##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                         
|[x]        |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|           |  |                                                                                         
|           |  | For the Quarterly Period Ended June 30, 2002                                            
|           |  |                                                                                         
|           |  | OR                                                                                      
|           |  |                                                                                         
|[ ]        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  |                                                                                         
|           |  | For the transition period from      to                                                  

Commission File No. 0-27640

RENAL CARE GROUP, INC.

(Exact name of registrant as specified in its charter)

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 62-1622383
(I.R.S. Employer Identification No.)

2525 West End Avenue, Suite 600, Nashville, Tennessee 37203
(Address of principal executive offices) (Zip code)
Registrants telephone number, including area code: (615) 345-5500

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days).

Yes [X]      
 No [   ]

Indicate the number of shares outstanding of each of the issuers classes
of common stock as of the latest practicable date.

|                             |                              
|---------------------------- | -----------------------------
|Class                        | Outstanding at August 9, 2002
|Common Stock, $.01 par value | 48,454,396                   





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TABLE OF CONTENTS



|                                             |                                                                                               |                                                      |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I - FINANCIAL INFORMATION              
|                                             | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                             |                                                                                               | Condensed Consolidated Balance Sheets               
|                                             |                                                                                               | Condensed Consolidated Income Statements            
|                                             |                                                                                               | Condensed Consolidated Statements Of Cash Flows     
|                                             |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                             | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                             | RISK FACTORS                                                                                 
|PART II - OTHER INFORMATION                 
|                                             | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                                             | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                                             | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|Second Amended and Restated Loan Agreement  
|Loan Agreement dated as of July 1, 2002     
|Section 906 Certification of the CEO and CFO



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RENAL CARE GROUP, INC.

INDEX

|        |  |                                                                                       |  |                                                                                                                         |    |          |    | 
|------- |  | ------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- | -- | -------- | -- | 
|        |  |                                                                                       |  |                                                                                                                         |    | Page No.
|        |  |                                                                                       |  |                                                                                                                         |    |         
|PART I  |  | FINANCIAL INFORMATION                                                                 |  |                                                                                                                         |    |         
|Item 1. |  | Financial Statements                                                                  |  |                                                                                                                         |    |         
|        |  |                                                                                       |  | Condensed Consolidated Balance Sheets
December 31, 2001 and June 30, 2002 (unaudited)                                   |    |          | 1  | 
|        |  |                                                                                       |  | Condensed Consolidated Income Statements  (unaudited)
For the three months and six months ended June 30, 2001 and 2002 |    |          | 2  | 
|        |  |                                                                                       |  | Condensed Consolidated Statements of Cash Flows  (unaudited)
For the six months ended June 30, 2001 and 2002           |    |          | 3  | 
|        |  |                                                                                       |  | Notes to Condensed Consolidated Financial Statements  (unaudited)                                                      |    |          | 4  | 
|Item 2. |  | Managements Discussion and Analysis of Financial Condition And
Results of Operations |  |                                                                                                                         | 9  |         
|        |  |                                                                                       |  | Risk Factors                                                                                                            |    |          | 13 | 
|PART II |  | OTHER INFORMATION                                                                     |  |                                                                                                                         |    |         
|Item 1. |  | Legal Proceedings                                                                     |  |                                                                                                                         | 20 |         
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                                         | 21 |         
|Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                         | 21 |         

Note: Item 3 of Part I, and Items 2, 3 and 5 of Part II are omitted because they are not applicable





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PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS




RENAL CARE GROUP, INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)

|                                           |                                                                                                                                               |   |         |         |              |   |          |         |             |  | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------- | - | ------- | ------- | ------------ | - | -------- | ------- | ----------- |  | 
|                                           |                                                                                                                                               |   |         |         | December 31, |   | June 30,
|                                           |                                                                                                                                               |   |         |         | 2001         |   | 2002    
|                                           |                                                                                                                                               |   |         |         |              |   |         
|                                           |                                                                                                                                               |   |         |         |              |   |          |         | (unaudited)
|ASSETS                                     |                                                                                                                                               |   |         |         |              |   |          |        
|Current assets:                            |                                                                                                                                               |   |         |         |              |   |          |        
|                                           | Cash and cash equivalents                                                                                                                     |   | $       | 27,423  |              |   | $        | 40,218  |            
|                                           | Accounts receivable, net                                                                                                                      |   |         | 127,056 |              |   |          | 146,286 |            
|                                           | Inventories                                                                                                                                   |   |         | 16,292  |              |   |          | 15,013  |            
|                                           | Prepaid expenses and other current assets                                                                                                     |   |         | 18,584  |              |   |          | 15,559  |            
|                                           | Income taxes receivable                                                                                                                       |   |         | 7,058   |              |   |          |        |            
|                                           | Deferred income taxes                                                                                                                         |   |         | 16,894  |              |   |          | 16,894  |            
|                                           |                                                                                                                                               |   |         |         |              |   |          |        
|Total current assets                       |                                                                                                                                               |   | 213,307 |         |              |   | 233,970  |        
|Property, plant and equipment, net         |                                                                                                                                               |   | 175,925 |         |              |   | 189,713  |        
|Goodwill                                   |                                                                                                                                               |   | 243,530 |         |              |   | 261,558  |        
|Intangible assets, net                     |                                                                                                                                               |   | 10,365  |         |              |   | 11,806   |        
|Other assets                               |                                                                                                                                               |   | 7,922   |         |              |   | 6,487    |        
|                                           |                                                                                                                                               |   |         |         |              |   |          |        
|Total assets                               |                                                                                                                                               | $ | 651,049 |         |              | $ | 703,534  |        
|                                           |                                                                                                                                               |   |         |         |              |   |          |        
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                               |   |         |         |              |   |          |        
|Current liabilities:                       |                                                                                                                                               |   |         |         |              |   |          |        
|                                           | Accounts payable                                                                                                                              |   | $       | 28,198  |              |   | $        | 24,772  |            
|                                           | Income taxes payable                                                                                                                          |   |         |        |              |   |          | 7,567   |            
|                                           | Current portion of long-term debt                                                                                                             |   |         | 726     |              |   |          | 212     |            
|                                           | Other current liabilities                                                                                                                     |   |         | 80,336  |              |   |          | 87,827  |            
|                                           |                                                                                                                                               |   |         |         |              |   |          |        
|Total current liabilities                  |                                                                                                                                               |   | 109,260 |         |              |   | 120,378  |        
|Long-term debt, net of current portion     |                                                                                                                                               |   | 3,776   |         |              |   | 2,754    |        
|Deferred income taxes                      |                                                                                                                                               |   | 12,728  |         |              |   | 12,728   |        
|Minority interest                          |                                                                                                                                               |   | 15,034  |         |              |   | 24,522   |        
|                                           |                                                                                                                                               |   |         |         |              |   |          |        
|Total liabilities                          |                                                                                                                                               |   | 140,798 |         |              |   | 160,382  |        
|                                           |                                                                                                                                               |   |         |         |              |   |          |        
|Commitments and contingencies              |                                                                                                                                               |   |         |         |              |   |          |        
|Stockholders equity:                      |                                                                                                                                               |   |         |         |              |   |          |        
|                                           | Preferred stock, $0.01 par value, 10,000 shares authorized,
none issued                                                                       |   |         |        |              |   |          |        |            
|                                           | Common stock, $0.01 par value, 90,000 shares authorized,
49,597 and 50,068 shares issued at December 31, 2001
and June 30, 2002, respectively |   |         | 496     |              |   |          | 501     |            
|                                           | Treasury stock, 100 and 800 shares of common stock at
December 31, 2001 and June 30, 2002, respectively                                       |   |         | (3,059  | )            |   |          | (25,282 | )          
|                                           | Additional paid-in capital                                                                                                                    |   |         | 277,300 |              |   |          | 288,284 |            
|                                           | Retained earnings                                                                                                                             |   |         | 235,514 |              |   |          | 279,649 |            
|                                           |                                                                                                                                               |   |         |         |              |   |          |        
|Total stockholders equity                 |                                                                                                                                               |   | 510,251 |         |              |   | 543,152  |        
|                                           |                                                                                                                                               |   |         |         |              |   |          |        
|Total liabilities and stockholders equity |                                                                                                                                               | $ | 651,049 |         |              | $ | 703,534  |        
|                                           |                                                                                                                                               |   |         |         |              |   |          |        

See accompanying notes to condensed
consolidated financial statements.

