<PAGE>
 
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-K/A
                                AMENDMENT NO. 1

                                 ANNUAL REPORT
                        PURSUANT TO SECTION 13 OR 15(D)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

  For the fiscal year ended December 31, 1996  Commission file number 1-14142

________________________________________________________________________________

                         RENAL TREATMENT CENTERS, INC.
            (Exact name of Registrant as specified in its charter)

                 DELAWARE                                23-2518331
          (State of incorporation)         (I.R.S. Employer Identification No.)

           1180 W. Swedesford Road
            Building 2, Suite 300
            Berwyn, Pennsylvania                          19312
    (Address of principal executive offices)            (Zip Code)

                                (610) 644-4796
             (Registrant's telephone number, including area code)

            SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE
                       SECURITIES EXCHANGE ACT OF 1934:

                                             NAME OF EACH EXCHANGE 
                 TITLE OF EACH CLASS          ON WHICH REGISTERED

            Common Stock, $.01 par value     New York Stock Exchange
 

            SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE
                     SECURITIES EXCHANGE ACT OF 1934: NONE
                                        
   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 the 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. [X]

   On  March 14, 1997, the aggregate market value (based on the closing sale
price on that date) of the voting stock held by non-affiliates of the Registrant
was approximately $621,470,000.

   The number of shares of the Registrant's Common Stock outstanding as of March
14, 1997 was  24,617,217.
<PAGE>
 
PART II
    
INTRODUCTORY STATEMENT      
    
     Renal Treatment Centers, Inc. ("RTC") was acquired by Total Renal Care 
Holdings, Inc.  ("TRCH") on February 27, 1998.  On April 1, 1998, TRCH announced
(i) that it had undertaken a detailed review of RTC's accounts receivable and 
other balance sheet accounts in connection with the completion of the audit of 
RTC's financial statements for the fiscal year ended December 31, 1997, and (ii)
that as a result of such review, it expected to recognize between $25 million 
and $30 million of non-cash charges related to prior periods which would require
a revision of RTC's previously announced results of operations.  On April 30, 
1998, TRCH announced that RTC might be required to correct previously audited 
financial statements.      
    
     The analysis of RTC's financial statements was completed on May 15, 1998.
In order to correct certain errors discovered through such analysis, TRCH has
determined to (i) restate RTC's previously audited financial statements for the
fiscal year ended December 31, 1996 ("Fiscal 1996") and (ii) revise RTC's
previously filed financial statements for the fiscal quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 and RTC's previously announced
results of operations for the fiscal quarters ended March 31, 1996 and 1997,
June 30, 1996 and 1997, September 30, 1996 and 1997 and December 31, 1996 and
1997 and the fiscal years ended December 31, 1996 and 1997.     
    
     This Form 10-K/A is being filed to amend the audited financial statements 
for Fiscal 1996 included in RTC's Form 10-K for Fiscal 1996 which was filed on
March 29, 1997. RTC is concurrently filing separate Form 10-Q/A's to correct the
financial statements included in the Form 10-Q's previously filed for the first
three fiscal quarters in 1997.      
    
     The balance sheet included in the audited financial statements for Fiscal 
1996 filed herewith is being corrected to reflect a reduction of accounts
receivable at December 31, 1996 and to reflect the impact of the changes to the
statements of income for Fiscal 1996 described below. The statement of income
included in such audited financial statements is being corrected to reflect a
related reduction of net patient revenue for Fiscal 1996 and a related increase
in the provision for doubtful accounts. The corrected statement of income also
includes a reduction in the provision for income taxes reflecting the reduction
in taxable income resulting from the corrections described above. (See Note 13
of the financial statements filed herewith)     
    
     Approximately one half of the charges described above relate to untimely
billing and subsequent requests for information by RTC with governmental payors
(primarily state medicaid programs) and contracted private payors. The remainder
relates primarily to improper contractual allowances related to revenue
recognition at the time of billing and to uncollectible accounts. TRCH believes
that the causes of such problems have been appropriately addressed and that
systems and processes are now in place to ensure accurate contractual
allowances related to revenue recognition and timely account resolution,
including all appropriate collection efforts.     
    
     Information included in Item 7 (Management's Discussion and Analysis of 
Financial Condition and Results of Operations) under the captions "Results of 
Operations" and "Year Ended December 31, 1996 Compared to Year Ended December 
31, 1995") of RTC's Form 10-K for Fiscal 1996 was based on RTC's audited 
consolidated financial statements prior to the corrections described above.  
Consequently, the information included in Item 7 under such captions overstates 
both net patient revenue and the provision for income taxes and understates the 
provision for doubtful accounts as described above.  RTC believes that the 
amendment of Item 7 to discuss such corrections would provide no material 
additional information not already presented in Item 7 of the Form 10-K as
originally filed or in this Form 10-K/A. Consequently, such Item 7 is not
restated in this Form 10-K/A.     

    
ITEM 6.   SELECTED FINANCIAL DATA:      
    
The selected consolidated financial data presented below as of December 31, 1995
and 1996, and for the years ended December 31, 1994, 1995 and 1996, have been 
derived from the Company's audited consolidated financial statements and should 
be read in conjunction with such audited consolidated financial statements and 
notes thereto, which are included herein. Certain adjustments have been made to 
the 1996 financial statements to correct errors in previously reported amounts, 
as described in note 13 to the financial statements. The selected consolidated 
financial statements presented below as of December 31, 1992, 1993 and 1994, and
for the years ended December 31, 1992 and 1993, have been derived from the 
Company's audited financial statements not included herein.      

<TABLE>     
<CAPTION> 
                                                                           Year Ended December 31
                                                                           ----------------------
                                                           1992         1993         1994        1995         1996
                                                           ----         ----         ----        ----         ----
(dollars in thousands, except for per share data)
<S>                                                     <C>          <C>         <C>         <C>          <C> 
STATEMENT OF INCOME DATA:
Net patient revenue                                     $54,041      $73,043     $115,457    $164,568     $225,077
Operating costs and expenses:
  Patient care costs                                     27,854       37,172       57,096      79,451      114,804
  General and administrative                             16,083       20,756       32,622      41,382       58,472
  Provision for doubtful accounts                           967        1,551        3,121       4,761       10,241
  Depreciation and amortization                           3,123        4,145        7,603      12,066       17,077
  Merger expenses                                             -            -            -       2,088        2,808
Income from operations                                    6,014        9,419       15,015      24,820       21,675
Interest, net                                             1,433        1,536          648       2,557        4,384
Income before income taxes                                4,581        7,883       14,367      22,263       17,291
Provision for income taxes                                1,052        2,102        4,316       7,632        6,609
Net income                                               $3,529       $5,781      $10,051     $14,631      $10,682

Pro forma net income per common
   and common stock equivalent (1)                                     $0.36

Pro forma weighted average shares used in
   computing net income per common and common
   stock equivalents (1)                                          16,063,639
Basic earnings per share                                                            $0.49       $0.67        $0.44
Weighted average common stock                                                  20,412,982  21,868,067   24,230,156 

<CAPTION>                 
                                                                             As of December 31,
                                                                            ------------------
                                                           1992         1993         1994        1995         1996
                                                           ----         ----         ----        ----         ----
(dollars in thousands)
<S>                                                      <C>         <C>          <C>         <C>          <C> 
BALANCE SHEET DATA:
Working capital                                          $3,960      $13,709      $27,947     $43,380      $85,677
Intangible assets, net                                   16,892       28,934       79,238      86,362      130,645
Total assets                                             37,035       60,007      140,523     174,868      293,948
Total long-term debt                                     12,389       18,070       28,744      42,576      130,574
Total liabilities                                        25,028       29,349       47,894      64,510      165,814
Cumulative redeemable preferred stock                     9,528            -            -           -            -
Total stockholders' equity                               $2,478      $30,658      $92,628    $110,358      128,134
</TABLE>      
    
 (1) Pro forma net income is computed by adjusting net income to reflect the
reduction in interest expense (net of tax effect) related to the payment of
certain indebtedness with initial public offering proceeds. Pro forma net income
per common share is computed based upon the weighted average number of shares of
common stock and common stock equivalents and including the number of shares of
common stock issued upon the conversion of preferred stock and exercise of
common stock warrants, and 3,700,000 shares issued in connection with the
Company's initial public offering as if such shares were issued or converted as
of January 1, 1993. The proceeds from the issuance of 3,700,000 shares were
utilized to redeem Series A preferred stock, pay series B preferred stock
dividends and to pay down certain indebtedness.     

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:

See the Index included at "Item 14.  Exhibits, Financial Statement Schedules and
Reports on Form 8-K."


PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:

(a)  Documents filed as part of this Form 10-K Report

<TABLE> 
<CAPTION> 
<S>                                                                                          <C> 
1.   Financial Statements
 
Report of Independent Accountants..........................................................     F-1
Reports of Other Independent Accountants
        Relied Upon by Independent Accountants.............................................  F-2 - F-3
Financial Statements:
     Consolidated Balance Sheets at December 31, 1995 and 1996.............................     F-4               
     Consolidated Statements of Income for the years ended                                                      
               December 31, 1994, 1995 and 1996............................................     F-5
     Consolidated Statements of Stockholders' Equity for the
               years ended December 31, 1994, 1995 and 1996................................     F-6
     Consolidated Statements of Cash Flows for the years ended
               December 31, 1994, 1995 and 1996............................................     F-7
     Notes to Consolidated Financial Statements............................................  F-8 - F-18

2.   Financial Statement Schedules:

II.  Valuation and Qualifying Accounts,
     for the years ended December 31, 1996,
     1995 and 1994.........................................................................     F-19
</TABLE>


     Schedules other than those listed above are omitted because they are either
     not applicable or not required or because the information required is
     contained in the financial statements or notes thereto. The financial
     statement schedules are covered by the Report of Independent Accountants on
     Page F-1.

