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Total Renal Care Reports Net Revenues Up 50% and Net Income (Before an Unusual Item) Up 63% For Fourth Quarter 1998

  Business Editors/Health & Medical Writers
    Fourth Quarter/Recent Highlights:

    -- Revenues up 50% to $339,210,000 for the quarter, up 58% to 
    $1,204,894,000 for the year 
    -- Earnings (before an unusual item) up 63% to $24,642,000 for
    the quarter, earnings up 84% (before all unusual items)
    to $101,216,000 for the year
    -- Earnings per share (before an unusual item) up 58% to $0.30
    for the quarter, up 77% (before all unusual items) to $1.22
    for the year
    -- Completed $345,000,000, 10 year, 7% Convertible Subordinated
    Notes private offering
    -- Addition of 31 centers and approximately 3,100 patients from 
    October 1, 1998 to December 31, 1998, for 1998 year-end total
    of more than 39,500 patients
    -- Addition of 14 centers and approximately 1,000 patients since 
    January 1, 1999, for a current total of more than 40,500
    patients

    TORRANCE, Calif.--(BUSINESS WIRE)--Feb. 18, 1999--

    Fourth Quarter Earnings Per Share (Before An
    Unusual Item) at 30 cents, Up 58%

    Total Renal Care Holdings, Inc. (NYSE:TRL), the second largest domestic and largest independent worldwide provider of integrated dialysis services, today announced revenues, earnings, and earnings per share for the fourth quarter and year ended December 31, 1998.
    Revenues increased 50% to $339.2 million in the fourth quarter of 1998 from $225.6 million in the corresponding period of 1997. Earnings (before an unusual item of $12.3 million) increased 63% to $24.6 million from $15.1 million, and earnings per share (before an unusual item of $12.3 million) increased 58% to $0.30 on 87.0 million weighted average shares outstanding, compared with earnings per share of $0.19 on 81.0 million weighted average shares outstanding, for the prior-year fourth quarter period.
    Operating expenses related to the fourth quarter of 1998 exceeded those of the third quarter by $9.32 per treatment, or by $12.8 million. Of the $12.8 million in increased operating expenses, $6.1 million was virtually all related to additional Renal Treatment Centers, Inc. (RTC) employee benefits accruals, principally arising upon conversion of a former RTC system to TRL's system. $2.5 million was related to increased medical supply costs incurred during the quarter. The remaining $4.2 million was related to miscellaneous expenses including professional fees and additional information system expenses. In total, it is expected that approximately 60% of these additional $12.8 million in expenses will not be incurred in future periods. Had the Company not incurred these expenses, earnings per share would have been at $0.35 for the quarter.
    "With the integration of RTC, including accounting and information systems finally behind us, we look forward with confidence to 1999 because of the large base of business we have developed or acquired over the past years plus the strong growth opportunities afforded to us both domestically as well as overseas," stated Victor M.G. Chaltiel, TRL's Chairman, President and CEO. "1999 will be a year of growth and focus on our roots, developing value for all our constituents through our quality, clinical outcomes and efficiency programs."
    For the fiscal year ended December 31, 1998, revenues increased 58% to $1.205 billion from $761.0 million in the corresponding period of 1997. Earnings (before all unusual items) increased 84% to $101.2 million from $55.0 million (before all unusual items) and earnings per share (before all unusual items) increased 77% to $1.22 on 86.6 million weighted average shares outstanding, compared with earnings per share of $0.69 on 80.0 million weighted average shares outstanding for the prior-year period.
    The unusual item referred to in the fourth quarter results of operations was a $12.3 million charge related to the operations of RTC. During the fourth quarter, the Company completed an analysis of the RTC accounts receivable and provided an additional allowance of $11.5 million related to the RTC accounts receivable on the books as of December 31, 1997, and also determined that worker's compensation expenses required an additional allowance of $0.8 million. In addition to the aforementioned items, the previously disclosed unusual items relating to the year ended December 31, 1998 were: first quarter 1998 merger costs of $92.8 million and $15.6 million of non-cash expenses related to a change in accounting principle requiring start-up and organizational costs to be expensed immediately rather than capitalized and the write-off of deferred financing charges, and in the second quarter a $25.8 million extraordinary item and related charge associated with the refinancing of existing credit lines and early retirement of underlying interest swap arrangements recognized.