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RENAL CARE GROUP, INC.
Condensed Consolidated Income Statements(in thousands, except per share data)
(unaudited)

|                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |         | 
|------------------------------------------------ | ----------------------------------- | - | ------------------ | ------- | ---------------- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                                 |                                     |   | Three Months Ended |         | Six Months Ended
|                                                 |                                     |   | June 30,           |         | June 30,        
|                                                 |                                     |   | 2001               |         | 2002             |   | 2001    |         | 2002
|                                                 |                                     |   |                    |         |                  |   |         |         |     
|Net revenue                                      |                                     | $ | 183,455            |         |                  | $ | 222,169 |         |      | $ | 358,233 |         |  | $ | 428,847 |        
|Operating costs and expenses:                    |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|                                                 | Patient care costs                  |   |                    | 118,803 |                  |   |         | 145,750 |      |   |         | 232,131 |  |   |         | 280,462 | 
|                                                 | General and administrative expenses |   |                    | 15,778  |                  |   |         | 18,787  |      |   |         | 30,781  |  |   |         | 36,347  | 
|                                                 | Provision for doubtful accounts     |   |                    | 4,870   |                  |   |         | 5,736   |      |   |         | 9,670   |  |   |         | 11,220  | 
|                                                 | Depreciation and amortization       |   |                    | 9,296   |                  |   |         | 9,933   |      |   |         | 18,148  |  |   |         | 19,295  | 
|                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|Total operating costs and expenses               |                                     |   | 148,747            |         |                  |   | 180,206 |         |      |   | 290,730 |         |  |   | 347,324 |        
|                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|Income from operations                           |                                     |   | 34,708             |         |                  |   | 41,963  |         |      |   | 67,503  |         |  |   | 81,523  |        
|Interest expense, net                            |                                     |   | 1,274              |         |                  |   | 138     |         |      |   | 2,273   |         |  |   | 311     |        
|                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|Income before minority interest and income taxes |                                     |   | 33,434             |         |                  |   | 41,825  |         |      |   | 65,230  |         |  |   | 81,212  |        
|Minority interest                                |                                     |   | 3,722              |         |                  |   | 5,307   |         |      |   | 6,852   |         |  |   | 10,017  |        
|                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|Income before income taxes                       |                                     |   | 29,712             |         |                  |   | 36,518  |         |      |   | 58,378  |         |  |   | 71,195  |        
|Provision for income taxes                       |                                     |   | 11,351             |         |                  |   | 13,876  |         |      |   | 22,303  |         |  |   | 27,060  |        
|                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|Net income                                       |                                     | $ | 18,361             |         |                  | $ | 22,642  |         |      | $ | 36,075  |         |  | $ | 44,135  |        
|                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|Net income per share:                            |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|                                                 | Basic                               |   | $                  | 0.39    |                  |   | $       | 0.46    |      |   | $       | 0.76    |  |   | $       | 0.89    | 
|                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|                                                 | Diluted                             |   | $                  | 0.37    |                  |   | $       | 0.44    |      |   | $       | 0.72    |  |   | $       | 0.86    | 
|                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|Weighted average shares outstanding:             |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|                                                 | Basic                               |   |                    | 47,598  |                  |   |         | 49,474  |      |   |         | 47,428  |  |   |         | 49,450  | 
|                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|                                                 | Diluted                             |   |                    | 50,046  |                  |   |         | 51,369  |      |   |         | 49,828  |  |   |         | 51,296  | 
|                                                 |                                     |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        

See accompanying notes to condensed
consolidated financial statements.

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RENAL CARE GROUP, INC.
Condensed Consolidated Statements Of Cash Flows(in thousands)(unaudited)

|                                                                                  |                                                                              |                                           |         |                  |         |      |         |        |         |  
|--------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ----------------------------------------- | ------- | ---------------- | ------- | ---- | ------- | ------ | ------- | -
|                                                                                  |                                                                              |                                           |         | Six Months Ended
|                                                                                  |                                                                              |                                           |         | June 30,        
|                                                                                  |                                                                              |                                           |         | 2001             |         | 2002
|                                                                                  |                                                                              |                                           |         |                  |         |     
|OPERATING ACTIVITIES                                                              |                                                                              |                                           |         |                  |         |      |         |       
|Net income                                                                        |                                                                              | $                                         | 36,075  |                  |         | $    | 44,135  |       
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                              |                                           |         |                  |         |      |         |       
|                                                                                  | Depreciation and amortization                                                |                                           |         | 18,148           |         |      |         | 19,295 |        
|                                                                                  | Distributions to minority shareholders                                       |                                           |         | (7,157           | )       |      |         | (3,425 | )      
|                                                                                  | Income applicable to minority interest                                       |                                           |         | 6,852            |         |      |         | 10,017 |        
|                                                                                  | Changes in operating assets and liabilities net of effects from acquisitions |                                           |         | (1,046           | )       |      |         | 6,669  |        
|                                                                                  |                                                                              |                                           |         |                  |         |      |         |       
|                                                                                  |                                                                              | Net cash provided by operating activities |         |                  | 52,872  |      |         |        | 76,691  |  
|INVESTING
ACTIVITIES                                                              |                                                                              |                                           |         |                  |         |      |         |       
|Purchases of property and equipment                                               |                                                                              |                                           | (26,204 | )                |         |      | (30,250 | )     
|Cash paid for acquisitions, net of cash acquired                                  |                                                                              |                                           | (6,241  | )                |         |      | (18,932 | )     
|Change in other assets                                                            |                                                                              |                                           | (2,535  | )                |         |      | (2,190  | )     
|                                                                                  |                                                                              |                                           |         |                  |         |      |         |       
|                                                                                  |                                                                              | Net cash used in investing activities     |         |                  | (34,980 | )    |         |        | (51,372 | )
|FINANCING ACTIVITIES                                                              |                                                                              |                                           |         |                  |         |      |         |       
|Net payments of debt                                                              |                                                                              |                                           | (34,166 | )                |         |      | (1,536  | )     
|Net proceeds from issuance of common stock                                        |                                                                              |                                           | 18,563  |                  |         |      | 8,339   |       
|Investment by joint venture partner                                               |                                                                              |                                           |        |                  |         |      | 2,896   |       
|Repurchase of treasury shares                                                     |                                                                              |                                           |        |                  |         |      | (22,223 | )     
|                                                                                  |                                                                              |                                           |         |                  |         |      |         |       
|                                                                                  |                                                                              | Net cash used in financing activities     |         |                  | (15,603 | )    |         |        | (12,524 | )
|                                                                                  |                                                                              |                                           |         |                  |         |      |         |       
|Increase in cash and cash equivalents                                             |                                                                              |                                           | 2,289   |                  |         |      | 12,795  |       
|Cash and cash equivalents at beginning of period                                  |                                                                              |                                           | 29,902  |                  |         |      | 27,423  |       
|                                                                                  |                                                                              |                                           |         |                  |         |      |         |       
|Cash and cash equivalents at end of period                                        |                                                                              | $                                         | 32,191  |                  |         | $    | 40,218  |       
|                                                                                  |                                                                              |                                           |         |                  |         |      |         |       

See accompanying notes to condensed
consolidated financial statements.

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RENAL CARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 2002(in thousands, except per share data)(unaudited)

1. Basis of Presentation

Overview

Renal Care Group, Inc. (Renal Care Group or the Company) provides
dialysis services to patients with chronic kidney failure, also known as
end-stage renal disease (ESRD). As of June 30, 2002, the Company provided
dialysis and ancillary services to approximately 19,700 patients through more
than 250 outpatient dialysis centers in 26 states, in addition to providing
acute dialysis services in more than 120 hospitals.

Renal Care Groups net revenue has been derived primarily from the
following sources:



| |  |  | outpatient hemodialysis services;                                                                                                          
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | ancillary services associated with dialysis, primarily the
administration of erythropoietin (also known as Epogen® or EPO) and
other drugs;
|
| |  |  | home dialysis services;                                                                                                                    
|
| |  |  | inpatient hemodialysis services provided to acute care hospitals and skilled nursing facilities;                                           
|
| |  |  | laboratory services; and                                                                                                                   
|
| |  |  | management contracts with hospital-based and medical university dialysis programs.                                                         

Patients with end-stage renal disease typically receive three dialysis
treatments each week, with reimbursement for services provided primarily by the
Medicare ESRD program based on rates established by the Centers for Medicare &
Medicaid Services (CMS). For the six months ended June 30, 2002,
approximately 57% of the Companys net revenue was derived from reimbursement
under the Medicare and Medicaid programs. Medicare reimbursement is subject to
rate and other legislative changes by Congress and periodic changes in
regulations, including changes that may reduce payments under the ESRD program.
Effective January 1, 2001, Congress increased the Medicare composite rate by
1.2%. An additional increase of 1.2% took effect April 1, 2001. The April 1,
2001 increase included an adjustment factor that made that 1.2% increase
effective for all of 2001. Accordingly, the net result of the 1.2% increases
on January 1, 2001 and April 1, 2001, plus the April adjustment factor, was an
effective increase of 2.4% for calendar year 2001. Neither Congress nor CMS
approved an increase in the composite rate for 2002.