3.   Exhibits:

Exhibit      Description
-------      -----------
           
  3.1        Restated Certificate of Incorporation of the Company (incorporated
             herein by reference to Exhibit No. 3.1 filed under the Company's
             Amendment No. 1 to Quarterly Report on Form 10-Q/A for the quarter
             ended March 31, 1996).
  3.1.1      Certificate of Amendment dated February 29, 1996 to Restated
             Certificate of Incorporation of the Company (incorporated herein by
             reference to Exhibit No. 3.1.1 filed under the Company's Amendment
             No. 1 to Quarterly Report on Form 10-Q/A for the quarter ended
             March 31, 1996).
  3.2        By-Laws of the Company and Amendment to By-Laws adopted February 9,
             1993 (incorporated herein by reference to Exhibit No. 3.2 filed
             under the Company's Form S-1 Registration Statement No. 33-59850).
  4.1        Specimen Certificate of Common Stock of the Company (incorporated
             herein by reference to Exhibit No. 4.1 filed under the Company's
             Annual Report on Form 10-K for the year ended December 31, 1995).
<PAGE>
 
  4.2        Indenture dated June 12, 1996 by the Company to PNC Bank, National
             Association, Trustee, including form of the Company's 5 5/8%
             Convertible Subordinated Notes due 2006 issued under the Indenture
             (incorporated herein by reference to Exhibit No. 4.2 filed under
             the Company's Quarterly Report on Form 10-Q for the quarter ended
             June 30, 1996).
  4.3        Registration Rights Agreement dated as of June 12, 1996 by and
             among the Company, Merrill Lynch & Co., Merrill Lynch, Pierce,
             Fenner & Smith Incorporated, UBS Securities LLC, J.C. Bradford &
             Co. and Wessels, Arnold & Henderson (incorporated herein by
             reference to Exhibit No. 4.3 filed under the Company's Quarterly
             Report on Form 10-Q for the quarter ended June 30, 1996).
 10.1*       Renal Treatment Centers, Inc. Amended and Restated 1990 Stock
             Plan.+
 10.1.1*     Form of Stock Option Agreement under the Company's Amended and
             Restated 1990 Stock Plan (incorporated herein by reference to
             Exhibit No. 10.1.3 filed under the Company's Annual Report on Form
             10-K for the year ended December 31, 1995).
 10.2*       Renal Treatment Centers, Inc. Equity Incentive Plan for Outside
             Directors (incorporated herein by reference to Exhibit No. 10.2
             filed under the Company's Annual Report on Form 10-K for the year
             ended December 31, 1994).
 10.2.1*     Form of Stock Option Agreement under the Company's Equity Incentive
             Plan for Outside Directors (incorporated herein by reference to
             Exhibit No. 10.2.1 filed under the Company's Annual Report on
             Form10-K for the year ended December 31, 1995). 
 10.2.2*     Amendment No. 1 to the Company's Equity Incentive Plan for Outside
             Directors dated May 2, 1996 (incorporated herein by reference to
             Exhibit No. 10.2.2 filed under the Company's Quarterly Report on
             Form 10-Q for the quarter ended June 30, 1996).
 10.3*       Employment Agreement dated as of March 2, 1995 between the Company
             and Robert L. Mayer, Jr. (incorporated herein by reference to
             Exhibit No. 10.3 filed under the Company's Quarterly Report on Form
             10-Q for the quarter ended September 30, 1995).
 10.3.1*     First Amendment to Employment Agreement dated as of May 2, 1996
             between the Company and Robert L. Mayer, Jr. (incorporated herein
             by reference to Exhibit No. 10.3.1 filed under the Company's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
 10.4*       Employment Agreement dated as of March 2, 1995 between the Company
             and Frederick C. Jansen (incorporated herein by reference to
             Exhibit No. 10.4 filed under the Company's Quarterly Report on Form
             10-Q for the quarter ended September 30, 1995).
 10.4.1*     First Amendment to Employment Agreement dated as of May 2, 1996
             between the Company and Frederick C. Jansen (incorporated herein by
             reference to Exhibit No. 10.4.1 filed under the Company's Quarterly
             Report on Form 10-Q for the quarter ended June 30, 1996).
 10.5*       Employment Agreement dated as of May 2, 1996 between the Company
             and Barbara A. Bednar (incorporated herein by reference to Exhibit
             No. 10.5 filed under the Company's Quarterly Report on Form 10-Q
             for the quarter ended June 30, 1996).
 10.6*       Employment Agreement dated as of August 30, 1993 between the
             Company and John Chambers (incorporated herein by reference to
             Exhibit No. 10.6 filed under the Company's Form S-1 Registration
             Statement No. 33-74994).
 10.6.1*     First Amendment to Employment Agreement dated as of May 2, 1996
             between the Company and John A. Chambers (incorporated herein by
             reference to Exhibit No. 10.6.1 filed under the Company's Quarterly
             Report on Form 10-Q for the quarter ended June 30, 1996).
 10.7*       Resignation Agreement and Release dated January 13, 1995 by and
             between the Company and Michael C. Duke (incorporated herein by
             reference to Exhibit No. 10.7 filed under the Company's Annual
             Report on Form 10-K for the year ended December 31, 1994).
 10.8*       Executive Severance Agreement dated as of May 1,1995 between the
             Company and Barbara A. Bednar (incorporated herein by reference to
             Exhibit No. 10.8 filed under the Company's Annual Report on Form 
             10-K for the year ended December 31, 1995).
 10.8.1*     First Amendment to Executive Severance Agreement dated as of May 2,
             1996 between the Company and Barbara A. Bednar (incorporated herein
             by reference to Exhibit No. 10.8.1 filed under the Company's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
 10.9*       Executive Severance Agreement dated as of May 1, 1995 between the
             Company and Ronald H. Rodgers, Jr. (incorporated herein by
             reference to Exhibit No. 10.9 filed under the Company's Annual
             Report on Form 10-K for the year ended December 31, 1995).
 10.9.1*     First Amendment to Executive Severance Agreement dated as of May 2,
             1996 between the Company and Ronald H. Rodgers, Jr. (incorporated
             herein by reference to Exhibit No. 10.9.1 filed under the Company's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
<PAGE>
 
 10.10*      Executive Severance Agreement dated as of May 1, 1995 between the
             Company and John A. Chambers (incorporated herein by reference to
             Exhibit No. 10.10 filed under the Company's Annual Report on Form
             10-K for the year ended December 31, 1995).
 10.10.1*    First Amendment to Executive Severance Agreement dated as of May 2,
             1996 between the Company and John A. Chambers (incorporated herein
             by reference to Exhibit No. 10.10.1 filed under the Company's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
 10.11       Fourth Amended and Restated Loan Agreement dated as of June 5, 1996
             between the Company and First Union National Bank of North Carolina
             and the other lenders set forth therein (incorporated herein by
             reference to Exhibit No. 99.1 filed under the Company's Current
             Report on Form 8-K dated May 29, 1996).
 10.12       Lease Agreement dated November 8, 1991 between the Company and
             Terramics/Southpoint Associates II Limited Partnership
             (incorporated herein by reference to Exhibit No. 10.32 filed under
             the Company's Form S-1 Registration Statement No. 33-59850).
 10.12.1     First Amendment to Lease Agreement dated January 18, 1993
             (incorporated herein by reference to Exhibit No. 10.32 filed under
             the Company's Form S-1 Registration Statement No. 33-59850).
 10.12.2     Second Amendment to Lease dated September 30, 1993 (incorporated
             herein by reference to Exhibit No. 10.36 filed under the Company's
             Form S-1 Registration Statement No. 33-74994).
 10.12.3     Confirmation of Lease Term dated November 1, 1993 (incorporated
             herein by reference to Exhibit No. 10.36 filed under the Company's
             Form S-1 Registration Statement No. 33-74994).
 10.12.4     Third Amendment to Lease dated March 2, 1995 (incorporated herein
             by reference to Exhibit No. 10.12.4 filed under the Company's
             Annual Report on Form 10-K for the year ended December 31, 1995).
 10.12.5     Fourth Amendment to Lease dated May 30, 1996 (incorporated herein
             by reference to Exhibit No. 10.12.5 filed under the Company's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
 10.13       Earnout Note dated June 1, 1994 by and between Renal Treatment
             Centers- Colorado, Inc., Renal Treatment Centers - Nebraska, Inc.,
             Renal Treatment Centers - Wyoming, Inc. and The Dialysis Centers
             Limited Liability Company (incorporated herein by reference to
             Exhibit No. 2 filed under the Company's Form 8-K Current Report
             dated June 15, 1994).
 10.14       Agreement and Plan of Merger dated as of July 25, 1995 among the
             Company, Renal Treatment Centers -Kansas, Inc. and the individuals
             and their affiliated companies set forth therein (incorporated
             herein by reference to Exhibit No. 2.1 filed under the Company's
             Form 8-K Current Report dated August 1, 1995).
 10.15       Agreement and Plan of Merger dated as of January 11, 1996 among the
             Company, Renal Treatment Centers - Hawaii, Inc., Intercontinental
             Medical Services, Inc. and Dudley S.J. Seto, M.D. (incorporated
             herein by reference to Exhibit No. 2.1 filed under the Company's
             Current Report on Form 8-K dated February 20, 1996).
 10.16*      Employment Agreement dated as of May 2, 1996 between the Company
             and Ronald H. Rodgers, Jr. (incorporated herein by reference to
             Exhibit No. 10.25 filed under the Company's Quarterly Report on
             Form 10-Q for the quarter ended June 30, 1996).
 10.17*      Employment Agreement dated as of March 11, 1996 between the Company
             and Thomas J. Karl (incorporated herein by reference to Exhibit No.
             10.26 filed under the Company's Quarterly Report on Form 10-Q for
             the quarter ended June 30, 1996).
 10.18*      Executive Severance Agreement dated as of March 11, 1996 between
             the Company and Thomas J. Karl (incorporated herein by reference to
             Exhibit No. 10.27 filed under the Company's Quarterly Report on
             Form 10-Q for the quarter ended June 30, 1996).
 10.19       Asset Purchase Agreement dated as of May 29, 1996 between Renal
             Treatment Centers - Pennsylvania, Inc. and KCCC Liquidating Trust
             (incorporated herein by reference to Exhibit No. 2.1 filed under
             the Company's Current Report on Form 8-K dated May 29, 1996).
 10.20       Asset Purchase Agreement dated as of May 29, 1996 between Renal
             Treatment Centers - Pennsylvania, Inc. and KCDC Liquidating Trust
             (incorporated herein by reference to Exhibit No. 2.2 filed under
             the Company's Current Report on Form 8-K dated May 29, 1996).
 10.21*      Employment Agreement dated as of March 1, 1996 between the Company
             and Mark A. Zawiski (incorporated herein by reference to Exhibit
             No. 10.30 filed under the Company's Quarterly Report on Form 10-Q
             for the quarter ended September 30, 1996).
 10.22*      Executive Severance Agreement dated as of March 1, 1996 between the
             Company and Mark A. Zawiski (incorporated herein by reference to
             Exhibit No. 10.31 filed under the Company's Quarterly Report on
             Form 10-Q for the quarter ended September 30, 1996).
 10.23       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).
 10.24       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).
<PAGE>
 
         
21.1      Subsidiaries of the Company.+
27.1      Amended Financial Data Schedule.X

_______________
   *Management Contracts and Compensatory Plans or Arrangements.
   +Previously filed under the Company's Annual Report on Form 10-K for the year
   ended December 31, 1996.
   XIncluded in this filing.

