and 1996 totaled $893, $948, and $912,
respectively. Minimum rental payments under noncancellable operating leases
having remaining terms in excess of one year as of January 31, 1996, by fiscal
year are as follows:
1997 $ 665
1998 636
1999 624
2000 518
2001 471
KidneyCare is involved from time to time in claims and routine litigation in
the normal course of its business. Management is of the opinion, based on the
advice of counsel, that the outcome of any matters presently pending will not
have a material adverse effect on the combined financial position or operations
of KidneyCare.
12. ASSET TRANSFER AGREEMENTS
On July 31, 1995, KC entered into an agreement with Renal Care Group, Inc.
("RCG") whereby RCG agreed to purchase substantially all of KC's assets and
assume certain of KC's liabilities. On November 14, 1995, MEL entered into an
agreement with RCG whereby MEL agreed to be acquired by RCG in a merger, prior
to which MEL's assets that are unrelated to its dialysis business will be spun
off into a separate entity.
Effective February 6, 1996, RCG completed an initial public offering of 3,900
shares of Common Stock. Simultaneous with the consummation of the offering, a
combination was consummated which included provisions for the asset transfer
agreements between RCG, KC and MEL described above.
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