The Medicare composite rate applies to a designated group of outpatient
dialysis services, including the dialysis treatment, supplies used for such
treatment, certain laboratory tests and medications, and most of the home
dialysis services provided by Renal Care Group. Certain other services,
laboratory tests, and drugs are eligible for separate reimbursement under
Medicare and are not part of the composite rate, including specific drugs such
as EPO and some physician-ordered tests provided to dialysis patients.

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For patients with private health insurance, dialysis is typically
reimbursed at rates higher than Medicare during the first 30 months of
treatment. After that period Medicare becomes the primary payor. Reimbursement
for dialysis services provided pursuant to a hospital contract is negotiated
with the individual hospital and generally is higher on a per treatment
equivalent basis than the Medicare composite rate. Because dialysis is a
life-sustaining therapy used to treat a chronic disease, utilization is
predictable and is not subject to seasonal fluctuations.

Renal Care Group derives a significant portion of its net revenue and net
income from the administration of EPO. EPO is manufactured by a single company,
Amgen Inc. In April 2002, Amgen implemented its third wholesale price increase
of 3.9% in as many years. This increase will not affect Renal Care Groups
results of operations in 2002 because Renal Care Groups contract with Amgen
includes price protection for the calendar year 2002. Renal Care Group and
Amgen have agreed in principle that the Companys current pricing formula will
remain substantially in effect for 2003. As a result, the Company believes,
although it can give no assurances, that it will be able to mitigate a
substantial portion of the 2002 price increase in 2003. This agreement in
principle is conditioned on negotiating and signing a final written amendment
to the contract between the Company and Amgen.

Interim Financial Statements

In the opinion of management, the information contained in this quarterly
report on Form 10-Q reflects all adjustments necessary to make the results of
operations for the interim periods a fair representation of such operations.
All such adjustments are of a normal recurring nature. Operating results for
interim periods are not necessarily indicative of results that may be expected
for the year as a whole. The Company suggests that persons read these financial
statements in conjunction with the consolidated financial statements and the
related notes thereto included in the Companys Form 10-K, as filed with the
SEC on March 29, 2002.

2. Reclassifications

Certain prior period balances have been reclassified to conform to the
current period presentation. These reclassifications had no effect on the net
results of operations as previously reported.

3. Goodwill and Intangible Assets (in thousands, except per share data)

On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which addresses the financial accounting and reporting
standards for the acquisition of intangible assets and for goodwill and other
intangible assets after the acquisition. This accounting standard requires that
goodwill be disclosed separately from other intangible assets in the balance
sheet and that goodwill no longer be amortized; instead, goodwill will be
tested for impairment on a periodic basis. The provisions of this accounting
standard also required the Company to complete a transitional impairment test
within six months of the Companys adoption of this standard, with any
impairments identified treated as a cumulative effect of a change in accounting
principle. The Company has completed its transitional impairment test and no
impairments were identified.

In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective January 1, 2002. A reconciliation of previously reported
net income and earnings per share to the pro forma amounts adjusted for the
exclusion of goodwill amortization net of the related income tax effect
follows:

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|                                              |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|--------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                              |  | Three Months Ended |        | Six Months Ended
|                                              |  | June 30,           |        | June 30,        
|                                              |  | 2001               |        | 2002             |  | 2001 |        | 2002
|                                              |  |                    |        |                  |  |      |        |     
|Reported net income                           |  | $                  | 18,361 |                  |  | $    | 22,642 |      |  | $ | 36,075 |  |  | $ | 44,135 | 
|Add: goodwill amortization, net of tax        |  |                    | 1,031  |                  |  |      |       |      |  |   | 1,894  |  |  |   |       | 
|                                              |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Pro forma adjusted net income                 |  | $                  | 19,392 |                  |  | $    | 22,642 |      |  | $ | 37,969 |  |  | $ | 44,135 | 
|                                              |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Reported basic earnings per share             |  | $                  | 0.39   |                  |  | $    | 0.46   |      |  | $ | 0.76   |  |  | $ | 0.89   | 
|Add: goodwill amortization, net of tax        |  |                    | .02    |                  |  |      |       |      |  |   | .04    |  |  |   |       | 
|                                              |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Pro forma adjusted basic earnings per share   |  | $                  | 0.41   |                  |  | $    | 0.46   |      |  | $ | 0.80   |  |  | $ | 0.89   | 
|                                              |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Reported diluted earnings per share           |  | $                  | 0.37   |                  |  | $    | 0.44   |      |  | $ | 0.72   |  |  | $ | 0.86   | 
|Add: goodwill amortization, net of tax        |  |                    | .02    |                  |  |      |       |      |  |   | .04    |  |  |   |       | 
|                                              |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Pro forma adjusted diluted earnings per share |  | $                  | 0.39   |                  |  | $    | 0.44   |      |  | $ | 0.76   |  |  | $ | 0.86   | 
|                                              |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 

Changes in the carrying amount of goodwill for the six months ended June
30, 2002, are as follows:

|                                    |  |   |         | 
|----------------------------------- |  | - | ------- | 
|Balance as of December 31, 2001     |  | $ | 243,530 | 
|Goodwill acquired during the period |  |   | 18,028  | 
|                                    |  |   |         | 
|Balance as of June 30, 2002         |  | $ | 261,558 | 
|                                    |  |   |         | 

The Companys
separately identifiable intangible assets, which consist of
noncompete agreements and acute dialysis services agreements are as follows:

|                         |  |              |        |          |  |   |        |  
|------------------------ |  | ------------ | ------ | -------- |  | - | ------ | -
|                         |  | December 31, |        | June 30,
|                         |  | 2001         |        | 2002    
|                         |  |              |        |         
|Carrying amount          |  | $            | 16,090 |          |  | $ | 18,385 |  
|Accumulated amortization |  |              | (5,725 | )        |  |   | (6,579 | )
|                         |  |              |        |          |  |   |        |  
|Net                      |  | $            | 10,365 |          |  | $ | 11,806 |  
|                         |  |              |        |          |  |   |        |  

Separately identifiable intangible assets are being amortized over their
useful lives, ranging from four to ten years. Amortization expense
for the six months ended June 30, 2002 was approximately $854. Estimated
amortization expense for each of the five succeeding fiscal years is as
follows:

|                         |  |        |       | 
|------------------------ |  | ------ | ----- | 
|Year ending December 31, |  | Amount
|                         |  |       
|2002                     |  | $      | 2,001 | 
|2003                     |  |        | 2,102 | 
|2004                     |  |        | 2,102 | 
|2005                     |  |        | 2,085 | 
|2006                     |  |        | 2,030 | 

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4. Earnings Per Share (in thousands, except per share data)

The following table sets forth the computation of basic and diluted income
per share:

|                                                 |                                                                                                         |               |        |                    |       |                  |        |        |       |      |        |        |       |   |        |        |       | 
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------- | ------------- | ------ | ------------------ | ----- | ---------------- | ------ | ------ | ----- | ---- | ------ | ------ | ----- | - | ------ | ------ | ----- | 
|                                                 |                                                                                                         |               |        | Three Months Ended |       | Six Months Ended
|                                                 |                                                                                                         |               |        | June 30,           |       | June 30,        
|                                                 |                                                                                                         |               |        | 2001               |       | 2002             |        | 2001   |       | 2002
|                                                 |                                                                                                         |               |        |                    |       |                  |        |        |       |     
|Numerator:                                       |                                                                                                         |               |        |                    |       |                  |        |        |       |      |        |        |       |   |        |       
|Numerator for basic and diluted income per share |                                                                                                         | $             | 18,361 |                    |       | $                | 22,642 |        |       | $    | 36,075 |        |       | $ | 44,135 |       
|Denominator:                                     |                                                                                                         |               |        |                    |       |                  |        |        |       |      |        |        |       |   |        |       
|                                                 | Denominator for basic net income per share 
weighted-average shares                                    |               |        | 47,598             |       |                  |        | 49,474 |       |      |        | 47,428 |       |   |        | 49,450 |      
|                                                 | Effect of dilutive securities:                                                                          |               |        |                    |       |                  |        |        |       |      |        |        |       |   |        |        |      
|                                                 |                                                                                                         | Stock options |        |                    | 2,032 |                  |        |        | 1,798 |      |        |        | 1,986 |   |        |        | 1,749 | 
|                                                 |                                                                                                         | Warrants      |        |                    | 416   |                  |        |        | 97    |      |        |        | 414   |   |        |        | 97    | 
|                                                 |                                                                                                         |               |        |                    |       |                  |        |        |       |      |        |        |       |   |        |       
|                                                 | Denominator for diluted net income per share 
adjusted weighted-average shares and
assumed
conversions |               |        | 50,046             |       |                  |        | 51,369 |       |      |        | 49,828 |       |   |        | 51,296 |      
|                                                 |                                                                                                         |               |        |                    |       |                  |        |        |       |      |        |        |       |   |        |       
|Net income per share:                            |                                                                                                         |               |        |                    |       |                  |        |        |       |      |        |        |       |   |        |       
|                                                 | Basic                                                                                                   |               | $      | 0.39               |       |                  | $      | 0.46   |       |      | $      | 0.76   |       |   | $      | 0.89   |      
|                                                 |                                                                                                         |               |        |                    |       |                  |        |        |       |      |        |        |       |   |        |       
|                                                 | Diluted                                                                                                 |               | $      | 0.37               |       |                  | $      | 0.44   |       |      | $      | 0.72   |       |   | $      | 0.86   |      
|                                                 |                                                                                                         |               |        |                    |       |                  |        |        |       |      |        |        |       |   |        |       