 (b)      Reports on Form 8-K

 Form 8-K/A Amendment No. 1 to Current Report dated September 16, 1996 filed on
 November 27, 1996 to file pursuant to Item 7 (a) historical financial
 information for the year ended December 31, 1995 and six months ended June 30,
 1995 and 1996 for Columbus Regional Dialysis Center, Inc., Phenix City
 Nephrology Referral Center, Inc. and the Group and (b) pro-forma financial
 information for the Company for the year ended December 31, 1995 and the six
 months ended June 30, 1996 related to the acquisition of Columbus Regional
 Dialysis Center, Inc. and Phenix City Nephrology Referral Center, Inc. reported
 on Form 8-K dated September 16, 1996.
<PAGE>
 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                         RENAL TREATMENT CENTERS, INC.

                                         By: /s/John E. King
                                             -----------------------------------
                                         Vice President, Finance and Chief 
                                         Financial Officer
                                         Date: May 18, 1998
                                               -------------
<PAGE>
 
REPORT OF INDEPENDENT ACCOUNTANTS



Stockholders and Board of Directors
Renal Treatment Centers, Inc.
Berwyn, Pennsylvania

We have audited the accompanying consolidated balance sheets of Renal Treatment
Centers, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996.  Our audits also
included the financial statement schedule listed in Item 14(a) of this Form 10-
K/A.  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 did not audit the financial statements of
Wichita Dialysis Group and Healthcare Corporation and Affiliates for the year
ended December 31, 1994.  Such Companies were acquired by the Company in
business combinations which have both been accounted for using the pooling of
interests method of accounting, as described in Note 3 to the financial
statements. The financial statements for the Companies reflect 22 percent of
total consolidated net patient revenue for the year ended December 31, 1994.
Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Wichita Dialysis Group and Healthcare Corporation and Affiliates, is based
solely on the reports of the other auditors.

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 and the reports of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Renal Treatment
Centers, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.  In addition, in our opinion, the  financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information required to be included therein.
    
As discussed in Note 14, the accompanying financial statements as of and for the
year ended December 31, 1996 have been revised.     

/S/COOPERS & LYBRAND L.L.P.
---------------------------
COOPERS & LYBRAND L.L.P.


Philadelphia, Pennsylvania
May 14, 1998

                                      F-1
<PAGE>
 
INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholder
Healthcare Corporation and Affiliates
Nashville, Tennessee
    
We have audited the combined statements of income, stockholder's equity and cash
flows for the year ended December 31, 1994 of Healthcare Corporation and
Affiliates (the "Company"). These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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, such combined financial statements (not presented separately 
herein) present fairly, in all material respects, the results of the Company's
operations and its cash flows for the year ended December 31, 1994 in conformity
with generally accepted accounting principles.     



/s/DELOITTE & TOUCHE LLP
------------------------
DELOITTE & TOUCHE LLP

Nashville, Tennessee
March 31, 1995

                                      F-2
<PAGE>
 
                        Independent Accountants' Report
                        -------------------------------



The Shareholders
Wichita Dialysis Group
Wichita, Kansas
    
     We have audited the accompanying combined balance sheets of Wichita
Dialysis Group as of December 31, 1993 and 1994, and the related combined
statements of operations, changes in stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1994.  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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Wichita Dialysis
Group as of December 31, 1993 and 1994, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1994,
in conformity with generally accepted accounting principles.    


/s/Baird, Kurtz & Dobson
------------------------
Baird, Kurtz & Dobson

July 14, 1995, except for Note 9 as to which the date is July 24, 1995
Wichita, Kansas

                                      F-3
<PAGE>
 
                Renal Treatment Centers, Inc. and Subsidiaries
                          CONSOLIDATED BALANCE SHEETS
                          December 31, 1995 and 1996

<TABLE>    
<CAPTION> 
                                                                                       1995         1996
--------------------------------------------------------------------------------------------------------------- 
<S>                                                                                 <C>            <C> 
  ASSETS                                                                                                       
  Current assets:                                                                                              
     Cash                                                                           $  8,231,421   $  1,445,798
     Investments                                                                               -     41,202,123
     Accounts receivable, net of allowance for                                                                 
        doubtful accounts of $3,503,744 in 1995 and $7,853,350 in 1996                51,996,618     65,198,524
     Inventories                                                                       2,869,019      4,388,290
     Deferred taxes                                                                      819,835      2,149,718
     Income tax receivable                                                                   ---      3,782,890
     Prepaid expenses and other current assets                                         1,396,893      2,749,497
--------------------------------------------------------------------------------------------------------------- 
        Total current assets                                                          65,313,786    120,916,840
---------------------------------------------------------------------------------------------------------------
  Property and equipment (net of accumulated depreciation of $10,746,557 in 1995                               
     and $19,691,015 in 1996)                                                         21,442,421     39,578,245
  Intangibles (net of accumulated amortization of $22,263,385 in 1995 and                                      
     $32,934,871 in 1996)                                                             86,362,275    130,645,378
  Deferred taxes, non-current                                                          1,749,754      2,807,064
---------------------------------------------------------------------------------------------------------------
        Total assets                                                                $174,868,236   $293,947,527
===============================================================================================================
  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                         
  Current liabilities:                                                                                         
     Current portion of long-term debt                                              $  4,766,262   $ 12,369,365
     Accounts payable                                                                  4,495,087     11,341,983
     Accrued compensation                                                              2,790,121      3,838,502
     Accrued expenses                                                                  6,576,600      4,051,614
     Accrued income taxes                                                              2,218,692            ---
     Accrued interest                                                                  1,087,415      3,638,874
---------------------------------------------------------------------------------------------------------------
        Total current liabilities                                                     21,934,177     35,240,338
---------------------------------------------------------------------------------------------------------------
  Long-term debt, net                                                                 42,576,100    130,573,685
  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 22,209,689 shares in 1995 and 24,430,256 shares in 1996              222,097        244,303
  Additional paid-in capital                                                          83,257,068     87,890,138
  Retained earnings                                                                   27,272,870     40,393,139
---------------------------------------------------------------------------------------------------------------
                                                                                     110,752,035    128,527,580
  Less treasury stock, 37,202 shares in 1995 and 1996, at cost                          (394,076)      (394,076)
---------------------------------------------------------------------------------------------------------------
      Total stockholders' equity                                                     110,357,959    128,133,504
---------------------------------------------------------------------------------------------------------------
      Total liabilities and stockholders' equity                                    $174,868,236   $293,947,527
=============================================================================================================== 
</TABLE>     

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
 
                Renal Treatment Centers, Inc. and Subsidiaries
                       CONSOLIDATED STATEMENTS OF INCOME
             for the years ended December 31, 1994, 1995 and 1996

<TABLE>    
<CAPTION> 
                                                                   1994           1995           1996
------------------------------------------------------------------------------------------------------------- 
<S>                                                           <C>            <C>            <C>  
Net patient revenue                                           $115,456,744   $164,568,392   $225,076,500
Patient care costs                                              57,095,740     79,451,490    114,803,209
------------------------------------------------------------------------------------------------------------- 

Operating profit                                                58,361,004     85,116,902    110,273,291 
                                                                
General and administrative expense                              32,621,992     41,381,899     58,471,984 
Provision for doubtful accounts                                  3,121,017      4,760,678     10,240,920
Depreciation and amortization expense                            7,602,959     12,066,461     17,076,827 
Merger expenses                                                          -      2,087,542      2,808,247 
------------------------------------------------------------------------------------------------------------- 
Income from operations                                          15,015,036     24,820,322     21,675,313
                                                             
Interest expense                                                 1,203,617      2,713,599      6,364,556 
Interest income                                                   (555,515)      (156,150)    (1,980,513) 
------------------------------------------------------------------------------------------------------------- 
Income before income taxes                                      14,366,934     22,262,873     17,291,270 
Provision for income taxes                                       4,316,014      7,632,069      6,608,871 
------------------------------------------------------------------------------------------------------------- 
Net income                                                    $ 10,050,920   $ 14,630,804   $ 10,682,399  
=============================================================================================================
                                                              
Basic earnings per share data:                                       
     Earnings per share                                              $0.49          $0.67          $0.44
                                                                                                        
     Weighted average common stock                              20,412,982     21,868,067     24,030,156 

Diluted earnings per share data:
     Diluted earnings per share                                      $0.48          $0.65          $0.43 

     Weighted average common stock
      and dilutive securities                                   20,726,117     23,095,135     25,646,300
</TABLE>     

          See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>
 
                Renal Treatment Centers, Inc. and Subsidiaries
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
             for the years ended December 31, 1994, 1995 and 1996

<TABLE>    
<CAPTION>
                                                                           Additional 
                                                      COMMON STOCK         Paid-in        Retained       TREASURY STOCK
                                                      ------------                                       --------------
                                                   Shares      Amount       Capital       Earnings  Shares     Amount      TotaL
------------------------------------------------------------------------------------------------------------------------------------

<S>                                             <C>         <C>         <C>          <C>            <C>      <C>       <C>   
Balance, December 31, 1993                      16,128,053  $161,281    $25,143,047  $ 5,563,576         -          -  $ 30,867,904
   Issuance of common stock in
      stock offering                             4,789,000    47,890     51,053,601                                      51,101,491
   Exercise of common stock options                356,760     3,568        312,230                                         315,798
   Issuance of common stock in
      connection with purchase of businesses       175,216     1,752      1,810,748                                       1,812,500
   Acquisition of treasury stock                                                                    (4,342)  $ 47,219)      (47,219)

   Dividend distribution                                                              (1,473,100)                        (1,473,100)

   Net income                                                                         10,050,920                         10,050,920
------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1994                      21,449,029   214,491     78,319,626   14,141,396    (4,342)   (47,219)   92,628,294
   Exercise of common stock options                458,016     4,580      1,297,692                                       1,302,272
   Issuance of common stock in connection
      with purchase of businesses                  252,122     2,521      3,117,226                                       3,119,747
   Issuance of common stock to repay debt           50,522       505        522,524                                         523,029
   Acquisition of treasury stock                                                                   (32,860)  (346,857)     (346,857)

   Dividend distribution                                                              (1,499,330)                        (1,499,330)

   Net income                                                                         14,630,804                         14,630,804
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995                      22,209,689   222,097     83,257,068   27,272,870   (37,202)  (394,076)  110,357,959
   Exercise of common stock options                263,531     2,636      3,071,113                                       3,073,749
   Issuance of common stock in connection
      with mergers                               1,814,632    18,146         89,137    3,096,370                          3,203,653
   Issuance of common stock to repay debt          142,404     1,424      1,472,820                                       1,474,244
   Dividend distribution                                                                (658,500)                          (658,500)

