DaVita 4th Quarter 2005 Results
PRNewswire-FirstCall
EL SEGUNDO, Calif.
DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO )
On October 5, 2005, we completed our acquisition of Gambro Healthcare. The operating results of Gambro Healthcare are included in our operating results effective October 1, 2005. The operating results of the historical DaVita centers divested in connection with the acquisition are reflected as discontinued operations in our consolidated financial statements for all periods presented. Net income, including discontinued operations was $64.1 million and $228.6 million, or $0.61 and $2.20 per share, respectively.
Financial and operating highlights include:
-- Cash Flow: Operating cash flow for the three months ended December 31,
2005 was $183 million and free cash flow was $152 million. For the year
ended December 31, 2005 operating cash flow was $441 million and free
cash flow was $378 million, excluding the tax benefit from stock option
exercises and the after-tax benefit of Medicare lab recoveries related
to prior years' services. Including those items, the year ended
operating cash flow was $486 million and free cash flow was $422
million.
-- Operating Income: Operating income for the three months and year ended
December 31, 2005, was $158.8 million and $465.4 million, respectively
-- Volume: Total treatments for the fourth quarter were 3,498,231 or
44,281 treatments per day. The acquisition of Gambro Healthcare
contributed 1,528,295 total treatments. Non-acquired treatment growth
in the quarter was 2.8%, which was negatively impacted by the closure
of 8 centers due to hurricane Katrina.
-- Debt Expense: The increase in debt expense in the fourth quarter was
due to the additional borrowings to fund the Gambro Healthcare
acquisition, $2.8 million of non-cash deferred financing cost
amortization and a $2.8 million interest payment to Gambro, Inc. as
part of the purchase.
-- Effective Tax Rate: The effective annual income tax rate for 2005 was
37.4%. We expect the annual effective tax rate for 2006 to be within a
range of 39% - 40%.
-- Center Activity: As of December 31, 2005, we operated or provided
administrative services at 1,233 outpatient centers serving
approximately 96,000 patients. During the fourth quarter, the
acquisition of Gambro Healthcare resulted in a net increase of 492
centers after divestitures, and we opened 13 new centers and acquired
12 independent centers. Additionally, we closed or indefinitely shut
down 8 centers related to hurricane Katrina.
Outlook
We are revising our 2006 operating income guidance. Operating income is now projected to be in the $630-700 million range before the impact of FASB No. 123R related to stock option expensing. Our previous guidance was for operating income to be in the $600 - 670 million range. These projections and the underlying assumptions involve significant risks and uncertainties, including those described below and actual results may vary significantly from these current projections.
DaVita will be holding a conference call to discuss its fourth quarter and year end results for 2005 on February 15, 2006, at 12:00 PM Eastern Time. The dial in number is 800-399-4406. A replay of the conference call will be available on DaVita's official web page, www.davita.com, for the following 30 days.
This release contains forward-looking statements, including statements related to our 2006 operating results. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, acquisitions and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the quarter ended September 30, 2005. The forward-looking statements should be considered in light of these risks and uncertainties.
These risks and uncertainties include those relating to:
-- the concentration of profits generated from preferred provider
organizations (PPO) and private indemnity patients,
-- possible reductions in private and government payment rates,
-- changes in pharmaceutical practice patterns, payment policies, or
pharmaceutical pricing,
-- our ability to maintain contracts with physician medical directors,
-- legal compliance risks, including our continued compliance with complex
government regulations and the ongoing review by the U.S. Attorney's
Office for the Eastern District of Pennsylvania and the OIG, the
subpoena from the U.S. Attorney's Office for the Eastern District of
New York, the subpoena from the U.S. Attorney's Office for the Eastern
District of Missouri and Gambro Healthcare's compliance with its
corporate integrity agreement, and
-- our ability to integrate the acquisition of Gambro Healthcare,
including its billing and collection operations.
We undertake no obligation to update or revise any forward-looking statements, whether as a result of changes in underlying factors, new information, future events or otherwise.
This release contains non-GAAP financial measures. For reconciliations of these non-GAAP financial measures to their most comparable measure calculated and presented in accordance with GAAP, see the attached reconciliation schedules.
DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
Three months ended Years ended
Dec. 31, Dec. 31,
2005 2004 2005 2004
Net operating
revenues $1,133,315 $583,932 $ 2,973,918 $2,177,330
Operating expenses
and charges:
Patient care
costs 799,291 396,745 2,035,243 1,470,175
General and
administrative 97,524 53,151 272,463 192,082
Depreciation and
amortization 42,648 22,228 116,836 82,912
Provision for
uncollectible
accounts 29,165 10,421 61,916 38,786
Minority interests
and equity income,
net 5,905 3,297 22,089 12,249
Total operating
expenses and
charges 974,533 485,842 2,508,547 1,796,204
Operating income 158,782 98,090 465,371 381,126
Debt expense (72,886) (15,777) (139,586) (52,411)
Swap valuation gain 5 4,548
Refinancing charges (1,298) (8,170)
Other income, net 3,193 1,040 8,934 4,125
Income from continuing
operations before
income taxes 87,796 83,353 331,097 332,840
Income tax expense 31,385 31,086 123,675 128,332
Income from
continuing
operations 56,411 52,267 207,422 204,508
Discontinued operations
(Loss) income from
operations of
discontinued
operations, net of
tax (326) 4,335 13,157 17,746
Gain on disposal
of discontinued
operations, net
of tax 8,064 8,064
Net income $64,149 $56,602 228,643 $222,254
Earnings per share:
Basic earnings per
share from
continuing
operations $0.55 $0.53 $2.06 $2.07
Basic earnings
per share $0.63 $0.58 $2.27 $2.25
Diluted earnings
per share from
continuing
operations $0.54 $0.51 $1.99 $1.99
Diluted earnings
per share $0.61 $0.56 $2.20 $2.16
Weighted average
shares for earnings
per share:
Basic 101,838,000 97,984,000 100,762,000 98,727,000
Diluted 104,888,000 101,777,000 104,068,000 102,861,000
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Years ended
Dec. 31,
2005 2004
Cash flows from operating activities:
Net income $228,643 $222,254
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation and amortization 119,719 86,666
Stock options, principally tax benefits 41,837 42,770
Deferred income taxes (63,357) 29,115
Minority interests in income of
consolidated subsidiaries 24,714 15,135
Distributions to minority interests (16,246) (10,461)
Equity investment income (1,406) (1,441)
Loss on other divestitures 921 764
Gain on discontinued operations (16,777)
Non-cash debt expense 5,157 2,088
Refinancing charges 8,170
Swap valuation gains (4,548)
Changes in operating assets and
liabilities, net of effect of
acquisitions and divestitures:
Accounts receivable and other
receivables (62,021) (59,263)
Medicare lab recoveries 19,000
Inventories 11,980 4,257
Other current assets 1,893 (381)
Other long term assets (2,039) 3,345
Accounts payable 28,869 17,764
Accrued compensation and benefits 21,664 32,899
Other current liabilities 72,615 42,784
Income taxes 90,958 (25,995)
Other long-term liabilities (5,192) (1,355)
Net cash provided by operating
activities 485,554 419,945
Cash flows from investing activities:
Additions of property and equipment, net (161,365) (128,328)
Acquisitions (3,196,395) (266,265)
Proceeds from divestitures 297,784 1,223
Investments in and advances to
affiliates, net 15,364 14,344
Intangible assets (751) (635)
Net cash used in investing
activities (3,045,363) (379,661)
Cash flows from financing activities:
Borrowings 6,832,557 4,444,160
Payments on long-term debt (4,058,951) (4,236,861)
Deferred financing costs (77,884) (4,153)
Purchase of treasury stock (96,540)
Stock option exercises 43,919 43,432
Net cash provided by financing
activities 2,739,641 150,038
Net increase in cash and cash
equivalents 179,832 190,322
Cash and cash equivalents at
beginning of period 251,979 61,657
Cash and cash equivalents at end
of period $431,811 $251,979
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
Dec. 31,
2005 2004
ASSETS
Cash and cash equivalents $431,811 $251,979
Accounts receivable, less
allowance of $138,598 and $58,166 853,560 453,295
Inventories 69,130 31,843
Other receivables 116,620 47,219
Other current assets 38,463 5,791
Deferred income taxes 144,824 78,593
Total current assets 1,654,408 868,720
Property and equipment, net 750,078 412,064
Amortizable intangibles, net 235,944 60,719
Investments in third-party dialysis businesses 3,181 3,332
Other long-term assets 41,768 10,898
Goodwill 3,594,383 1,156,226
$6,279,762 $2,511,959
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $212,049 $96,231
Other liabilities 381,964 157,214
Accrued compensation and benefits 231,994 133,919
Current portion of long-term debt 71,767 53,364
Income taxes payable 91,959 1,007
Total current liabilities 989,733 441,735
Long-term debt 4,085,435 1,322,468
Other long-term liabilities 26,416 22,570
Gambro AB Supply Agreement and
other intangibles, net 163,431
Deferred income taxes 75,499 148,859
Minority interests 88,639 53,193
Commitments and contingencies