5. Contingencies (dollar amounts in thousands)

On August 30, 2000, 19 patients were hospitalized and one patient died
shortly after becoming ill while receiving treatment at one of the Companys
dialysis centers in Youngstown, Ohio. One of the 19 hospitalized patients also
died some time later. In March 2001, the Company was sued in Mahoning County, Ohio by one of the
affected patients for injuries related to the August 30, 2000 illnesses.
Additional suits have been filed, and as of June 30, 2002, a total of 11 suits
were pending. The suits allege negligence, medical malpractice and product
liability. Additional defendants are named in each of the suits. Additional
defendants in some of the suits include the water system vendors who installed
and maintained the water system in the dialysis center. Renal Care Group has
denied the allegations and has filed cross-claims against the water system
vendors. Renal Care Group intends to pursue these cross-claims vigorously.
Additional suits arising out of these illnesses may be filed in the future.
Management believes that Renal Care Groups insurance should be adequate to
cover these illnesses and does not anticipate a material adverse effect on the
Companys consolidated financial position or results of operation.

On December 12, 2000, the Company reached an agreement in principle with
the U.S. Attorney for the Southern District of Mississippi to settle claims
arising out of alleged inadequacies in physician documentation related to lab
tests performed by its laboratory subsidiary, RenaLab, Inc. The terms of such
agreement provided that the Company pay $1,980 to the Medicare program. This
amount was recorded during the fourth quarter of 2000 and was paid in January
2002, when the Company and the government finalized the terms of a corporate
integrity agreement.

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The Company is involved in other litigation and regulatory investigations
arising in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, these matters will be resolved without
material adverse effect on the Companys consolidated financial position or
results of operations.

The Company generally engages practicing board-certified or board-eligible
nephrologists to serve as medical directors for its centers. Medical directors
are responsible for the administration and monitoring of the Companys patient
care policies, including patient education, administration of dialysis
treatment, development programs and assessment of all patients. The Company
pays medical director fees that it believes are consistent with the fair market
value of the required supervisory services. These medical director agreements
typically have a term of seven years with a three-year renewal option.

6. Recent Accounting Pronouncements

On June 30, 2001, the Company adopted SFAS No. 141, Business Combinations,
which eliminated the pooling of interests method of accounting for all business
combinations initiated after June 30, 2001 and addressed the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination.

As discussed in detail in Note 3, the Company adopted SFAS No. 142 on
January 1, 2002.

Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, which addresses the
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 did not have an effect on the Companys results of operations.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

Results of Operations

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2002

Net Revenue.Net revenue increased from $183.5 million for the three
months ended June 30, 2001 to $222.2 million for the three months ended June
30, 2002, an increase of $38.7 million, or 21.1%. This increase resulted
primarily from a 13.6% increase in the number of treatments from 657,328
performed in the 2001 period to 746,490 performed in the 2002 period. This
growth in treatments is the result of the acquisition and development of
various dialysis facilities and a 5.9% increase in same-center treatments for
2002 over 2001. In addition, average net revenue per dialysis treatment
increased 7.6% from $275 in 2001 to $296 in 2002. The increase in revenue per
treatment was largely due to a rate increase to private payors which we
implemented in the fourth quarter of 2001 and an increase in utilization of
certain ancillary drugs.

Patient Care Costs.Patient care costs consist of costs directly related
to the care of patients, including direct labor, drugs and other medical
supplies, and operational costs of facilities. Patient care costs increased
from $118.8 million for the three months ended June 30, 2001, to $145.8 million
for the three months ended June 30, 2002, an increase of 22.7%. This increase
was due principally to the increase in the number of treatments performed
during the period, which was reflected in corresponding increases in the use of
labor, drugs and supplies. Patient care costs as a percentage of net revenue
increased from 64.8% in 2001 to 65.6% in 2002. Patient care costs per treatment
increased 7.7% from $181 in 2001 to $195 in 2002. These increases were due to
the EPO price increase, increased labor costs to address wage pressures in many
of the Companys markets, the increase in utilization of certain ancillary
drugs and the increased cost of the drug Heparin following a recall by its
manufacturer. The Heparin recall adversely affected patient care
costs by approximately $0.50 per treatment in the quarter ended June
30, 2002. Based on information provided by the manufacturer of
Heparin, the Company believes this increase in cost will persist
through the third and fourth quarter of 2002 and that the
manufacturer will return to full production in the fourth quarter of
2002 or the first quarter of 2003.

General and Administrative Expenses.General and administrative expenses
include corporate office costs and facility costs not directly related to the
care of patients, including facility administration, accounting, billing and
information systems. General and administrative expenses increased from $15.8
million for the three months ended June 30, 2001 to $18.8 million for the three
months ended June 30, 2002, an increase of 19.1%. General and administrative
expenses as a percentage of revenue decreased slightly from 8.6% in 2001 to
8.5% in 2002.

Provision for Doubtful Accounts.The provision for doubtful accounts is
determined as a function of payor mix, billing practices, and other factors.
Renal Care Group reserves for doubtful accounts in the period in which the
revenue is recognized based on managements estimate of the net collectibility
of the accounts receivable. Management estimates the net collectibility of
accounts receivable based upon a variety of factors. These factors include, but
are not limited to, analyzing revenues generated from payor sources, performing
subsequent collection testing and regularly reviewing detailed accounts
receivable agings. The provision for doubtful accounts increased from $4.9
million for the three months ended June 30, 2001 to $5.7 million for the three
months ended June 30, 2002, an increase of approximately $800,000, or 17.8%.
The provision for doubtful accounts as a percentage of net revenue decreased
slightly from 2.7% in 2001 to 2.6% in 2002.

Depreciation and Amortization.Depreciation and amortization increased
from $9.3 million for the three months ended June 30, 2001 to $9.9 million for
the three months ended June 30, 2002, an increase of 6.9%. This increase was
due to the start-up of dialysis facilities, the normal replacement costs of
dialysis facilities and equipment, the purchase of information
systems, and the
amortization of separately identifiable intangible assets associated with acquisitions. Depreciation
and amortization as a percentage of net revenue decreased from 5.1% in 2001 to
4.5% in 2002, primarily as a result of the implementation of SFAS No. 142, under
which the Company stopped amortizing goodwill effective January 1, 2002.

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Income from Operations.Income from operations increased from $34.7
million for the three months ended June 30, 2001 to $42.0 million for the three
months ended June 30, 2002, an increase of 20.9%. Income from operations as a
percentage of net revenue remained consistent at 18.9% in 2001 and 2002.

Interest Expense, Net.Interest expense decreased from $1.3 million for
the three months ended June 30, 2001 to $100,000 for the three months ended
June 30, 2002, a decrease of 89.2%. The decrease was the result of lower
average borrowings in 2002. The Company retired all debt outstanding under its
line of credit and recognized interest expense only on capital leases and
equipment notes payable, commitment fees and amortization of debt issuance
costs.

Minority Interest.Minority interest represents the proportionate equity
interest of other partners in the Companys consolidated subsidiaries that are
not wholly-owned. Minority interest as a percentage of net revenue increased to
2.4% in 2002 from 2.0% in 2001. This increase was the result of continued
operational improvements in Renal Care Groups joint ventures, primarily those
in Ohio, Oregon, and Washington, as well as an increase in the number of
facilities operated as joint ventures.

