DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO )
Net income, on a GAAP basis, including the lab recoveries, for the three and nine months ended September 30, 2004, was $60.4 million and $165.7 million, or $0.59 and $1.61 per share, respectively.
Financial and operating highlights include:
-- Cash Flow: For the rolling 12 months ended September 30, 2004, operating cash flow was $367 million. Excluding the tax benefit from stock option exercises and the after-tax benefit of prior years' Medicare lab recoveries, rolling 12-month operating cash flow was $315 million and free cash flow was $268 million.
-- Operating Income: Operating income for the three and nine months ended September 30, 2004, excluding Medicare lab recoveries of $8.3 million for prior years' services, was $103.4 million and $296.7 million, respectively.
-- Volume: Total treatments for the third quarter were 1,804,534 or 22,842 treatments per day, an increase of 11.0% per day compared to the third quarter of last year. Non-acquired treatment growth was 4.8%.
-- Center Activity: As of September 30, 2004, we operated or provided administrative services at 636 outpatient centers serving approximately 53,000 patients. During the third quarter we acquired 37 centers including minority interests in 4 centers, opened 7 de novo centers and provided administrative services to 2 additional centers. We also closed 2 centers.
Recent Transactions
On September 1, 2004, we completed our acquisition of Physicians Dialysis, Inc. (PDI), by acquiring 24 centers for approximately $150 million in cash.
In August 2004, we began repurchasing shares of our common stock in the open market pursuant to a previous authorization by our Board of Directors. During the third quarter of 2004, we repurchased a total of 3,049,800 shares of common stock at an average price of $28.69 per share.
On November 2, 2004, the Board of Directors authorized the Company to repurchase up to an additional $200 million of the Company's common stock. The purchases are expected to be made on the open market or in privately negotiated transactions, from time to time, depending upon market conditions as well as other considerations. The total outstanding Board authorizations for share repurchases are now approximately $250 million.
Outlook
We expect our fourth quarter operating income to be comparable to the third quarter of 2004. For 2005 we currently expect operating income to be flat to 6% higher than the 2004 level.
DaVita will be holding a conference call to discuss its third quarter 2004 results on November 3, 2004, 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. 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 June 30, 2004. 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 PPO and private indemnity patients and from the administration of pharmaceuticals,
-- possible reductions in private and government reimbursement rates, -- changes in pharmaceutical practice patterns or reimbursement policies,
-- the Company's ability to maintain contracts with physician medical directors, and
-- legal compliance risks, including our continued compliance with complex government regulations and the ongoing review by the U.S. Attorney's Office and HHS Office of the Inspector General in Philadelphia and the recently announced subpoena from the U.S. Attorney's Office, Eastern District of New York.
This Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
DAVITA INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
Net operating
revenues $595,531 $513,282 $1,682,592 $1,462,972
Operating
expenses
and charges:
Patient care
costs 396,909 347,895 1,135,477 1,000,591
General and
administrative 50,600 39,920 138,931 119,290
Depreciation
and amortization 22,257 19,336 63,454 54,702
Provision for
uncollectible
accounts 10,520 9,214 29,964 26,231
Minority
interests
and equity
income, net 3,593 1,706 9,814 4,813
Total
operating
expenses
and charges 483,879 418,071 1,377,640 1,205,627
Operating income 111,652 95,211 304,952 257,345
Debt expense 13,741 16,111 36,635 55,062
Refinancing Charges 17,240 17,240
Other income 1,010 1,050 3,120 2,725
Income before
income taxes 98,921 62,910 271,437 187,768
Income tax
expense 38,535 24,850 105,785 74,775
Net income $60,386 $38,060 $165,652 $112,993
Earnings per share:
Basic $0.61 $0.39 $1.67 $1.21
Diluted $0.59 $0.36 $1.61 $1.07
Weighted
average
shares
for earnings
per share:
Basic 99,168,930 97,654,447 98,972,666 93,663,063
Diluted 102,889,781 114,749,043 103,193,267 117,231,159