   Net income                                                                         10,682,399                         10,682,399 
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996                    24,430,256  $244,303    $87,890,138  $40,393,139   (37,202) $(394,076) $128,133,504
===================================================================================================================================
</TABLE>      

         See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>
 
                Renal Treatment Centers, Inc. and Subsidiaries
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             for the years ended December 31, 1994, 1995 and 1996

<TABLE>    
<CAPTION>
                                                                1994           1995            1996
------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S>                                                        <C>            <C>            <C> 
   Net income                                              $ 10,050,920   $ 14,630,804   $  10,682,399
   Adjustments to reconcile net income to                                                   
       net cash provided by operating activities:
           Depreciation and amortization                      7,701,587     12,131,465      17,120,149
           Deferred income taxes                               (497,251)    (1,506,643)     (1,924,546) 
           Provision for doubtful accounts                    3,121,017      4,760,678      10,240,920
           Gain on sale of equipment                             (2,974)             -               -
           Equity in (earnings) losses from affiliate           (96,312)      (266,592)         15,910
           Changes in operating assets and liabilities,
           net of effects of companies acquired:
           Accounts receivable                              (19,065,267)   (19,444,635)    (19,969,828)
           Inventories                                         (260,546)      (117,157)     (1,054,213)
           Prepaid expenses and other current assets           (506,876)        99,673      (1,167,162)
           Accounts payable and accrued expenses              4,365,037        585,345       4,579,714
           Accrued income taxes                                (475,071)     1,747,000      (6,001,582)
------------------------------------------------------------------------------------------------------
     Net cash provided by operating activities                4,334,264     12,619,938      12,521,761
------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Capital expenditures                                      (5,198,350)    (7,899,143)    (16,319,461)
   Purchase of businesses, net of cash acquired             (50,323,267)   (11,646,992)    (40,791,079)
   Purchase of investments                                  (38,500,000)             -     (55,311,044)
   Sale of investments                                       38,588,696      2,661,944      14,108,921
   Other                                                     (1,214,875)    (1,904,962)     (3,254,313)
------------------------------------------------------------------------------------------------------
     Net cash used in investing activities                  (56,647,796)   (18,789,153)   (101,566,976)
------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Proceeds from long-term debt borrowings                   18,045,175     19,621,000      30,500,000
   Proceeds from issuance of 5 5/8% Convertible
      Subordinated Notes due 2006                                     -              -     121,250,000
   Repayments of debt                                       (14,032,771)    (7,355,102)    (70,760,938)
   Proceeds from issuance of common stock                    51,612,289      1,302,272       3,073,748
   Payment of dividend distribution                          (1,473,295)    (1,499,330)       (658,500)
   Increase in financing fees                                  (282,609)             -               -
   Payments on capital lease obligations                        (13,846)      (450,985)     (1,144,718)
   Other                                                        581,195              -               -
------------------------------------------------------------------------------------------------------
     Net cash provided by financing activities               54,436,138     11,617,855      82,259,592
------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents          2,122,606      5,448,640      (6,785,623)
Cash and cash equivalents at beginning of year                  660,175      2,782,781       8,231,421
------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                   $  2,782,781   $  8,231,421   $   1,445,798
======================================================================================================
</TABLE>     

         See accompanying notes to consolidated financial statements.

                                      F-7
<PAGE>
 
                Renal Treatment Centers, Inc. and Subsidiaries
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    DESCRIPTION OF BUSINESS

Renal Treatment Centers, Inc. (the "Company") was incorporated in Delaware on
August 11, 1988 for the purpose of providing dialysis services for End Stage
Renal Disease ("ESRD") patients in an outpatient environment or in the patient's
home.  Additionally, the Company has acquired or entered into inpatient dialysis
service agreements with hospitals to provide dialysis treatments on an inpatient
basis.

For the years ended December 31, 1994, 1995 and 1996, approximately 73%, 68% and
62%, respectively,  of the Company's net patient revenue was received from
Medicare and Medicaid and other state administered programs.  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:

In February 1996, the Company acquired, through two separate transactions,
Intercontinental Medical Services, Inc. ("IMS") and Midwest Dialysis Unit and
its affiliates (collectively "MDU").  Each of the transactions was separately
accounted for as a pooling-of-interests.  The consolidated financial statements
of the Company include the results of IMS and MDU as of January 1, 1996.  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.

In July 1996, the Company acquired Panama City Artificial Kidney Center, Inc.
and North Florida Artificial Kidney Center, Inc. (collectively "the Group").
The transaction was accounted for as a pooling-of-interests.  Accordingly, the
consolidated financial statements of the Company have been prepared to give
retroactive effect to the merger with the Group, since this transaction, when
combined with the MDU and IMS pooling transactions, was deemed to be a material
transaction.

Certain amounts included in the accompanying consolidated financial statements
and related footnotes reflect the use of estimates based on assumptions made by
management.  Actual amounts could differ from these estimates.

Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.

Principles of Consolidation:

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of the Company
and its wholly-owned subsidiaries.  All significant intercompany accounts and
transactions have been eliminated in consolidation.

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 Company under Medicare and Medicaid and other state administered
programs are based upon a predetermined specific fee per treatment.

The Company 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 salaries and benefits associated directly with patient care.

Inventories:
Inventories are stated at the lower of cost (determined using the first-in,
first-out method) or market and consist of dialysis supplies and prescription
drugs, such as EPO.

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, 39 years for buildings, and five to ten years for leasehold
improvements. 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 the results of
operations.

                                      F-8
<PAGE>
 
2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Intangibles:
Goodwill:
Goodwill, the excess of aggregate purchase price over the fair value of the net
assets of businesses acquired, is amortized on a straight-line basis,
principally over 25 years.

Patient Lists:
Patient lists, arising from the purchase of renal dialysis centers, are stated
at cost and amortized over eight years using the straight-line method.

Non-Compete Agreements:

Non-compete agreements, arising from acquisitions, are stated at cost and
amortized over the terms of the agreements, on a straight-line basis, over
periods from three to 11 years.

Other Intangibles:

Other intangibles consist of debt issuance costs, inpatient dialysis service
agreements, deferred financing costs and organization costs and are stated at
cost and amortized over five to 11 years using the straight-line method.

Management evaluates intangible assets for possible impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable.  This evaluation is based on certain financial indicators,
such as historical and future ability to generate income from operations.

Income Taxes:

The Company and its subsidiaries file a consolidated federal tax return and
separate company state tax returns.  Income taxes are provided for under the
liability method in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS No. 109").  Under the liability
method, deferred income taxes are recognized for the tax consequences of
differences between amounts reported for financial reporting and income tax
purposes by applying enacted statutory tax rates applicable to future years to
such differences.  Deferred taxes result primarily from temporary differences
arising from a difference between the book life and the tax life of certain
assets.  Under SFAS No. 109, the effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.

Federal (and state, where applicable) income taxes for HCC and the Wichita
Companies (which are later defined) and IMS, MDU and the Group prior to their
acquisition by the Company were payable personally by the stockholders of IMS,
MDU and the Group pursuant to S corporation elections under the Internal Revenue
Code.

Prepaid Expenses and Other Current Assets:
Prepaid expenses and other current assets consist primarily of prepaid
insurance, rent, various taxes and other current assets.

Accrued Expenses:
Accrued expenses consist principally of uninvoiced inventory, accrued insurance
and other miscellaneous accruals.

Estimated Medical Professional Liability Claims:

The Company is insured for medical professional liability claims through a
commercial insurance policy.  It is the Company's policy that a provision for
estimated premium adjustments to medical professional liability costs be made
for asserted and unasserted claims and based upon the Company's experience.
Provision for such professional liability claims includes estimates of the
ultimate costs of such claims.  To date, the Company'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 Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.  The cash of the Company is principally held by one financial
institution.

Investments:

Investments were comprised of investments in corporate bonds and government and
government agency securities.  Investment income is recognized when earned and
realized gains and losses are recognized on a trade date basis, computed based
on original cost.  The investments are stated at cost, which approximates fair
market value.  All investments were managed by one financial institution.
Subsequent to December 31, 1996, all investments were liquidated, resulting in
an immaterial realized gain.

                                      F-9
<PAGE>
 
2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
         
    
Earnings per Share:      
    
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 
No. 128, "Earnings per Share" ("SFAS No. 128"). This statement establishes 
standards for computing and presenting earnings per share. Basic earnings per 
share is calculated using the average shares of common stock outstanding, while 
diluted earnings per share reflects the potential dilution that could occur if 
stock options and the earn out note were exercised. The Company adopted SFAS No.
128 in the fourth quarter of 1997. Prior period earnings per share amounts have 
been restated in accordance with SFAS No. 128. For the year ended December 31, 
1996, the Notes are not used in the calculation as the affect is antidilutive, 
and as such, is not to be included in the diluted earnings per share 
calculation.      

3.    BUSINESS ACQUISITIONS:
During the fiscal years 1996 and 1995, the Company completed the following five
mergers.  There were no mergers in 1994.

Merger with the Group:

On July 23, 1996, the Company acquired the Group.  The two dialysis facilities
acquired are located in Florida and serviced a total of approximately 185
patients as of the acquisition date.  The transaction was accounted for under
the pooling-of-interests method of accounting.  In the transaction, the Company
issued 482,377 shares of its common stock in exchange for all of the outstanding
stock of the Group.  The acquisition was structured as a merger of the Group
into a subsidiary of the Company.

Merger with MDU:

On February 29, 1996, the Company acquired MDU.  The 11 dialysis facilities
acquired are located in Oklahoma and serviced approximately 317 patients as of
the acquisition date.  The transaction was accounted for under the pooling-of-
interests method of accounting.  In the transaction, the Company issued 767,168
shares of its common stock in exchange for all of the outstanding stock of MDU.
The acquisition was structured as a merger of MDU into a subsidiary of the
Company.

Merger with IMS:

On February 20, 1996, the Company acquired IMS.  The four dialysis facilities
acquired are located in Hawaii and serviced a total of approximately 444
patients as of the acquisition date.  The transaction was accounted for under
the pooling-of-interests method of accounting.  In the transaction, the Company
issued 1,047,464 shares of its common stock in exchange for all of the
outstanding stock of IMS.  The acquisition was structured as a merger of IMS
into a subsidiary of the Company.

Merger with The Wichita Companies:

On July 25, 1995, with an effective date of August 1, 1995, the Company acquired
Wichita Dialysis Center, P.A., Southeast Kansas Dialysis Center, P.A., Garden
City Dialysis Center, P.A. and Wichita Dialysis Center, East, P.A. (the "Wichita
Companies").  All of the facilities acquired are located in Kansas and serviced
approximately 355 patients as of the acquisition date.  The transaction was
accounted for under the pooling-of-interests method of accounting.  In the
transaction, the Company issued 1,558,920 shares of its common stock in exchange
for all of the outstanding stock of the Wichita Companies.  The acquisition was
structured as a merger of the Wichita Companies into a subsidiary of the
Company.