Provision for Income Taxes. Income tax expense increased from $11.4
million for the three months ended June 30, 2001 to $13.9 million for the three
months ended June 30, 2002, an increase of 22.2%. The increase is a result of
pre-tax earnings increasing by approximately 22.9%. The effective tax rate of
the Company decreased slightly from 38.2% in 2001 to 38.0% in 2002. This
decrease was primarily the result of the implementation of SFAS No. 142.

Net Income. Net income increased from $18.4 million for the three months
ended June 30, 2001 to $22.6 million for the three months ended June 30, 2002,
an increase of $4.2 million or 23.3%. The increase was a result of the items
discussed above.

Results of Operations

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2002

Net Revenue. Net revenue increased from $358.2 million for the six months
ended June 30, 2001 to $428.8 million for the six months ended June 30, 2002,
an increase of $70.6 million, or 19.7%. This increase resulted primarily from
an 11.7% increase in the number of treatments from 1,301,474 in 2001 to
1,453,973 in 2002. This growth in treatments is the result of the acquisition
and development of various dialysis facilities and a 5.8% increase in
same-center treatments for 2001 over 2002. In addition, average net revenue per
dialysis treatment increased 8.1% from $271 in 2001 to $293 in 2002. The
increase in revenue per treatment was due in part to the implementation of the
2001 Medicare composite rate increase and an increase in utilization of certain
ancillary drugs. We also implemented a rate increase to private payors in the
fourth quarter of 2001.

Patient Care Costs.Patient care costs consist of costs directly related
to the care of patients, including direct labor, drugs and other medical
supplies, and operational costs of facilities. Patient care costs increased
from $232.1 million for the six months ended June 30, 2001, to $280.5 million
for the six months ended June 30, 2002, an increase of 20.8%. This increase was
due principally to the increase in the number of treatments performed during
the period, which was reflected in corresponding increases in the use of labor,
drugs and supplies. Patient care costs as a percentage of net revenue increased
from 64.8% in 2001 to 65.4% in 2002. Patient care costs per
treatment increased 8.4% from $178 in 2001 to $193 in 2002. These increases
were due to the EPO price increase, increased labor costs to address wage
pressures in many of the Companys markets, the increase in utilization of
certain ancillary drugs and the increased cost of the drug Heparin following a
recall by its manufacturer.

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General and Administrative Expenses.General and administrative expenses
include corporate office costs and facility costs not directly related to the
care of patients, including facility administration, accounting, billing and
information systems. General and administrative expenses increased from $30.8
million for the six months ended June 30, 2001 to $36.3 million for the six
months ended June 30, 2002, an increase of 18.1%. General and administrative
expenses as a percentage of revenue decreased from 8.6% in 2001 to 8.5% in
2002.

Provision for Doubtful Accounts.The provision for doubtful accounts is
determined as a function of payor mix, billing practices, and other factors.
Renal Care Group reserves for doubtful accounts in the period in which the
revenue is recognized based on managements estimate of the net collectibility
of the accounts receivable. Management estimates the net collectibility of
accounts receivable based upon a variety of factors. These factors include, but
are not limited to, analyzing revenues generated from payor sources, performing
subsequent collection testing and regularly reviewing detailed accounts
receivable agings. The provision for doubtful accounts increased from $9.7
million for the six months ended June 30, 2001 to $11.2 million for the six
months ended June 30, 2002, an increase of $1.5 million, or 16.0%. The
provision for doubtful accounts as a percentage of net revenue decreased
slightly from 2.7% in 2001 to 2.6% in 2002.

Depreciation and Amortization. Depreciation and amortization increased
from $18.1 million for the six months ended June 30, 2001 to $19.3 million for
the six months ended June 30, 2002, an increase of $1.2 million, or 6.3%. This
increase was due to the start-up of dialysis facilities, the normal
replacement costs of dialysis facilities and equipment, the purchase of
information systems, and the amortization of separately
identifiable intangible assets associated with
acquisitions. Depreciation and amortization as a percentage of net
revenue decreased from 5.1% in 2001 to 4.5% in 2002, primarily as a
result of the implementation of SFAS No. 142, under which the Company
stopped amortizing goodwill effective January 1, 2002.

Income from Operations. Income from operations increased from $67.5
million for the six months ended June 30, 2001 to $81.5 million for the six
months ended June 30, 2002, an increase of $14.0 million, or 20.8%. Income from
operations as a percentage of net revenue increased from 18.8% in the 2001
period to 19.0% in the 2002 period as a result of the factors discussed above.

Interest Expense, Net.Interest expense decreased from $2.3 million for
the six months ended June 30, 2001 to $300,000 for the six months ended June
30, 2002. The decrease was the result of lower average borrowings in 2002. The
Company retired all debt outstanding under its line of credit and recognized
interest expense primarily on capital leases and equipment notes payable, commitment
fees and amortization of debt issuance costs.

Minority Interest. Minority interest represents the proportionate equity
interest of other partners in the Companys consolidated subsidiaries that are
not wholly-owned. Minority interest as a percentage of net revenue increased
to 2.3% in 2002 from 1.9% in 2001. This increase was the result of continued
operational improvements in Renal Care Groups joint ventures, primarily those
in Ohio, Oregon and Washington, as well as an increase in the number of
facilities operated as joint ventures.

Provision for Income Taxes. Income tax expense increased from $22.3
million for the six months ended June 30, 2001 to $27.1 million for the six
months ended June 30, 2002, an increase of $4.8 million or 21.3%. The increase
was a result of pre-tax earnings increasing $12.8 million representing an
increase of 22.0% over the 2001 period.

Net Income. Net income increased from $36.1 million for the six months
ended June 30, 2001 to $44.1 million for the six months ended June 30, 2002, an
increase of $8.0 million or 22.3%. The increase was a result of the items
discussed above.

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Liquidity and Capital Resources

Renal Care Group requires capital primarily to acquire and develop
dialysis centers, to purchase property and equipment for existing centers, and
to finance working capital needs. At June 30, 2002, the Companys working
capital was $113.6 million, cash and cash equivalents were $40.2 million, and
the Companys ratio of current assets to current liabilities was approximately
1.9 to 1.

Net cash provided by operating activities was $76.7 million for the six
months ended June 30, 2002. Cash provided by operating activities consists of
net income before depreciation and amortization expense, adjusted for changes
in components of working capital, primarily accounts receivable. Net cash used
in investing activities was $51.4 million for the six months ended June 30,
2002. Cash used in investing activities consisted primarily of $30.3 million of
purchases of property and equipment and $18.9 million of cash paid for
acquisitions, net of cash acquired. Net cash used in financing activities was
approximately $12.5 million for the six months ended June 30, 2002. Cash used
in financing activities primarily reflects repurchases of Renal Care Group
common stock of $22.2 million offset by a $2.9 million investment by a joint
venture partner and $8.3 million in net proceeds from the issuance of common
stock.

As of June 30, 2002, the Company was a party to a Second Amendment to its
First Amended and Restated Loan Agreement with a group of banks. Lender
commitments under the amended loan agreement were $129.5 million. As of June
30, 2002, there was no amount outstanding under this agreement.

Effective July 1, 2002, Renal Care Group entered into two credit
agreements totaling $150.0 million with a group of banks consisting of a $100.0
million Second Amended and Restated Loan Agreement (the Multi-Year Facility)
and a $50.0 Loan Agreement (the 364-day Facility). The Multi-Year Facility
has a final maturity of July 2005 and the 364-day Facility has a final maturity
of June 2003. The Multi-Year Facility replaced the Companys First Amended and
Restated Loan Agreement discussed above. Borrowings under the credit
agreements may be used for acquisitions, capital expenditures, working capital
and general corporate purposes. No more than $25.0 million of either credit
agreement may be used for any single acquisition without the consent of the
lenders. Under the Multi-Year Facility, the Company may borrow up to $10.0
million in swingline loans for working capital purposes. These variable rate
debt instruments carry a degree of interest rate risk. Specifically variable
rate debt may result in higher costs to the Company if interest rates rise.

Each of Renal Care Groups wholly-owned subsidiaries has guaranteed all of
Renal Care Groups obligations under the loan agreements. Further, Renal Care
Groups obligations under the loan agreement, and the obligations of each of
its subsidiaries under its guaranty, are secured by a pledge of the equity
interests held by Renal Care Group in each of the subsidiaries. Financial
covenants are customary based on the amount and duration of this commitment.