Successful Completion of $345 Million Convertible Notes Offering

    In November, 1998, the Company completed the sale of $345 million of 7% convertible subordinated notes due 2009 in a private offering. "Our strong cash flow from operations, the recent financing and our $1.35 billion credit facility should provide us with ample capital to continue our exceptional growth into the foreseeable future," continued Mr. Chaltiel.
    In connection with the $345 million Convertible Notes Offering, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission on December 18, 1998. On February 2, 1999, TRL received written communication from the SEC related to the Form S-3 as well as its Form 10K/A for the year ended December 31, 1997, and its Form 10Q for the period ended September 30, 1998.
    The Company has been asked by the SEC to expand its disclosure in the Form 10K/A in the Management, Discussion and Analysis section and Notes to the Financial Statement. Additionally certain questions of clarification were sought relating to accounting disclosure. In the Form 10Q, the Company was also asked to expand its disclosure and to answer certain questions regarding merger expenses of $92.8 million taken in the first quarter related to the RTC merger. Additionally, the SEC asked for a breakdown of goodwill balances by amortization period with a detailed justification for use of amortization periods of greater than 20 years for goodwill. In the Form S-3, the Company was also asked to utilize plain English throughout and in general to comply with the disclosure requirements outlined in Regulation S-K. The Company complied with all SEC requests and provided answers to all questions asked on February 16, 1999.

Company Continues Rapid Expansion

    Since its last press release on November 3, 1998, the Company has added, in 15 separate domestic and international transactions, 25 facilities serving more than 2,000 patients (including 6 domestic centers under management, serving approximately 675 patients).

Expansion in Continental U.S.

    The new TRL dialysis facilities, which further strengthen its positions in several of its existing markets, are located in:
 

      State   Acquired Centers  Managed Centers    Patients

       CA             4                3              965
       RI            --                3              250
       TX             1               --               75
       FL             1               --               70
       NY             1               --               70
       MD             1               --               40
   
      Total           8                6            1,470



    "We are very pleased with our continued success in the domestic market, including the further strengthening of our leading positions in California, Texas, Florida, Maryland and New York," continued Mr. Chaltiel. "We are also pleased at having made our initial meaningful entry into the Rhode Island market. Additionally, we continue to reap rewards from our strategy of developing innovative programs with industry-leading Managed Care Organizations, and our acquisition pipeline remains as robust as ever."


Expansion Overseas

    Internationally, TRL added 11 centers serving over 560 patients, further strengthening its leading position in Argentina and its growing position in Italy, as well as establishing its initial facilities in Germany. The newly acquired TRL dialysis facilities are located in:

    Country      Acquired Centers     Patients

   Argentina             5               260
   Germany               3               170
   Italy                 3               130



    "We are especially pleased with our first steps in entering Germany, the largest European market, in cooperation with several high-quality physicians," said Mr. Chaltiel. "Clearly, we can compete in the overseas consolidation to provide meaningful value to patients, physicians and payors as the largest independent worldwide provider of integrated dialysis services." A summary of TRL's international growth follows:

    Country     Census 12/97    Census 2/99   Facilities

    Argentina       1,625          2,690          51
    Italy             100            440          12
    Germany            --            170           3
    U.K.              120            200           4
   
   Total            1,845          3,500          70



    Torrance-based Total Renal Care Holdings, Inc. is the second largest domestic and the largest independent worldwide provider of integrated dialysis services for patients suffering from chronic kidney failure. The Company owns and operates high-quality, free-standing kidney dialysis centers and home peritoneal dialysis programs in 34 states, as well as Washington, D.C., Puerto Rico, Guam, Argentina and Europe, and also provides high-quality acute hemodialysis services to inpatients at approximately 290 hospitals. Currently, TRL has 522 outpatient dialysis facilities and provides services to approximately 40,500 patients. The Company additionally operates ESRD laboratory and pharmacy facilities, as well as vascular access management, transplant services and ESRD clinical research programs.

    For information on Total Renal Care Holdings, Inc., via facsimile at no cost, call 1-800-PRO-INFO and dial company code 039.
 

Expansion Highlights

              Year                                              Year
              ended              Quarter ended                 ended
             Dec.31    Mar.31,  June 30,  Sept.30,  Dec.31,    Dec.31
              1997      1998      1998      1998     1998        1998

Treatments 3,391,671 1,099,627 1,186,597 1,283,734 1,342,386 4,912,344
Patients      28,600    30,700    33,100    36,400    39,500    39,500
Centers          380       391       423       477       508       508
Revenue
 per
  Treatment     $224      $235      $243      $248      $253      $245



(Financial Tables to Follow)

    This release contains forward looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding business trends, projections and market opportunities and involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the uncertainties associated with governmental regulation, general economic and other market conditions, and the "risk factors" set forth in the Company's filings with the Securities and Exchange Commission. The forward-looking statements should be considered in light of these risks and uncertainties.