Shareholders' equity:
Preferred stock ($0.001 par value,
5,000,000 shares authorized;
none issued)
Common stock ($0.001 par value,
195,000,000 shares authorized;
134,862,283 shares issued) 135 135
Additional paid-in capital 569,751 542,714
Retained earnings 839,930 611,287
Treasury stock, at cost
(32,927,026 and 36,295,339 shares) (574,013) (632,732)
Accumulated comprehensive income
valuations 14,806 1,730
Total shareholders' equity 850,609 523,134
$6,279,762 $2,511,959
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Three months ended Year ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31,
2005 2005 2004 2005
Financial Results:
Net income $64.1 $55.2 $56.6 $228.6
Income from continuing
operations $56.4 $50.9 $52.3 $207.4
Income from continuing
operations, excluding
Medicare lab prior
years' recoveries $56.4 $50.2 $52.3 $205.1
Diluted earnings
per share $0.61 $0.53 $0.56 $2.20
Diluted earnings
per share from
continuing
operations $0.54 $0.49 $0.51 $1.99
Diluted earnings
per share from
continuing
operations,
excluding
Medicare lab
recoveries $0.54 $0.48 $0.51 $1.97
Operating income,
excluding Medicare
lab prior years'
recoveries $158.8 $104.2 $98.1 $461.6
Operating income
margin, excluding
Medicare lab prior
years' recoveries 14.0% 16.2% 16.8% 15.5%
Other comprehensive income
Unrealized gain on
securities, net of
tax expense of
$2.4, $5.7, $1.3,
and $10.7 $3.8 $11.1 $2.1 $16.8
Business Metrics:
Volume
Treatments 3,498,231 1,928,684 1,786,860 9,044,967
Number of
treatment days 79.0 79.0 79.0 313.0
Treatments per
day 44,281 24,414 22,617 28,898
Per day year
over year
increase 95.8% 13.4% 14.5% 36.2%
Non-acquired
growth 2.8% -- -- --
Revenue
Total operating
revenue $1,133 $645 $584 $2,974
Medicare lab
prior years'
recoveries -- $1 -- $4
Total operating
revenue, excluding
Medicare lab prior
years' recoveries $1,133 $644 $584 $2,970
Dialysis revenue
per treatment $310.62 $317.03 $312.34 $312.87
Per treatment
(decrease)
increase
from previous
quarter (2.0%) 1.1% (0.8%) --
Per treatment
(decrease)
increase from
previous year (.6%) 0.7% 1.5% --
Expenses
A. Patient care costs
Percent of revenue 70.5% 67.6% 67.9% 68.5%
Per treatment $228.48 $225.65 $222.05 $225.01
Per treatment
increase from
previous quarter 1.3% 1.4% 0.5% --
Per treatment
increase from
previous year 2.9% 2.2% 2.7% 1.8%
B. General & administrative expenses
Percent of revenue 8.6% 9.4% 9.1% 9.2%
Per treatment $27.88 $31.53 $29.75 $30.12
Per treatment
(decrease) from
previous quarter (11.6%) (2.2%) -- --
Per treatment
(decrease) increase
from previous year (6.3%) 5.9% 15.8% 4.3%
C. Bad debt expense as a
percent of
current-period
revenue 2.6% 1.8% 1.8% 2.1%
D. Consolidated effective
tax rate from
continuing
operations 35.7% 37.5% 37.4% 37.4%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Three months ended Year ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31,
2005 2005 2004 2005
Cash Flow
Operating cash
flow $183.3 $84.6 $87.3 $485.6
Operating cash
flow, excluding
Medicare lab prior
years' recoveries
and tax benefit
from stock
option exercises $177.8 $75.3 $70.0 $441.4
Free cash flow $151.6 $75.0 $72.5 $421.9
Free cash flow,
excluding Medicare
lab prior years'
recoveries and tax
benefit from
stock option
exercises $146.1 $65.6 $55.1 $377.8
Capital expenditures:
Development $27.8 $24.9 $25.0 $93.0
Routine
maintenance
/IT/other $32.3 $11.4 $14.9 $70.0
Acquisition
expenditures $3,066.3 $46.1 $19.8 $3,196.4
Accounts Receivable
Net receivables $854 $493 $453
DSO 71 69 69
Debt/Capital Structure
Total debt $4,157 $1,365 $1,376
Net debt, net
of cash $3,725 $1,028 $1,124
Leverage ratio --
(see Note 1) 4.45x
Shares repurchased
(in millions) .03
Average share
price $30.14
Clinical (quarterly averages)
Dialysis adequacy - %
of patients with
Kt/V > 1.2 94% 94%
Patients with
arteriovenous
fistulas 45% 46%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)
Note 1: Calculation of the Leverage Ratio
Under the Company's credit agreement that was effective on October 5, 2005, the leverage ratio is defined as all funded debt plus the face amount of all letters of credit issued, minus cash and cash equivalents, divided by consolidated "EBITDA". The leverage ratio determines the interest rate margin payable by the Company under the Credit Agreement by establishing the margin over the base interest rate (LIBOR) that is applicable. The following Leverage Ratio was calculated using "Consolidated EBITDA" as defined in the Credit Agreement, except that pro forma incremental "EBITDA" relating to routine acquisitions is included in the calculation of "EBITDA" under the Credit Agreement. Such calculation is based on the last twelve-months of Consolidated "EBITDA", pro forma for the Gambro Healthcare acquisition and related divestitures.