Merger with HCC:

On March 6, 1995, the Company completed its acquisition of Healthcare
Corporation and its affiliates (collectively, "HCC").  The 13 facilities
acquired from HCC are located in Missouri, Illinois, North Carolina, Florida and
Washington, D.C. and serviced approximately 720 patients as of the acquisition
date.  The transaction was accounted for under the pooling-of-interests method
of accounting.  In the transaction, the Company issued 2,292,222 shares of its
common stock in exchange for all of the outstanding stock
of HCC.  The acquisition was structured as a merger of HCC into several
subsidiaries of the Company.

                                     F-10
<PAGE>
 
3.    BUSINESS ACQUISITIONS (CONTINUED):

The consolidated financial statements give retroactive effect to the mergers
with the Group, the Wichita Companies and HCC and include the combined
operations of the Company, the Group, the Wichita Companies, and HCC for all
periods presented. The consolidated financial statements include the operations
of IMS and MDU as of January 1, 1996. The following is a summary of the separate
and combined results of operations for periods prior to the mergers (dollars in
thousands):

<TABLE> 
<CAPTION> 
                                       Renal Treatment
                                         Centers, Inc.           Pooling        
                                      (Prior to Poolings)       Companies*      Combined
                                      -------------------       ---------       --------
<S>                                   <C>                       <C>             <C>
For the year ended December 31,
1996
     Net patient revenue                      $217,529          $ 7,548         $225,077
     Income from operations                     20,495            1,180           21,675 
     Net income                                  9,985              697           10,682 
                                           
1995
     Net patient revenue                      $150,467          $14,101         $164,568
    Income from operations                      23,319            1,501           24,820
    Net income                                  13,239            1,392           14,631
                                           
1994
     Net patient revenue                      $ 86,520          $28,937         $115,457
     Income from operations                     12,343            2,672           15,015
     Net income                                  7,558            2,493           10,051
</TABLE>

*Includes pooling transactions only for period prior to acquisition. Activity
subsequent to acquisition dates is included in Renal Treatment Centers, Inc.
(Prior to Poolings).
                                                                               
The acquisitions described below have been accounted for under the purchase
method. The results of these acquisitions have been included in the results of
operations from the applicable acquisition dates. The purchase price of the
acquisitions has been principally allocated to fixed assets, patient lists, non-
compete agreements and goodwill. Goodwill, which is the excess of the purchase
price over the fair value of net assets, was approximately $76,058,555 and is
being amortized on a straight line basis over 25 years.

1996 Acquisitions:

During 1996, the Company acquired 10 dialysis centers, including several acute
care contracts, in New Jersey, Georgia, Pennsylvania, Alabama, Oklahoma and the
Republic of Argentina for approximately $40,791,000 in cash and the incurrence
and assumption of approximately $9,201,000 of liabilities. The acquisitions
included substantially all of the non-current assets and certain current assets
and the assumption of certain liabilities and capital leases of the centers.

1995 Acquisitions:

During 1995, the Company acquired nine dialysis centers, including several acute
care contracts, in Indiana, Ohio, Texas, Florida and Nebraska for approximately
$11,600,000 in cash, 302,644 shares of unregistered common stock, valued at
approximately $3,642,776 at the respective dates of acquisition, and the
assumption of approximately $118,000 of liabilities. The acquisitions included
substantially all of the non-current assets and certain current assets and the
assumption of certain liabilities and capital leases of the centers.

1994 Acquisitions:

During 1994, the Company acquired 17 dialysis centers, including several acute
care contracts, in Oklahoma, Colorado, Wyoming, New Jersey, Virginia,
Pennsylvania and Texas for approximately $50,300,000 in cash, 175,216 shares of
unregistered common stock, valued at approximately $1,812,500 at the respective
dates of acquisition, and the assumption of approximately $1,200,000 of
liabilities. The acquisitions included substantially all of the non-current
assets and certain current assets and the assumption of various liabilities and
capital lease obligations of the centers. Additionally, certain purchase
agreements included provisions whereby additional purchase price may be required
if the centers attain certain financial results during a specified period. Refer
to note 6 to consolidated financial statements for discussion of a note issued
in connection with an acquisition.

                                     F-11
<PAGE>
 
3.    BUSINESS ACQUISITIONS (CONTINUED):

The following unaudited pro forma information combines the consolidated results
of operations of the Company and the companies acquired in the acquisitions that
were accounted for under the purchase method during 1995 and 1996 as if they had
occurred on January 1, 1995:

<TABLE>     
<CAPTION> 
                                                     (Unaudited)
                                                 1995          1996
--------------------------------------------------------------------------------
<S>                                          <C>           <C> 
Net patient revenue                          $192,497,000  $242,074,000
Income from operations                         27,341,000    25,781,000
Net income                                     17,164,000    12,375,000
Net income per share                         $       0.78  $       0.51
</TABLE>      

The pro forma results do not necessarily represent results that would have
occurred if these acquisitions had taken place at the beginning of each period,
nor are they indicative of the results of future combined operations.

4.    PROPERTY AND EQUIPMENT:

A summary of property and equipment and related accumulated depreciation as of
December 31, 1995 and 1996 is as follows:

<TABLE> 
<CAPTION> 
                                                 1995          1996
--------------------------------------------------------------------------------
<S>                                          <C>            <C> 
Furniture, fixtures and equipment            $20,775,057    $37,340,616
Leasehold improvements                         7,427,458     14,699,276
Capital leases                                 3,161,693      5,679,063
Building                                         724,704      1,450,239
Land                                             100,066        100,066
--------------------------------------------------------------------------------
                                              32,188,978     59,269,260
Less accumulated depreciation                 10,746,557     19,691,015
--------------------------------------------------------------------------------
                                             $21,442,421    $39,578,245
================================================================================
</TABLE>
                                                                               
Capital leases primarily consist of dialysis equipment. Depreciation expense was
$2,152,110, $3,846,294 and $6,601,223 for the years ended December 31, 1994,
1995 and 1996, respectively.

5.    INTANGIBLE ASSETS:

Intangible assets consist of goodwill and other identifiable intangibles.  A
summary of intangible assets and related accumulated amortization as of December
31, 1995 and 1996 is as follows:

<TABLE>     
<CAPTION> 
                                                          1995          1996
--------------------------------------------------------------------------------
<S>                                                   <C>           <C>    
Goodwill                                              $ 59,605,978  $ 92,416,850
Patient lists                                           33,572,193    45,354,310
Non-compete agreements                                  10,048,195    16,005,803
Other intangibles, principally debt issuance costs       5,399,294     9,803,286
--------------------------------------------------------------------------------
                                                       108,625,660   163,580,249
--------------------------------------------------------------------------------
Less accumulated amortization                           22,263,385    32,934,871
--------------------------------------------------------------------------------
                                                      $ 86,362,275  $130,645,378
================================================================================
</TABLE>      

Intangible assets principally arose from acquisitions. Amortization expense was
$5,450,849, $8,220,167 and $10,475,604 for the years ended December 31, 1994,
1995 and 1996, respectively.

                                     F-12
<PAGE>
 
6.    DEBT:

<TABLE> 
<CAPTION> 
Debt as of December 31, 1995 and 1996 consists of:                           1995           1996
------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>  
Term loan payable in quarterly installments of $625,000               $ 3,750,000   $          -
Revolving credit/term facility payable in 16 equal quarterly
   installments                                                        33,675,000              -
Note, 6.5% payable to The Dialysis Centers Limited
   Liability Company in four annual installments of
   variable amounts commencing on June 1, 1995                          6,627,690      5,154,870
Note, 5.5% payable to Columbus Regional Dialysis Center, Inc.
   in one installment due January 1997                                          -      3,622,500
Note, 5.5% payable to Phenix City Nephrology Referral Center, Inc.
   in one installment due January 1997                                          -      4,427,500
Term loans payable in monthly installments of $15,912                   1,041,576              -
Convertible Subordinated Notes, 5 5/8%, due 2006                                -    125,000,000
Other                                                                           -      1,144,297
Capital lease obligations                                               2,291,418      3,593,883
Unamortized debt discount                                                 (43,322)             -
------------------------------------------------------------------------------------------------
                                                                       47,342,362    142,943,050
Less current portion                                                   (4,766,262)   (12,369,365)
------------------------------------------------------------------------------------------------
                                                                      $42,576,100   $130,573,685
================================================================================================
</TABLE>

The Company's Credit Agreement provides for a $100,000,000 revolving credit/term
facility available to fund acquisitions and general working capital
requirements, of which no amounts and $33,675,000 were outstanding as of
December 31, 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 Credit Agreement was amended to
increase the amount available under the revolving credit facility 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
revolving credit facility. The Company must pay an annual commitment fee on the
average daily unutilized commitment in the amount of .25% - .35%, determined by
the Company's ratio of senior debt to annualized cash flow (the "Applicable
Margin"). 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 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%.

The Credit Agreement also provides for the issuance of letters of credit up to
$5,000,000 provided that the aggregate of all outstanding letters of credit plus
the outstanding aggregate principal amount of all revolving credit/term loans
does not exceed the lesser of the total revolving credit/term commitment or the
patient borrowing base, as defined in the Credit Agreement, at such time. As of
December 31, 1995 and 1996, there were no letters of credit outstanding.

The loans are collateralized by all stock of the Company's subsidiaries and the
assignment of all intercompany notes. The Credit Agreement limits additional
indebtedness, acquisitions, investments and dividends and requires the Company
to comply with certain other covenants and maintain certain financial ratios.
The dividend distributions presented in the Consolidated Statement of
Stockholders' Equity in 1994, 1995 and 1996 were paid to the former stockholders
of HCC, the Wichita Companies and the Group and were not subject to the Credit
Agreement limitation on dividend payments.
    
In June 1996, the Company issued $125,000,000 of 5 5/8% Convertible Subordinated
Notes due 2006 (the "Notes") . The Notes are convertible, at the option of the
holder, at any time after August 12, 1996 through maturity, unless previously
redeemed or repurchased, into Common Stock at a conversion price of $34.20
principal amount per share, subject to certain adjustments. The fair value of
the Notes was approximately $120,625,000 at December 31, 1996. At any time on or
after July 17, 1999, all or any part of the Notes will be redeemable at the
Company's option on at least 15 and not more than 60 days notice as a whole or,
from time to time, in part at redemption prices ranging from 103.94% to 100.00%
of the principal amount thereof, depending on the year of redemption, together
with accrued interest to, but excluding, the date fixed for redemption.     