 
                   TOTAL RENAL CARE HOLDINGS, INC. 
            CONDENSED CONSOLIDATED STATEMENTS OF INCOME 
 
                     Three Months Ended         Twelve Months Ended
                         December 31,                December 31, 
                     1998         1997         1998         1997
Net operating
 revenues       $339,210,000 $225,596,000 $1,204,894,000 $760,997,000 
Operating
 expenses:
 Facilities      220,001,000  150,219,000    769,545,000  510,990,000 
General and
 administrative   22,557,000   14,855,000     73,146,000   50,099,000 
Provision for
 doubtful
 accounts         20,826,000    5,739,000     44,365,000   20,525,000 
Depreciation
 and 
 amortization     23,654,000   16,580,000     86,128,000   54,603,000 
Merger and
 related costs                                92,835,000
Total 
 operating
 expenses        287,038,000  187,393,000  1,066,019,000  636,217,000 
Operating
 income           52,172,000   38,203,000    138,875,000  124,780,000 
Interest expense,
 net of 
 capitalized
 interest        (22,742,000) (11,035,000)   (73,608,000) (28,214,000)
Interest rate
 swap-early
 termination
 costs                                        (9,823,000)       
Interest income    1,267,000      829,000      4,894,000    3,175,000 

Income before
 income taxes,
 minority
 interests,
 extraordinary
 item 
 and cumulative
 effect of change
 in accounting
 principle        30,697,000   27,997,000     60,338,000   99,741,000 
Income taxes      11,165,000   11,551,000     40,089,000   40,212,000 
 
Income before
 minority
 interests,
 extraordinary
 item and
 cumulative 
 effect of change 
 in accounting
 principle       19,532,000    16,446,000     20,249,000   59,529,000 
Minority
 interests in
 income of 
 consolidated
 subsidiaries     2,346,000     1,309,000      7,163,000    4,502,000 
Income before
 extraordinary
 item and
 cumulative 
 effect of
 change in 
 accounting
 principle       17,186,000    15,137,000     13,086,000   55,027,000 
Extraordinary 
 loss, net of
 tax of
 $7,668,000                                   12,744,000
Cumulative
 effect of
 change in
 accounting
 principle,
 net of tax of 
 $4,300,000                                    6,896,000
Net income 
 (loss)         $17,186,000   $15,137,000    $(6,554,000) $55,027,000 
Earnings 
 (loss) per
 common share:
 Income before
  extraordinary 
  item and
  cumulative
  effect of
  change in 
  accounting
  principle           $0.21        $0.19           $0.16        $0.71 
Extraordinary
 loss, net
 of tax                                             0.16
Cumulative
 effect of
 change in
 accounting
 principle,
 net of tax                                         0.08
Net income
 (loss)               $0.21        $0.19          $(0.08)       $0.71
Weighted 
 average
 number of 
 common shares
 outstanding     80,973,000   77,882,000      80,143,000   77,524,000 
Earnings (loss)
 per common
 share-
 assuming
 dilution:
  Income before 
   extraordinary
   item and
   cumulative
   effect of
   change in 
   accounting
   principle         $0.21        $0.19           $0.16         $0.69 
Extraordinary 
 loss, net of
 tax                                               0.16
Cumulative effect
 of change in
 accounting
 principle,
 net of tax                                        0.08
Net income 
 (loss)              $0.21        $0.19          $(0.08)        $0.69 
Weighted
 average
 number of 
 common shares
 and 
 equivalents 
 outstanding-
 assuming
 dilution       82,142,000   80,967,000      81,701,000    79,975,000 


 
          TOTAL RENAL CARE HOLDINGS, INC. EPS RECONCILIATION
                     ADJUSTED FOR UNUSUAL ITEMS
                     (in 000's, except EPS data)

                          Three Months Ended     Twelve Months Ended
                          December 31, 1998        December 31, 1998
   
Pre-tax income                 $30,697                   $60,338
Less: Minority interest         (2,346)                   (7,163)
Add:  Merger and
 related costs                                            92,835
Add:  Interest rate
 swap early 
 termination cost                                          9,823
Add:  RTC additional
 allowances required            12,300                    12,300
Adjusted pre-tax income        $40,651                  $168,133
Taxes (at 39.4%
 and 39.8%,
 respectively)                 (16,009)                  (66,917)
Adjusted net income            $24,642                  $101,216
   
"If converted" method:
Adjusted net income            $24,642                  $101,216
Add:  After-tax 
 convertible debt
 interest expense 
 (5 5/8% convert)                1,058                     4,233
"If converted" adjusted
  net income                    25,700                   105,449
   
Shares outstanding used
 in computation                 82,142                    81,701
Add:  Shares underlying
 convertible debt
 (5 5/8% convert)                4,879                     4,879
"If converted" adjusted
 shares outstanding             87,021                    86,580
   
"If converted" adjusted
 earnings per share              $0.30                     $1.22

 

     CONTACT: TOTAL RENAL CARE
              VICTOR M.G. CHALTIEL, CEO
              OR JOHN E. KING,
              310/792-2600
                    OR
              AT THE FINANCIAL RELATIONS BOARD
              HARIS TAJYAR, GENERAL INFORMATION
              MOIRA CONLON, INVESTOR CONTACT
              MARJORIE ORNSTON, MEDIA CONTACT
              310/442-0599
              KATHY BRUNSON, INVESTOR CONTACT
              312/266-7800

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