DaVita Inc.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020729/DAVITALOGO)
Net income for the year ended December 31, 2008 was $374.2 million, or $3.53 per share, as compared to $340.3 million, or $3.17 per share, for the same period of 2007, excluding after-tax gains from insurance settlements, after-tax gains on the sale of investment securities and the valuation gain on the Company's alliance and product supply agreement with Gambro Renal Products. Net income for the year ended December 31, 2007 including these items was $381.8 million, or $3.55 per share.
Financial and operating highlights include:
-- Cash Flow: For the year ended December 31, 2008 operating cash flow was $556 million and free cash flow was $451 million. For the three months ended December 31, 2008 operating cash flow was $184 million and free cash flow was $145 million.
-- Operating Income: Operating income for the three months ended December 31, 2008 was $212 million as compared to $195 million for 2007. Operating income for the year ended December 31, 2008 was $822 million, as compared to $800 million for the same period of 2007, excluding pre-tax gains from insurance settlements of $6.8 million and the pre-tax valuation gain on the Company's product supply agreement with Gambro Renal Products of $55 million. Operating income for the year ended December 31, 2007 including these items was $862 million.
-- Volume: Total treatments for the fourth quarter of 2008 were 4,172,468, or 52,484 treatments per day, representing a per day increase of 4.9% over the fourth quarter of 2007. Non-acquired treatment growth in the quarter was 4.0% over the prior year's fourth quarter.
-- Effective Tax Rate: The effective tax rate was 37.7% and 38.6% for the three and twelve months ended December 31, 2008, respectively. The 2008 effective tax rate included certain one time benefits. We are projecting our 2009 effective tax rate to be in a range of 39.5% to 40.5%.
-- Share Repurchases: During the fourth quarter of 2008, and for the year ended December 31, 2008, we repurchased a total of 1,327,528 and 4,788,881 shares, respectively, of our common stock for $63.0 million and $232.7 million, or an average price of $47.49 and $48.59 per share, respectively, pursuant to previously announced Board authorizations. We have not repurchased any additional shares of our common stock subsequent to December 31, 2008.
-- Center Activity: As of December 31, 2008, we operated or provided administrative services at 1,449 outpatient dialysis centers serving approximately 112,000 patients, of which 1,426 centers are consolidated in our financial statements. During the fourth quarter of 2008, we acquired 4 centers, opened 26 new centers, merged 3 centers, closed 3 centers, ceased operations at 1 joint venture in which we owned a minority interest, and provided management and administrative services to 1 additional center.
Outlook
Our operating income guidance for 2009 remains unchanged at a range of $820-$880 million. 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 results for the fourth quarter and year ended December 31, 2008 on February 11, 2009 at 9:30 a.m. 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, http://www.davita.com/, for the following 30 days.
This release contains forward-looking statements, including statements related to our 2009 operating results and our 2009 expected effective tax rate. Factors which could impact future results include the uncertainties associated with governmental regulations, general economic and other market conditions, competition, accounting estimates and the risk factors set forth in the Company's SEC filings, including its Form 10-Q for the quarter ended September 30, 2008. 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 commercial payor plans,
-- continued downward pressure on average realized payment rates from
commercial payors, which may result in the loss of revenue or
patients,
-- a reduction in the number of patients under higher-paying commercial
plans,
-- a reduction in government payment rates or the structure of payments
under the Medicare ESRD Program which result in lower reimbursement
for services we provide to Medicare patients,
-- changes in pharmaceutical or anemia management 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 compliance with the corporate
integrity agreement applicable to the dialysis centers acquired from
Gambro Healthcare and assumed in connection with such acquisition, and
-- the resolution of ongoing investigations by various federal and state
governmental agencies.