In June 1994, pursuant to a business acquisition, the Company entered into an
agreement to pay the Seller, The Dialysis Centers Limited Liability Company,
$7,364,100, payable in annual installments commencing June 1995 through June
1998. Interest on the unpaid principal amount of the note accrues at an annual
rate of 6.50%, payable in arrears each June 1 from 1995 through 1998. The note
allows the Seller to convert the principal amount of the note into that number
of shares of common stock of the Company which shall be equal to the quotient of
the outstanding unpaid principal amount of the note divided by the average daily
closing sale price of

                                     F-13
<PAGE>
 
6.   DEBT (CONTINUED):

the stock during December, 1994 ($10.3425 per share, outstanding balance
convertible into 498,416 shares of common stock at December 31, 1996). The fair
value of the Company's 6.50% Note was approximately $12,709,608 at December 31,
1996.

The term loans are the result of four separate agreements (the "Group
Agreements") entered into by the Group with two banks. The Group Agreements
provided for a total of $1,350,000 in term loans and a $350,000 revolving line
of credit. Subsequent to the consummation of the merger with the Group as
described in notes 2 and 3 to the consolidated financial statements, the Company
paid off all of the indebtedness related to the Group Agreements.

In September 1996, pursuant to a business acquisition, the Company entered into
an agreement to pay the Sellers, Columbus Regional Dialysis Center, Inc. and
Phenix City Nephrology Referral Center, Inc., a total of $8,050,000 in one
installment on January 3, 1997. Interest on the principal amount of the note
accrues at an annual rate of 5.5% payable January 3, 1997.

Unless otherwise noted above, the carrying amount of long term debt approximates
its fair value.

Maturities of debt outstanding, excluding capital leases, as of December 31,
1996 for each of the next five years is as follows:

<TABLE>
<CAPTION>
                                   Year
                                   --------------------------
                                   <S>           <C> 
                                   1997          $11,403,527
                                   1998            2,945,640
                                   1999                    -
                                   2000                    - 
                                   2001                    -
</TABLE> 
 
7.    INCOME TAXES:

The provision for income taxes for the years ending December 31, 1994, 1995 and
1996 consists of the following:

<TABLE>   
<CAPTION> 
                         1994          1995          1996

--------------------------------------------------------------------------------
<S>                   <C>          <C>           <C> 
Current:
   Federal            $4,327,339   $ 8,330,951    $7,852,091
   State and local       485,926       807,761       681,326
--------------------------------------------------------------------------------
                       4,813,265     9,138,712     8,533,417
--------------------------------------------------------------------------------

Deferred:
   Federal              (447,584)   (1,372,961)   (1,694,959)
   State and local       (49,667)     (133,682)     (229,587)
--------------------------------------------------------------------------------
                        (497,251)   (1,506,643)   (1,924,546)
--------------------------------------------------------------------------------
                      $4,316,014   $ 7,632,069   $ 6,608,871  
================================================================================
</TABLE>    

The tax effects of temporary differences which comprise the net deferred tax
asset are as follows:

<TABLE> 
<CAPTION> 
                                                       December 31,
                                                       ------------
                                                  1995            1996
                                                  ----            ----
<S>                                          <C>             <C> 
Deferred tax debits:
   Allowance for doubtful accounts           $   780,978     $ 2,136,098
   Intangibles, principally patient lists      2,926,430       5,241,100
   Property and equipment                        178,417               -
   Other                                          38,857          13,620
--------------------------------------------------------------------------------
                                               3,924,682       7,390,818
--------------------------------------------------------------------------------
 
Deferred tax credits:
   Property and equipment                              -        (164,806)
   Goodwill                                   (1,355,093)     (2,269,230)
--------------------------------------------------------------------------------
                                              (1,355,093)     (2,434,036)
--------------------------------------------------------------------------------
Net deferred tax asset                       $ 2,569,589     $ 4,956,782
================================================================================
</TABLE>

                                     F-14
<PAGE>
 
 
7.   INCOME TAXES (CONTINUED):

The following is a reconciliation of the statutory federal income tax rates to
the effective rates as a percentage of income before provision for income taxes
as reported in the financial statements for the years ended December 31, 1994,
1995 and 1996:

<TABLE>
<CAPTION>
                                                     1994    1995    1996
----------------------------------------------------------------------------- 
<S>                                                 <C>     <C>     <C>
U.S. federal income tax rate                        34.2%   35.0%   35.0%
State income taxes, net of federal          
 income tax benefit                                  2.4%    2.4%    2.5%
Non-tax effected items,                     
 principally intangibles                             0.8%    1.8%    1.7%
Federal and state income tax                
 benefit from S corporation status of HCC,  
 the Wichita Companies and the Group                (6.4%)  (3.5%)  (0.9%)
Other                                               (1.0%)  (1.4%)  (0.1%)
----------------------------------------------------------------------------- 
Effective income tax rate                           30.0%   34.3%   38.2%
============================================================================= 
</TABLE>

8.   BENEFIT AND COMPENSATION PLANS:

The Company has a defined contribution savings plan covering substantially all
employees.  The Company's contributions under the plan were approximately
$388,497,  $462,004, and $548,471 for the years ended December 31, 1994, 1995
and 1996, respectively.

In September 1990, the Company established a stock plan, pursuant to which
incentive stock options and non-qualified stock options may be issued to
employees and others through the year 2000.  The Company applies APB Opinion No.
25 and related Interpretations in accounting for its stock plan.  FASB Statement
No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") was issued by the
FASB in 1995 and, if fully adopted by the Company, changes the method for
recognition of cost on stock plans.  Although the Company has elected not to
adopt the cost recognition requirements under SFAS 123, pro-forma disclosures as
if the Company had adopted the requirements beginning in 1995 are presented
below:

<TABLE>     
<CAPTION> 
                                                     1995         1996
-----------------------------------------------------------------------------
<S>                                               <C>          <C>
Net earnings - as reported                        $14,630,804  $10,682,399
Net earnings - pro-forma                           14,165,049    8,350,485
Earnings per share - as reported                         0.67         0.44
Earnings per share - pro-forma                    $      0.65  $      0.34
</TABLE>     
                                                                               
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for options granted in 1995 and 1996:  expected volatility of 29.3%
regardless of varying expected terms; no dividend payments are made for the
expected terms; expected term of 3 years for options that vest over time and 3
years for options which vest immediately; risk-free interest rate on the date of
grant with the maturity equal to the expected term; exercise price equal to the
fair market value on grant date.

Incentive stock options may be granted at an exercise price not less than the
fair market value of the Company's common stock on the date of grant. Non-
qualified stock options may be granted at an exercise price not less than the
lower of the book value of the Company's common stock or 50% of the fair market
value per share of common stock on the date of grant. Accordingly, compensation
expense for the difference between the fair market value and the exercise price
for non-qualified stock options issued is recorded over the vesting period of
such options.

In 1995 and 1996, the stock plan was amended to increase the number of shares
available for grant to 2,437,000 and 3,237,000 shares, respectively.  In
addition, the Company established an option plan for outside directors pursuant
to which non-qualified stock options to purchase up to 60,000 shares may be
issued to non-employee directors of the Company.  These options may be granted
at an exercise price not less than the fair market value of the Company's common
stock on the date of grant.

In February 1994, the Company granted 170,000 incentive stock options to certain
officers and employees of the Company.  These options were granted at an
exercise price equal to the fair market value of the Company's common stock on
the date of grant.  These options vest over the next two years.

In May 1995, the Company granted 419,144 incentive stock options to certain
directors, officers and employees of the Company.  These options were granted at
an exercise price equal to the fair market value of the Company's common stock
on the date of the grant.  These options vest over the next three years.
Certain options totalling 305,000 vest upon the earlier of attainment of
predetermined earnings per share targets or nine years.

                                     F-15
<PAGE>
 
8.   BENEFIT AND COMPENSATION PLANS (CONTINUED):

In March 1996, the Company granted 615,332 incentive stock options to certain
directors, officers and employees of the Company.  These options were granted at
an exercise price equal to the fair market value of the Company's common stock
on the date of the grant.  These options vest over the next four years.  Certain
options aggregating 173,332 vest upon the earlier of attainment of predetermined
earnings per share targets or ten years.

In December 1996, the Company granted 100,000 incentive stock options to an
officer of the Company.  These options were granted at an exercise price equal
to the fair market value of the Company's common stock on the date of the grant.
The options are fully vested.

Also in December 1996, the Company granted 30,000 non-qualified stock options in
connection with the release of the Company from certain obligations.  The
options were granted at an exercise price equal to the fair market value of the
Company's common stock on the date of grant.  The options are fully vested, with
the exceptions of options for 10,000 shares, which vest no later than January
1998.

Approximately $50,000 per year was recorded as compensation expense during 1994
and 1995, in connection with incentive and non-qualified options to officers of
the Company, which have been amortized over the remaining vesting period.
Certain options outstanding at December 31, 1996, which were issued to certain
officers and employees of the Company, become fully vested upon certain sales of
assets, mergers and consolidations involving the Company, as set forth in the
respective employee and stock option agreements. The remaining options
outstanding at December 31, 1996, which are issued to certain officers and
employees of the Company, become fully vested upon certain sales of assets,
mergers and consolidations involving the Company, at the option of the Stock
Plan Committee.

The following is a summary of option transactions and exercise prices:

<TABLE>    
<CAPTION>
 
                                          Number of       Price Per
                                            Shares          Share
<S>                                       <C>             <C>
  Outstanding at December 31, 1994            1,281,930   $0.055-$11.25
------------------------------------------------------------------------------
  Granted                                       413,144   $11.50-$16.75
  Exercised                                    (448,676)  $ 0.005-$11.25
  Forfeited                                       4,000   $11.25 
  Outstanding at December 31, 1995            1,242,398   $ 5.25-$11.50
------------------------------------------------------------------------------
  Granted                                       747,098   $21.81-$26.25
  Exercised                                    (263,531)  $ 5.25-$21.81
  Forfeited                                       8,000   $11.25-$12.44
  Outstanding at December 31, 1996            1,717,965   $ 5.25-$26.25
------------------------------------------------------------------------------
  Exercisable at December 31, 1996              724,272                
==============================================================================
</TABLE>      

9.   CAPITAL STOCK:

On January 30, 1996, the Board of Directors of the Company declared a dividend
on the Company's common stock of one share of common stock for each share
outstanding, thereby effecting a 2-for-1 stock split. The dividend shares were
issued on March 14, 1996 to stockholders of record as of February 29, 1996.
Additionally, on February 29, 1996, the Company amended its capital structure to
increase the Company's authorized capital to 45,000,000 shares of $0.01 par
value common stock and 5,000,000 shares of $.01 par value Series Preferred
Stock. All references in the financial statements to outstanding and authorized
common shares, average number of shares outstanding and related prices, per
share amounts and stock plan data have been restated to reflect the split
effected by the stock dividend.