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Nine months ended
September 30,
2004 2003
Cash flows from operating activities:
Net income $165,652 $112,993
Adjustments to reconcile net income
to cash provided by
operating activities:
Depreciation and amortization 63,454 54,702
Stock options, principally tax benefits 30,465 10,240
Deferred income taxes 11,831 12,271
Loss on divestitures 59 929
Non-cash debt expense 1,497 2,636
Equity investment income (1,531) (1,331)
Minority interests in income
of consolidated subsidiaries 11,345 6,144
Distributions to minority interests (6,966) (5,560)
Refinancing charges 17,240
Changes in operating assets
and liabilities, other than
from acquisitions and divestitures:
Accounts receivable (33,998) (9,978)
Medicare lab recoveries 10,707
Inventories 5,065 9,974
Other current assets (755) (4,189)
Other long-term assets 2,109 3,902
Accounts payable 7,773 (7,950)
Accrued compensation and benefits 22,409 12,959
Other current liabilities 43,360 25,832
Income taxes 136 13,312
Other long-term liabilities (8) 4,946
Net cash provided by
operating activities 332,604 259,072
Cash flows from investing activities:
Additions of property and equipment, net (89,872) (64,031)
Acquisitions and divestitures, net (245,284) (66,922)
Investments in and advances to
affiliates, net 4,862 3,516
Intangible assets (635) (540)
Net cash used in investing
activities (330,929) (127,977)
Cash flows from financing activities:
Borrowings 3,123,171 3,423,511
Payments on long-term debt (2,903,648) (3,299,064)
Debt redemption premium (8,405)
Deferred financing costs (3,934) (3,445)
Purchase of treasury stock (86,559) (83,037)
Stock option exercises 34,580 14,979
Net cash provided by financing
activities 163,610 44,539
Net increase in cash and cash equivalents 165,285 175,634
Cash and cash equivalents at
beginning of period 61,657 96,475
Cash and cash equivalents
at end of period $226,942 $272,109
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
September 30, December 31,
2004 2003
ASSETS
Cash and cash equivalents $226,942 $61,657
Accounts receivable,
less allowance of
$59,051 and $52,554 434,669 387,933
Medicare lab recoveries 8,293 19,000
Inventories 30,666 32,853
Other current assets 47,723 43,875
Deferred income taxes 78,581 59,740
Total current assets 826,874 605,058
Property and equipment, net 392,072 342,447
Amortizable intangibles, net 62,238 49,971
Investments in third-party
dialysis businesses 4,381 3,095
Other long-term assets 8,368 10,771
Goodwill 1,136,958 934,188
$2,430,891 $1,945,530
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $84,365 $ 71,868
Other liabilities 157,707 112,654
Accrued compensation and benefits 123,166 100,909
Current portion of long-term debt 53,277 50,557
Income taxes payable 27,138 26,832
Total current liabilities 445,653 362,820
Long-term debt 1,334,687 1,117,002
Other long-term liabilities 19,662 19,310
Deferred income taxes 133,613 106,240
Minority interests 44,940 33,287
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 541,736 539,575
Retained earnings 554,685 389,083
Treasury stock, at cost
(37,153,625 and 38,052,028 shares) (643,860) (620,998)
Accumulated comprehensive income
valuations (360) (924)
Total shareholders' equity 452,336 306,871
$2,430,891 $1,945,530
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Q3 2004 Q2 2004 Q3 2003 YTD 2004
Financial Results:
Net income excluding
Medicare lab recoveries
for prior years' services
and refinancing
charges in Q3-2003. $55.3 $52.4 $48.5 $160.6
Basic EPS $.56 $0.53 $.50 $1.62
EPS assuming
dilution $.54 $0.50 $.45 $1.56
Operating income,
excluding Medicare
lab recoveries $103.4 $96.5 $95.2 $296.7
Operating income
margin 17.6% 17.5% 18.5% 17.7%
Other comprehensive
income
Unrealized (loss)
gain on securities,
net of tax (benefit)
expense of
$(1.6), $3.6
and $0.4 $(2.5) $5.7 -- $0.6
Business Metrics:
Volume
Treatments 1,804,534 1,704,882 1,625,058 5,166,472
Number of
treatment days 79.0 78.0 79.0 234.5
Treatments
per day 22,842 21,857 20,570 22,032
Per day year
over year increase 11.0% 7.9% 7.1% 9.2%
Non-acquired growth 4.8% 4.5% 3.8% 4.5%
Revenue
Total operating revenue $596 $552 $513 $1,683
Less Medicare lab
recoveries for
prior years' services $8 $8
Revenue excluding
Medicare lab
recoveries $587 $552 $513 $1,674
Dialysis revenue
per treatment $313.60 $311.54 $306.20 $312.09
Per treatment
change from
previous quarter 0.7% 0.2% 1.6% --
Per treatment
change from prior year 2.4% 3.3% 5.3% 3.5%
Expenses
A. Patient care costs
Percent of revenue,
excluding Medicare