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 Year ended
December 31, December 31,
2008 2007 2008 2007
Net operating revenues $1,461,010 $1,354,869 $5,660,173 $5,264,151
Operating expenses and
charges:
Patient care costs 1,011,344 927,503 3,920,487 3,590,344
General and
administrative 133,659 134,987 508,240 491,236
Depreciation and
amortization 56,244 51,392 216,917 193,470
Provision for
uncollectible
accounts 36,796 34,996 146,229 136,682
Minority interests
and equity income,
net 11,367 10,728 46,535 45,485
Valuation gain on
alliance and product
supply agreement -- -- -- (55,275)
Total operating
expenses and
charges 1,249,410 1,159,606 4,838,408 4,401,942
Operating income 211,600 195,263 821,765 862,209
Debt expense (55,825) (62,651) (224,716) (257,147)
Other income 2,080 5,329 12,411 22,460
Income before income
taxes 157,855 137,941 609,460 627,522
Income tax expense 59,490 52,224 235,300 245,744
Net income $98,365 $85,717 $374,160 $381,778
Earnings per share:
Basic earnings per
share $0.95 $0.80 $3.56 $3.61
Diluted earnings per
share $0.94 $0.79 $3.53 $3.55
Weighted average
shares for earnings
per share:
Basic 103,897,138 106,885,553 105,149,448 105,893,052
Diluted 104,530,333 108,250,536 105,939,725 107,418,240
DAVITA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Year ended
December 31,
2008 2007
Cash flows from operating activities:
Net income $374,160 $381,778
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 216,917 193,470
Valuation gain on alliance and product supply
agreement -- (55,275)
Stock-based compensation expense 41,235 34,149
Tax benefits from stock award exercises 13,988 32,788
Excess tax benefits from stock award exercises (8,013) (25,541)
Deferred income taxes 94,912 18,601
Minority interests in income of consolidated
subsidiaries 47,331 46,702
Distributions to minority interests (57,770) (48,029)
Equity investment income (796) (1,217)
Loss (gain) on disposal of assets 15,216 (2,825)
Non-cash debt and non-cash rent charges 11,794 12,713
Changes in operating assets and liabilities,
other than from acquisitions and divestitures:
Accounts receivable (149,939) 15,911
Inventories (2,715) 11,271
Other receivables and other current assets (40,960) (61,049)
Other long-term assets (11,929) (14,528)
Accounts payable 57,422 (9,216)
Accrued compensation and benefits (31,602) 9,691
Other current liabilities 8,871 657
Income taxes (30,258) (12,779)
Other long-term liabilities 8,067 5,764
Net cash provided by operating activities 555,931 533,036
Cash flows from investing activities:
Additions of property and equipment, net (317,962) (272,212)
Acquisitions and purchases of other ownership
interests (126,368) (127,094)
Proceeds from asset sales 530 12,289
Purchase of investments available for sale (2,009) (52,085)
Purchase of investments held-to-maturity (21,048) (23,061)
Proceeds from sale of investments available for
sale 21,291 32,274
Proceeds from maturities of investments
held-to-maturity 21,355 4,795
Purchase of a non-controlling ownership interest
in an unconsolidated joint venture -- (17,550)
Contributions from minority owners 30,316 18,463
Purchase of intangible assets (65) (2,291)
Net cash used in investing activities (393,960) (426,472)
Cash flows from financing activities:
Borrowings 17,089,018 13,113,640
Payments on long-term debt (17,102,569) (13,160,942)
Deferred financing costs (130) (4,511)
Purchase of treasury stock (232,715) (6,350)
Excess tax benefits from stock award exercises 8,013 25,541
Stock award exercises and other share
issuances, net 40,247 62,902
Net cash (used in) provided by financing
activities (198,136) 30,280
Net (decrease) increase in cash and cash
equivalents (36,165) 136,844
Cash and cash equivalents at beginning of period 447,046 310,202
Cash and cash equivalents at end of period $410,881 $447,046