A significant component of Renal Care Groups growth strategy is the
acquisition and development of dialysis facilities. There can be no assurance
that Renal Care Group will be able to identify suitable acquisition candidates
or to close acquisition transactions with them on acceptable terms. Management
of Renal Care Group believes that existing cash and funds from operations,
together with funds available under the line of credit, will be sufficient to
meet Renal Care Groups acquisition, expansion, capital expenditure and working
capital needs for the foreseeable future. However, in order to finance certain
large strategic acquisition opportunities, Renal Care Group may from time to
time incur additional short and long-term bank indebtedness and may issue
equity or debt securities. The availability and terms of any future financing
will depend on market and other conditions. There can be no assurance that any
additional financing, if required, will be available on terms acceptable to
Renal Care Group.

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Capital expenditures of approximately $60.0 million, primarily for
equipment replacement, expansion of existing dialysis facilities and
construction of de novo facilities are planned in 2002. The Company has made
capital expenditures of approximately $30.3 million through June 30, 2002. The
Company expects that remaining capital expenditures in 2002 will be funded with
cash provided by operating activities and the Companys existing credit
facility. Management believes that capital resources available to Renal Care
Group will be sufficient to meet the needs of its business, both on a short-
and long-term basis.

Management, from time to time, determines the appropriateness of
repurchasing its common stock in accordance with a repurchase plan authorized
by the Board of Directors in October 2000. In the fourth quarter of 2001,
Renal Care Group began to repurchase shares of its common stock by purchasing
100,000 shares of common stock for approximately $3.1 million. In the first
quarter of 2002, Renal Care Group repurchased 280,000 shares of common stock
for approximately $8.3 million. In the second quarter of 2002, the Company
repurchased 420,000 shares of common stock for approximately $13.9 million. In
July 2002, the Company announced that its Board of Directors had approved an
increase in the repurchase plan from $50.0 million to $100.0 million.
Subsequent to June 30, 2002 and through August 9, 2002, the Company
repurchased an additional 840,000 shares of common stock for
approximately $25.4 million. Through August 9, 2002, the Company had
repurchased an aggregate of approximately 1,640,000 shares under
the plan, for a total of approximately $50.7 million. Management expects to continue to repurchase additional shares of common stock
during the remainder of 2002, possibly using all of the remaining amount
approved by the Board of Directors by the end of the year.




RISK FACTORS

You should carefully consider the risks described below before investing
in Renal Care Group. The risks and uncertainties described beloware notthe
only ones facing Renal Care Group. Other risks and uncertainties that we have
not predicted or assessed may also adversely affect our company.

If any of the following risks occur, our earnings, financial condition or
business could be materially harmed, and the trading price of our common stock
could decline, resulting in the loss of all or part of your investment.

If Medicare or Medicaid Changes its Programs for Dialysis, Our Revenue and
Earnings Could Decrease

If the government changes the Medicare, Medicaid or similar government
programs or the rates paid by those programs for our services, then our revenue
and earnings may decline. We estimate that approximately 53% of our net
revenue for 2000, 49% of our net revenue for 2001 and 50% of our net revenue
for the six months ended June 30, 2002 consisted of reimbursements from
Medicare, including the administration of EPO to treat anemia. We also estimate
that approximately 5% of our net revenue for 2000, 6% of our net revenue for
2001 and 7% of our net revenue for the six months ended June 30, 2002 consisted
of reimbursements from Medicaid or comparable state programs. Some of the
states Medicaid programs reimburse us at rates higher than those paid by
Medicare. Some of these programs have proposed reductions or have announced
that they are considering reductions. Any action to reduce those higher
Medicaid reimbursement rates would adversely affect our revenue and earnings.
Any of the following actions in connection with government programs could cause
our revenue and earnings to decline:



| |  |  | a reduction of the amount paid to us under
government programs;                                                                                                                         
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | an increase in the costs associated with performing
our services that are subject to inflation, such as labor
and supply costs, without a corresponding increase in
reimbursement rates;
|
| |  |  | the inclusion of some or all ancillary services,
for which we are now reimbursed separately, in the flat
composite rate for a standard dialysis treatment; or                           

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| |  |  | changes in laws, or the interpretations of laws,
which could cause us to modify our operations.
| | - |  | -----------------------------------------------------------------------------------------------

Specifically, Congress and the Centers for Medicare & Medicaid Services,
or CMS (formerly known as Health Care Financing Administration), have proposed
reviewing and potentially recalculating the average wholesale prices of certain
drugs, including some drugs that we bill for outside of the flat composite
rate. CMS has indicated that it believes the average wholesale prices on which
it currently bases reimbursement are too high and that Medicare reimbursement
for these drugs is, therefore, too high. Because we are unable to predict
accurately whether reimbursement will be changed and, if so, by how much, we
are unable to quantify what the net effect of changes in reimbursement for
these drugs would have on our revenue and earnings.

If Reimbursement for EPO Decreases, Then We Could Be Less Profitable

If government or private payors decrease reimbursement rates for EPO, for
which we are currently reimbursed separately outside of the flat composite
rate, our revenue and earnings will decline. EPO is a bio-engineered hormone
that is used to treat anemia. Revenues from the administration of EPO were
approximately 26% of our net revenue for 2000 and 25% of our net revenue for
2001 and 24% of our net revenue for the six months ended June 30, 2002. Most
of our payments for EPO come from government programs. For the six months ended
June 30, 2002, Medicare and Medicaid reimbursement represented approximately
57% of the total revenue we derived from EPO. A reduction in the reimbursement
rate for EPO could materially and adversely affect our revenue and earnings.

If Amgen Raises the Price for EPO or if EPO Becomes in Short Supply, Then We
Could Be Less Profitable

EPO is produced by a single manufacturer, Amgen Inc., and there are no
substitute products currently marketed to dialysis providers in the United
States. In April 2002, Amgen announced a 3.9% increase in the price of EPO.
This price increase will not affect our earnings in 2002 because our contract
with Amgen has pricing protection through 2002. In addition, Amgen implemented
a 3.9% increase in the price of EPO in May 2001. That price increase will
adversely affect our earnings in 2002. If Amgen imposes additional EPO price
increases or if Amgen or other factors interrupt the supply of EPO, then our
revenue and earnings will decline.

If Amgen Markets Aranesp® for ESRD Patients, Then We Could Be Less Profitable

Amgen has developed and obtained FDA approval for a new drug to treat
anemia marketed as Aranesp® (darbepoetin alfa). Aranesp® is a longer acting
form of bio-engineered protein that, like EPO, can be used to treat anemia.
EPO is usually administered in conjunction with each dialysis treatment.
Aranesp® can remain effective for between two and three weeks. As of this date
Amgen has not announced its plans for marketing Aranesp®. If Amgen markets
Aranesp® for the treatment of dialysis patients, then our earnings could be
materially and adversely affected by either of the following factors:



| |  |  | Our margins realized from the administration of
Aranesp® could be lower than the margins realized on the
administration of EPO; or                        
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Physicians could decide to administer Aranesp® in
their offices, and we would not recognize revenue or profit
from the administration of EPO or Aranesp® .

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If Payments by Private Insurers, Hospitals or Managed Care Organizations
Decrease, Then Our Revenue and Earnings Could Decrease

If private insurers, hospitals or managed care organizations reduce the
rates they pay us or if we experience a significant shift in our revenue mix
toward additional Medicare or Medicaid reimbursement, then our revenue and
earnings will decline. We estimate that approximately 42% of our net revenue
for 2000, 45% of our net revenue for 2001 and 43% of our net revenue for the
six months ended June 30, 2002, were derived from sources other than Medicare
and Medicaid. In general, payments we receive from private insurers and
hospitals for our services are at rates significantly higher than the Medicare
or Medicaid rates. Additionally, payments we receive from managed care
organizations are at rates higher than Medicare and Medicaid rates but
typically lower than those paid by private insurers. As a result, any of the
following events could have a material adverse effect on our revenue and
earnings:



| |  |  | any number of economic or demographic factors could
cause private insurers, hospitals or managed care companies
to reduce the rates they pay us;                                                    
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a portion of our business that is currently
reimbursed by private insurers or hospitals may become
reimbursed by managed care organizations, which typically
have lower rates for our services; or  
|
| |  |  | the scope of coverage by Medicare or Medicaid under
the flat composite rate could expand and, as a result,
reduce the extent of our services being reimbursed at the
higher private-insurance rates.