lab recoveries 67.6% 68.0% 67.8% 67.8%
Per treatment $219.95 $220.04 $214.08 $219.78
Per treatment change
from previous quarter -- 0.3% 0.6% --
Per treatment change
from previous year 2.7% 3.4% 5.3% 3.4%
B. General
& administrative
expenses
Percent of revenue,
excluding Medicare
lab recoveries 8.6% 8.3% 7.8% 8.3%
Per treatment $28.04 $26.82 $24.57 $26.89
Per treatment change
from previous quarter 4.5% 4.3% (8.9%) --
Per treatment change
from previous year 14.1% (0.5%) 0.6% 6.1%
C. Bad debt expense
as a percent of
current-period
revenue 1.8% 1.8% 1.8% 1.8%
D. Consolidated
effective
tax rate 39.0% 39.0% 39.5% 39.0%
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Q3 2004 Q2 2004 Q3 2003 YTD 2004
Cash Flow
Operating cash flow,
excluding Medicare
lab recoveries $115.9 $90.6 $99.6 $321.0
Operating cash flow,
excluding Medicare
lab recoveries
and tax benefit
from stock option
exercises $110.4 $80.0 $95.1 $290.5
Free cash flow,
excluding Medicare
lab recoveries
development
spending) $104.9 $75.7 $90.1 $289.3
Free cash flow,
excluding Medicare
lab recoveries and
tax benefit from
stock option
exercises
development spending) $99.5 $65.1 $85.6 $258.9
Capital expenditures:
Development $22.8 $15.8 $12.9 $57.8
Routine maintenance
/IT/other $11.0 $14.9 $9.5 $31.7
Acquisition
expenditures, net $213.5 $14.7 $19.9 $245.3
Accounts Receivable
Net receivables $435 $402 $357
DSO 68 68 65
Debt/Capital Structure
Total debt $1,388 $1,144 $1,323
Net debt, net of cash
balance $1,161 $943 $1,051
Leverage ratio -- last
quarter annualized
(see Note 1) 2.2x 2.0x 2.3x
Share repurchases
in millions) 3.1 3.1
Clinical (quarterly averages)
Dialysis adequacy -- %
of patients with
Kt/V > 1.2 94% 94% 93%
Anemia measure -- %
of patients
with HCT > 33 87% 86% 83%
Note 1. Leverage ratio is defined as net debt (total debt net of cash)
to operating income excluding Medicare lab recoveries,
depreciation, amortization, and minority interests. The
operating income reconciliation is provided below.
DAVITA INC.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Net income excluding Medicare lab recoveries and refinancing charges:
Q3 2004 Q2 2004 Q3 2003 YTD 2004
Net income $60,386 $52,401 $38,060 $165,652
Less: Medicare
lab recoveries
for prior
years' services (8,293) (8,293)
Add back:
Refinancing
charges 17,240
Related
income
tax expense 3,234 (6,818) 3,234
$55,327 $52,401 $48,482 $160,593
2. Operating income excluding Medicare lab recoveries, and excluding
depreciation, amortization, and minority interests (used to calculate
leverage ratio):
Q3 2004 Q2 2004 Q3 2003 YTD 2004
Operating income $111,652 $96,467 $95,211 $304,952
Less Medicare lab
recoveries for
prior years'
services (8,293) (8,293)
103,359 96,467 95,211 296,659
Add back:
Depreciation
and amortization 22,257 20,927 19,336 63,454
Minority interests
and equity
income, net 3,593 3,503 1,706 9,814
$129,209 $120,897 $116,253 $369,927
3. Operating cash flow, excluding Medicare lab recoveries related to
prior years' services, and tax benefit from stock option exercises:
Q3 2004 Q2 2004 YTD 2004 Q3 2003 Rolling 12-
month period
ended Q3 2004
Cash provided
by operating
activities $115,852 $90,636 $332,604 $99,645 $367,180
Less: Medicare
lab recoveries
related to
prior years' services (19,000) (19,000)
Related income tax expense 7,410 7,410
Operating cash
flow, excluding
Medicare lab
recoveries $115,852 $90,636 $321,014 $99,645 $355,590
Less: Tax
benefit
from stock
option exercises (5,417) (10,659) (30,465) (4,541) (40,405)
$110,435 $79,977 $290,549 $95,104 $315,185
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
4. 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.
Q3 2004 Q2 2004 YTD 2004 Q3 2003 Rolling 12-
month period
ended Q3 2004
Cash provided
by operating
activities $115,852 $90,636 $332,604 $99,645 $367,180
Less:
Expenditures
for routine
maintenance
and information
technology (10,956) (14,899) (31,671) (9,533) (47,033)
Free cash flow $104,896 $75,737 $300,933 $90,112 $320,147
Medicare lab
recoveries
related to
prior years'
services (19,000) (19,000)
Related
income
tax expense 7,410 7,410
Free cash
flow, excluding
Medicare
lab recoveries $104,896 $75,737 $289,343 $90,112 $308,557
Less: Tax
benefit from
stock option
exercises (5,417) (10,659) (30,465) (4,541) (40,405)
$99,479 $65,078 $258,878 $85,571 $ 268,152
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SOURCE: DaVita Inc.
CONTACT: LeAnne Zumwalt, Investor Relations, DaVita Inc.,
+1-310-536-2420
Web site: http://www.davita.com/
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