DAVITA INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share data)
December December
ASSETS 31, 2008 31, 2007
Cash and cash equivalents $410,881 $447,046
Short-term investments 35,532 40,278
Accounts receivable, less allowance of $211,222
and $195,953 1,075,457 927,949
Inventories 84,174 80,173
Other receivables 239,165 198,744
Other current assets 33,761 34,482
Income tax receivable 32,138 --
Deferred income taxes 217,196 247,578
Total current assets 2,128,304 1,976,250
Property and equipment, net 1,048,075 939,326
Amortizable intangibles, net 160,521 183,042
Investments in third-party dialysis businesses 19,274 19,446
Long-term investments 5,656 22,562
Other long-term assets 47,330 35,401
Goodwill 3,876,931 3,767,933
$7,286,091 $6,943,960
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $282,883 $225,461
Other liabilities 495,239 486,151
Accrued compensation and benefits 312,216 334,961
Current portion of long-term debt 72,725 23,431
Income taxes payable -- 16,492
Total current liabilities 1,163,063 1,086,496
Long-term debt 3,622,421 3,683,887
Other long-term liabilities 101,442 83,448
Alliance and product supply agreement, net 35,977 41,307
Deferred income taxes 244,884 166,055
Minority interests (fair value subject to
potential put obligations . $291,000 and
$330,000) 165,846 150,517
Commitments and contingencies
Shareholders' equity:
Preferred stock ($0.001 par value, 5,000,000
shares authorized; none issued)
Common stock ($0.001 par value, 450,000,000
shares authorized; 134,862,283 shares issued;
103,753,673 and 107,130,127 shares outstanding) 135 135
Additional paid-in capital 769,069 707,080
Retained earnings 1,889,450 1,515,290
Treasury stock, at cost (31,108,610 and
27,732,156 shares) (691,857) (487,744)
Accumulated other comprehensive loss (14,339) (2,511)
Total shareholders' equity 1,952,458 1,732,250
$7,286,091 $6,943,960
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(dollars in millions, except for per share and per treatment data)
Year
Three months ended ended
December September December December
31, 2008 30, 2008 31, 2007 31, 2008
1. Consolidated Financial Results:
Revenues $1,461 $1,447 $1,355 $5,660
Operating income $211.6 $207.9 $195.3 $821.8
Operating income margin 14.5% 14.4% 14.4% 14.5%
Net income $98.4 $93.9 $85.7 $374.2
Diluted earnings per share $0.94 $0.89 $0.79 $3.53
2. Consolidated Business Metrics:
Expenses
Patient care costs as a
percent of consolidated
revenue (3) 69.2% 69.5% 68.5% 69.3%
General and administrative
expenses as a percent of
consolidated revenue (3) 9.1% 8.9% 10.0% 9.0%
Bad debt expense as a percent
of consolidated revenue 2.5% 2.6% 2.6% 2.6%
Consolidated effective tax
rate 37.7% 39.8% 37.9% 38.6%
3. Segment Financial Results:
(dollar amounts rounded to
nearest million)
Dialysis and related lab
services
Revenues $1,389 $1,378 $1,310 $5,415
Direct operating expenses 1,148 1,142 1,079 4,472
Dialysis segment margin $241 $236 $231 $943
Other - Ancillary services
and strategic initiatives
Revenues $72 $69 $45 $245
Direct operating expenses 79 74 61 279
Ancillary segment loss $(7) $(5) $(16) $(34)
Total segment margin $234 $231 $215 $910
Reconciling items:
Stock-based compensation (11) (11) (9) (41)
Minority interests and
equity income, net (11) (13) (11) (47)
Consolidated operating
income $212 $208 $195 $822
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA -- continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Year
Three months ended ended
December September December December
31, 2008 30, 2008 31, 2007 31, 2008
4. Segment Business Metrics:
Dialysis and related lab
services:
Volume
Treatments 4,172,468 4,091,099 3,983,542 16,217,107
Number of treatment
days 79.5 79.0 79.6 313.9
Treatments per day 52,484 51,786 50,045 51,663