Dec. 31,
2005
Income from continuing operations $230,296
Debt expense 272,311
Refinancing charges 8,170
Income taxes 137,589
Depreciation and amortization 169,183
Minority interests and equity income, net 26,012
Swap valuation gain (4,548)
Stock compensation expense 8,614
"Consolidated EBITDA" as materially defined
in the credit agreement
$847,627
Dec. 31,
2005
Total debt $4,157,209
Letters of credit issued 48,404
4,205,613
Less: cash and cash equivalents (431,811)
Consolidated net debt $3,773,802
Last twelve months
"Consolidated EBITDA" as
materially defined in the credit agreement $847,627
Leverage ratio 4.45x
In accordance with the Company's Credit Agreement, the Company's leverage
ratio can not currently exceed 6.25 to 1.0. As of December 31, 2005, the
Company was in compliance with its Credit Agreement.
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Income from continuing operations,excluding Medicare lab recoveries
related to prior years' services:
Three months ended Year ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31,
2005 2005 2004 2005
Net income $64,149 $55,217 $56,602 $228,643
Discontinued
operations (7,738) (4,303) (4,335) (21,221)
Income from
continuing
operations 56,411 50,914 52,267 207,422
Less: Medicare lab
recoveries related
to prior years'
services (1,131) (3,771)
Related income
tax expense 440 1,467
Income from continuing
operations, excluding
Medicare lab recoveries
related to prior years'
services $56,411 $50,223 $52,267 $205,118
2. Operating income, excluding Medicare lab recoveries related to prior
years' services:
Three months ended Year ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31,
2005 2005 2004 2004
Operating income $158,782 $105,298 $98,090 $465,371
Less: Medicare
lab recoveries
related to prior
years' services (1,131) (3,771)
$158,782 $104,167 $98,090 $461,600
3. Operating cash flow, excluding Medicare lab recoveries related to prior
years' services, and tax benefit from stock option exercises:
Three months ended Year ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
2005 2005 2004 2005 2004
Cash
provided
by
operating
activities $183,344 $84,609 $87,341 $485,554 $419,945
Less:
Medicare
lab
recoveries
related to
prior years'
services (1,131) (8,293) (3,771) (27,293)
Related
income
tax expense 440 3,234 1,467 10,644
Operating cash
flow, excluding
Medicare lab
recoveries
related
to prior
years'
services 182,653 84,609 82,282 483,250 403,296
Less: Tax
benefit from
stock option
exercises (4,816) (9,313) (12,305) (41,837) (42,770)
$177,837 $75,296 $69,977 $441,413 $360,526
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
4. Free cash flow and free cash flow, excluding Medicare lab recoveries
related to prior years' services, and tax benefit from stock option
exercises:
Free cash flow represents net cash provided by operating activities less
non-development capital expenditures.We believe free cash flow is a useful
adjunct to cash flow from operating activities and other measurements
under generally accepted accounting principles in the United States since
it is a meaningful measure of our ability to fund acquisition and
development activities and meet our debt service requirements. Free cash
flow is not a measure of financial performance under generally accepted
accounting principles in the United States and should not be considered as
an alternative to cash flows from operating, investing or financing
activities as an indicator of cash flows or as a measure of liquidity.
Three months ended Year ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
2005 2005 2004 2005 2004
Cash provided
by
operating
activities $183,344 $84,609 $87,341 $485,554 $419,945
Less:
Expenditures
for routine
maintenance
and
information
technology (31,735) (9,656) (14,883) (63,639) (46,554)
Free cash
flow 151,609 74,953 72,458 421,915 373,391
Less: Medicare
lab recoveries
related to
prior years'
services (1,131) (8,293) (3,771) (27,293)
Related income
tax expense 440 3,234 1,467 10,644
Free cash flow,
excluding Medicare
lab recoveries
related to
prior years'
services 150,918 74,953 67,399 419,611 356,742
Less: Tax
benefit from
stock option
exercises (4,816) (9,313) (12,305) (41,837) (42,770)
$ 146,102 $ 65,640 $55,094 $377,774 $313,972
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SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations of DaVita Inc.,
+1-650-696-8910
Web site: http://www.davita.com/
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