If We are Unable to Make Acquisitions in the Future, Our Rate of Growth Will
Slow

Much of our historical growth has come from acquisitions. Although we
intend to continue to pursue growth through the acquisition of dialysis
centers, we may be unable to continue to identify and complete suitable
acquisitions at prices we are willing to pay or we may be unable to obtain the
necessary financing. Further, due to the increased size of our Company since
its formation, the amount that acquired businesses contribute to our revenue
and profits will likely be smaller on a percentage basis. Also, as a result of
consolidation in the dialysis industry, the four largest providers of
outpatient dialysis services own approximately 65% of the total number of
outpatient dialysis facilities in the United States. We compete with these
other companies to identify and complete suitable acquisitions. We expect this
competition to intensify in light of the smaller pool of available acquisition
candidates and other market forces. As a result, we believe it will be more
difficult for us to acquire suitable companies on favorable terms. Further,
the businesses we acquire may not perform well enough to justify our
investment. If we are unable to make additional acquisitions on suitable
terms, then we may not meet our growth expectations.

If We Fail to Integrate Acquired Companies, We Will Be Less Profitable

We have grown significantly by acquisitions of other dialysis providers
since our formation in February 1996. We have completed some of our
acquisitions as recently as April 2002. We intend to pursue acquisitions of
more dialysis businesses in the future. We are unable to predict the number
and size of any future acquisitions. We face significant challenges in
integrating an acquired companys management and other personnel, clinical
operations, and financial and operating systems with ours, often without the
benefit of continued services from key personnel of the acquired company. We
may be unable to integrate the businesses we acquire successfully or to achieve
anticipated benefits from an acquisition in a timely manner, which could lead
to substantial costs and delays

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or other operational, technical or financial problems, including diverting
managements attention from our existing business. Any of these results could
damage our profitability and our prospects for future growth.

If We Complete Future Acquisitions, We May Dilute Existing Stockholders by
Issuing More of Our Common Stock or We May Incur Additional Expenses Related to
Debt and Goodwill, Which Could Reduce Our Earnings

We may issue equity securities in future acquisitions, and these equity
securities could be dilutive to our shareholders. We also may incur additional
debt in future acquisitions. On June 29, 2001, the Financial Accounting
Standards Board approved rules that eliminate the pooling-of-interests
accounting method. The elimination of the pooling-of-interests method resulted
in the recording of goodwill for all acquisitions after June 30, 2001. Under
these new rules goodwill and other intangible assets with indefinite lives are
not amortized to expense; however, we are required to review all of these
assets at regular intervals and to charge an appropriate amount to expense when
impairment is identified. If we are required under these new rules to write
off a significant portion of our goodwill or other intangible assets at one
time, then there could be a material adverse impact on our stock price.
Interest expense on additional debt incurred to fund our acquisitions may also
reduce our profitability.

If Acquired Businesses Have Unknown Liabilities, Then We Could Be Exposed to
Liabilities That Could Harm Our Business and Profitability

Businesses we acquire may have unknown or contingent liabilities,
including liabilities for failure to comply with health care laws. Although we
generally attempt to identify practices that may give rise to unknown or
contingent liabilities and conform them to our standards after the acquisition,
private plaintiffs or governmental agencies may still assert claims. Even
though we generally seek to obtain indemnification from prospective sellers,
unknown and contingent liabilities may not be covered by indemnification or may
exceed contractual limits or the financial capacity of the indemnifying party.

If Our Referring Physicians Stop Referring To Our Centers or Were Prohibited
From Referring for Regulatory Reasons, Our Revenue and Earnings Would Decline

Our dialysis centers depend on referrals from local nephrologists.
Typically, one or a few physicians patients make up all or a significant
portion of the patient base at each of our dialysis centers, and the loss of
the patient base of one or more referring physicians could have a material
adverse effect on the operations of that center. The loss of the patient base
of a significant number of referring physicians could cause our revenue and
earnings to decline. In many instances, the primary referral sources for our
centers are physicians who are also stockholders and serve as medical directors
of our centers. If stock ownership or the medical director relationship were
deemed to violate applicable federal or state law, including fraud and abuse
laws and laws prohibiting self-referrals, then the physicians owning our stock
or acting as medical directors could be forced to stop referring patients to
our centers. Further, we may not be able to renew or renegotiate our medical
director agreements successfully, which could result in a loss of patients
since dialysis patients are typically treated at a center where their physician
or another member of his or her practice serves as a medical director.

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If Our Business Is Alleged or Found To Violate Heath Care or Other Applicable
Laws, Our Revenue and Earnings Could Decrease

We are subject to extensive federal, state and local regulation regarding
the following:



| |  |  | fraud and abuse prohibitions under health care reimbursement laws;                                                                                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | prohibitions and limitations on patient referrals;                                                                                                                                                                 
|
| |  |  | billing and reimbursement, including false claims
prohibitions under health care reimbursement laws;                                                                                                               
|
| |  |  | collection, use, storage and disclosure of patient
health information, including the federal Health Insurance
Portability and Accountability Act of 1996, referred to as
HIPAA, and state law equivalents of HIPAA;
|
| |  |  | facility licensure;                                                                                                                                                                                                
|
| |  |  | health and safety requirements;                                                                                                                                                                                    
|
| |  |  | environmental compliance; and                                                                                                                                                                                      
|
| |  |  | medical and toxic waste disposal.                                                                                                                                                                                  

Much of this regulation, particularly in the areas of fraud and abuse and
patient referral, is complex and open to differing interpretations. Due to the
broad application of the statutory provisions and the absence in many instances
of regulations or court decisions addressing the specific arrangements by which
we conduct our business, including our arrangements with medical directors,
physician stockholders and physician joint venture partners, governmental
agencies could challenge some of our practices under these laws.

New regulations governing electronic transactions and the collection, use,
storage, and disclosure of health information impose significant administrative
and financial obligations on our business. If, after the required compliance
date, we are found to have violated these restrictions, we could be subject to:



| |  |  | criminal or civil penalties;                                                                     
| | - |  | -------------------------------------------------------------------------------------------------
|
| |  |  | claims by persons who believe their health information
has been improperly used or disclosed; and
|
| |  |  | administrative penalties by payors.                                                              

Government investigations of health care providers, including dialysis
providers, have continued to increase. We have been the subject of
investigations in the past, and the government may investigate our business in
the future. One of our competitors, DaVita, Inc., has announced that it is the
subject of an investigation by the U.S. Attorney for the Eastern District of
Pennsylvania, and another competitor, Gambro Healthcare, Inc., has announced
that it is the subject of an investigation by the U.S. Attorneys Office in St.
Louis, Missouri. If any of our operations are found to violate applicable
laws, we may be subject to severe sanctions or be required to alter or
discontinue the challenged conduct or both. If we are required to alter
our

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practices, we may not be able to do so successfully. If any of these
events occurs, our revenue and earnings could decline.

Changes In the Health Care Delivery, Financing or Reimbursement Systems Could
Adversely Affect Our Business

The health care industry in the United States remains in a period of
change and uncertainty. Health care organizations, public or private, may
dramatically change the way they operate and pay for services. Our business is
designed to function within the current health care financing and reimbursement
system. The health care industry has been subject to increasing levels of
government regulation of, among other things, reimbursement rates and capital
expenditures. In addition, proposals to reform the health care system have
been considered by Congress. These proposals, if enacted, could further
increase government regulation of or other involvement in health care, lower
reimbursement rates and otherwise change the operating environment for health
care companies. We cannot predict the likelihood of those events or what
impact they may have on our business.

The Dialysis Business Is Highly Competitive. If We Do Not Compete Effectively
in Our Markets, We Could Lose Market Share and Our Rate of Growth Could Slow

The dialysis industry is rapidly consolidating. There is a small number
of large dialysis companies that compete to acquire outpatient dialysis centers
and to develop relationships with referring physicians. Several of our
competitors are part of larger companies that also manufacture dialysis
equipment, which allows them to benefit from lower equipment costs. Several of
our competitors, including these equipment manufacturers, are significantly
larger than we are and have greater financial resources and more established
operations. We cannot assure you that we will be able to compete effectively
with any of our competitors.

If We Lose Any of Our Executive Officers, or Are Unable To Attract and Retain
Qualified Management Personnel and Medical Directors, Our Ability To Run Our
Business Could Be Adversely Affected, and Our Revenue and Earnings Could
Decline

We are dependent upon the services of our executive officers Sam A.
Brooks, Jr., our Chairman, Chief Executive Officer and President, Raymond
Hakim, M.D., Ph.D., R. Dirk Allison and Gary Brukardt, each an Executive Vice
President. Mr. Brooks, Dr. Hakim and Mr. Brukardt have each been with Renal
Care Group since its formation. The services of Mr. Brooks and these three
Executive Vice Presidents would be difficult to replace. We do not carry
key-man life insurance on any of our officers. Further, our growth will depend
in part upon our ability to attract and retain skilled employees (including
nurses), for whom competition is intense. We also believe that our future
success will depend on our ability to attract and retain qualified physicians
to serve as medical directors of our dialysis centers.