Per day year over
year increase 4.9% 5.1% 5.6% 5.6%
Non-acquired growth
year over year 4.0% 3.8% 4.6% 4.3%
Revenue
Dialysis and related
lab services
revenue per
treatment $332.61 $336.42 $328.11 $333.52
Per treatment
(decrease) increase
from previous
quarter (1.1%) 0.1% (1.6%) --
Per treatment
increase (decrease)
from previous year 1.4% 0.9% (1.9%) (0.2%)
Percent of
consolidated revenue 95.1% 95.2% 96.7% 95.7%
Expenses
Patient care costs
Percent of segment
revenue 68.6% 69.0% 67.9% 68.7%
Per treatment $228.29 $232.50 $223.10 $229.50
Per treatment (decrease)
increase from previous
quarter (1.8%) 0.7% (0.3%) --
Per treatment increase
(decrease) from previous
year 2.3% 3.9% (2.3%) 1.2%
General and administrative
expenses
Percent of segment
revenue 7.6% 7.3% 8.2% 7.4%
Per treatment $25.36 $24.68 $26.87 $24.56
Per treatment increase
from previous quarter 2.8% 0.2% 7.0% --
Per treatment (decrease)
from previous year (5.6%) (1.8%) (6.4%) (5.3%)
5. Cash Flow
Operating cash flow $184.2 $146.2 $223.3 $555.9
Operating cash flow, last
twelve months $555.9 $595.1 $533.0
Free cash flow(1) $144.8 $119.0 $184.6 $450.7
Free cash flow, last
twelve months(1) $450.7 $491.2 $421.4
Capital expenditures:
Development and
relocations $54.7 $51.6 $60.4 $212.7
Routine maintenance/IT
other $39.4 $27.2 $39.7 $105.2
Acquisition expenditures $25.2 $31.5 $45.3 $126.4
6. Accounts Receivable
Net receivables $1,075 $1,057 $928
DSO 70 70 66
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in millions, except for per share and per treatment data)
Year
Three months ended ended
December September December December
31, 2008 30, 2008 31, 2007 31, 2008
7. Debt and Capital Structure
Total debt(2) $3,691 $3,704 $3,703
Net debt, net of cash(2) $3,281 $3,316 $3,256
Leverage ratio (see
Note 1, calculation of
leverage ratio) 2.88x 2.98x 2.99x
Overall effective
weighted average interest
rate during the quarter 5.77% 5.66% 6.46%
Overall effective weighted
average interest rate at
end of the quarter 5.10% 6.09% 6.37%
Effective weighted average
interest rate on the
Senior Secured Credit
Facilities at end of the
quarter 3.48% 5.39% 5.90%
Economically fixed interest
rates as a percentage of
our total debt 69% 70% 74%
Share repurchases $63.0 $-- $-- $232.7
8. Clinical (quarterly
averages)
Dialysis adequacy -%
of patients with
Kt/V > 1.2 95% 94% 94%
Patients with Hb>=10 <=13
(90 Day Patients) 87% 87% --
Patients with arteriovenous
fistulas placed 62% 61% 59%
(1) These are non-GAAP financial measures. For a reconciliation of these
non-GAAP financial measures to their most comparable measure
calculated and presented in accordance with GAAP, see attached
reconciliation schedules.
(2) This is a non-GAAP financial measure. It excludes $3.8 million, the
unamortized balance of a debt premium associated with our senior notes
that is not actually outstanding debt principal.
(3) Consolidated percentages of revenue and per treatment amounts are
comprised of the dialysis and related lab services business, other
ancillary services and strategic initiatives, as well as stock-based
compensation expenses.
DAVITA INC.
SUPPLEMENTAL FINANCIAL DATA-continued
(unaudited)
(dollars in thousands)
Note 1: Calculation of the Leverage Ratio
Under the Company's current Senior Secured Credit Facilities (Credit Agreement), 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 for its term loan A and revolving line of credit 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. The calculation below is based on the last twelve months of "Consolidated EBITDA", pro forma for the routine acquisitions that occurred during the period. The Company's management believes the presentation of "Consolidated EBITDA" is useful to investors to enhance their understanding of the Company's leverage ratio under its Credit Agreement.