                                     F-16
<PAGE>
 
10.  LEASING ARRANGEMENTS:

The Company leases certain of its operating facilities, corporate office and
furniture and equipment under non-cancelable leases for terms ranging from four
to ten years with certain renewal options.  Certain of these facilities are
leased by the Company from medical directors.

Future minimum lease payments as of December 31, 1996, are as follows:

<TABLE>
<CAPTION>
                                                                           Third-party       Operating Leases
                                                       Capital              Operating          with Medical 
                                                       Leases                Leases             Directors   
------------------------------------------------------------------------------------------------------------------ 
<S>                                                   <C>                <C>                  <C>           
  1997                                                $1,221,616         $ 6,108,929          $ 1,637,146   
  1998                                                 1,535,510           5,774,992            1,649,447   
  1999                                                 1,139,521           5,704,805            1,477,600   
  2000                                                   171,236           5,328,609            1,469,543   
  2001 and thereafter                                          -          29,460,511            5,771,086   
------------------------------------------------------------------------------------------------------------------ 
  Total minimum lease payments                        $4,067,883         $52,377,846          $12,004,822   
----------------------------------------------------------------   ===============================================
  Less amount representing interest                      474,001                                        
  Present value of net minimum payments under                                                           
     capital leases                                   $3,593,883                                        
  Less current portion                                   965,838                                        
----------------------------------------------------------------
                                                      $2,628,045                                         
================================================================
</TABLE>

Rent expense paid to third parties under operating leases was $3,270,066,
$4,921,026 and $5,497,285 for the years ended     December 31, 1994, 1995 and
1996, respectively.  Rent expense paid to medical directors under facility
operating leases was $832,454, $1,030,208 and $1,350,253 for the years ended
December 31, 1994, 1995 and 1996 respectively.

11.  COMMITMENTS AND CONTINGENCIES:

The Company has entered into long-term compensation agreements with the medical
directors of each dialysis facility.  The agreements range from one to ten years
with certain agreements containing one to ten year options to renew.  The
agreements provide for total annual compensation as follows:

<TABLE> 
<CAPTION> 
                                                         Physician Director
     Year                                                  Compensation
--------------------------------------------------------------------------------
<S>                                                      <C> 
  1996                                                     $ 7,615,205
  1997                                                       8,349,101
  1998                                                       8,004,982
  1999                                                       6,818,381
  2000 and thereafter                                       28,459,671
--------------------------------------------------------------------------------
  Total minimum payments                                   $59,247,340 
================================================================================
</TABLE>

The Company has employment agreements with seven officers.  These agreements
provide for total annual compensation of $1,265,000 and provide that in the
event any payment or benefit received by any of them in connection with a change
of control is deemed an "excess parachute payment" under the Internal Revenue
Code, the Company shall pay the officer a cash bonus equal to any additional tax
liability imposed upon him as a result.

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.

                                     F-17
<PAGE>
 
12.  SUPPLEMENTAL CASH FLOW INFORMATION:

Supplemental disclosure of cash flow information for the years ended December
31, 1994, 1995 and 1996 is as follows:

<TABLE>
<CAPTION>
                                                                    1994             1995             1996    
  <S>                                                            <C>              <C>              <C>        
------------------------------------------------------------------------------------------------------------------------
  Cash paid for:                                                                                              
   Interest                                                      $1,090,192       $2,177,255       $ 3,609,972
======================================================================================================================== 
   Income taxes                                                  $4,857,551       $5,680,430       $17,198,434
========================================================================================================================  
  Non-cash investing and financing activities:                                                                
   Capital lease obligations entered into                        $  542,032       $2,081,699       $ 2,553,368
========================================================================================================================  
   Issuance of common stock in connection with purchase                                                       
     of business                                                 $1,812,500       $3,119,747       $         -
========================================================================================================================  
   Earnout note issued in connection with purchase                                                            
     of business                                                 $7,364,100       $        -        $        -
========================================================================================================================  
   Acquisition of treasury stock in connection with                                                           
     payroll taxes resulting from exercise of stock                                                           
     options                                                     $   47,219       $  346,857       $         -
========================================================================================================================
   Liabilities assumed in connection with purchases
     of businesses                                               $1,200,000       $  118,000                 -
========================================================================================================================
   Issuance of common stock in connection with
     earn out note                                                        -       $  523,029       $ 1,474,244
========================================================================================================================  
   Issuance of short term notes in connection                                                                 
     with purchases of businesses                                $        -       $        -       $ 9,194,297
========================================================================================================================  
   Issuance of common stock in connection                                                                     
     with the IMS and MDU mergers                                $        -       $        -       $ 3,203,653
========================================================================================================================  
   Financing fees incurred in the Notes offering                 $        -       $        -       $ 3,750,000 
========================================================================================================================  
</TABLE>

    
13.  EARNINGS PER SHARE     
    
Earnings per share have been restated in accordance with SFAS No. 128. This 
restatement resulted in no material change from amounts previously reported. 
Earnings per share are computed as follows:     

<TABLE>    
<CAPTION>
                               YEAR ENDED DECEMBER 31,
                               -----------------------
                     1994         1995          1996
<S>                <C>           <C>           <C>
Basic earnings
 per share:
  Net income
   available for
   common stock..  $10,050,920   $14,630,804   $10,682,399
                   ===========   ===========   ===========
  Average common
   stock out-
   standing......   20,412,982    21,868,067    24,230,156
                   ===========   ===========   ===========
  Basic earnings
   per share.....  $     0.49    $      0.67   $      0.44
                   ===========   ===========   ===========
Diluted earnings
 per share:
  Net income.....   10,050,920    14,630,804    10,682,399
  Add back inter-
   est on earnout
   note, tax ef-
   fected........          --        283,136       232,573
                   -----------   -----------   -----------
  Net income
   available for
   Common Stock
   and dilutive
   securities....  $10,050,920   $14,913,940   $10,914,972
                   ===========   ===========   ===========
Average Common
 Stock outstand-
 ing.............   20,412,982    21,868,067    24,230,156
Additional common
 shares resulting
 from dilutive
 securities:
  Stock options..      313,135       544,666       837,744
  Earnout note...                    682,402       578,400
                   -----------   -----------   -----------
Average Common
 Stock and
 dilutive securi-
 ties outstand-
 ing.............   20,726,117    23,095,135    25,646,300
                   ===========   ===========   ===========
Diluted earnings
 per share.......  $      0.48   $     0.65    $      0.43
                   ===========   ==========    ===========
</TABLE>      

   
14.  FINANCIAL STATEMENT REVISIONS:     
    
Certain adjustments have been made to the 1996 financial statements to correct
previously reported amounts.    
    
The balance sheet at December 31, 1996 had previously included, at full value,
approximately $14 million of uncollectible accounts receivable for which no
provision or contractual allowance was established. Previously issued financial
statements for 1996 have been restated to reflect the above matters, as follows
(dollars in thousands, except per share amounts):    

<TABLE>    
<CAPTION> 
                                                   Restated   Previously  
                                                    Amount     Presented  
                                                    ------     ---------  
<S>                                                <C>        <C>        
1996:                                                                    
Accounts receivable, net                           $ 65,199   $ 79,138     
Total current assets                                120,917    129,689   
Total assets                                        293,948    302,720   
Total stockholders' equity                          128,134    136,741   
Total liabilities and stockholders' equity          293,948    302,720   
Net patient revenue                                 225,077    235,397   
Net income                                           10,682     19,290    
Primary net income per common share                $   0.43   $   0.77
Fully diluted net income per common 
 and common stock equivalent                       $   0.43   $   0.76 
Basic earnings per share                           $   0.44   $     --
Diluted earnings per share                         $   0.43   $     --
</TABLE>     

    
15. Subsequent Event:      
    
     On February 26, 1998, the Company's stockholders approved the merger with 
Total Renal Care Holdings, Inc. ("TRCH") which became effective on February 27, 
1998 (the "Merger"). The Merger is expected to be accounted for as a
pooling-of-interests. In connection with the Merger, each of the Company's 
stockholders will receive 1.335 shares of TRCH common stock.      
    
     The Merger constituted a "change in control" and resulted in certain
executives terminating their employment for good reason. In connection with the
Merger, these certain executives received severance payments and their 1997
bonuses totaling approximately $2,000,000. Merger bonuses of approximately
$4,600,000; and $8,850,000 for covenants not to compete. In addition, 978,081 of
previously issued stock options to employees, which had an automatic change in
control provision in the option grant, became fully vested on February 27,
1998.
    
                                     F-18
<PAGE>
 
                Renal Treatment Centers, Inc. and Subsidiaries

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------- 
                                                  BALANCE AT         ADDITIONS                                        
                                                  BEGINNING        CHARGED TO COSTS                       BALANCE AT   
               DESCRIPTION                         OF YEAR          AND EXPENSES        DEDUCTIONS       END OF YEAR  
------------------------------------------------------------------------------------------------------------------------- 
<S>                                               <C>              <C>                  <C>              <C>         
  Year ended December 31, 1996:                                                                                       
                                                                                                (1)                   
    Allowance for doubtful receivables            $3,503,744            $10,240,920      $5,891,314        $7,853,350  
------------------------------------------------------------------------------------------------------------------------- 
  Year ended December 31, 1995:                                                                                       
                                                                                                (1)                   
    Allowance for doubtful receivables            $2,306,556            $ 4,760,678      $3,563,490        $3,503,744  
------------------------------------------------------------------------------------------------------------------------- 
  Year ended December 31, 1994:                                                                                       
                                                                                                (1)                   
    Allowance for doubtful receivables            $1,123,211            $ 3,121,017      $1,937,672        $2,306,556   
 
------------------------------------------------------------------------------------------------------------------------- 
</TABLE>

(1)  Amounts represent writeoffs of uncollectible receivables, net of
     recoveries.

                                     F-19
<PAGE>
 
                                 EXHIBIT INDEX


Exhibits     Description
--------     -----------
         
  3.1        Restated Certificate of Incorporation of the Company (incorporated
             herein by reference to Exhibit No. 3.1 filed under the Company's
             Amendment No. 1 to Quarterly Report on Form 10-Q/A for the quarter
             ended March 31, 1996).

  3.1.1      Certificate of Amendment dated February 29, 1996 to Restated
             Certificate of Incorporation of the Company (incorporated herein by
             reference to Exhibit No. 3.1.1 filed under the Company's Amendment
             No. 1 to Quarterly Report on Form 10-Q/A for the quarter ended
             March 31, 1996).

  3.2        By-Laws of the Company and Amendment to By-Laws adopted February 9,
             1993 (incorporated herein by reference to Exhibit No. 3.2 filed
             under the Company's Form S-1 Registration Statement No. 33-59850).