If We Are Liable for Damages in Litigation, Our Insurance May Not be Sufficient
to Cover Such Potential Damages

On August 30, 2000, 19 patients were hospitalized and one patient died
shortly after becoming ill while receiving treatment at one of our dialysis
centers in Youngstown, Ohio. One of the 19 hospitalized patients also died
some time later. Eleven lawsuits had been filed against us as of June 30, 2002,
and other suits could be brought in the future. While management believes
Renal Care Groups insurance should be adequate to cover these events, if we
are found liable for damages in litigation stemming from these illnesses, our
present insurance coverage may not be sufficient to cover such damages.

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If Our Board of Directors Does Not Approve an Acquisition or Change in Control
of Renal Care Group, Our Shareholders May Not Realize the Full Value of Their
Stock

Our certificate of incorporation and bylaws contain a number of provisions
that may delay, deter or inhibit a future acquisition or change in control of
Renal Care Group that is not first approved by our board of directors. This
could occur even if our shareholders receive an attractive offer for their
shares or if a substantial number or even a majority of our shareholders
believe the takeover may be in their best interest. These provisions are
intended to encourage any person interested in acquiring Renal Care Group to
negotiate with and obtain approval from our board of directors prior to
pursuing the transaction. Provisions that could delay, deter or inhibit a
future acquisition or change in control of Renal Care Group include the
following:



| |  |  | a staggered board of directors that would require
two annual meetings to replace a majority of the board of
directors;                                                                                         
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | restrictions on calling special meetings at which
an acquisition or change in control might be brought to a
vote of the shareholders;                                                                          
|
| |  |  | blank check preferred stock that may be issued by
our board of directors without shareholder approval and that
may be substantially dilutive or contain preferences or
rights objectionable to an acquiror; and
|
| |  |  | a poison pill that would substantially dilute the
interest sought by an acquiror.                                                                                                                              

These provisions could also discourage bids for our common stock at a
premium and cause the market price of our common stock to decline.

Our Stock Price Is Volatile and as a Result, the Value of Your Investment May
Go Down for Reasons Unrelated To the Performance of Our Business

Our common stock is traded on the New York Stock Exchange. The market
price of our common stock has been volatile, ranging from a low of $30.10 per
share to a high of $36.00 per share during the three months ended June 30,
2002. The market price for our common stock could fluctuate substantially
based on a variety of factors, including the following:



| |  |  | future announcements concerning us, our competitors or the health care market;
| | - |  | ------------------------------------------------------------------------------
|
| |  |  | the threat of litigation or government investigation;                         
|
| |  |  | changes in government regulations; and                                        
|
| |  |  | changes in earnings estimates by analysts.                                    

Furthermore, stock prices for many companies fluctuate widely for reasons
that may be unrelated to their operating results. These fluctuations, coupled
with changes in demand or reimbursement levels for our services and general
economic, political and market conditions, could cause the market price of our
common stock to decline.

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Forward Looking Statements

Some of the information in this quarterly report on Form 10-Q contains
forward-looking statements that involve substantial risks and uncertainties.
You can identify these statements by forward-looking words such as may,
will, expect, anticipate, believe, intend, estimate and continue
or similar words. You should read statements that contain these words carefully
for the following reasons:



| |  |  | the statements discuss our future expectations;                                             
| | - |  | --------------------------------------------------------------------------------------------
|
| |  |  | the statements contain projections of our future earnings or of our financial condition; and
|
| |  |  | the statements state other forward-looking information.                                   

We believe it is important to communicate our expectations to our
investors. There may be events in the future, however, that we are not
accurately able to predict or over which we have no control. The risk factors
listed above, as well as any cautionary language in or incorporated by
reference into this quarterly report on Form 10-Q, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. The SEC
allows us to incorporate by reference the information we file with them,
which means we can disclose important information to you by referring you to
those documents. Before you invest in our common stock, you should be aware
that the occurrence of any of the events described in the above risk factors,
elsewhere in or incorporated by reference into this quarterly report on Form
10-Q and other events that we have not predicted or assessed could have a
material adverse effect on our earnings, financial condition and business. If
the events described above or other unpredicted events occur, then the trading
price of our common stock could decline and you may lose all or part of your
investment.







PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

As disclosed in Renal Care Groups annual report on Form 10-K filed with
the SEC on March 29, 2002, we are subject to a number of lawsuits arising out
of events on August 30, 2000. On that day 19 patients were hospitalized and
one patient died shortly after becoming ill while receiving treatment at one of
Renal Care Groups dialysis centers in Youngstown, Ohio. One of the 19
hospitalized patients also died some time later. There have been no material
developments in these lawsuits in the quarter ended June 30, 2002.

Additional suits arising out of these illnesses may be filed in the
future. Management believes that Renal Care Groups insurance should be
adequate to cover these illnesses and does not anticipate a material adverse
effect on the Companys consolidated financial position

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On June 5, 2002, the Annual Meeting of Stockholders of Renal Care Group,
Inc. was held in Nashville, Tennessee for the following purposes and with the
following results:



|1. |  | To elect Sam A. Brooks and Kenneth E. Johnson, Jr., M.D. as Class III
Directors, each to serve for a term of three (3) years and until his
successor is elected:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          |  |     |            |         |  |  |           | 
|----------------------------------------- |  | --- | ---------- | ------- |  |  | --------- | 
|                                          |  | FOR |            | ABSTAIN
|                                          |  |     |            |        
|Election of Sam A. Brooks                 |  |     | 37,480,169 |         |  |  | 8,153,323 | 
|                                          |  |     |            |         |  |  |           | 
|Election of Kenneth E. Johnson, Jr., M.D. |  |     | 43,776,629 |         |  |  | 1,856,863 | 



|2. |  | To approve an amendment to the Renal Care Group, Inc. 1999 Long-Term
Incentive Plan (the Long-Term Incentive Plan) to increase the number
of shares available for issuance thereunder:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |         |           |         |  |  |         | 
|---------- |  | ------- | --------- | ------- |  |  | ------- | 
|FOR        |  | AGAINST |           | ABSTAIN
|           |  |         |           |        
|39,143,567 |  |         | 6,340,519 |         |  |  | 149,406 | 




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

| |     |                             |  |                                                                                                                                                                        
| | --- | --------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Exhibits:                   | 
| |     |                             | 
| |     | 10.18.3                     |  | Second Amended and Restated Loan Agreement, dated as of July
1, 2002, among the Company, Bank of America, N.A., SunTrust
Bank, AmSouth Bank, and Wells Fargo Bank, N.A.
| |     |                             | 
| |     | 10.61                       |  | Loan Agreement, dated as of July 1, 2002, among the Company,
Bank of America, N.A., SunTrust Bank, AmSouth Bank, and Wells
Fargo Bank, N.A.                            
| |     |                             | 
| |     | 99.1                        |  | Certification solely to
comply with Section 906 of the Sarbanes-Oxley Act of 2002                                                                                      
| |     |                             | 
|
| | (b) | Reports on Form 8-K:        | 
| |     |                             | 
| |     | Form 8-K filed May 6, 2002.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                |  |                        |                                                                                                                                                       
|--------------- |  | ---------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|                |  | RENAL CARE GROUP, INC.
|               
|               
|               
|August 14, 2002 |  | BY:                    | /s/ R. Dirk AllisonR. Dirk Allison
Executive Vice President,
Chief Financial Officer, and Principal
Financial Officer and Principal
Accounting Officer

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RENAL CARE GROUP, INC.

EXHIBIT INDEX

|                                         |  |                                                                                                                                                                       
|---------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number and
       Description of Exhibit |  |                                                                                                                                                                       
|                                         |  |                                                                                                                                                                       
|10.18.3                                  |  | Second Amended and Restated Loan Agreement, dated as of July 1,
2002, among the Company, Bank of America, N.A., SunTrust Bank,
AmSouth Bank, and Wells Fargo Bank, N.A
|                                         |  |                                                                                                                                                                       
|10.61                                    |  | Loan Agreement dated as of July 1, 2002, among the Company, Bank
of America, N.A., SunTrust Bank, AmSouth Bank, and Wells Fargo Bank, N.A                             
|                                         |  |                                                                                                                                                                       
|99.1                                     |  | Certification
solely to comply with Section 906 of the Sarbanes-Oxley Act of 2002