Year ended
December 31, 2008
Net income $374,160
Income taxes 235,300
Debt expense 224,716
Depreciation and amortization 216,917
Minority interests and equity income, net 46,535
Other 18,004
Stock-based compensation expense 41,235
"Consolidated EBITDA" $1,156,867
December 31, 2008
Total debt, excluding debt premium of $3.8 million
$3,691,389
Letters of credit issued 50,901
3,742,290
Less: cash and cash equivalents (410,881)
Consolidated net debt $3,331,409
Last twelve months "Consolidated EBITDA" $1,156,867
Leverage ratio 2.88x
In accordance with the Company's Credit Agreement, the Company's leverage ratio cannot exceed 4.50 to 1.0 as of December 31, 2008. At that date the Company's leverage ratio did not exceed 4.50 to 1.0.
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
1. Net income excluding gains from insurance settlements, gains on the sale of investment securities and the valuation gain on the alliance and product supply agreement (the Product Supply Agreement):
We believe that net income excluding gains from insurance settlements, gains on the sale of investment securities and the valuation gain on the Product Supply Agreement enhances a user's understanding of our normal net income for these periods by providing a measure that is more meaningful because it excludes insurance settlement gains related to insurance proceeds from Hurricane Katrina and from a fire that destroyed one of our centers, as well as non-recurring gains on the sale of investment securities and a non- recurring non-cash item that resulted from the termination of our purchase obligation for dialysis machines from Gambro Renal Products Inc. under the Product Supply Agreement, and accordingly is more comparable to current and prior periods and indicative of consistent net income. This measure is not a measure of financial performance under United States generally accepted accounting principles and should not be considered as an alternative to net income.
Three months ended Year ended
December September December December December
31, 30, 31, 31, 31,
2008 2008 2007 2008 2007
Net income $98,365 $93,910 $85,717 $374,160 $381,778
Less: Gains on
insurance
settlements -- -- -- -- (6,779)
Gains on the sale
of investment
securities -- -- -- -- (5,868)
Valuation gain -- -- -- -- (55,275)
Add: Related income
tax -- -- -- -- 26,422
$98,365 $93,910 $85,717 $374,160 340,278
2. Operating income excluding pre-tax gains from insurance settlements and the pre-tax valuation gain on the Product Supply Agreement:
We believe that operating income excluding gains from insurance settlements and the valuation gain on the Product Supply Agreement enhances a user's understanding of our normal operating income for these periods by providing a measure that is more meaningful because it excludes insurance settlements gains related to insurance proceeds from Hurricane Katrina and from a fire that destroyed one of our centers and a non-recurring non-cash item that resulted from the termination of our purchase obligation for dialysis machines from Gambro Renal Products Inc. under the Product Supply Agreement, and accordingly is more comparable to current and prior periods and indicative of consistent operating income items. This measure is not a measure of financial performance under United States generally accepted accounting principles and should not be considered as an alternative to operating income.
Three months ended Year ended
December September December December December
31, 30, 31, 31, 31,
2008 2008 2007 2008 2007
Operating income $211,600 $207,884 $195,263 $821,765 $862,209
Less: Gains on
insurance
settlements -- -- -- -- (6,779)
Valuation gain -- -- -- -- (55,275)
$211,600 $207,884 $195,263 $821,765 $800,155
RECONCILIATIONS FOR NON-GAAP MEASURES
(unaudited)
(dollars in thousands)
3. Free cash flow
Free cash flow represents net cash provided by operating activities less capital expenditures for routine maintenance and information technology. We believe free cash flow is a useful adjunct to cash flow from operating activities and other measurements under United States generally accepted accounting principles, since free cash flow 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 United States generally accepted accounting principles 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
December September December December
31, 30, 31, 31,
2008 2008 2007 2008
Cash provided by operating
activities $184,170 $146,227 $223,326 $555,931
Less: Expenditures for
routine maintenance and
information technology (39,412) (27,217) (38,688) (105,233)
Free cash flow $144,758 $119,010 $184,638 $450,698
Rolling 12-Month Period
December September December
31, 30, 31,
2008 2008 2007
Cash provided by operating activities $555,931 $595,087 $533,036
Less: Expenditures for routine
maintenance and information technology (105,233) (103,885) (111,663)
Free cash flow $450,698 $491,202 $421,373
First Call Analyst:
FCMN Contact: LeAnne.Zumwalt@davita.com
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PRN Photo Desk,
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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