  4.1        Specimen Certificate of Common Stock of the Company (incorporated
             herein by reference to Exhibit No. 4.1 filed under the Company's
             Annual Report on Form 10-K for the year ended December 31, 1995).

  4.2        Indenture dated June 12, 1996 by the Company to PNC Bank, National
             Association, Trustee, including form of the Company's 5 5/8%
             Convertible Subordinated Notes due 2006 issued under the Indenture
             (incorporated herein by reference to Exhibit No. 4.2 filed under
             the Company's Quarterly Report on Form 10-Q for the quarter ended
             June 30, 1996).

  4.3        Registration Rights Agreement dated as of June 12, 1996 by and
             among the Company, Merrill Lynch & Co., Merrill Lynch, Pierce,
             Fenner & Smith Incorporated, UBS Securities LLC, J.C. Bradford &
             Co. and Wessels, Arnold & Henderson (incorporated herein by
             reference to Exhibit No. 4.3 filed under the Company's Quarterly
             Report on Form 10-Q for the quarter ended June 30, 1996).

  10.1*      Renal Treatment Centers, Inc. Amended and Restated 1990 Stock
             Plan.+

  10.1.1*    Form of Stock Option Agreement under the Company's Amended and
             Restated 1990 Stock Plan (incorporated herein by reference to
             Exhibit No. 10.1.3 filed under the Company's Annual Report on Form
             10-K for the year ended December 31, 1995).

  10.2*      Renal Treatment Centers, Inc. Equity Incentive Plan for Outside
             Directors (incorporated herein by reference to Exhibit No. 10.2
             filed under the Company's Annual Report on Form 10-K for the year
             ended December 31, 1994).

  10.2.1*    Form of Stock Option Agreement under the Company's Equity Incentive
             Plan for Outside Directors (incorporated herein by reference to
             Exhibit No. 10.2.1 filed under the Company's Annual Report on Form
             10-K for the year ended December 31, 1995).

  10.2.2*    Amendment No. 1 to the Company's Equity Incentive Plan for Outside
             Directors dated May 2, 1996 (incorporated herein by reference to
             Exhibit No. 10.2.2 filed under the Company's Quarterly Report on
             Form 10-Q for the quarter ended June 30, 1996).

  10.3*      Employment Agreement dated as of March 2, 1995 between the Company
             and Robert L. Mayer, Jr. (incorporated herein by reference to
             Exhibit No. 10.3 filed under the Company's Quarterly Report on Form
             10-Q for the quarter ended September 30, 1995).

  10.3.1*    First Amendment to Employment Agreement dated as of May 2, 1996
             between the Company and Robert L. Mayer, Jr. (incorporated herein
             by reference to Exhibit No. 10.3.1 filed under the Company's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).

  10.4*      Employment Agreement dated as of March 2, 1995 between the Company
             and Frederick C. Jansen (incorporated herein by reference to
             Exhibit No. 10.4 filed under the Company's Quarterly Report on Form
             10-Q for the quarter ended September 30, 1995).

  10.4.1*    First Amendment to Employment Agreement dated as of May 2, 1996
             between the Company and Frederick C. Jansen (incorporated herein by
             reference to Exhibit No. 10.4.1 filed under the Company's Quarterly
             Report on Form 10-Q for the quarter ended June 30, 1996).

  10.5*      Employment Agreement dated as of May 2, 1996 between the Company
             and Barbara A. Bednar (incorporated herein by reference to Exhibit
             No. 10.5 filed under the Company's Quarterly Report on Form 10-Q
             for the quarter ended June 30, 1996).

  10.6*      Employment Agreement dated as of August 30, 1993 between the
             Company and John Chambers (incorporated herein by reference to
             Exhibit No. 10.6 filed under the Company's Form S-1 Registration
             Statement No. 33-74994).

  10.6.1*    First Amendment to Employment Agreement dated as of May 2, 1996
             between the Company and John A. Chambers (incorporated herein by
             reference to Exhibit No. 10.6.1 filed under the Company's Quarterly
             Report on Form 10-Q for the quarter ended June 30, 1996).

  10.7*      Resignation Agreement and Release dated January 13, 1995 by and
             between the Company and Michael C. Duke (incorporated herein by
             reference to Exhibit No. 10.7 filed under the Company's Annual
             Report on Form 10-K for the year ended December 31, 1994).
<PAGE>
 
  10.8*      Executive Severance Agreement dated as of May 1,1995 between the
             Company and Barbara A. Bednar (incorporated herein by reference to
             Exhibit No. 10.8 filed under the Company's Annual Report on Form
             10-K for the year ended December 31, 1995).

  10.8.1*    First Amendment to Executive Severance Agreement dated as of May 2,
             1996 between the Company and Barbara A. Bednar (incorporated herein
             by reference to Exhibit No. 10.8.1 filed under the Company's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).

  10.9*      Executive Severance Agreement dated as of May 1, 1995 between the
             Company and Ronald H. Rodgers, Jr. (incorporated herein by
             reference to Exhibit No. 10.9 filed under the Company's Annual
             Report on Form 10-K for the year ended December 31, 1995).

  10.9.1*    First Amendment to Executive Severance Agreement dated as of May 2,
             1996 between the Company and Ronald H. Rodgers, Jr. (incorporated
             herein by reference to Exhibit No. 10.9.1 filed under the Company's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).

  10.10*     Executive Severance Agreement dated as of May 1, 1995 between the
             Company and John A. Chambers (incorporated herein by reference to
             Exhibit No. 10.10 filed under the Company's Annual Report on Form
             10-K for the year ended December 31, 1995).

  10.10.1*   First Amendment to Executive Severance Agreement dated as of May 2,
             1996 between the Company and John A. Chambers (incorporated herein
             by reference to Exhibit No. 10.10.1 filed under the Company's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).

  10.11      Fourth Amended and Restated Loan Agreement dated as of June 5, 1996
             between the Company and First Union National Bank of North Carolina
             and the other lenders set forth therein (incorporated herein by
             reference to Exhibit No. 99.1 filed under the Company's Current
             Report on Form 8-K dated May 29, 1996).

  10.12      Lease Agreement dated November 8, 1991 between the Company and
             Terramics/Southpoint Associates II Limited Partnership
             (incorporated herein by reference to Exhibit No. 10.32 filed under
             the Company's Form S-1 Registration Statement No. 33-59850).

  10.12.1    First Amendment to Lease Agreement dated January 18, 1993
             (incorporated herein by reference to Exhibit No. 10.32 filed under
             the Company's Form S-1 Registration Statement No. 33-59850).

  10.12.2    Second Amendment to Lease dated September 30, 1993 (incorporated
             herein by reference to Exhibit No. 10.36 filed under the Company's
             Form S-1 Registration Statement No. 33-74994).

  10.12.3    Confirmation of Lease Term dated November 1, 1993 (incorporated
             herein by reference to Exhibit No. 10.36 filed under the Company's
             Form S-1 Registration Statement No. 33-74994).

  10.12.4    Third Amendment to Lease dated March 2, 1995 (incorporated herein
             by reference to Exhibit No. 10.12.4 filed under the Company's
             Annual Report on Form 10-K for the year ended December 31, 1995).

  10.12.5    Fourth Amendment to Lease dated May 30, 1996 (incorporated herein
             by reference to Exhibit No. 10.12.5 filed under the Company's
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).

  10.13      Earnout Note dated June 1, 1994 by and between Renal Treatment
             Centers- Colorado, Inc., Renal Treatment Centers - Nebraska, Inc.,
             Renal Treatment Centers - Wyoming, Inc. and The Dialysis Centers
             Limited Liability Company (incorporated herein by reference to
             Exhibit No. 2 filed under the Company's Form 8-K Current Report
             dated June 15, 1994).

  10.14      Agreement and Plan of Merger dated as of July 25, 1995 among the
             Company, Renal Treatment Centers -Kansas, Inc. and the individuals
             and their affiliated companies set forth therein (incorporated
             herein by reference to Exhibit No. 2.1 filed under the Company's
             Form 8-K Current Report dated August 1, 1995).

  10.15      Agreement and Plan of Merger dated as of January 11, 1996 among the
             Company, Renal Treatment Centers - Hawaii, Inc., Intercontinental
             Medical Services, Inc. and Dudley S.J. Seto, M.D. (incorporated
             herein by reference to Exhibit No. 2.1 filed under the Company's
             Current Report on Form 8-K dated February 20, 1996).

  10.16*     Employment Agreement dated as of May 2, 1996 between the Company
             and Ronald H. Rodgers, Jr. (incorporated herein by reference to
             Exhibit No. 10.25 filed under the Company's Quarterly Report on
             Form 10-Q for the quarter ended June 30, 1996).

  10.17*     Employment Agreement dated as of March 11, 1996 between the Company
             and Thomas J. Karl (incorporated herein by reference to Exhibit No.
             10.26 filed under the Company's Quarterly Report on Form 10-Q for
             the quarter ended June 30, 1996).

  10.18*     Executive Severance Agreement dated as of March 11, 1996 between
             the Company and Thomas J. Karl (incorporated herein by reference to
             Exhibit No. 10.27 filed under the Company's Quarterly Report on
             Form 10-Q for the quarter ended June 30, 1996).

  10.19      Asset Purchase Agreement dated as of May 29, 1996 between Renal
             Treatment Centers - Pennsylvania, Inc. and KCCC Liquidating Trust
             (incorporated herein by reference to Exhibit No. 2.1 filed under
             the Company's Current Report on Form 8-K dated May 29, 1996).
<PAGE>
 
10.20     Asset Purchase Agreement dated as of May 29, 1996 between Renal
          Treatment Centers - Pennsylvania, Inc. and KCDC Liquidating Trust
          (incorporated herein by reference to Exhibit No. 2.2 filed under the
          Company's Current Report on Form 8-K dated May 29, 1996).

10.21*    Employment Agreement dated as of March 1, 1996 between the Company and
          Mark A. Zawiski (incorporated herein by reference to Exhibit No. 10.30
          filed under the Company's Quarterly Report on Form 10-Q for the
          quarter ended September 30, 1996).

10.22*    Executive Severance Agreement dated as of March 1, 1996 between the
          Company and Mark A. Zawiski (incorporated herein by reference to
          Exhibit No. 10.31 filed under the Company's Quarterly Report on Form
          10-Q for the quarter ended September 30, 1996).

10.23     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).

10.24     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).
         
21.1      Subsidiaries of the Company.+

27.1      Amended Financial Data Schedule.X

          
_______________
 * Management Contracts and Compensatory Plans or Arrangements
 + Previously filed under the Company's Annual Report on Form 10-K for the year
   ended December 31, 1996.
 X Included in this filing.